MONEY, MARKETS, and DEMOCRACY POLITICALLY SKEWED FINANCIAL MARKETS and HOW TO FIX THEM GEORGE BRAGUES Money, Markets, and Democracy George Bragues Money, Markets, and Democracy Politically Skewed Financial Markets and How to Fix Them George Bragues University of Guelph-Humber Toronto, Ontario, Canada ISBN 978-1-137-56939-4 ISBN 978-1-137-56940-0 DOI 10.1057/978-1-137-56940-0 (eBook) Library of Congress Control Number: 2016955852 © The Editor(s) (if applicable) and The Author(s) 2017 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Cover illustration: © Mick Wiggins / Alamy Stock Photo Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Nature America Inc The registered company address is: New York Plaza, New York, NY 10004, U.S.A In Memory of Fernando Bragues (1935–1987) Deixastes este mundo tragicamente cedo, mas nunca fostes esquecido nos meus pensamentos e trabalhos For Natalina Nazare dos Santos For Maria Bragues ACKNOWLEDGMENTS I thank my colleagues at the University of Guelph-Humber for their support in this project I wish to recognize Clive Cockerton who, as an Associate Dean at Humber College many years ago, spearheaded the introduction of a course entitled “Money, Markets, and Democracy” which was the inspiration for this book Special thanks to my wife, Maria Bragues, for the great patience and understanding that she demonstrated throughout the entire writing process While significant portions of the introduction and a few passages elsewhere are adapted from previously published work of mine, this book is not a republication of earlier articles That said, I have drawn freely on the following: “Voters and Debt” Financial Post (September 1, 2011) “The Politics of Financial Markets: An Introductory Discussion”, Global and Business Economics Anthology, Vol 2, Issue (2010): 6–16 “Leverage and Liberal Democracy” in Lessons from the Financial Crisis, Edited by Robert W. Kolb, 1–8 Hoboken: NJ, John Wiley and Sons, 2010 “Freedom to Short”, Financial Post (April 19, 2006) “Futile Disclosure”, Financial Post (July 27, 2004) “Why Insider Trading Should be Legal”, Financial Post (February 13, 2002) “Free the Short Sellers”, Financial Post (November 19, 1999) vii CONTENTS Introduction: Why the Markets Must Be Politically Investigated Money Before Liberal Democracy 15 Money in Liberal Democracy 43 The Bond Market 75 The Stock Market 119 The Derivatives Markets 177 The Currency Markets 225 It’s All About the Money 275 Bibliography 285 Index 309 ix LIST ABS BIS CDO CDS CFTC ECB EU Fed IPO IMF ISDA LBO LIBOR MBS Nasdaq NYSE OTC SEC SIFMA WFE OF ABBREVIATIONS Asset-Backed Security Bank for International Settlements Collateralized Debt Obligation Credit default swaps US Commodity Futures Trading Commission European Central Bank European Union U.S. Federal Reserve System Initial Public Offering International Monetary Fund International Swaps and Derivatives Association Leveraged Buyout London Interbank Offered Rate Mortgage-Backed Security National Association of Securities Dealers Automated quotation New York Stock Exchange Over the Counter Securities and Exchange Commission Securities Industry and Financial Markets Association World Federation of Exchanges xi LIST Fig 1.1 Fig 2.1 Fig 2.2 Fig 2.3 Fig 2.4 Fig 3.1 Fig 3.2 Fig 3.3 Fig 3.4 Fig 3.5 Fig 4.1 Fig 4.2 Fig 4.3 Fig 4.4 Fig 4.5 Fig 5.1 Fig 5.2 Fig 5.3 Fig 5.4 Fig 5.5 Fig 6.1 OF FIGURES Percentage of Large Moves in S&P 500 Attributable to Political Events, 1980–2015 Silver content of Roman coins, 60–274 Quantity of notes issued by Banque Royale, 1718–1720 French assignats priced in gold livres, 1790–1796 France cost of living index, 1790–1796 Spanish imports of treasure versus price level, 1505–1650 Number of democracies, 1871–1913 US and UK retail prices, 1871–1913 US and UK real GDP growth, with and without gold The global expansion of democracy, 1945–2014 Bond market larger than equities, 2014 Yield spread, Greece ten-year bonds versus German ten-year bunds, 2008–2015 Selected yield spreads versus British consols, 1870–1913 Total US household debt as % of GDP, 1952–2014 G20 Advanced nations debt as % of GDP, 1880–2012 Dow Jones Industrial Average 1900–2015 Stock market capitalization as % of GDP, selected countries, 1988–2012 Number of US IPOs, 1980–2014 Ordinary investor performance versus Major Asset Classes, 1995–2014 S&P 500 Index and quantitative easing, 2008–2015 Usage frequency of “derivative security” in English Language Books, 1950–2000 33 37 40 40 48 58 58 60 66 78 83 85 96 116 126 132 161 164 175 179 xiii xiv LIST OF FIGURES Fig 6.2 OTC versus exchange-traded derivatives, notional amount outstanding, 2014 Fig 6.3 OTC derivatives market, notional amount outstanding, 1989–2014 Fig 6.4 Absolute value of monthly changes in Moody’s Baa Corporate Bond Yields, 1950–2015 Fig 6.5 Gold price of Greenbacks, 1862–1865 Fig 6.6 Gold dollar price of Graybacks, 1861–1865 Fig 6.7 Troy ounces of gold per 100 US dollars, 1971–2015 Fig 6.8 Crude oil prices, 1950–2015 Fig 6.9 Barrels of crude oil per troy ounce of gold, 1950–2015 Fig 6.10 Payoff profile of a covered call write strategy versus purchase of underlying asset Fig 6.11 CDS market by notional value, 2001–2014 Fig 7.1 Ratio of FX trading volume to global trade, 1989–2013 Fig 7.2 Euro/USD rate versus Big Mac Index, 2000–2015 Fig 7.3 US dollar/Chinese Yuan rate, 2005–2015 180 181 182 192 193 194 204 205 213 219 229 236 254 306 BIBLIOGRAPHY Taylor, John B 2009 The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong National Bureau of Economic Research Working Paper, No w14631 Taylor, John B July 2012 Monetary Policy and the Next Crisis The Wall Street Journal http://online.wsj.com/article/SB10001424052702304211804577 501190349244840.html The Telegraph 24 June 2011 Mario Draghi Appointed European Central Bank president http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8596645/Mario-Draghi-appointed-European-Central-Bank-president html Tett, Gillian 2009 Fool’s Gold How the Bold Dream of a Small Tribe at J.P. 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Pinto April 2012 Free Fall: How Government Policies Brought Down the Housing Market AEI Financial Services Outlook, http://www.aei.org/files/2012/04/25/-free-fall-how-government-policiesbrought-down-the-housing-market_154717638135.pdf BIBLIOGRAPHY 307 Weber, Ernst Juerg 2009 A Short History of Derivative Security Markets om Vinzenz Bronzin’s Option Pricing Models: Exposition and Appraisal, eds Wolfgang Hafner and Heinz Zimmerman, 431–466 Berlin: Springer Weidenmier, Marc D 2002 Turning Points in the US Civil War: Views from the Grayback Market Southern Economic Journal 68: 875–890 White, Andrew Dickson 1933 Fiat Inflation in France: How It Came, What It Brought, and How It Ended New York: D. Appleton Century Company White, Lawrence 2010 Markets: The Credit Rating Agencies Journal of Economic Perspectives 24(2): 211–226 ——— 1989 Competition and Currency: Essays in Free Banking New York: New York University Press Willard, Kristen L., Timothy W. Guinnane, and Harvey S. 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Applied Financial Economics 19(23): 1873–1884 Wolfram Demonstrations Project n.d Stock Market Returns by Party http:// demonstrations.wolfram.com/StockMarketReturnsByParty/ World Bank n.d World Databank http://databank.worldbank.org/ddp/home do?Step=12&id=4&CNO=2# World Bank n.d World DataBank: World Development Indicators http://databank.worldbank.org/data/Views/VariableSelection/SelectVariables aspx?source=World%20Development%20Indicators%20and%20Global%20 Development%20Finance World Bank n.d Data: GDP Growth (Annual) http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG World Bank June 2012 Global Economic Prospects http://siteresources.worldbank.org/INTGLBPROSPECTSAPRIL/Resources/box_6.html?iframe=true &width=580&height=550 World Federation of Exchanges n.d Statistics http://www.world-exchanges org/statistics World Federation of Exchanges 28 January 2014 2013 WFE Market Highlights http://www.world-exchanges.org/home/index.php/files/18/Studies%20 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http://www.institutionalinvestor.com/blogarticle/3367200/four-years-later-dodd-frank-and-derivatives/assetmanagement-regulation.html#.VkS7FnarTcs Zweig, Martin 1986 Martin Zweig’s Winning on Wall Street Grand Central Publishing INDEX A ABS See asset-backed securities (ABS) Aftalion, Florin, 39n55 AIG See American International Group (AIG) Alesina, Alberto, 242n25 Aliber, Robert Z., 281n3 Allen, Franklin, 187n12 Alpha, Wolfram, 147n39 Amaranth Advisors LLC, 223 American Civil War, 191 American International Group (AIG), 4, 221 Amihud, Yakov, 153 Angell, Norman, 24n23–4, 27n29, 32n41 Anglo-Saxon nations, 131 Apple Inc., 120 Aquinas See St Thomas Aquinas Aristotelian regime approach, 10 Aristotelian–Thomist teaching, 88 Aristotle, 9n5, 70n54, 87, 88, 137n25 Aslaksen, Silje, 199n28 Asongu, Simplice Anutechia, 152n53 asset-backed and mortgage bonds, 98 asset-backed securities (ABS), 98, 99 Atkeson, Andrew, 60n31 B Bagehot, Walter, 62, 62n37 Bainbridge, Stephen, 166n78 Balzli, Beat, 218n57 Bank, Steven A., 94n22 Banque Royale, 37, 38 Barber, Lionel, 271n76 Barker, Alex, 220n63 Battalio, Robert, 165n76 Bear Stearns, 3n2 Beaulieu, Emily, 93n21 Bédard, Jean, 142n29 Bell, Daniel A., 97, 97n28, 98 Ben-Shahar, Omri, 162, 162n71 Benston, George J., 160n66 Bentham, Jeremy, 90n17 Bentson, George, 160 Bernanke, Ben, 16n1, 17n4 Bernhard, William, 145, 145n36 Bhattacharya, Utpal, 169n81 Bialkowski, Jedrzej, 148n40 Note: Page number followed by n denotes Notes © The Author(s) 2017 G Bragues, Money, Markets, and Democracy, DOI 10.1057/978-1-137-56940-0 309 310 INDEX Big Mac Index, 235, 235n16 vs Euro/USD rate, 236 The Big Short (Lewis, Michael), 103 Bloch, Marc, 20n12 Bloomberg TV, 119 Blume, Marshall E., 139n26 The Bond Market: An Autopsy (Winkler, Max ), 112 bond markets politically informed yields, 81–5 pricing, 77–81 public debt, 109–17 trading, 77–81 US, 75, 77, 78 yields, 77–81 bond-rating agencies, 106, 115 bond-rating services, 108 bonds, 79 agencies, 108 investors, 110 junk, 95 raters, 107 trade, 77 traders, 76 vigilantes, 109–17 yields, Bosanquet, Charles, 55 Boulton, Matthew, 133 Boyce, Robert, 65n42 Boyd, Walter, 54, 55n21 Brazil’s BOVESPA Index, 128 Brenner, Gabrielle A., 190n15 Brenner, Reuven, 190n15 Bretton Woods gold edifice, 66 Britain’s bonds, 83 British East India Company, 129 Browne, Lynn E., 102n35 Bubble Act of 1720, 133 Buffet, Warren, 178n1 1810 Bullion Report, 56 Burns, Scott, 117n61 Bush, George W., 142–3, 146 Butler, Henry N., 130n11 C Caesar, 31 Calabria, Mark A., 107n47, 108n49 Calhoun, John, 67n47 Calhoun, John C., 11n6 Caplan, Bryan, 67n46 1974 Carnation Revolution in Portugal, 66 Carter, Jimmy, 146, 246 CBOT See Chicago Board of Trade (CBOT) CDOs See Collateralized Debt Obligations (CDOs) CDS See credit default swaps (CDS) Central Intelligence Agency, 197n23 CFTC See Commodity Futures Trading Commission (CFTC) Chicago Board of Trade (CBOT), 186 Chicago Mercantile Exchange (CME), 186 Choudhry, Taufiq, 154 Churchill, Winston, 261n48 Civil War, 57 classical gold standard, 57, 59, 60, 64, 117, 258, 261, 284 Clinton, Bill, 146 CME See Chicago Mercantile Exchange (CME) CNBC, 119 CNN Money, 119 cognitive psychology, 67n43 Cohen, Benjamin J., 29, 29n34, 30n35 Cohen, Gerald D., 242n25 1792 Coinage Act, 29 Collateralized Debt Obligations (CDOs), 210 COMEX See Commodity Exchange Inc (COMEX) Commodity Exchange Inc (COMEX), 183, 185 Commodity Futures Trading Commission (CFTC), 201 INDEX Community Reinvestment Act, 102 1862 Companies Act, 136 Confusione de Confusiones (de la Vega, Joseph), 209 consumer price index (CPI), 195 Cornell, Bradford, 149n43 corporate bonds, 81 Cosgrave, Jim, 190n17 Coulombe, Daniel, 142n29 coupon payments, 79 Cox, Gary, 93n21 CPI See consumer price index (CPI) Crain, W. Mark, 73n60 Cramer, Jim, 16 credit default swaps (CDS), 219 Credit Rating Agency Act, 108 Credit Suisse, 151n46 crude oil prices, 204 Culter, 150 currency markets American–European relationship in, 230 democracies, 240–7 Euro, 260–73 fixed vs floating, 257–60 FX market, 227–32 politicizing trade and Bretton Woods II, 248–57 relative interest rates, 232–40 state influence, 232–40 supply side of, 227 Cutler, David M., 148, 148n41 D Daouk, Hazem, 169n81 Dark Ages, 32 David, Camp, 64 Davies, Glynn, 23n18, 24n21, 25n26, 32n43, 34n47 debt securities, 79 De Gaulle, Charles, 64 de la Cruz, Felipe, 89, 89n16 311 de la Vega, Joseph, 209 1989 Delors report, 263 democracy, 276–8 and deficits, 73 enables debt, 86–92 global expansion of, 66 and gold, 64–74 magnifies debt, 92–8 sub-prime mortgage crisis, 98–109 Democratic Fetters (Eichengreen), 65 democratic regime, 9–11 derivative security, 179 derivatives markets characteristics and history, 207–10 credit default swaps, 219–23 debt obligations, 210–19 futures, 183–7 golden barometer, 191–6 moral animus against gambling, 187–91 oily politics, 196–206 OTC, 181 overview, 179–83 size of, 180 Dewey, Thomas, 148 DiSalvo, Daniel, 71n86, 71n87 Disney, 122 DJIA See Dow jones industrial average (DJIA) Dodd-Frank Act, 214 2010 Dodd-Frank Act, 108 Dooley, Michael P., 254n38 Dow jones industrial average (DJIA), 3, 126, 127, 147, 148, 154–6 Draghi, Mario, 239 Dreher, Axel, 243n27 Drexel Burnham Lambert, 95 Dutch East India Company, 122, 129 Dutch West India Company, 129 Dyck, Alexander, 166n77 312 INDEX E Easterbrook, Frank H., 131, 131n12 EC See European Commission (EC) ECB See European Central Bank (ECB) Economic freedom index, 152 Economic Policy Uncertainty, 5n3 Economist (magazine), 234 Edward III, 92 Eichengreen, Barry, 61, 61n32, 64, 206n41, 254n39, 262n52, 263n55 Ekelund, Robert B. Jr., 73n60 Ekins, Emily McCllintock, 107n47, 108n49 Enrich, David, 271n74 equity markets political foundations of, 132 “erratic” Marxist, EuroNext, 125 European Central Bank (ECB), 1, 2, 15, 82n7, 272n77 European Commission (EC), european government bonds, 84 European taxpayers, Euro Stoxx 600 index, 127 Evans, Jules, 218n58 F Fair, Ray C., 120n2 Fannie Mae, 100, 101, 103, 104 Fannie Mae and Freddie Mac, Federal and Drug Administration, 159 Federal Home Loan Mortgage Corporation (Freddie Mac), 75 Federal Housing Administration (FHA), 100 The Federalist Papers, 35 Federal National Mortgage Association (Fannie Mae), 75 Federal Open Market Committee (FOMC), 52 1913 Federal Reserve act, 50 Federal Reserve Board, 52n15 Feldstein, Martin, 252n35, 267n65 Ferguson, Niall, 70n51 Fernandez, Pablo, 124n5 FHA See Federal Housing Administration (FHA) financial claims, 30 Financial Crisis Inquiry Commission, 190n16, 221n66, 222n68 Financial Industry Regulatory Authority (FINRA), 80n6 financial instruments, financial markets America’s, 12 demand for, 281 Euro, 267 functioning of, 17 government services in, 281 governments regulation, 13 optimal policies in, 278 parlance of, 13 political analysis of, 7, 12 political skewing of, 12 vs politics, 13 terrain of, 278 and world’s central banks, 16 The Financial Times, Findlay, Scott, 158n63 FINRA See Financial Industry Regulatory Authority (FINRA) Fischel, Daniel R., 131, 131n12 Fischer, Stanley, 52n19 Fisher, Irving, 59 Fitch, 106, 108 Folkerts-Landau, David, 254n38 FOMC See Federal Open Market Committee (FOMC) foreign exchange (FX) market, 62, 227–32 vs democracies, 241–7 foreign exchange (FX) rates, INDEX Forelle, Charless, 271n74 Fort Knox, 63 fortuna, 215 Fox Business, 119 Francis, Joseph Hume, 50n11 Franklin, Benjamin, 97 Freddie Mac, 104 Freeman, John R., 245n30 French–British bond, 83 Frey, Bruno S., 84n9 Frieden, Jeffrey, 243n26 Frieden, Jeffry, 57n26 Friedman, Milton, 61n35 Friedman, Thomas, 76n4 FTSE 100, 127 G G20, 116, 117 Galbraith, John Kenneth, 34n46, 34n48, 39n54 Gale, Douglas, 187n12 Garber, Peter, 254n38 Gavin, Francis J., 64n40 GDP, 1, 8–9, 59, 60, 86, 96, 113, 115, 116, 132, 195, 200, 230, 253n37, 256, 267, 283 Geisst, Charles R., 129n10 Germany’s ten-year bonds, 82, 83 Gintschel, Andreas, 158n62 Gladstone, William, 133 Glorious Revolution, 129 Goel, Deepak, 120n3 gold classical gold system, 62 crude oil per troy ounce of, 205 and democracy, 64–74 exchange system, 62 fixed prices for, 47 immediate resumption of, 56 lever, 279–84 livres, French assignats price, 40 313 post-World War II standards, 47 price of greenbacks, 192 quantity of, 45 rushes in California and Australia, 47 standard, 43–5, 48 troy ounces of, 194 Golden Fetters (Eichengreen), 65 Google Finance, 119 Gordon growth model, 140 Gore, Al, 142, 143 Gottschalka, Katrin, 148n40 Gouge, William, 35 government bond, 84 government bonds, 81, 82, 115 Graeber, David, 20n9, 20n11 Gray, C. Boyden, 172n86 Great Depression, 61, 62, 64 great moderation, 17 Greek bonds, 115 Greek economy, Greek–German bond, 82 Greek ten-year bonds, 82, 83 Green, Richard K., 100n30, 100n31 Greenspan, Alan, 254n41 Greenspan–Bernanke Fed, 239 GSE (Government Sponsored Enterprises) Act, 102 Guigliano, Ferdinando, 3n2 Guinnane, Timothy W., 191n18 Gulf War, 153 Gutenburg’s invention, 50 Gyourko, Joseph, 142, 142n28 H Habib, Maurizio Michael, 254n40 Haggerty, James R., 101n33 Hall, John, 184n6 Hamilton, James D., 202, 202n37, 203, 203n38 Hammes, David, 205n40 314 INDEX Hang Seng Index, 127–8 Harl, Kenneth W., 32n42 Harris, Ron, 133n14 Hayek, Friedrich A., 20n7 Hays, Jude C., 245n30 Herodotus, 25n25 Herotodus, 30n36 Higgs, Robert, 154 Hinds, Manuel, 62n36 Home Owner’s Loan Corporation, 100 Homer, Sidney, 84n10, 92n19 Hood, Matthew, 143n31 Hume, David, 30, 30n37, 41, 41n57, 48, 48n8, 49, 215, 215n54 Hussein, Saddam, 153 Japanese stock market wager, 210 Japan Exchange Group, 125 Jarrell, Greg, 160 Jensen, Michael C., 94n23 Jiménez-Rodríguez, Rebeca, 200 John D. Rockefeller’s Standard Oil, 138 John Law’s Mississippi Company, 132 Johnson, Simon, 103n37 Joint Stock Companies Act, 133 Joint Stock Companies Act of 1856, 136 Jones, Huw, 116n59 Jones, Samuel Kyle, 152n50 Jorion, 159n64 junk bonds, 95 I ICE See Intercontinental Exchange (ICE) Iliev, Peter, 161n69 IMF See International Monetary Fund (IMF) Initial Public Offering (IPO), 125, 161 Intercontinental Exchange (ICE), 200 International Monetary Fund (IMF), International Swaps and Derivatives Association (ISDA), 180–1 IPO See Initial Public Offering (IPO) Iran–Iraq War, 197 Irwin, Scott H., 202n36 ISDA See International Swaps and Derivatives Association (ISDA) K Kaplan, Steven N., 95n24 Karabegovic, Amela, 152n51 Kehoe, Patrick J., 60n31 Kemmerer, Edwin Walter, 49n9 Kerry, John, 143 Keynesian approach, 51 Keynes, John Maynard, 46n4 Kindleberger, Charles, 281n3 Klassen, Thomas R., 190n17 Kleim, Donald B., 139n26 Klein, Daniel B., 72n59 Knapp, Georg Friedrich, 27, 28, 29n30, 29n31 Knight, Brian, 142n30 Kohl, Helmut, 264n56 Kohl, Wilfrid L., 199n30 Kolb, Robert W., 97n27, 107n46, 222n67 Kotlikoff, Laurence J., 117n61 Krugman, Paul, 252n34 Kucher, Marcel, 84n9 Kuttner, Kenneth N., 16n1 Kwak, James, 103n37 J Jacque, Laurent L., 223n63 Jain, Archana, 165n75 Jain, Pankaj K., 165n75 INDEX L Laidler, David, 56n24 Lampert, Matthew, 120n3 Langhor, Herwig, 107n48 Langhor, Patricia, 107n48 Law, John, 36, 36n52 Lawson, Robert A., 152n52 Laybourd, Keith, 134n17 LBOs See leveraged buyouts (LBOs) Leblang, David, 145, 145n36 Leblang, David A., 245n31 Leeson, Nick, 210, 223 Legal Tender Act, 191 Lester, Richard A., 34n45 leveraged buyouts (LBOs), 94, 95 Lewis, Michael, 103n38 liberal democracy, 13, 16, 18, 39, 56, 70, 90, 92, 98, 111, 114, 121, 172, 190 LIFFE See London International Financial Futures Exchange (LIFFE) Li, Kai, 151n49 LinkedIn, 120 Liu, Zhu, 159n64 living index, France cost of, 40 Locke, John, 25n27 Lombardi, Marco J., 201n33 Lombardo, Davide, 151n48 Lombard Street: A Description of the Money Market (Bagehot, Walter), 62 London International Financial Futures Exchange (LIFFE), 187 London Metals Exchange, 187 London Stock Exchange (LSE), 125, 127 Lowe, Robert, 134, 135n19 Lowe’s Joint Stock Companies Act, 136 LSE See London Stock Exchange (LSE) 315 M Macdonald, James, 92n20, 111n53 Machan, Tibor, 136n20 Machiavelli, Niccolo, 215n52 Mackay, Charles, 186n10 Magna Carta, 136 MarketWatch, 119 Markham, Jerry W., 194n21 Markov, Stanimir, 158n62 Mark, W., 73n60 Marsh, David, 261n47 Martin Zweig’s Winning on Wall Street (Zweig, Martin), 172n87 Masters, Michael W., 201n34 Mathew, Prem G., 158n63 Matt, 31n38 Mauss, Marcel, 20n10 MBS See mortgage-backed securities (MBS) McEneaney, James, 102n35 McGroarty, Patrick, 29n33 McInish, Thomas H., 165n75 McKenzie, Michael, 165n75 Mehlum, Halvor, 198n26 Mehran, Hamid, 165n76 Menger, Carl, 20, 20n8 Merkel, Angela, 2, 2n1 Merrin, Robert P., 202n36 Mettler, Suzanne, 70n53 Micklethwait, John, 133n15, 136n21 Milken, Michael, 95 Miller, William G., 146, 205–6 Mill, John Stuart, 135, 136, 163, 163n72 Minerva moment, 17 Mitchie, Ranald C., 129n9 Mitterrand, 265 Moene, Karl, 198n26 monetary policy, 16 Monet, Claude, 167 316 INDEX money, artificial method of managing, 49–53 artificial regulation of, 54 deflation, 59 demand for, 61 de-territorialization of, 29 emergence of, 19 feature of, 28 gold, democracy’s journey away from, 54–64 and government, 26–33 identity of, 30 Lydian state’s monopolization of, 30 natural approach to, 44–9 origins and nature of, 18–26 paper money troubles, 33–41 politicization of, 18 quantity of, 32, 44 role of, 24 superabundance of, 55 supply, 48 tandard economic narrative of, 21 value of, 43, 44 money supply, 45n3 Monnet, Jean, 262 Moody’s, 106, 108 Moody’s Baa Corporate Bond Yields, 182 Moourlon-Druol, Emmanuel, 263n53 Morgan, E. Victor, 24n19–20 Morgan, Henry Louis, 21n13 Morgan, J.P., 137, 154 Morse, Adair, 166n77 mortgage-backed securities (MBS), 98, 99, 105 mortgage bonds, 98 Mosley, Layna, 152n54 Mulhearn, Chris, 262n50 Mundell, Robert A., 260n45 municipal bonds, 81 Munnell, Alicia H., 102n35 N Nasiripour, Shahien, 201n32 National Association of Securities Dealers Automated Quotation, 119 Neal, Larry, 37n53 Newton, Isaac, 132 New York Federal Reserve, 63 New York Mercantile Exchange (NYMEX), 183, 223 New York Stock Exchange (NYSE), 3, 125, 129, 137, 138 The New York Times, 4, 148 Nikkei 225, 127 9/11 terrorist attacks, 150 Nixon, Richard, 146 Nofsinger, John R., 143, 143n31 non-defense GDP, Nordhaus, William, 52n18, 242n24 NYMEX See New York Mercantile Exchange (NYMEX) NYSE See New York Stock Exchange (NYSE) O Obama, Barack, 146 OECD See Organization for Economic Co-operation and Development (OECD) On Liberty (Mill, John Stuart), 163 On the Principles of Political Economy and Taxation (Ricardo), 56 OPEC See Organization of Petroleum Exporting Countries (OPEC) ordinary investor performance vs major asset classes, 164 Organization for Economic Co-operation and Development (OECD), 144, 268 Organization of Petroleum Exporting Countries (OPEC), 199, 199n29 OTC See over-the-counter (OTC) INDEX OTC vs exchange-traded derivatives, 180 over-the-counter (OTC), 77 P Pagano, Marco, 151n47, 151n48 Pakko, Michael, 237n18 Paquette, Suzanne M., 142n29 Parker, Wayne D., 120n3 1844 Peel Act, 57, 62 Perotti, Enrico C., 144n33 Peterson, Christopher L., 100n31 Philippe, 159n64 Philippon, Thomas, 9n4 Pinto, Edward J., 103n36, 104n40 Plato, 96 Policy Uncertainty Project, political scandals, 15 politics, The Politics (Aristotle), 87, 87n13, 209 Pollard, Patricia, 237n18 Popper, Karl, 159 post-Civil War, 56, 59 Poterba, James M., 148, 148n41 PPP theorem See purchasing power parity (PPP) theorem Prechter, Robert R. Jr., 120n3 pre-World War I, 59, 64 provincial bond, 81 publicani, 128 Pukthuanthong, Kuntara, 160n67 Purcell, Jim R., 172n86 purchasing power parity (PPP) theorem, 233–5 Q quantitative easing (QE), 175 R Rawls, John, 26n28 317 Reinhart, Carmen M., 113n55, 113n56, 114 return calculations, 120n1 Ricardo, David, 56n23 Richardson, Lewis Frey, 85, 85n12 Rigobon, Roberto, 174n90 Ritter, Jay, 161n70 Robinson, Duncan, 3n2 Rockoff, Hugh, 47 Rogoff, Kenneth S., 113n55, 113n56, 114 Roman coins, silver content, 33 Roosevelt, Franklin D., 156n59, 193 Roover, Raymond de, 226n3 Rosen, Harvey S., 191n18 Ross, Michael, 198n25 Ross-Thomas, Emma, 115n58 Rothbard, Murray, 24n22, 29n32, 62n38, 204n39, 250n32 Roubini, Nouriel, 242n25 Roychoudhury, Saurav, 152n52 Ruffoni, Serena, 220n64 Russell, Bertrand, 88 S Sachs, Jeffrey D., 197n24 Sack, Brian, 174n90 Saiegh, Sebastian, 93n21 St Thomas Aquinas, 87 Samuelson, Paul, 121 Sanchez, Marcelo, 200 Sanders, Dwight R., 202n36 Sao Paulo exchange, 128 Sarbanes-Oxley, 161 Sauga, Michael, 264n57 Schneider, Carl E., 162, 162n71 Schultz, Paul, 165n76 Schwartz, Anna J., 61n35 seasoned equity offering (SEO), 125 SEC See Securities and Exchange Commission (SEC) 318 INDEX secondary market, 78 Securities and Exchange Act, 157 Securities and Exchange Commission (SEC), 107, 157 vs Texas Gulf Sulphur Company, 167 Self-Help (Smiles, Samuel), 98 Selgin, George, 31n39 SEO See seasoned equity offering (SEO) Shanghai Stock Exchange, 125 Sheffield, Hazel, 272n78 Sherfinski, David, 281n5 Sherman Anti-Trust Act, 138 Shi, Charles, 159n64, 160n67 Shiller, Robert, 71n85 short-term bonds, 80 Siegel, Jeremy, 148n42, 174n89 silver content, Roman coins, 33 Simon, Carol J., 160 Simons, Stefan, 264n57 Sinai, Todd, 142, 142n28 Sinclair, Timothy J., 106n44 Singer, David Andrew, 152n54 Smiles, Samuel, 98, 98n29 Smimou, Kamal, 152n51 Smith, Adam, 19n5, 22, 23n14, 114, 114n57, 134, 134n18 Smith, B. Mark, 128n7, 129n8 Smith, Vera, 50n10 Somin, Ilya, 67n44 Southern European bond market, 115 South Sea Bubble, 132 S&P, 106, 108 Spence, Donald, 186n11 S&P 500 index See Standard & Poor’s 500 (S&P 500) index Standard & Poor’s 500 (S&P 500) index, 4, 5, 5n3, 148, 150 state monopoly, 27 The State Theory of Money, 27 Steen, Michael, 271n76 Steil, Benn, 62n36 Stein, Ernesto, 243n26 Stern, Charlotta, 72n59 Stevis, Matina, 270n73 Stigler, George J., 160n65 Stix, Helmut, 245n30 stock indices, stock market American stock market history, 155 bear markets, 154–9, 172–6 democracy’s interactions with, 121 democratization of, 139 economic goals, 144 GDP, 132 overrated regulation, 159–72 in political arena, 120 political dependence of, 130 political dimension of, 128 political pre-conditions of, 128–38 primer of, 126 quantitative easing (QE), 175 reality of, 156 regulations of, 155 stock prices, political drivers of, 138–54 US, 127 Strange, Susan, 76n3 Stroup, Michael D., 152n50 Stulz, Rene M., 221n65 Summa Theologica (St Thomas Aquinas), 87, 87n14 Summers, Lawrence H., 148, 148n41 Sylla, Richard, 84n10, 92n19 Symposium (Xenophon), 69n48 T Talley, Ian, 270n73 TARP See Troubled Asset Relief Program (TARP) tax consumer vs taxpayer, 71, 72, 111 taxpayers, 10, 11, 68–72, 86, 111, 123, 256, 264, 268, 270, 272, 274, 282 INDEX Taylor, Alan M., 237n19 Taylor, John B., 256n42, 256n43 Tett, Gillian, 219n59 TheStreet.Com, 119 The Wall Street Journal, 170 Tocqueville, Alexis de, 109n52, 215, 215n53, 277 Tootell, Geoffrey M.B., 102n35 Torvik, Ragnar, 198n26 Tratado Unico de Intereses (de la Cruz, Felipe), 89 treasure vs price level, Spanish imports of, 48 Trichet, Jean-Claude, 241 Troubled Asset Relief Program (TARP), Truman, Harry, 148 Tsipras, Alexis, Tsui, Kevin K., 199n27 U underlying asset, call write strategy vs purchase, 213 US dollar/Chinese yuan rate, 231 US Fed, 15, 173 US government bond, 86 US stock market capitalization, 77 US Treasury bond, 78, 86 V value-to-mass ratio, 25 Vane, Howard R., 262n50 van Oijen, Pieter, 144n33 Vansittart, Nicholas, 55 Varoufakis, Yanis, Vaubel, Roland, 243n27 Vergin, Roger C., 173n88 Vietnam War, 64 Viswanatha, Aruna, 171n83 319 Vocker, Paul, 146 Volpin, Paolo, 151n47 von Mises, Ludwig, 22n15, 32n40 W Wachter, Susan M., 100n30, 100n31 Walker, Thomas, 160n67 Wallison, Peter J., 103n36, 104n39, 104n40, 212n51 Wall Street, 156, 177 Wall Street, 129 The Wall Street Journal, Walmart, 120 Warner, Andrew M., 197n24 Watergate, 15 Watt, James, 133 The Wealth of Nations (Smith, Adam), 134, 249 Weber, Ernst Juerg, 186n7, 186n8 Weber, Max, 97 Weidenmier, Marc D., 192n20 Western democracies, 43, 52, 64, 270 Westphalian model, 29 White, Adam K., 201n34 White, Lawrence, 106n45 Wiegrefe, Klaus, 264n57 Willard, Kristen L., 191n18 Winkler, Max, 112, 112n54 Winning on Wall Street, 172 Wisniewski, Tomasz Piotr, 148n40 Wohl, Avi, 153 Woods, Bretton, 182, 193 Wooldridge, Adrian, 133n16, 136n21 World Almanac, 148 World Federation of Exchanges, 77n5 World Gold Council, 61n33 World War I, 59, 60, 62, 63, 65, 85 World War II, 9, 44n1, 51, 63, 69, 97, 100 320 INDEX X Xenophon, Symposium in, 69n48 Xetra DAX, 127 Y Yahoo Finance, 119 Z zero-coupon bonds, 79 Zingales, Luigi, 166n77 Zubrod, Luke, 183n5 Zweig, Martin, 172n87 .. .Money, Markets, and Democracy George Bragues Money, Markets, and Democracy Politically Skewed Financial Markets and How to Fix Them George Bragues University of Guelph-Humber Toronto, Ontario,... exploring how governments regulate financial markets, how they deal with money, and how they oversee the international financial framework This is not to mention the discussions of how Wall Street... addition to efficient causes how the political generates financial phenomena and vice versa—we shall have to consider final causes That means exploring the purposes of markets in addition to how these