ndex iassets.cambridge.org/97811070/27206/index/9781107027206_index… · amlak finance, 272 amlf...

369

Index

ABC (Agricultural Bank of China), 220 ABCP (asset- backed commercial paper), 67 Abe, Shinzo, 327 Abu Dhabi Commercial Bank, 269 Abu Dhabi International Petroleum

Investment Company (IPIC), 268–69 Abu Dhabi Investment Authority

(ADIA), 270 , 273 Abu Dhabi Investment Council, 268– 69 Acharya, Viral, 40 , 240 ACORN (Association of Community Groups

for Reform Now), 49 Adenauer, Isabell, 283 ADIA (Abu Dhabi Investment

Authority), 270 , 273 adjustable- rate mortgages (ARMs)

compared to 30- year fi xed, 57 hybrid, 36 , 43–44 low interest rates, 43–44 , 57

Aft er Hegemony (Keohane), 298 Agricultural Bank of China (ABC), 220 Agricultural Development Bank of

China, 220 AIB. See Allied Irish Banks AIG (American International Group)

bonus issues, 16 , 91–92 collapse and bailout, 2–3 , 68 credit default swaps, 40 , 68 guaranteeing mortgage- backed

securities, 38 Akin, Cigdem, 204 Alfa- bank, 195 Algeria, 264 Allianz, 168 Allied Irish Banks (AIB)

deposit and debt guarantees, 131

fear and fl ight of foreign investors, 132 real estate bubble, 130

Al- Maktoum, Muhammad bin Rashid, 271 , 275

Al- Nahayan, Khalifa bin Zayed, 276–77 Alp, Harun, 258 Alt- A mortgages, 43 , 59 Altman, Roger, 5 American International Group. See AIG American Opportunity Tax Credit, 90 American Recovery and Reinvestment Act

(ARRA), 64 , 72–73 , 78–80 Ameriquest, 38 Amlak Finance, 272 AMLF (Asset- Backed Commercial Paper

Money Market Mutual Fund Liquidity Facility), 67

amortized mortgages, 34 Andrews, Edmund, 35 Anglo Irish Bank, 131 Angola, 290 Arab Banking Corporation, 269 Argentina, 324 Armenia, 200–01 ARMs. See adjustable- rate mortgages ARRA (American Recovery and Reinvestment

Act), 64 , 72–73 , 78–80 Artus, Jacques, 59 Aslund, Anders, 182–83 asset- backed commercial paper (ABCP), 67 Asset- Backed Commercial Paper Money

Market Mutual Fund Liquidity Facility (AMLF), 67

Association of Community Groups for Reform Now (ACORN), 49

Australia, 13–14

www.cambridge.org© in this web service Cambridge University Press

Cambridge University Press978-1-107-02720-6 - Global Financial Contagion: Building a Resilient World Economyafter the Subprime CrisisShalendra D. SharmaIndexMore information

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Index370

Austria barriers to entrepreneurship, 202 competitiveness of economy, 120–21 current accounts (2007–2010), 103 downgrade of debt rating, 164 EFSF implementation, 159 exposure Eastern European economies, 191 national debt (2010), 107 , 142 stress- testing of banks, 151

Autor, David, 301

bad bank/good bank solution China, 206 Ireland, 131 United States, 73 , 84–85

Bahrain currency pegging, 277 , 278 real GDP (2007–2010), 262 trade openness, 264

bailouts. See public interventions Baldwin, Richard, 321 balloon payment loans, 36 Banco Bilbao Vizcaya Argentaria SA

(BBVA), 152 , 174 Banco Santander SA

bad assets, 174 ECB interventions, 153 sale of Bradford and Bingley to, 102–05 weakness of, 152

Bangladesh, 223 , 281 , 282 Bank for International Settlements

(BIS), 150 , 305 bank funding markets

credit panic, 3 dollar crunch, 23 seize up, 5

Bank of America risk of bankruptcy, 75 sale of Merrill Lynch to, 1–2 , 3–4 stress testing, 96

Bank of Baroda, 238 Bank of China (BOC), 220 Bank of Communications, 220 Bank of England

bond- buying plan, 327 reduction of interest rates, 67–68

Bank of India, 238 Bank of Ireland

deposit and debt guarantees, 131 fear and fl ight of foreign investors, 132 real estate bubble, 130

Bank of Japan, 256 , 258 , 327–28 , 329

Bank of Korea, 251 , 257 , 258 Bank of Moscow, 195 Bank of Spain, 171–72 , 174 banking union road map for EU, 153–55 Barclays, 38 , 115 Barroso, Jos é Manuel, 122 , 153–54 ,

289 , 326–27 Basel Committee on Banking Supervision

(BCBS), 305–06 BBVA (Banco Bilbao Vizcaya Argentaria

SA), 152 , 174 BCBS (Basel Committee on Banking

Supervision), 305–06 Bear Stearns

fund collapse, 60 purchase of mortgage- backed securities, 38 sale of to JPMorgan Chase, 3–4 , 68

Belarus currency swap agreement with China, 324 emergency loans to, 192–93 pegged exchange rates, 190

Belgium banking exposure to Irish economy, 136 barriers to entrepreneurship, 202 current accounts (2007–2010), 103 Dexia bailout, 103–04 Fortis collapse and nationalization, 103–04 national debt (2010), 107 , 142

Berlusconi, Silvio, 102 , 162 Bernanke, Ben

defense of quantitative easing, 318 , 328– 29 eff orts to avert economic depression, 63 global savings glut, 10–11 , 205–06 on nationalization of fi nancial

institutions, 75 on not bailing out Lehman Brothers, 1 on stagnant economy, 315

BFA Bankia (BKIA), 173 BIS (Bank for International

Settlements), 150 , 305 black swan events (Taleb), 6 , 37 Th e Black Swan (Taleb), 6 , 37 Blinder, Alan, 65 Blue Bond proposal, 185 BNP Paribas

approval of voluntary bond- exchange, 168 ECB interventions, 153 fears of French downgrade, 163 pre- crisis eagerness to lend, 114–15 takeover of Fortis, 104 weakness of, 152

BOC (Bank of China), 220






Index 371

Boehner, John, 91 Bord, Vitaly M., 52–53 Bordo, Michael, 18 Botswana, 282–83 Bowles, Erskine, 302 Bradford and Bingley, 104 Brazil

curbs against currency appreciation, 318–19

investment in Treasury securities, 205 poverty reduction, 285

Bremmer, Ian on Chinese guanxi (network capitalism),

28–29 , 298–99 on Chinese stimulus program, 221 on lack of global leadership, 300 on state capitalism, 27

Bretton Woods II (new global fi nancial architecture), 10 , 29–31

BRIC countries (Brazil, Russia, India, China). See names of specifi c countries

bridge loans, 44 Brown, Gordon, 102 , 118–19 , 306 budget defi cits

China, 207 EMU encouragement of, 180 European Fiscal Compact, 145–46 European national debt versus, 143 Eurozone countries, 112 Germany, 187 Greece, 110 , 124 , 125 , 301 India, 245 Ireland, 134 Spain, 172 United States (2009), 6 , 80 United States (2009–2018), 97 United States (2012), 101 United States, as percentage of GDP, 8 United States, budget cooking, 89 United States, Obama administration

projections, 88–89 United States, stimulus package and, 83

budget surplus, US, 32 Buff ett, Warren, 53 Bulgaria, 190 Burkina Faso, 283 Bush administration

Emergency Economic Stabilization Act, 66 Fed purchase of short- term debts, 66–67 home ownership, 35 pressure against Chinese currency

manipulation, 227

provisions of liquidity to fi nancial institutions, 68–69

reduction of interest rates, 67 response to crisis, 66–71 , 102 TARP, 4 , 69 tax cuts, 90

Bussiere, Matthieu, 320

CACs (collective action clauses), 147 , 168 , 169 Cambodia

economic contraction, 282 export dependency, 223 , 281 , 282

campaign contributions from Fannie Mae and Freddie Mac, 48 , 50 from mortgage industry, 48 from Wall Street, 15–16

Campbell, Doug, 44 Canada

banking system, 106 GDP growth (2006–2009), 280 home fi nancing system, 13–14 US trade imbalance with, 226

Cannato, Vincent, 35 , 48 Capital Purchase Program, 68 , 69 Cassidy, John, 7 CBO. See Congressional Budget Offi ce CBR (Central Bank of Russia), 199 CCB (China Construction Bank), 206 , 220 CDOs (collateralized debt obligations), 19 ,

39 , 45 , 238 CDS. See credit default swaps CEBS (Committee of European Banking

Supervisors), 151 Central Bank of Iceland, 118 Central Bank of Russia (CBR), 199 central banks. See also European Central Bank ;

Federal Reserve China, 206 , 217 , 218 , 220 , 231 , 232 ,

258 , 323–25 Egypt, 267 England, 67–68 , 327 Germany, 109 Iceland, 118 India, 237 , 240–41 , 244–45 Japan, 256 , 258 , 327–28 , 329 monetary policy and liquidity support, 9 reduction of interest rates, 67– 68 reserves (1990–2009), 20 Russia, 199 South Korea, 251 , 257 , 258 Spain, 171–72 , 174 swap lines, 68–69






Index372

transfer of responsibility to ECB, 123 UAE, 272–73 , 278

CFPA (Consumer Financial Protection Agency), 96–97 , 98–99

CFTC (Commodity Futures Trading Commission), 99

Chen, Hongyi, 324 Chen, Kevin, 218–19 China

call for international reserve currency, 323–24

capital fl ow reversals and resulting shocks, 209

concern over investments in US, 322–23 , 325

consumption and investment in, 213 contagion, 208–12 credit expansion, 217 , 218 creditor status, 326 criticism of US policies, 317 currency and exchange rate manipulation,

20–21 , 225–32 , 233 , 304 , 311–12 , 314 , 317–19 , 321 , 322

currency reserves, 205 current account surplus, 224 , 233 decoupled from US and Western European

economies, 204 , 209–10 diffi culties of economic rebalancing, 302–04 disposable income, 214 diversifi cation away from dollars,

322 , 324–25 economic growth, 8 , 311 eff ect of monetary policy on US budget

defi cits, 227–29 eff orts to boost consumption, 216–17 export dependency, 210–12 , 222–24 ,

236 , 303–04 exposure to derivatives, 206 foreign direct investment, 208 , 210 , 211 foreign exchange reserves, 204 GDP growth (2006–2009), 280 GDP growth (2007–2009), 236 guanxi (network capitalism),

28–29 , 298–99 hesitance to be global leader, 297 infl ationary concerns, 231–32 interest rate reductions, 218 investment in Treasury securities,

21–22 , 204–05 investment plan (stimulus package),

214–17 , 218–22

limited involvement in sovereign debt crisis, 171

local government investment projects, 220–22

loosening of monetary policy, 217 macroeconomic balance, 212–13 managed fl oat, 227–29 middle income trap, 302–03 minor role in global fi nancial

system, 207–08 need for rebalancing, 222–24 playing by rules of liberal

internationalism, 298–99 as potential shock absorber, 205–06 poverty reduction, 210 , 212 , 285 precautionary savings, 216–17 real estate bubble, 317 , 325–26 relations with US, 296 sanctions over Japan, 326 slowdown in growth rate, 208 social safety net expenditures, 216 solvency of banking system, 206–07 state control of banking sector, 219–20 theories behind supposed immunity, 204–08 trade with Sub- Saharan Africa, 285 unemployment and unrest, 211–12 US debt held by, 301 , 322–23 , 325 , 326 US trade imbalance with, 205–06 , 225–27 value added tax, 215

China Construction Bank (CCB), 206 , 220 China Development Bank, 220 , 324 China National Off shore Oil Corporation

(CNOOC), 325 China Securities Regulatory Commission

(CSRC), 208 Chinn, Menzie, 304 Cisneros, Henry, 48 Citibank, 75 Citigroup

acquisition of Wachovia Corporation, 4 drop in market value, 76–77 not allowed to fail, 1 purchase of mortgage- backed securities, 38 stress testing, 96

Clinton administration deregulation of banking sector, 15 , 52–53 exemption of most home sales from capital-

gains taxes, 50–51 National Homeownership Strategy, 48 Taxpayer Relief Act, 50

CLOs (collateralized loan obligations), 36 CME (Coordinated Market Economies), 28

central banks (cont.)






Index 373

CMOs (collateralized mortgage obligations), 36

CNOOC (China National Off shore Oil Corporation), 325

COBRA (Consolidated Omnibus Budget Reconciliation Act), 79

cognitive dissonance, 12 , 33 collateralized debt obligations (CDOs), 19 ,

39 , 45 , 238 collateralized loan obligations (CLOs), 36 collateralized mortgage obligations

(CMOs), 36 collective action clauses (CACs),

147 , 168 , 169 commercial banks

blurring of line between investment banks and, 52–53

defi ned, 52 commercial paper market

collapse of Lehman Brothers and, 2 commercial paper as collateral, 36 , 105 Fed purchase of, 67 , 68–69 shutdown of, 5

Commerzbank, 168 Committee of European Banking Supervisors

(CEBS), 151 Commodity Futures Modernization Act, 53 Commodity Futures Trading Commission

(CFTC), 99 Community Reinvestment Act (CRA)

repeal of, 15 role of in subprime crisis, 50

Congressional Budget Offi ce (CBO) cost of American Recovery and

Reinvestment Act, 72 size of public intervention during subprime

crisis, 64 United States budget defi cit (2009), 88 United States budget surplus, 32 United States interest on debt by 2020, 8–9

Consolidated Omnibus Budget Reconciliation Act (COBRA), 79

Consolidated Supervised Entities (CSE) program, 54

Consumer Financial Protection Agency (CFPA), 96–97 , 98–99

consumer loans expansion of program to fi nance, 73–74 risk of value loss, 74 use of home- equity loans to pay, 51

Contessi, Silvio, 25 Continental Illinois Bank bailout, 34 , 76

convergence criteria (Maastricht criteria), 112 , 145–46

Coordinated Market Economies (CME), 28 counterparty risk, 70–71 Countrywide Financial

downgrading of, 60 incentives to make risky loans, 49 profi ts through derivatives, 38 VIP loans, 15

Cowen, Brian, 133 Cox, Christopher, 54 CRA. See Community Reinvestment Act cramdown (judicial modifi cation), 85 , 87–88 Cr é dit Agricole

fears of French downgrade, 163 weakness of, 152

credit default swaps (CDS) AIG collapse and bailout, 2–3 , 68 Eastern Europe, 192 evaporation of market for, 61 exemption from Commodity Futures

Modernization Act, 53 Greece, 124 , 125–26 , 163–64 , 167–69 insurance against default, 40 , 45 Ireland, 132 overview, 2–3 regulation of, 94–95 risk of corporate bankruptcies, 75

credit rating agencies confl icts of interest, 12 , 41 , 46 downgrade of Greek rating, 125 , 161 downgrade of Indian rating, 245 downgrade of Irish rating, 131 , 133 downgrade of MBSs, 60 downgrade of rating of nine nations, 164 downgrade of Spanish rating, 174 downgrade of United States rating,

161–62 , 322 fears of French downgrade, 162 negative watch on Greek debt, 124 regulation of (Offi ce of Credit Rating), 99 risk of actual default, 41

Credit Suisse, 38 credit- related trust products (CTPs), 220 credit- related wealth management products

(CWMPs), 220 Crook, Clive, 175–76 CSE (Consolidated Supervised Entities)

program, 54 CSRC (China Securities Regulatory

Commission), 208 CTPs (credit- related trust products), 220






Index374

Cuomo, Andrew, 48 currency appreciation/depreciation,

defi ned, 228 current accounts

advanced economies, 103 China, 224 , 233 , 303–04 European sovereign debt crisis

(1992–2007), 120 European sovereign debt crisis

(2007–2010), 103 global imbalances, 20–23 Japan, 249 Russia, 194 South Korea, 252 United States, 21

CWMPs (credit- related wealth management products), 220

Cyprus current accounts (2007–2010), 103 downgrade of debt rating, 164

Czech Republic barriers to entrepreneurship, 202 currency value, 192 current accounts (2007–2010), 103

Daewoo Group, 251 , 255 Debt Guarantee Program, 68 debt- ceiling issue, 161 Delpla, Jacques, 185 Democratic Republic of Congo

commodity exports, 283 fi scal policies, 290

Demyanyk, Yuliya, 42 , 46 Denmark

current accounts (2007–2010), 103 deposit guarantees, 104 national debt (2010), 107 , 142

Department of Housing and Urban Development (HUD), 48–49

deposit guarantees and insurance Denmark, 104 Greece, 104 Ireland, 104 , 131 South Korea, 251 UAE, 273 United States, 52 , 66 , 295

derivatives casino mentality, 54–55 Chinese exposure to, 206 defi ned, 16 deregulation of, 53 eff ects of, 16

evaporation of market for, 61 growth in, 16 regulation of, 94–95 , 99 repackaging of subprime mortgages,

19 , 36–37 risk of corporate bankruptcies, 75 use of by fi nancial institutions, 19

Deutsche Bank approval of voluntary bond- exchange, 168 creation of, 105–06 ECB interventions, 153 purchase of mortgage- backed securities, 38

Deutsche Bundesbank (German central bank), 109

Dexia, 103–04 DFA. See Dodd- Frank Wall Street Reform and

Consumer Protection Act Diao, Xinshen, 218–19 DIFC (Dubai International Financial

Centre), 270 disintermediation, 37–38 , 51 DJIA. See Dow Jones Industrial Average Dodd, Chris

AIG bonuses, 16 , 91 campaign contributions, 50 Dodd- Frank Act, 98

Dodd- Frank Wall Street Reform and Consumer Protection Act (DFA)

faults and failures of, 99–101 features of, 98–99 implementation of, 99 introduction and passage of, 98

Doha Round, 292–93 , 320–21 Dole, Bob, 50 dollar (US)

against artifi cially low yuan, 225 Chinese diversifi cation away from,

322 , 324–25 depreciation of, eff ect on India, 243 depreciation of won against, 254–55 , 259 interbank credit contraction, 62 Middle Eastern currency pegged to, 277 rally against the euro, 161–62 rise of since 2008, 23 share of global foreign exchange reserves

(2001–2010), 23 trade eff ects of stronger dollar, 315–16 as world’s reserve currency, 22–24

Donilon, Tom, 318 Dow Jones Industrial Average (DJIA)

aft er announcement of Fed purchase of long- term debts, 92






Index 375

fall aft er announcement of Financial Stability Plan, 78

trends in (2008), 5 Draghi, Mario, 148–49 , 153–54 , 171 Dubai Holding, 268–69 , 271 , 274 Dubai International Financial Centre

(DIFC), 270 Dubai Ports and Free Zone World, 268–69 Dubai World, 271 , 274–75

Eastern European and Central Asian (former Soviet- bloc) countries. See also names of specifi c countries

debt levels, 190–91 , 192 domestic and Western European

responsibility, 191 eff ects of Russian contraction on, 200–01 real estate bubble, 191 savings levels, 192 similarity to Iceland, 191 slowdown in demand for exports, 192

EBA. See European Banking Authority EC. See European Commission ECB. See European Central Bank education issues

American Recovery and Reinvestment Act, 79

China, 215 Greek budget cuts, 167 Pell grants and Perkins loans, 90

Educational Building Society, 131 EESA (Emergency Economic Stabilization

Act), 3 , 66 EFSF. See European Financial

Stability Facility EFSM (European Financial Stability

Mechanism), 147 Egypt

external assistance dependency, 266 food and fuel crisis, 267–68 foreign investment infl ows, 264 , 265 investor withdrawal, 267 remittances from expatriate

workers, 266–67 robustness of economy at beginning of

crisis, 265–66 Suez Canal, 267 tourism, 266 trade openness, 264

Eichengreen, Barry on currency devaluation, 136 on economic imbalances, 304

on eurobonds, 184 on frequency of crises, 18 on growth rates of rapidly growing

economies, 303 on trust, 18 , 113

Elekgad, Selim, 258 El- Erian, Mohamed, 127 , 182 Emergency Economic Stabilization Act

(EESA), 3 , 66 Emirates NBD, 272 EMU. See also European Union equity market, 5 Erste Bank, 191 ESM. See European Stability Mechanism Estonia

austerity measures, 114–15 national debt (2010), 107 , 142 pegged exchange rates, 190

Ethiopia, 290 EU. See European Union Eurobank EFG, 168 Euro- Bills proposal, 185–86 eurobond proposals, 161 , 173 , 177 , 183–87 European Banking Authority (EBA)

need for bank supervisory body, 178–79 stress- testing of banks, 151 , 152

European Central Bank (ECB) anti- infl ation policies, 109 bailout prohibition, 112 , 153 banking interventions, 153 bond- buying plan, 148–49 , 162 , 184–85 , 327 capital ratio, 150 compared to Federal Reserve, 111 easing of collateral rules, 177 as lender of last resort, 147 ,

149–50 , 184–85 long- term refi nancing operation, 148 , 153 monetary policy and liquidity support,

147–48 , 153 origin of, 123 reduction of interest rates, 67–68 , 147 response to Greek debt crisis,

123–24 , 127 , 158 response to Irish debt crisis, 134 Securities Markets Program, 147–48 selective (technical) default, 156 unifi ed bank supervision, 154

European Commission (EC) banking union road map, 154 eurobond proposals, 186 , 187 program for Greece, 122

European Court of Justice, 146






Index376

European Financial Stability Facility (EFSF) bond- buying plan, 146–47 , 149 , 162 combination with ESM, 171 eurobond proposal, 185 expiration date, 147 Greek debt crisis, 158 powers to assist vulnerable economies, 159 Spanish bank crisis, 175 , 178–79

European Financial Stability Mechanism (EFSM), 147

European Fiscal Compact (Treaty on Stability, Coordination and Governance in the Economic and Monetary Union), 145–46

European Monetary Union. See European Union

European Redemption Fund, 186–87 European Redemption Pact, 186–87 European Securities and Markets

Authority, 162–63 European sovereign debt crisis. See also names

of specifi c countries from acute to chronic phase, 170 advantages and fl aws of euroization, 107–10 banking union road map, 153–55 common- strategy action plan, 104–05 contagion, 102–05 , 139–42 current account decomposition

(1992–2007), 120 current accounts (2007–2010), 103 current accounts versus savings

(1992–2007), 120 ECB bond- buying plan, 148–49 , 162 ECB long- term refi nancing operation, 148 ECB monetary policy and liquidity

support, 147–48 eff orts to calm markets, 161–65 eurobond proposal, 183–87 European Financial Stability Facility, 146–47 European Fiscal Compact, 145–46 European Stability Mechanism, 147 exit from Eurozone versus default, 181–83 globalization and vulnerability of, 105–07 impact on least developed

countries, 288 , 291 labor mobility, 180 lack of continent- wide institutional

mechanisms, 110–12 , 154–55 lost decade, 179 measures to strengthen banking

system, 152–53 national debt (2010), 107 need for fi scal union, 179– 81

northern/southern acrimony and responsibility, 112–15

private investor burden- sharing, 155–57 roots of, 120–22 short- selling ban, 162–63 sovereign debt ratios, 141 stress- testing of banks, 150–52 systemic nature of, 171–79 theories behind supposed immunity, 102

European Stability Mechanism (ESM) bond- buying plan, 149 calls to strengthen, 164–65 , 171 eurobond proposal, 184 , 185 origin of, 147 Spanish bank crisis, 175–76 , 178–79

European Union (EU). See also European sovereign debt crisis ; Eurozone

banking union road map, 153–55 complacency of regulators, 112 , 121–22 export market for Sub- Saharan Africa, 288 Maastricht criteria (convergence criteria),

112 , 145–46 national debt (2010), 107 program for Greece, 122–24 , 170–71 program for Ireland, 128 , 133 , 134–36 program for Portugal, 136–37 Stability and Growth Pact, 112 , 146 US trade imbalance with, 226 war chest, 105

Eurozone (European Monetary Union [EMU]). See also European sovereign debt crisis ; European Union

advantages of, 107–09 budget compliance issues, 112 compared to United States, 179–81 economic decline (2011–2012), 188 economic divergence within,

111–12 , 120–21 encouraging defi cits, 180 exit from versus default, 181– 83 fears of debt crisis contagion, 139–40 fl aws of, 109–10 GDP growth (2006–2009), 280 interbank lending, 108–09 lack of Treasury, 110–11 membership and interest rates, 109–10 membership in, 109 , 124 northern/southern acrimony, 112–14 northern/southern responsibility for

crisis, 114–15 summit agreement on stimulus

package, 177–79






Index 377

wage increases, 120–21 Evenett, Simon, 321 Export- Import Bank of China, 220

Fannie Mae (Federal National Mortgage Association)

campaign contributions, 48 , 50 collapse of, 1 creation of, 35 eff orts to tighten regulation of, 49 expansion of, 47 as GSE, 1 , 42 HUD promotion of aff ordable- housing

mortgages, 48–49 refi nancing plan, 86 Treasury investment in, 85

FAO (Food and Agriculture Organization), 287–88

Fault Lines (Rajan), 56 FCIC (Financial Crisis Inquiry

Commission), 100–01 FDIC (Federal Deposit Insurance

Corporation) buy up of mortgage- backed securities, 93 creation of, 295 introduction of, 52 Temporary Liquidity Guarantee

Program, 68 Wachovia acquisition by Citigroup, 4

FDICIA (Federal Deposit Insurance Corporation Improvement Act), 295

Federal Deposit Insurance Corporation Improvement Act (FDICIA), 295

Federal Home Loan Mortgage Corp. See Freddie Mac

Federal Insurance Offi ce (Treasury), 99 Federal National Mortgage Association.

See Fannie Mae Federal Reserve

capital ratio, 150 compared to ECB, 111 concern over purchase of Treasury

bonds, 316 creation of, 295 interbank lending eff ort in response to

Greek debt crisis, 122–23 low interest rate policy, 11 , 57–58 , 71 new authority for, 96–97 , 99 provisions of liquidity to fi nancial

institutions, 68–69 purchase of long- term debts, 92 purchase of short- term debts, 66–67

quantitative easing, 313 , 314–15 , 327 reciprocal currency arrangements, 5 reduction of interest rates, 67 , 147 reform of, 99 response to Lehman Brothers collapse, 2 role in Great Depression, 63

Feldstein, Martin, 180 , 181 Fift h Th ird Bancorp, 96 fi nancial crises. See also European sovereign

debt crisis ; global fi nancial crisis ; subprime mortgage crisis

frequency of in United States, 32 increasing number of, 18 as opportunities for reform and

restructuring, 295–96 tepid recovery from, 249

Financial Crisis Inquiry Commission (FCIC), 100–01

fi nancial multiplier process, 17–18 Financial Services Modernization Act

(Gramm- Leach- Bliley Act), 52 Financial Stability Board (FSB), 306 Financial Stability Forum (renamed Financial

Stability Board [FSB]), 306 Financial Stability Oversight Council, 99 Financial Stability Plan, 64 , 73–101 Financial Supervisory Commission

(FSC), 251 Financial Supervisory Service (FSS), 251 Finland

barriers to entrepreneurship, 202 collateral for Greek bailout, 113 concern over banking union, 155 current accounts (2007–2010), 103 EFSF implementation, 159 national debt (2010), 107 , 142

First American CoreLogic, 87 First Franklin, 38 Fischer, Hartmut, 51 Fitch Ratings

confl icts of interest, 12 , 41 downgrade of Countrywide, 60 downgrade of Greek rating, 125 , 161 downgrade of Irish rating, 131 downgrade of Spanish rating, 174

fl exible exchange rates, 228 fl ipping real estate, 51 fl oating exchange rates, 228 Fondo de Reestructuracion Ordenada

Bancaria (FROB), 175 Food and Agriculture Organization

(FAO), 287–88






Index378

foreclosures (US) diffi culty of refi nancing, 59 fear of insuffi cient help, 81 increase in, 58 , 59 number of (2007), 60 number of (2009), 81 Obama administration plan to reduce,

74 , 85–88 second surge in, 95 in spite of Bush and Obama administration

plans, 69–70 foreign exchange (FX) markets

Chinese reserves, 204 dollar crunch, 23 India, 240–41 maintenance of highly competitive

rates, 20–21 percentage of daily average turnover

(2001–2010), 22 reducing productivity gap via exchange rate

devaluation, 181 Fortis

collapse of, 104 nationalization of, 103–04

France banking exposure to Irish

economy, 134 , 136 banking exposure to PIIGS economy, 150 banking games with Greek debt, 125–26 barriers to entrepreneurship, 202 BNP Paribas takeover of Fortis, 104 change in government, 172 , 173 current accounts (2007–2010), 103 delay of bank stress- testing, 150 downgrade of debt rating, 164 economic growth (2009), 97–98 economic growth/decline (2011–2012), 188 fears of debt rating downgrade, 162 growth pact proposal, 173 help with Dexia bailout, 103–04 national debt (2010), 107 , 142 pre- crisis eagerness to lend, 109 ,

114–15 , 121–22 short- selling ban and bank stocks, 163 suggested haircut for private creditors in

Irish crisis, 133 Frank, Barney, 50 , 98 Freddie Mac (Federal Home Loan

Mortgage Corp) campaign contributions, 48 , 50 collapse of, 1 creation of, 35

eff orts to tighten regulation of, 49 expansion of, 47 as GSE, 1 , 42 HUD promotion of aff ordable- housing

mortgages, 48–49 refi nancing plan, 86 Treasury investment in, 85

free market system, disillusionment with, 26–29

Friedberg, Aaron, 296 , 326 Friedman, Milton, 5 , 7 , 63 , 112 FROB (Fondo de Reestructuracion Ordenada

Bancaria), 175 FSC (Financial Supervisory Commission), 251 FSS (Financial Supervisory Service), 251 FTSE Index, 5 FX markets. See foreign exchange markets

G- 7 assistance to least developed countries, 289 defi ned, 306 global agricultural trade growth, 292 Middle Easters and North African

investment, 264–65 takeover of responsibilities by G- 20, 306

G- 8, 306 G- 20

assistance to least developed countries, 288–89 , 291

Cannes Action Plan for Growth and Jobs, 309

competing and confl icting interests among, 314–17

criticism of US policies and goals by, 310–14 , 315–17 , 321 , 328–29

Declaration on Strengthening the Financial System, 306 , 307–08

defi ned, 306 division among, 309–14 , 317–22 endorsement of, 306–08 exchange rates, 319–20 failure to make progress, 299 Framework for Strong, Sustainable and

Balanced Growth, 308–09 global agricultural trade growth, 292–93 government abdication in favor of, 31 inability to act, 297 , 304 , 309 , 326–27 lack of formal adjudicating and enforcement

mechanism, 309 new global fi nancial architecture, 10 pressure against Chinese currency

manipulation, 230






Index 379

pressure on EU to do more, 171 protectionism and trade barriers, 320–21 regulatory reform agenda, 305–09 support facility to expand trade fi nance, 26

Gaddy, Cliff ord G., 194 , 195 Gazprom, 197–98 Gazprombank, 195 GCC (Gulf Cooperation Council), 261–62 .

See also Middle East and North Africa Geithner, Timothy

on AIG bonuses, 91 on Chinese currency and exchange rate

policy, 230–31 , 319 , 322 on Financial Stability Plan, 73–75 ,

77–78 , 94–95 on G- 20 diff erences with US, 312 on nationalization of fi nancial

institutions, 72 General Th eory of Employment, Interest and

Money (Keynes), 27 Gensler, Gary, 53 Georgia, 198 , 199 Germany

anti- infl ation policies, 109 austerity versus French growth pact

proposal, 173 banking exposure to Irish

economy, 134 , 136 banking exposure to PIIGS

economy, 109 , 150 banking games with Greek debt, 125–26 barriers to entrepreneurship, 202 bond yields, 141 , 164 budget defi cits, 187 call for reforms in peripheral

economies, 112–14 competitiveness of economy, 120–21 concern over banking union, 155 current accounts (2007–2010), 103 delay of bank stress- testing, 150 economic growth/decline, 97–98 ,

188 , 248 , 311 exchange rate devaluation, 181 government bond policy in response to

Greek debt crisis, 124 hesitance to aid Greece, 125 hesitance to aid Spain, 174 , 175–76 Hypo Real Estate bailout, 103 national debt (2010), 107 , 142 nonperforming loans (1998–2007), 235 opposition to eurobond proposal,

184–85 , 187

pre- crisis eagerness to lend, 109 , 114–15 , 121–22

ranking of banking system, 106 solvency of banking system, 207 suggested haircut for private creditors in

Irish crisis, 133 summit agreement on stimulus

package, 177–79 wage increases, 120–21

Getting off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis (Taylor), 57

Ghana, 284 Ghazaly, Hoda El- , 25 Gill, Martha, 163 Glass- Steagall Act

creation of, 295 repeal of, 15 , 52–53

Glitnir (formerly Islandsbanki) diversifi cation plan, 116 nationalization of, 103 placement in receivership, 118 rapid growth of, 116–17

global fi nancial crisis (Great Recession). See also European sovereign debt crisis ; subprime mortgage crisis

beginnings of, 1–6 contagion via confi dence and risk taking,

18 , 19–20 contagion via dollar as reserve

currency, 22–24 contagion via global fi nance, 17–18 contagion via global imbalances, 20–23 contagion via global trade, 17–18 , 24–26 diff ering views of origin of, 10–17 failure to foresee, 6– 7 potential to provide lessons and solutions, 7 as question of counterparty risk rather than

liquidity, 70–71 questions regarding, 7–8

global imbalances defi ned, 20 fi nancial crisis contagion, 20–23

global savings glut (Bernanke), 10–11 , 20–21 , 205–06 , 259

global supply chains, 25 global trade

American Recovery and Reinvestment Act and, 79–80

contagion of fi nancial crisis via, 17–18 , 24–26

key factors behind contraction in, 25–26






Index380

rise of US trade defi cit, 10–11 US trade imbalance with China,

205–06 , 225–27 US trade imbalance with major trading

partners, 226 varying eff ects of contraction in, 24–25

Global Trade Liquidity Program (GTLP), 291 globalization

contagion of crises and, 209 increase in fi nancial crises and, 17

GMAC, 96 Goldman Sachs

conversion of to commercial bank, 3–4 increases in earnings, 95 prediction of bank losses, 75 purchase of mortgage- backed securities, 38

Goldsworthy, Brenton, 193 Goodliff e, Gabriel, 309 Gopalan, Sasidaran, 239 , 240 Gorton, Gary, 37–38 , 44 , 52 Gourevitch, Peter, 7 government- sponsored enterprises

(GSEs), 1 , 42 Graham, Lindsey, 75 Gramm, Phil, 52 , 53 Gramm- Leach- Bliley Act (Financial Services

Modernization Act), 52 Grassley, Charles, 321 Great Depression

absence of global leadership, 296 compared to today’s world, 82 failure of policymakers, 63 Keynes versus Friedman, 80 root cause of, 5 tepid recovery from, 249

Th e Great Depression of 1929 (Kindelberger), 296

Great Moderation, complacency due to, 32–33 Great Recession, defi ned, 2 . See also global

fi nancial crisis Greece. See also PIIGS

austerity measures, 114 , 126–27 , 166 , 167 , 170

budget defi cits, 110 , 124 , 125 , 301 call to surrender control of budget policy to

outside institutions, 166 compared to Ireland, 133 compared to other PIIGS nations, 170 consideration of default, 157 current accounts (2007–2010), 103 debt restructuring, 159–60 , 161

deposit guarantees, 104 downgrade of debt rating, 125 , 161 economic decline (2011–2012), 188 elections, 172–73 , 176 euro working group, 166–67 Eurozone membership, 109 failure to deal with systemic risk, 127 falsifi cation of defi cit data to

join EMU, 124 fears of contagion, 124 , 157 fears of default, 126 , 144 , 165 , 169–70 German and French banking games with

debt, 125–26 government debt as percentage of GDP

(2005–2009), 107 importance of to Eurozone, 170 intervention package, 122–24 , 125 ,

157 , 165–67 limited policy fl exibility in dealing with

crisis, 126– 27 lost decade, 127 national debt (2010), 107 , 142 “orderly default” and market reaction, 163 permanent monitors, 167 private investor burden- sharing,

158–59 , 165–66 pros and cons of default, 183 pros and cons of exit from EMU, 181–83 reduction of interest rates on bailout loans, 159 referendum on bailout, 163–64 restructure/rollover of bonds, 158–59 selective (technical) default threat, 156 , 157 stress- testing of banks, 151 uncertainty over future of, 160–61 voluntary bond- exchange, 150 , 163–64 ,

165–66 , 167–69 wage increases, 120–21

Greenspan, Alan on deregulation, 54 on easy- money policy, 58 on eff ective market regulators, 15 on effi cient market hypothesis, 15 on evaporation of short term credit, 3 on nationalization of fi nancial

institutions, 75 on origins of crisis, 12

Gros, Daniel, 106 GSEs (government- sponsored

enterprises), 1 , 42 GTLP (Global Trade Liquidity

Program), 291 guanxi (network capitalism), 28–29 , 298–99

global trade (cont.)






Index 381

Gulf Cooperation Council (GCC), 261–62 . See also Middle East and North Africa

Gulf International Bank, 269

Haarde, Geir, 118–19 Hacker, Jacob, 55 Halifax Bank of Scotland (HBOS), 104 Hall, Peter, 28 Halper, Stefan, 296 Hanson, Phillip, 198– 99 HBOS (Halifax Bank of Scotland), 104 health care issues


China, 215 , 216 Greek budget cuts, 167 portability of healthcare, 180

Heavily Indebted Poor Countries Initiative (HIPC), 279

hegemonic stability theory, 329 Hermet, Otto Van, 42 Hindalco, 243 HIPC (Heavily Indebted Poor Countries

Initiative), 279 Hoekman, Bernard, 320 Holinski, Nils, 120 , 121 Hollande, Fran ç ois, 172 , 173 , 177–78 Home Aff ordable Modifi cation program, 86 Home Aff ordable Refi nance program, 86 home- equity loans, 43 , 51 , 56–57 Homeowner Aff ordability and Stability

Plan, 86–87 Hong Kong

currency swap agreement with China, 324 solvency of banking system, 207

Honohan, Patrick, 128 , 129 , 132 household debt

Greece, 110 South Korea, 253–54 , 260 United Kingdom, 82 United States, 57 , 82

household savings South Korea, 253–54 , 260 United States (1980–2007), 82

household wealth Eurozone, 222 Iceland (2000–2005), 116 Japan, 222 United Kingdom, 222 United States, 5–6 , 222

housing and mortgage market (US). See also subprime mortgage crisis

loan securitization, 36–37 ownership society mantra, 35 post- Great Depression, 34–35 rising home prices (2000–2006), 57 rising prices and low interest rates, 35–36 second surge in foreclosures, 95 types of mortgages, 42–43 view of home as cash cow, 51

HSBC Bank (Europe), 105–06 HSBC Bank USA, 75 Hu Jintao, 318 Huang, Yasheng, 221 hubris

American, 12 , 33 European, 102

HUD (Department of Housing and Urban Development), 48–49

Hungary barriers to entrepreneurship, 202 currency value, 192 debt in foreign currency, 191 emergency loans to, 192–93 fl ight of investors, 192 national debt (2010), 107 , 142

hybrid ARMs (adjustable- rate mortgages), 36 , 43–44

Hypo Real Estate, 103 Hyundai Motors, 255

ICBC (Industrial and Commercial Bank of China), 206 , 220

Iceland bankruptcy and IMF rescue package,

119 , 192–93 collapse of banking system, 118–19 credit boom and transformation

of, 116–17 current accounts (2007–2010), 103 dispute with UK over guarantees to foreign

account holders, 118– 19 drop in value of kr ó na, 117 , 118 fi nancial globalization and rise of, 115–16 Glitnir nationalization, 103 imprudent borrowing, 108–09 international assets versus liabilities, 119 pullout by foreign lenders, 117–18 rapid growth of banking system, 116–17 similarity to Eastern Europe, 191

Icesave foreign depositors, 118 , 119 nationalization of, 118

ICICI Bank, 238






Index382

Ickes, Barry W., 194 , 195 Ikenberry, John, 298 IMF. See International Monetary Fund income inequality, 55–56 , 90 , 91 India

access to credit, 244–45 approach to globalization, 237 , 238–39 banking sector protectionism, 237–38 banking system, 238 budget defi cits, 245 call for international reserve currency, 324 capital fl ows, 243–44 curbs against currency appreciation, 318 currency depreciation, 243 debt fl ows, 239 economic growth, 237 export collapse, 223 export dependency, 236–37 , 241 , 242 foreign currency reserves, 239 foreign direct investment, 239 foreign exchange markets, 240–41 , 245 GDP growth (2006–2009), 280 GDP growth (2007–2009), 236 integration into global economy, 236– 37 intensity of impact, 235 interest rates, 241 , 244 , 245 lack of social safety net, 242 nonperforming loans (1998–2007), 235 outsourcing industry, 241–42 oversees acquisitions, 243 policy responses and challenges, 244–45 poverty reduction, 285 return of migrant workers, 242–43 services sector, 241–42 state control of banking sector, 238 stimulus plans, 244 , 245 stock markets, 240 theories behind supposed immunity, 234–35 vulnerabilities of, 239–44

Indonesia curbs against currency appreciation, 318 currency swap agreement with China, 324

Industrial and Commercial Bank of China (ICBC), 206 , 220

IndyMac, 49 infrastructure issues


China, 214–15 United States versus Japan, 83

Institute for International Finance, 160 institutional complementarities, 29

interbank lending Debt Guarantee Program, 68 eff ort in response to Greek debt

crisis, 122–23 Europe, 108–09 , 151–52 spike in (2007), 60

interest- only mortgages, 36 International Accounting Standards

Board, 305 International Association of Insurance

Supervisors, 305 international economic order

absence of global leadership, 296–97 , 299 , 329

defi ant stand by China, 322–26 diffi culties of rebalancing, 300–04 disappointing results of multilateral

cooperation, 299–300 fi nancial crises as opportunities for reform

and restructuring, 295–96 G- 20, confl icting interests

among, 314–17 G- 20 divisions, 309–14 , 317–22 G- 20 regulatory reform agenda, 305–09 globalization and multilateral

institutions, 298 liberal internationalism, 298 ,

299–300 , 329 post- war American- led order, 296–97 rejection of Western economic model, 296

International Monetary Fund (IMF) capital outfl ows from Spain and Italy, 188 Chinese call for international reserve

currency, 323–24 compared to ESM, 147 currency reserve adequacy, 260 external borrowing by Russian banks, 198 G- 20 empowerment of, 305–06 government abdication in favor of, 31 interbank lending eff ort in response to

Greek debt crisis, 122–23 prediction of bank losses, 75 private investor burden- sharing, 156 program for Belarus, 192–93 program for Greece, 125 program for Hungary, 192–93 program for Iceland, 119 , 192–93 program for Ireland, 128 , 134 , 135–36 program for Latvia, 113–14 , 192–93 program for Portugal, 136–37 program for Ukraine, 192–93 Spanish bank crisis, 174






Index 383

International Organization of Securities Commissions, 305

International Swaps and Derivatives Association, 168 , 169

investment banks blurring of line between commercial banks

and, 52– 53 defi ned, 52

Investment Corporation of Dubai, 271 , 274 iPhones, 25 IPIC (Abu Dhabi International Petroleum

Investment Company), 268–69 Iran, 262 Ireland. See also PIIGS

austerity measures, 134 budget defi cits, 134 Celtic Tiger period, 127–28 compared to Greece, 133 corporate taxes, 128 credit boom, 129–30 current accounts (2007–2010), 103 deposit and debt guarantees, 104 , 131 downgrade of debt rating, 131 , 133 , 156 ECB bond- buying plan, 162 eff orts to quell panic, 131 EU/IMF intervention package, 128 ,

134 , 135–36 Eurozone membership, 109 export- led boom and dot.com crash, 128 fear and fl ight of foreign

investors, 132–33 government debt as percentage of GDP

(2005–2009), 107 haircut for private creditors, 133 national debt (2010), 107 , 142 question of long- term solvency, 135–36 real estate bubble, 121 , 128–30 reduction of interest rates on bailout

loans, 159 wage increases, 120–21

Irish Life and Permanent, 131 Irish Nationwide Building Society, 131 irrational exuberance (unqualifi ed

optimism), 34 , 122 Islandsbanki. See Glitnir Italy. See also PIIGS

barriers to entrepreneurship, 202 bond yields, 139 , 141 , 162 , 164 , 176 capital outfl ows, 188 current accounts (2007–2010), 103 downgrade of debt rating, 164 ECB bond- buying plan, 162 , 164

economic decline (2011–2012), 188 fears of need for unaff ordable

bailout, 139–42 national debt (2010), 107 , 142 national debt to GDP, 139 reforms, 162

Ito, Hiro, 304

Jaimovich, Nir, 301 Japan

aging population and changes in consumption, 248–49

carry trade, 248 Chinese sanctions, 326 curbs against currency appreciation, 318 economic contraction, 248 economic crisis in 1990s, 83 economic growth (2009), 97–98 export dependency, 236–37 , 246–47 fi nancial institution losses, 234 GDP growth (2006–2009), 280 GDP growth (2007–2009), 236 integration into global economy, 236–37 , 246 intensity of impact, 235 investment in Treasury securities, 205 near- term projections, 246 nonperforming loans (1998–2007), 235 response to crisis, 256 , 327–28 , 329 solvency of banking system, 207 stimulus plans, 256 theories behind supposed immunity,

234–35 , 245–46 trade defi cit, 249 US debt held by, 301 US trade imbalance with, 226

Jarrow, Robert, 2 Jayaram, Shruthi, 239 Johnson, Simon, 14 , 99 , 314 Johnson administration

Fannie Mae and Freddie Mac, 42 mortgage- backed securities, 47

Jordan food and fuel crisis, 267–68 foreign investment infl ows, 264 , 265 trade openness, 264

JPMorgan Chase acquisition of Washington Mutual, 4 purchase of mortgage- backed securities, 38 risk of bankruptcy, 75 sale of Bear Stearns to, 3–4 , 68 Volcker Rule and, 100

judicial modifi cation (cramdown), 85 , 87–88






Index384

jumbo mortgages, 43 , 74 Juncker, Jean- Claude, 153–54

Kagan, Robert, 296–97 KAMCO (Korea Asset Management

Corporation), 251 Kang, Myung- koo, 253 , 254 , 255 Kato, Takatoshi, 235 Kaupthing

diversifi cation plan, 116 nationalization of, 118 rapid growth of, 116–17

Kawai, Masahiro, 247 Kazakhstan, 200–01 KDIC (Korea Deposit Insurance

Corporation), 251 Kelly, Morgan, 129 , 130 Kemp, Jack, 35 Kenya, 284 Keohane, Robert, 298 KeyCorp, 96 Keynes, John Maynard, 27 Keynesian state capitalism (state capitalism),

rise of, 26– 29 Khanna, Parag, 296–97 KIA (Kuwait Investment Authority), 261 , 273 Kia Motors, 255 Kindelberger, Charles, 30 , 296 Kirshner, Jonathan, 326 Knott, Jack, 47 , 48 , 54 KODIT (Korea Credit Guarantee Fund), 257 Kool, Clemens, 120 , 121 Korea Asset Management Corporation

(KAMCO), 251 Korea Credit Guarantee Fund (KODIT), 257 Korea Deposit Insurance Corporation

(KDIC), 251 Korea Technology Finance Corporation

(KOTEC), 257 Kose, M. Ayhan, 204 KOTEC (Korea Technology Finance

Corporation), 257 Krippner, Greta, 55 Krugman, Paul

on China, 229 , 303 on contagion, 17 on debt crisis in Ireland, 131 on Eurozone, 110 , 180 on Greece returning to drachma, 182 on nationalization of fi nancial

institutions, 77 on origins of Great Recession, 12

on stress- testing of banks, 96 Kulkarni, Nirupama, 240 Kuwait, 262 , 263 , 264 , 273 , 275 , 277 , 278 Kuwait Investment Authority (KIA), 261 , 273 Kwak, James, 14 , 99 Kyrgyz Republic, 200–01

Lagarde, Christine, 171 Lall, Subir, 258 Lamy, Pascal, 291 , 292 Landsbanki

diversifi cation plan, 116 nationalization of, 118 placement in receivership, 118 rapid growth of, 116–17 reneging on guarantees to foreigners, 118

Lao PDR, 223 Lardy, Nicolas, 212 Latvia

emergency loans to, 192–93 IMF- backed program for, 113–14 national debt (2010), 107 , 142 pegged exchange rates, 190 Swedish loans to, 191

Lawrence, Robert, 320–21 least- developed countries (LDCs)

calls for aid to, 289 , 291 contagion, 281 export dependency, 281 , 282–83 , 288 foreign direct investment, 283–84 foreign ownership in banking sector, 281 GDP growth (2006–2010), 280 global agricultural trade growth, 292–93 global food crisis, 287 homegrown solutions, 293–94 hunger and malnutrition, 287–88 impact of crisis on world’s poorest, 284–88 location of, 279 offi cial development assistance declines, 284 poverty reduction, 284–85 poverty trap, 286–87 protectionism, 291–92 public sector reforms, 293 reduction in investment fl ows, 283–84 slowdown in growth rate, 281 stimulus and debt relief, 290 theories behind supposed immunity, 279–81 tourism and worker remittances, 284 trade- related credit, 290–91 vulnerabilities of world’s poorest, 285– 87

Lebanon, 264 , 267–68 Lehman Brothers






Index 385

allowed to fail, 1 collapse of, 1–2 , 3–4 , 110 failure of as game- changing moment, 61–62 profi ts through derivatives, 38

Lenihan, Brian, 133 Lesotho, 290 Levchenko, Andrei, 26 Levitt, Arthur, 54 LFVs (local fi nancing vehicles), 219 Liberal Market Economies (LME), 28 Libya, 262 , 278 Liddy, Edward, 91 Lieber, Robert, 296–97 Lithuania, 190 Lloyds TSB, 104 , 115 LME (Liberal Market Economies), 28 loan securitization (mortgage- backed

securities) attractive nature of, 19–20 benefi ts of, 38–40 casino mentality, 54–55 CDOs, 45 defi ned, 38 disintermediation and profi ts, 37–38 downgrade of MBSs, 59–60 evaporation of market, 61 growth in, United States, 40 growth in, United States and Europe, 39–40 innovation in, 36–37 origin of, 38 , 40 , 47 private- label RMBSs, 45 ratings structure, 45–46 risk distribution, 39 , 46 risks of, 19–20 , 40

lobbying and lobbyists mortgage industry, 48 Wall Street, 14 , 15–16

local fi nancing vehicles (LFVs), 219 Long Term Capital Management bailout, 34 long- term refi nancing operation

(LTRO), 148 , 153 Luxembourg

barriers to entrepreneurship, 202 concern over banking union, 155 current accounts (2007–2010), 103 help with Fortis nationalization, 103–04 international assets versus liabilities, 119

Maastricht criteria (convergence criteria), 112 , 145–46

Maiden Lane limited liability companies, 68 Making Home Aff ordable plan, 86–87

Malaysia curbs against currency appreciation, 318 currency regime, 227 currency swap agreement with China, 324 export collapse, 223 export dependency, 236

Malta current accounts (2007–2010), 103 downgrade of debt rating, 164

Mandelbaum, Michael, 296–97 Mantega, Guido, 321 , 328 MAP (Mutual Assessment Process), 308–09 market fundamentalism, 15 , 26–29 MDRI (Multilateral Debt Relief Initiative), 279 Medvedev, Dimitri, 102 Meltzer, Allan, 1 , 296–97 MENA. See Middle East and North Africa Merkel, Angela

deposit guarantees, 103 eurobonds, 178–79 , 187 Eurozone stimulus package, 177 Greek bond swap, 156 Irish crisis, 133 praise for China, 315 response to US expansionary monetary

policy, 316 support for European fi scal compact, 145

Merrill Lynch purchase of mortgage- backed securities, 38 sale of to Bank of America, 1–2 , 3–4

Metrick, Andrew, 37–38 Mexico

barriers to entrepreneurship, 202 US trade imbalance with, 226

Mian, Atif, 48 , 56–57 Micossi, Stefano, 106 Middle East and North Africa (MENA).

See also names of specifi c countries asset depreciation, 276 contagion, 264–65 currency pegged to dollar, 277 , 278 defi ned, 261 foreign investment, 264–65 interregional integration, 278 monetary union, 277 similar eff ects in oil- rich and oil- poor

economies, 262–63 stimulus plans, 276 stock market downturn, 265 theories behind supposed immunity, 261–62 trade openness, 264 variation in response to crisis, 275–76






Index386

Minder, Raphael, 138 Minsky, Hyman P., 18 Mishkin, Frederic, 17 MMIFF (Money Market Investor Funding

Facility), 67 Mohan, Rakesh, 239 A Monetary History of the United States

(Friedman and Schwartz), 5 , 63 money market funds

breaking the buck, 5 collapse of Lehman Brothers and, 2 credit panic, 3 Federal Reserve response to credit crisis,

66–67 , 68–69 Money Market Investor Funding Facility

(MMIFF), 67 Monti, Mario, 171 , 177–78 Moody’s Investor Services

confl icts of interest, 12 , 41 downgrade of Countrywide, 60 downgrade of Irish debt, 156 downgrade of MBSs, 60 negative watch on Greek debt, 124

Morgan Stanley conversion of to commercial bank, 3–4 purchase of mortgage- backed securities, 38 stress testing, 96

Morocco food and fuel crisis, 267–68 foreign investment infl ows, 264 , 265 trade openness, 264

Morse, Edward, 197–98 Mortenson, Gretchen, 49 mortgage pools, 36 mortgage- backed securities. See loan

securitization Mozambique, 290 Multilateral Debt Relief Initiative (MDRI), 279 multiplier eff ect, 80–82 , 216 , 242 Mundell, Robert, 111 Mutual Assessment Process (MAP), 308–09 Muysken, Joan, 120 , 121

Nakheel Properties, 271 , 272 , 274 Nasdaq, 78 National Asset Management Agency

(NAMA), 131 National Bank of Greece, 168 national debt

Austria (2010), 107 , 142 Belgium (2010), 107 , 142 China, 207

Denmark (2010), 107 , 142 Estonia (2010), 107 , 142 EU countries (2010), 107 Europe, budget defi cits versus, 143 Finland (2010), 107 , 142 France (2010), 107 , 142 Germany (2010), 107 , 142 Greece (2009), 124 Greece (2010), 107 , 142 Greece (2012), 169–70 Hungary (2010), 107 , 142 Ireland (2010), 107 , 142 Italy (2010), 107 , 139–40 , 142 Japan (1990s), 83 Latvia (2010), 107 , 142 Netherlands (2010), 107 , 142 Poland (2010), 107 , 142 Portugal (2010), 107 , 142 South Korea, 253–54 Spain (2010), 107 , 142 Spain (2012), 175 Sweden (2010), 107 , 142 United Kingdom (2010), 107 , 142 United States (2000–2012), 301 United States (2012), 101 United States (2012–2020), 8 United States, interest on, 80 United States, Obama administration

projections, 88–89 nationalization of fi nancial institutions

Iceland, 103 Ireland, 132 United Kingdom, 104 , 115 United States, 72 , 75–76 , 77 , 84

Naughton, Barry, 215–16 , 221 negative amortization, 36 , 59 , 60 negative equity (underwater), 59 , 61 , 85 , 87 Netherlands

banking exposure to Irish economy, 136 barriers to entrepreneurship, 202 competitiveness of economy, 120–21 concern over banking union, 155 current accounts (2007–2010), 103 economic growth/decline (2011–2012), 188 help with Fortis nationalization, 103–04 national debt (2010), 107 , 142 seizure of Fortis, 104

network capitalism ( guanxi ), 28–29 , 298–99 New Century Financial Corporation, 60 new global fi nancial architecture (Bretton

Woods II), 10 , 29–31 Th e Next Convergence (Spence), 300–01






Index 387

Nikkei, 5 nonrecourse loans, 59 , 93–94 non- traditional mortgages, 36 Northern Rock, 104 Norway, 103 Nutting, Rex, 150

Obama administration American Recovery and Reinvestment Act,

72–73 , 78–80 analysis of budget, 88–91 bad bank/good bank solution, 73 , 84–85 bonus issues, 91–92 budget cooking, 89 defi cit reduction, 89–90 failure of trade plan with South Korea, 310 Financial Stability Plan, 73–74 G- 20 and, 10 , 310–14 , 315–18 government spending versus tax cuts and

breaks, 80–82 issue of bank nationalization, 75–76 , 77 , 84 jobless recovery, 82 motivating banks to lend, 77 plan to reduce foreclosures, 74 , 85–88 pressure against Chinese currency

manipulation, 229–31 , 233 , 311–12 , 317–19

Public Private Investment Fund, 92–94 purchase of long- term debts, 92 stress- testing of banks, 74–76 , 95–96 taxation of foreign earnings, 242 taxing foreign earnings of American

fi rms, 242 use of remaining TARP funds, 71–72

Occupy Wall Street, 28 ODI (Overseas Development Institute), 288 Oil Stabilization Fund, 194–95 oligarchs (Wall Street elites), 14 Oman, 262 , 264 , 277 , 278 optimum currency area theory, 111 , 112 Outright Monetary Transactions (OMT)

bond- buying plan, 148–49 Overseas Development Institute (ODI), 288 Owl of Minerva (Hegel), 30

Pakistan, 223 Papademos, Lucas, 166 Papandreou, George, 124 , 133–34 Park, Donghyun, 303 Park, Yung- Chul, 255 , 259 Patnaik, Ila, 239 Patterson, Scott, 37

Paulson, Hank, 3 PBC. See People’s Bank of China Pell grants, 90 Peng, Wensheng, 324 pensions

China, 216 Europe, 180

People’s Bank of China (PBC) banking sector reforms, 220 call for international reserve currency, 323–

24 currency and exchange rate

manipulation, 231 , 232 foreign investment, 206 monetary policy, 217 reduction in deposit reserve

requirement, 218 swap arrangements, 258 trade transactions in RMB, 324–25

Perkins loans, 90 permanent income hypothesis (Friedman), 20 Philippines, 223 , 236 Pierson, Paul, 55 PIIGS countries (Portugal, Ireland, Italy,

Greece, Spain). See also names of specifi c countries

austerity measures, 113 , 114 banking exposure to sovereign debt, 109 ,

134 , 136 , 150 , 152 debt held by German and French banks, 150 economic divergence within Eurozone,

111–12 , 120–21 Eurozone membership and interest

rates, 109–10 fears of debt crisis contagion, 139–40 infl exibility in emergencies, 110 lost decade, 134 pre- crisis eagerness to lend to,

109–10 , 114–15 pros and cons of exit from EMU, 181–82 roots of crisis, 121 , 122 , 125

PNC Financial Services Group Inc., 96 Poland

barriers to entrepreneurship, 202 currency value, 192 debt in foreign currency, 191 national debt (2010), 107 , 142

Polanyi, Karl, 29 Portugal. See also PIIGS

banking exposure to Irish economy, 136 barriers to entrepreneurship, 202 crisis and bailout, 136–37






Index388

current accounts (2007–2010), 103 downgrade of debt rating, 164 ECB bond- buying plan, 162 economic decline (2011–2012), 188 Eurozone membership, 109 government debt as percentage of GDP

(2005–2009), 107 national debt (2010), 107 , 142 reduction of interest rates on bailout

loans, 159 wage increases, 120–21

Prasad, Monica, 56 prime mortgages, 42 , 43 Private Sector Involvement (PSI), 165–66 public interventions (bailouts and

stimulus plans) Belgium, 103–04 China, 214–17 , 218–22 , 325–26 Europe, contagion, 102–05 Europe, ECB prohibition against, 112 Europe, transference of problem to

government balance sheets, 106 Germany, 103 Greece, 122–24 , 125 Iceland, 119 , 128 India, 244 , 245 Ireland, 128 , 134 , 135–36 Japan, 83 , 256 Latvia, 113–14 least- developed countries, 290 Portugal, 136–37 Saudi Arabia, 275 South Korea, 257 Spain, 137–38 United Kingdom, 104 , 115 United States, failure of, 64–66 United States, meager results of, 8 United States, size of, 64 United States, state capitalism, 4 United States, TARP, 4–5 United States, used to reduce borrowing, 81 United States, variety of, 9 Yemen, 268

Public Private Investment Fund, 73 , 92–94

Qatar, 262 , 264 , 275 , 277 , 278 Qatar Investment Authority (QIA), 261 , 273 QDII (Qualifi ed Domestic Institutional

Investors) program, 208 QFII (Qualifi ed Foreign Institutional

Investors) program, 208

QIA (Qatar Investment Authority), 261 , 273 Qualifi ed Domestic Institutional Investors

(QDII) program, 208 Qualifi ed Foreign Institutional Investors

(QFII) program, 208 quantitative easing, 148 , 313 , 314–15 , 327 Th e Quants: How a New Breed of Math Whizzes

Conquered Wall Street and Nearly Destroyed It (Patterson), 37

Rachman, Gideon, 296–97 Raiff eisenbank, 191 , 195 Rajan, Raghuram, 21 , 56 Rajan, Ramkishen, 239 , 240 Rajoy, Mariano, 174–75 , 177–78 RBS. See Royal Bank of Scotland Reagan administration

budget cooking, 89 household income stagnation, 90 supply- side economics, 82

reciprocal currency arrangements. See swap lines

Reddy, Y.V., 237 refi nancing

bridge loans, 44 diffi culty of, 44–45 , 58 , 59 without penalty, 51

Regions Financial Corporation, 96 Regling, Klaus, 172 regulatory agencies and policies.

See also names of specifi c regulatory agencies and policies

Commodity Futures Modernization Act, 53 Community Reinvestment Act, 50 Consolidated Supervised Entities

program, 54 Consumer Financial Protection

Agency, 96–97 creation of environment for economic

behavior, 13 Dodd- Frank Act, 98–99 eff orts to tighten regulation of Fannie Mae

and Freddie Mac, 49 Europe, ineff ective, 108–09 , 112 , 121–22 failure to oversee new fi nancial products 16 faith in market and lack of oversight, 33 home- equity loans, 51 HUD promotion of aff ordable- housing

mortgages, 48–49 Iceland, 116–17 income inequality and, 55–56 Ireland, 129–30

Portugal (cont.)






Index 389

low interest rate policy, 57–58 nation- level agencies, 13 ownership society mantra, 47 political moral hazard, 47 registration of hedge funds and exotic

fi nancial instruments, 94–95 regulatory arbitrage, 19 repeal of Glass- Steagall Act, 52–53 Wall Street infl uence on, 14

Rehn, Olli, 135 Reich, Robert, 321 Reinhart, Carmen

on contagion, 24 on crises and recessions, 249 on frequency of crises, 32 on Greek debt crisis, 110 , 160 on Irish debt crisis, 135 on national debt, 301

Reinhart, Vincent, 110 Renault Samsung, 255 Reserve Bank of India, 237 , 240–41 , 244–45 residential mortgage- backed securities

(RMBS), 36 , 45 , 55 , 68 Resolution Trust Corporation, 84 Richardson, Matthew, 40 risk analysis, 12 RMBS (residential mortgage- backed

securities), 36 , 45 , 55 , 68 Roesler, Phillip, 163 , 166 Rogoff , Kenneth

on contagion, 24 on crises and recessions, 249 on frequency of crises, 32 on Greek debt crisis, 160 on Irish debt crisis, 135 on national debt, 301

Romney, Mitt, 233 Rosbank, 195 Rosner, Joshua, 49 Rosselhozbank, 195 Roubini, Nouriel, 7 , 21 , 300 Royal Bank of Scotland (RBS)

bailout of, 104 , 115 nationalization of, 115

Rubin, Robert, 53 , 54 Russia

bank assets, 195 call for international reserve currency, 324 call to modernize banking sector, 201–02 comparison of 1998 and 2008 crises, 196–98 contagion, 190–91 , 196 currency reserves, 194

eff ects of contraction on Central Asian countries, 200–01

external debt, 197–98 external economic indicators

(1999–2008), 194 internal economic indicators

(1999–2008), 193 invasion of Georgia, 198 , 199 need for better social safety net, 202–03 need for productivity growth, 203 Oil Stabilization Fund, 194–95 poverty and shrinking middle class, 200 poverty reduction, 285 ranking on ease of doing business, 202 resource dependency, 193 , 196 , 197 , 201 ruble stabilization eff orts, 199–200 short- selling ban and stock market

drop, 198 twin shocks of liquidity and exports,

195–96 , 198 view of as safe haven, 190 , 193–95

Santos, Joao A. C, 52–53 Sarkozy, Nicolas, 104–05 , 145 , 187 Saudi Arabia, 262 , 264 , 273 , 275 , 277 , 278 Savings & Loan bailout, 34 Sberbank, 195 , 199 Sberro, Stephan, 309 Sch ä uble, Wolfgang, 165 , 183 , 184 Schumer, Chuck, 321 Schwartz, Anna

on loan securitization, 38–39 on low interest rates, 58 on origins of Great Depression, 5 , 63 on rating agencies, 41

SDRs (Special Drawing Rights), 323–24 Securities and Exchange Commission (SEC)

Consolidated Supervised Entities program, 54

regulation of credit rating agencies, 99 regulation of derivatives, 94–95 , 99

Securities Markets Program (SMP), 147–48 selective (technical) default, 156 , 157 Sensex, 5 SGP (Stability and Growth Pact), 112 , 146 shadow banking system, 37 , 52–53 Shah, Ajay, 239 Shiller, Robert, 12 , 51 Shin, Kwanho, 303 Sierra Leone, 290 Siluanov, Anton, 328 Simpson, Alan, 302






Index390

Single Supervisory Mechanism (SSM), 154 , 155

Siu, Henry, 301 SIV (structured investment vehicles),

36–37 , 60 Slovakia

current accounts (2007–2010), 103 downgrade of debt rating, 164 EFSF implementation, 159

Slovenia current accounts (2007–2010), 103 downgrade of debt rating, 164

SMP (Securities Markets Program), 147–48 Soci é t é G é n é rale

ECB interventions, 153 fears of French downgrade, 163 ignoring risk, 114–15 weakness of, 152

Song, Chi- Young, 259 Soros, George, 61–62 , 183 Soskice, David, 28 South Africa

curbs against currency appreciation, 318 diamond market, 283

South Korea bank closures and restructuring, 251 bank recapitalization programs, 257 barriers to entrepreneurship, 202 contagion, 252–55 currency reserves, 252 currency swap agreement with China, 324 exchange rates, 260 export dependency, 236–37 , 252 , 255 failure of trade plan with US, 310 foreign currency reserves, 258 , 259–60 foreign investment, 253 , 254 GDP growth (2007–2009), 236 guaranteeing bank liabilities, 257 integration into global economy,

236–37 , 260 intensity of impact, 235 interest rates, 257 nonperforming loans (1998–2007), 235 open capital account liberalization, 253–55 reducing control of giant conglomerates, 251 response to crisis, 256–59 stimulus plans, 257 strengths of as crisis began, 252 structural and fi nancial sector reforms aft er

Asian crisis, 250–51 theories behind supposed immunity, 234–35 trade defi cit, 255

V- shaped recovery, 249–50 sovereign debt crisis. See European sovereign

debt crisis sovereign wealth funds (SWFs)

defi ned, 261–62 global central bank reserves, 20 Middle East and North Africa, 261–62 , 265 ,

269–70 , 272 , 273 , 276 Russia, 194

Spain. See also PIIGS banking crisis, 173–74 barriers to entrepreneurship, 202 bond yields, 141 , 171 , 176 , 179 budget defi cit reduction, 172 capital outfl ows, 188 crisis and bailout, 137–38 , 171–72 , 179 current accounts (2007–2010), 103 downgrade of debt rating, 164 ECB bond- buying plan, 162 ECB easing of collateral rules, 177 economic decline (2011–2012), 188 fears of need for unaff ordable bailout, 139 government debt as percentage of GDP

(2005–2009), 107 national debt, 107 , 142 , 175 preferred creditor status, 178 real estate bubble, 121 , 137–38 , 172 regional debt, 172 , 179 rescue versus bailout, 174–75 sale of Bradford and Bingley to Grupo

Santander, 102–05 stress- testing of banks, 151 wage increases, 120–21

Special Drawing Rights (SDRs), 323–24 Spence, Michael, 300–01 , 302 Sri Lanka, 223 SsangYong Motors, 255 SSE180 Index, 5 SSM (Single Supervisory

Mechanism), 154 , 155 Stability and Growth Pact (SGP), 112 , 146 stability bonds proposal, 186 Standard & Poor’s

confl icts of interest, 12 , 41 downgrade of Greek debt, 125 downgrade of Indian debt, 245 downgrade of Irish debt, 131 , 133 downgrade of MBSs, 60 downgrade of rating of nine nations, 164 downgrade of US debt, 161–62 , 322 French rollover plan, 156 negative watch on Greek debt, 124






Index 391

Standard & Poor’s 500, 78 state and local government debt, 8 State Bank of India, 238 state capitalism (Keynesian state capitalism),

rise of, 26–29 Stiglitz, Joseph, 11 , 94 stimulus plans. See public interventions stock markets

China, 209 Iceland, 116 , 117 India, 240 Middle East and North Africa, 265 ,

268–69 , 272 Russia, 198 Sub- Saharan Africa, 284 United States, aft er announcement of Fed

purchase of long- term debts, 92 United States, aft er announcement of

Financial Stability Plan, 78 United States, losses (2009), 5 United States, reaction to initial rejection

of TARP, 4 United States, trends in, 5

Strauss- Kahn, Dominique, 310–11 stress- testing of banks

Europe, 150–52 United States, 74–76 , 95–96

structured investment vehicles (SIV), 36–37 , 60

subprime loans borrowers with good credit, 43 CDOs, 45 comparison of types of mortgages, 42–43 default and delinquency, 46 increase in, 41–42 private- label RMBSs, 45 risks of, 44–45 variable rates, 43–45

subprime mortgage crisis argument for more and better

information, 12–13 beginnings of default and

delinquency, 46 , 58 benign economic environment and, 12 bursting of housing bubble, 60–61 clarifi cation of mortgage modifi cation

rules, 85 Community Reinvestment Act, 50 credit crunch, 61 decreasing equity, 59 diffi culty of refi nancing, 59 downgrade of MBSs, 59–60

exemption of most home sales from capital- gains taxes, 50–51

falling home prices, 58 , 59 fear of insuffi cient help for homeowners, 81 Federal Reserve low interest rate policy, 11 foreclosures (2007), 60 foreclosures in spite of Bush and Obama

administration plans, 69–70 global savings glut, 10–11 government failure explanations for, 14–17 home- equity loans, 51 increase in foreclosures, 58 , 59 , 60 judicial mortgage modifi cation, 85 , 87–88 loan securitization, 19–20 loosening of lending standards, 11 market failure explanations for, 10–14 negative equity, 60 Obama administration plan to reduce

foreclosures, 74 , 85–88 problems in wider economy and, 11–12 questions regarding, 14 repeal of Glass- Steagall Act, 52–53 role of Fannie Mae and Freddie Mac

in, 48–50 situations not covered by loan- modifi cation

plans, 86–87 Subramanian, Arvind, 237 , 238–39 Sub- Saharan Africa. See also least- developed

countries commodity exports, 282–83 GDP growth (2006–2009), 280 poverty levels, 284–85 reduction in investment fl ows, 284 regional economic integration, 293 slowdown in growth rate, 281 stimulus eff orts, 290 theories behind supposed immunity, 279–81 trade with China, 285 vulnerabilities of world’s poorest, 285–86 worker remittances, 284

Sudan, 264 , 290 sudden stops, 24 Sufi , Amir, 48 , 56–57 Summers, Lawrence, 53 , 82 SunTrust Banks Inc., 96 swap lines (reciprocal currency

arrangements) China, 324 defi ned, 69 European debt crisis, 104 between Federal Reserve and foreign central

banks, 5 , 23–24 , 68–69






Index392

Sweden current accounts (2007–2010), 103 loans to Latvia, 191 national debt (2010), 107 , 142

SWFs. See sovereign wealth funds Switzerland

banking exposure to Irish economy, 136 current accounts (2007–2010), 103 international assets versus liabilities, 119

Syria, 264 , 278

TAF (Term Auction Facility), 68 Taiwan, 318 Tajikistan, 200–01 Takagi, Shinji, 247 Taleb, Nassim Nicholas, 6 , 37 TALF (Term Asset- Backed Securities Loan

Facility), 93 Tanzania, 290 TARP (Troubled Assets Relief Program)

bonus issues, 91–92 buy up of mortgage- backed securities, 93 Capital Purchase Program, 68 , 69 changes in usage of, 69 failure of, 64–66 , 70 initial rejection of by Congress, 4 Obama administration use of remaining

funds, 71–72 origin of, 4 , 66 passage of, 4–5 size of, 64

Tata, 243 tax cuts and breaks

98 percent versus 2 percent, 89– 90 in American Recovery and Reinvestment

Act, 78–79 exemption of most home sales from capital-

gains taxes, 50–51 government spending versus, 80–82 self- fi nancing theory, 33–34

Taxpayer Relief Act, 50–51 Taylor, John, 57 , 62 , 70–71 , 169 Tea Party, 28 technical (selective) default, 156 , 157 Temporary Liquidity Guarantee Program

(TLG), 68 Term Asset- Backed Securities Loan Facility

(TALF), 93 Term Auction Facility (TAF), 68 Th ailand

curbs against currency appreciation, 318 export dependency, 223 , 236

Th irteen Bankers: Th e Wall Street Takeover and the Next Financial Meltdown (Johnson and Kwak), 14

Th is Time is Diff erent: Eight Centuries of Financial Folly (Reinhart and Rogoff ), 32

Th omas, Landon, 138 TLG (Temporary Liquidity Guarantee

Program), 68 “Towards a Genuine Economic and Monetary

Union” proposal, 153–54 tranches, 36–37 , 39 , 45 Transaction Account Guarantee Program, 68 Treasury securities

Brazilian investment in, 205 Chinese investment in, 21–22 , 204–05 defi ned, 231 Fed purchase of, 313 , 316 , 327 foreign holders of, 205 foreign holdings of, 23 Japanese investment in, 204–05 security and liquidity of, 161–62 United Kingdom investment in, 205 yield waiting for details of TARP

implementation, 69 yield with no foreign offi cial purchases, 21

Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (European Fiscal Compact), 145–46

Trebbi, Francesco, 48 Trichet, Jean- Claude, 123 , 162 troika (EC, ECB and IMF). See also European

Central Bank ; European Commission ; IMF

criticism and pessimism regarding, 143 , 144–45 , 158 , 170–71

debt restructuring for Greece, 159 intervention package for Greece, 157 ,

158 , 165–66 permanent monitors for Greece, 167 quarterly inspections, 174–75

Troubled Assets Relief Program. See TARP Truman, Edwin, 309 Trump, Donald, 271 Tunisia, 264 , 267–68 Turkey, 202

UAE. See United Arab Emirates Ueda, Kazuo, 247 Uganda, 284 Ukraine

emergency loans to, 192–93






Index 393

fl ight of investors, 191–92 pegged exchange rates, 190 steel exports, 192

underwater (negative equity), 59 , 61 , 85 , 87 unemployment and job losses/cuts

Cambodia, 282 China, 211–12 Congo, 283 Egypt, 265 , 266–67 India, 242 Ireland, 134 Japan, 247 Middle East and North Africa, 276 Russia, 200 Russia (1999–2008), 193 South Africa, 283 South Korea, 252 Spain, 171–72 UAE, 274 United Kingdom, 115 United States, 312 United States (1982), 32 United States (2007–2009), 80 United States (2009), 5–6 United States, jobless recovery, 82 United States, loss of manufacturing

jobs, 91 , 225 United States, without stimulus, 65 Zambia, 283

UniCredit Bank, 152 , 195 United Arab Emirates (UAE)

asset depreciation, 272 bond- buying plan, 273 currency pegging, 277 deposit guarantees, 273 diversifi cation of investments, 268–69 emergency lending, 273 emergency liquidity support, 273 , 275 interest rate reductions, 273 investor withdrawal, 274–75 oil export dependency, 269–70 , 274 real estate bubble, 270–72 , 273–74 real GDP (2007–2010), 262 states of, 263 theories behind supposed immunity, 268–69 trade openness, 264

United Kingdom banking bailout and

nationalization, 104 , 115 banking exposure to Irish

economy, 134 , 136 concern over banking union, 155

contraction of economy, 115 current accounts (2007–2010), 103 dispute with Iceland over guarantees to

account holders, 118–19 GDP growth (2006–2009), 280 guarantee scheme, 115 investment in Treasury securities, 205 national debt (2010), 107 , 142 ranking of banking system, 106

United States. See also subprime mortgage crisis

administrative and regulatory failure, 47–58 bank consolidation, 52 banking exposure to Irish economy, 136 bursting of housing bubble, 58–61 compared to Eurozone, 179–81 current accounts (2007–2010), 103 debt- ceiling issue, 161 dependence of growth and employment on

domestic demand, 300–01 diffi culties of economic rebalancing, 301–02 downgrade of debt, 161–62 GDP growth (2006–2009), 280 housing market, 34–38 loan securitization, 38–41 nonperforming loans (1998–2007), 235 obligation to least developed

countries, 288–89 pressure against Chinese currency

manipulation, 225–27 , 229–31 , 233 , 311–12 , 317–19 , 321 , 322

pressure on EU to do more, 171 public and private debt, 301 ranking of banking system, 106 ratio of public plus private debt to GDP

(2009), 6 rejection of US policies and goals by G- 20,

310–14 , 315–17 relations with China, 296 solvency of banking system, 207 subprime mortgage market, 41–46 trade imbalance with China,

205–06 , 225–27 trade imbalance with major trading

partners, 226 Unocal, 325 unqualifi ed optimism (irrational

exuberance), 34 , 122 U- shaped recovery, 98 Uzbekistan, 200–01

Van Rompuy, Herman, 145 , 153–54






Index394

Varieties of Capitalism (Hall and Soskice), 28 vertical specialization, 25 Vietnam, 223 , 236 Volcker Rule, 99 , 100 V- shaped recovery, 98 , 249–50 VTB, 195 VTB- 24, 195

Wachovia Corporation, 4 Wade, Robert, 54 Wallison, Peter, 50 , 51 WAMU. See Washington Mutual Wang Qishan, 230 Warnock, Francis, 21 Warnock, Veronica, 21 Washington Mutual (WAMU)

acquisition of by JPMorgan Chase, 4 incentives to make risky loans, 49 profi ts through derivatives, 38

wealth eff ects China, 217 complacency due to, 6 defi ned, 6 home- equity loans, 56–57

Weizs ä cker, Jakob von, 185 Wells Fargo Bank

increases in earnings, 95 risk of bankruptcy, 75 stress testing, 96

Wen Jiabao, 213 , 228 , 322–23 Winner- Take- All Politics (Hacker and

Pierson), 55 Woo, Wing Th ye, 215

Woori Bank of Korea, 234 World Bank

Global Trade Liquidity Program, 291 multilateral cooperation, 299 stimulus for Middle East and North

Africa, 276 World Economic Forum, 106 Th e World in Depression: 1929–1939

(Kindelberger), 30 W- shaped recovery, 98 Wyplosz, Charles, 182

Xie Xuren, 314

Yemen dependence on external assistance, 268 food and fuel crisis, 267–68 isolation from global economy, 268 real GDP (2007–2010), 262 stagnating economy, 267 stimulus plans, 268 trade openness, 264

Zakaria, Fareed, 298 Zakharova, Daria, 193 Zambia, 283 Zandi, Mark, 65 Zhang, Wei, 215 Zhang, Yumei, 218–19 Zhang Tao, 317 Zhou Xiaochuan, 228 , 314 , 323–24 Zingales, Luigi, 52 , 53 Zoellick, Robert, 289






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