LEVERAGE A measure of the extent to which an asset is financed with borrowed money. A $100,000 home that is purchased with $10,000 cash and a $90,000 mortgage is leveraged at ten to one (the home value divided by the homeowner’s equity). The danger of leverage becomes clear when asset prices fall. If the value of the home dropped to $80,000, the homeowner would have lost his or her entire cash investment, and could not cover the mortgage even by selling the home. Investment banks like Lehman Brothers were typically leveraged at thirty to one before the crash ($3 billion in assets would be financed with $100 million of equity and $2.9 billion of borrowings). To make matters worse, the borrowing was often short-term, so it had to be paid back in full and refinanced several times throughout the year. When financial assets plummeted during the crash, many Wall Street firms were immediately insolvent.
LIQUIDITY The state of availability of cash or financial instruments that can be quickly converted to cash.
LIQUIDITY PUT A financial contract that requires one party to refinance or purchase an asset held by the other party under certain conditions.
LOAN-TO-VALUE RATIO (LTV) The ratio between the principal amount of a mortgage or mortgages and the market value of real property securing the mortgage(s), usually expressed as a percentage.
MARK-TO-MARKET An accounting convention by which the carrying values of securities are regularly adjusted to reflect their current market values.
MORTGAGE-BACKED SECURITY (MBS) A credit instrument supported by residential or commercial mortgages. An MBS may or may not be structured. (See entry for collateralized debt obligation.)
OFFICE OF THE COMPTROLLER OF THE CURRENCY An arm of the US Treasury Department that charters, regulates, and supervises all national banks and certain branches and agencies of foreign banks in the US.
OPTION-ARM An adjustable rate mortgage, usually with a “teaser”, or below- market initial interest rate, that allows borrowers, at their option, to make lower than scheduled payments during the early years of the loan. When the rate is reset to a market rate, the accumulated payment shortfalls are added to the loan principal.
PRIVATE-LABEL SECURITIES Mortgage-backed securities constructed and distributed by private investment banks and securities dealers (as opposed to MBSs distributed by Fannie Mae, Freddie Mac, or other US government mortgage agencies).
SECURITIES AND EXCHANGE COMMISSION (SEC) Independent US federal agency responsible for protecting investors by enforcing federal securities laws, including regulating security and security options exchanges, broker-dealers, investment companies, and other securities professionals, and the issuance and sale of securities.
SECURITIZATION The process of pooling mortgages, credit card receivables, or other instruments in a separate legal entity to secure the issuance of new financial instruments to investors.
SHADOW BANKING SYSTEM Nonbank financial institutions, like hedge funds, private equity funds, mutual funds, and other investment vehicles, that often provide credit and perform other activities that parallel the formal banking system. The ballooning of the shadow banking system in the 2000s made it difficult for regulatory officials to track the volume of credit in the financial system.
SYNTHETIC CDO A collateralized debt obligation that is constructed of credit default swaps rather than of real securities. By using synthetic CDOs to reference very high-risk real CDOs, Wall Street greatly increased the volume of very risky assets in the market.
TRANCHE The French word for “slice”, used to refer to the various layers of securities making up a structured financial instrument.
UNDERWRITING The process of determining the risk and value of a security. Investment banks underwrite securities when they evaluate the creditworthiness of issuers and establish a price for distributing the securities to investors; mortgage lenders underwrite mortgages by evaluating the creditworthiness of the borrower and the market value of the underlying property.
WRITE-DOWN An accounting process by which the value of an asset is reduced from a previous accounting value. Frequently, when a company writes down an asset, the amount of the write-down must be deducted from reported profits.
INDEX
* * *
A
ABACUS 2007-AC1 (AC-1)
ABN Amro
ACA Management LLC
Academia
conflict-of-interest and
consequences of corruption
consulting firms and
examples of money people
financial services industry and
foreign policy and
pharmaceutical industry and
speakers’ bureaus and
Accounting fraud
Accounting profession
Ackman, William
Adjustable-rate mortgages
Advertising, political
AEBI
Afghanistan
Agribusiness/food industries
AIG
AIG Financial Products (AIGFP)
Air Products and Chemicals
Alcoa
Alliance Capital
Alt-A loans
Amazon
Ambac Financial Group
American Economics Association (AEA)
American Express
American Home Mortgage, Inc. (AHM)
Ameriquest
Analysis Group
Antitrust policy
AOL/Time Warner
Apollo Management
Apple
Armstrong, C. Michael
Arthur Andersen
Asian financial crisis
Associates First
AT&T
Auction-rate securities (ARS)
B
Bachmann, Michele
Bain Capital
Bair, Sheila
Baker, Meredith
Bank of America
Bankers Trust
Banking industry. (see also Financial criminality; Investment banking)
in 1980
auction-rate securities (ARS) and
Banking industry
bailouts
compensation
Enron and
fake humility of bankers
Internet bubble and
leverage
Madoff and
money laundering and
political activities and
Spitzer lawsuits and
tax evasion and asset concealment and
Barber, Benjamin
Barclays Bank
Barclays Capital
Barings Bank
Bear Stearns
Bebchuk, Lucian
Beneficial Finance
Berkeley Research Group
Bernanke, Ben
Big Short, The (Lewis)
Birkenfeld, Bradley
Black, Leon
Black Monday
BlackRock
Blackstone
Blakey, Robert
Blankfein, Lloyd
Blodget, Henry
Bloomberg News
BNP Paribas
Boehner, John
Boesky, Ivan
Bogle, John
Bonuses
Bookstaber, Richard
Born, Brooksley
Bowen, Richard
Brattle Group
Brazil
Breuer, Lanny
Bribery
Broadband infrastructure
Brookings Institution
BT Securities
Budget deficits
Buffett, Warren
Burma
Bush, George H. W.
Bush, George W.
Bush, Neil
Bush administration
C
Cain, Herman
California
electricity shortages in
housing bubble in
Callan, Erin
Campaign contributions
Campbell, John
Canadian Imperial Bank of Commerce (CIBC)
Canopy economy
Capone, Al
Car industry
Car loans
Carlyle Group
Carter, Jimmy
Case-Shiller US National Home Price Index
Cassano, Joseph
Cayne, Jimmy
CDOs (see Collateralized debt obligations (CDOs))
CDSs (see Credit default swaps (CDSs))
Center for Responsive Politics
Centerview
Cerberus Capital Management
Certificates of deposit (CDs)
Channel Islands, tax evasion and
Charles River Associates
Charles Schwab, Inc.
Chase Bank n
Chemical Bank, n
Chicago Board Options Exchange
Child poverty
China
Christ, Carol
Chrysler Corporation
Citigroup
Civil lawsuits
Class-action lawsuits
Clayton Holdings
Clinton, Bill
Clinton administration
Cohan, William
Cohn, Gary
Collateralized debt obligations (CDOs)
synthetic CDOs
Collateralized loan obligations (CLOs),
Collateralized mortgage obligations (CMOs)
Columbia Business School
Commercial banking (see Banking industry)
Commodity Futures Modernization Act of 2000
Commodity Futures Trading Commission (CFTC)
Common Cause
Community Reinvestment Act
Compaq
Compass Lexecon
Compensation
Computer industry
Conflicts-of-interest
Consulting firms
Consumer electronics industry
Corporate taxes
Corzine, Jon
Council on Foreign Relations
Countrywide Financial Corporation
Covington & Burling
Cox, Christopher
Craigslist
Crandall, Robert
Cranston, Alan
Credit cards
Credit default swaps (CDSs)
Credit scores
Credit Suisse
Credit Suisse First Boston
Credit unions
Criminal asset concealment
Criminal prosecution
accounting fraud and
antitrust violations and
bribery and
Enron and
honest services violations and
insider trading and
lack of
Milken and
moral argument for
perjury and
RICO offences and
Sarbanes-Oxley violations and
S&L scandals and
Spitzer and
Criterion
Cruz, Zoe
Cutler, Chris
D
D.E. Shaw
Daiwa Bank
Dean Witter
Decade of Greed
DeConcini, Dennis
Deficit spending
Del Monte Foods
Dell Computer
Democratic Party
Demon of Our Own Design, A (Bookstaber)
Denmark
Deregulation
Derivatives. (see also Credit default swaps (CDSs))
Deutsche Bank
Dillon Read Capital Management
Dimon, Jamie
Dirksen, Everett
Dodd, Chris
Dodd-Frank law
Donilon, Tom
Dot-com stocks
Drexel Burnham Lambert
Drug cartels
Dudley, William C.
Due diligence
E
Early payment defaults (EPDs)
eBay
Ebbers, Bernie
Education
access to
cost of university
school dropout rates
school graduation rates
university graduation rates
Education Management Corporation
Ehrlichman, John
80/20 piggyback loans
Einhorn, David
Eisenhower administration
Eitel, Charlie
Ellison, Larry
EMC Mortgage
Employment cheques
Energy industry
Enron Corporation
Ernst & Young
Estate agents
Estate taxes
Estée Lauder
European sovereign debt crisis
European Union
Extremist political movements
F
Facebook
Fagell, Steve
Fannie Mae (Federal National Mortgage Association (FNMA))
Federal aid disclosure regulations
Federal asset seizures
Federal bailouts
Federal Bureau of Investigation (FBI)
Federal Deposit Insurance Corporation (FDIC)
Federal Home Loan Bank Board
Federal Housing Administration
Federal Reserve
Federal stimulus spending
Federal student loans
Feldstein, Martin
FICO scores
Financial Accounting Standards Board (FASB)
Financial bubble of 2001–2007
Bear Stearns
Citigroup
conduct of senior executives
financial culture and corporate governance during
Goldman Sachs
housing
Magnetar
Morgan Stanley
rating agencies
Schwab complaint
Financial Crimes Report to the Public (FBI)
Financial criminality
auction-rate securities
Del Monte case
Enron
financial crisis as logical culmination of
Internet bubble
JPMorgan Chase
Madoff and
money laundering
rise of post-deregulation
tax evasion
Financial Crisis Inquiry Commission (FCIC)
Financial crisis of 2008,
European debt crisis and
federal bailouts
knowledge of
as logical culmination of financial criminalization
post-crisis recession
of 1980s
warnings of
Financial Industry Regulatory Authority (FINRA)
Financial innovation
Financial Services Authority (FSA)
Financial services industry
academia and
extreme leverage
short-term financing
structural concentration and
systemic interdependence in
unregulated
Fines
Fink, Larry
Finland
First Boston
First Franklin
Fisher, Franklin
Fisher, Peter
Fitch
Fixed-rate mortgage terms
Flipping houses
Florida
Fons, Jerry
Ford Motor Company
Foreclosures
Forstmann, Ted
Fortune magazine
Foster, Eileen
Foxconn
France
Frank, Barney
Freddie Mac (Federal Home Loan Mortgage Corporation (FHLMC))
Freedom of Information Act
Freescale Semiconductor
Fremont
Friedman, Stephen
Froman, Michael
Fuld, Richard
G
Garland, John
Garn-St. Germain Act
Geithner, Tim
General Electric
GE Capital
General Motors
Gensler, Gary
Germany
Gerrymandering
Gibson Greeting Cards
Giddens, Anthony
Gilbert, Richard
Gingrich, Newt
Glass-Steagall Act of 1933,
repeal of,
Glenn, John
Global Crossing
Globalization
GMAC
Gnaizda, Robert
Golden West Financial
Goldman Sachs
Goldstein, Jeffrey
Google
Government-sponsored enterprises (GSEs)
Gramm, Phil
Gramm, Wendy
Great Britain
Great Depression
Greatest Trade Ever, The (Zuckerman)
Greece, debt crisis and
Greenberg, Ace
Greenberg, Maurice (Hank)
Greenlining Institute
Greenmail
Greenspan, Alan
Greenwich Capital
Gregory, Joe
Grove, Andy
Gruber, Jonathan
Grubman, Jack
GSAMP Trust
H
H&R Block
Haarde, Geir
Haggerty, Mary
Halliburton
Harbinger Capital
Hard money lender
Harvard Corporation
Harvard University
“Has Financial Development Made the World Riskier?” (Rajan)
Hausman, Jerry
Health care industry
Hedge funds
Hernandez, Carlos M.
Hewlett-Packard
High-frequency trading
High school dropout rates
High school graduation rates
Hockfield, Susan
Hogan, John P.
Holbrooke, Richard
Holder, Eric
Home equity lines of credit (HELOCs)
Home equity loans
Home Ownership and Equity Protection Act (HOEPA)
Homelessness, rise in
Honest services violations
Hormats, Robert
Hostile takeovers
House Financial Services Committee
“House of Junk” (Sloan)
Household Finance
Housing and Urban Development (HUD), US Department of
Housing bubble
Housing prices
“How Capital Markets Enhance Economic Performance and Facilitate Job Creation” (Hubbard and Dudley)
HSBC
HSH Nordbank
Hubbard, Glenn
Hubler, Howie
Hudson Mezzanine Funding 2006-1
Hungary
I
IBM Corporation
Icahn, Carl
Icelandic bank debt
IKB Industrie Deutschebanke AG
Immelt, Jeffrey
Incentives
Income inequality
India
Inflation
Information technology
Infrastructure
Initial public offerings (IPOs)
Inside Job (documentary)
Insider trading
Insurance
Intel
Interchange fees
Interest-rate swap agreements
Interest rates
Inside Job Page 38