Managing financial risks from global to local edited by gordon l clark adam d dixon and ashby h b monk

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Managing Financial Risks This page intentionally left blank Managing Financial Risks: From Global to Local Edited by Gordon L Clark, Adam D Dixon, and Ashby H B Monk Great Clarendon Street, Oxford ox2 6dp Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York q Oxford University Press 2009 The moral rights of the authors have been asserted Database right Oxford University Press (maker) First published 2009 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available Typeset by SPI Publisher Services, Pondicherry, India Printed in Great Britain on acid-free paper by MPG Biddles ISBN 978–0–19–955743–1 (hbk.) 10 For Shirley, Olga, and Courtney This page intentionally left blank Contents Notes on Contributors Preface Acknowledgments List of Figures List of Tables Abbreviations Introduction ix xv xviii xx xxi xxii Gordon L Clark, Adam D Dixon, and Ashby H B Monk Part I: Governing Global Financial Risk The Changing Political Geography of Financial Crisis Management Louis W Pauly Financial Governance in the Neo-liberal Era Gary Dymski Risk Management and Institutional Investors Gordon L Clark 27 48 69 Part II: Place, Proximity, and Risk The Practicalities of Being Inaccurate: Steps Toward the Social Geography of Financial Risk Management Yuval Millo and Donald MacKenzie Learning to Cope with Uncertainty: On the Spatial Distributions of Financial Innovation and its Fallout Ewald Engelen The Role of Proximity in Secondary Equity Markets Dariusz Wo´jcik 95 120 140 vii Contents Part III: Urban Risk Infrastructure Investment and the Management of Risk Phillip O’Neill Balancing Risk and Return in Urban Investing Lisa A Hagerman and Tessa Hebb Managing Financial Risks in Urban Environments Samuel Randalls 163 189 209 Part IV: Individuals in a Risk World 10 Managing Financial Risks: The Strange Case of Housing Susan J Smith 11 Gender, Risk, and Occupational Pensions Kendra Strauss 12 Consumer Credit, Self-Discipline, and Risk Management Paul Langley Index viii 233 258 280 301 Notes on Contributors Gordon L Clark is the Halford Mackinder Professor of Geography, holds a Professorial Fellowship at St Peter’s College and is currently a Faculty Associate in the Smith School of Enterprise and the Environment at Oxford University His current research is on pension fund governance focusing upon the competence and consistency of decision-makers and the design of rules and regulations to enhance the investment performance of these crucial institutions (supported by the National Association of Pension Funds and Watson Wyatt) Related work centers on individual financial decision-making in defined contribution plans emphasizing the intersection between cognition and context (supported, in part, by the ESRC, Mercers, and Watson Wyatt) Recent books include The Geography of Finance (OUP, 2007) (with Dariusz Wo´jcik), Pension Fund Capitalism (OUP, 2000), European Pensions and Global Finance (OUP, 2003), and the coedited Pension Security in the Twenty-First Century (OUP, 2003) and the Oxford Handbook of Pensions and Retirement Income (OUP, 2006) Adam D Dixon is a D.Phil candidate in economic geography at the OUCE, University of Oxford His doctoral research focuses on developing conceptualizations of European and global financial geography in the context of globalization and institutional diversity He holds a graduate degree from the Institute d’Etudes Politiques de Paris and an undergraduate degree from The George Washington University Elliott School of International Affairs He has published in New Political Economy and Soziale Welt, and has a forthcoming article in the Journal of Economic Geography He is also the International Economy Editor for Oxford Analytica Gary A Dymski is founding Director of the University of California Center, Sacramento (UCCS), and professor of economics at the University of California, Riverside He received his B.A in urban studies from the University of Pennsylvania in 1975, an MPA from Syracuse University in 1977, and a Ph.D in economics from the University of Massachusetts, Amherst in 1987 He was a research fellow in economic studies at the ix Index Germany 1, 28, 32, 35–6, 124, 126 blue-chip stocks 142 house rental 253 n Gersovitz, M 66 n Ghilarducci, Theresa 262 Gigerenzer, G 78 Gill, S 283 global financial markets 5, 16, 29, 69, 70, 74, 85 current shake-out in 175 logic of 86 pension funds and retirement income institutions in 83, 87 political authority to stabilize 34 radical rupture in 122 vulnerability to herd behavior 86 global pricing activity global-South economies 55, 59, 60 globalization 3, 265 Globex 248 gold 51–2, 179 Goldman Sachs 1, 5, 134 Goodhart, C 32, 35 governance 8, 16, 48–67, 79, 210 consequences of systemic failures in 70 decision-making and 75–8 global 69, 70 improvements in 152 local 70, 146 structures facilitating centrality of finance 224–5 trade and exchange 10, 12 see also corporate governance government bonds 262 government intervention 210, 215 governmentality 211, 224, 283, 284, 285 Granovetter, Mark 98, 131, 132 grants 200 Great Depression (1930s) 41, 54 Greece 233–4 Greenfield, C 259 Greenspan, Alan 130 Grinblatt, M 143, 146 Grote, M H 141 Guangdong 147 Gulf Coast 218, 219 Guseva, A 283, 286 Guy Carpenter & Company 216, 217 Hagerman, Lisa A 19, 195, 196, 199, 205 n Haigh, G 186 Halifax-style indices 254 n Hall, P A Hanson, S 265 hard information 149, 156 distinction between soft and 153 increasing production of 155 remote investor can access 145 sophistication in the use of 154 Harmes, A 258, 260, 263, 273 n Harvard Business School 193 Harvey, David 190 Hasan, I 152 Hau, H 142, 143, 144 Hayek, F A von 122, 130 HDDs (heating degree-days) 217 Heathrow 218 heatwave exposure 210 Hebb, Tessa 19, 190, 201 hedge funds 4, 5, 52, 58, 61, 62, 63, 122, 128, 194, 218, 238, 239 clean technology 213 cut off from existing circuits of capital 133 limits imposed on position-taking 59 rise of 123 suitable for housing 254 n unprecedented systematic risks through 271 Hedge Street 254 n hegemonic masculinity 268 hegemonic power 52–3, 66 asymmetric 49, 50, 57–61 herd behavior 17, 72, 157, 295 fueling 154, 155 global financial markets vulnerable to 86 localized 154 Herstatt 28, 29, 31, 41 hierarchy 149, 150 high-risk customers 290 high-risk loans 62 higher-risk investments 200–2 Hill Samuel & Co Ltd 163 Hinkelmann, C 254 n Hispanics 267 Hodgson, G 130 home bias 141, 142, 143, 144, 147, 149, 157 major determinant of 148 home ownership, see owner-occupation Hong, H 147 Hong Kong 184 house prices 1, 12, 226, 239, 246, 247 appreciation 63, 234, 253 n ever-upwards trajectory 10 falling 236, 271, 296 increased 127 rising 62, 289 sustainability of housing derivatives 243, 251, 252 311 Index housing derivatives (cont.) creating a market for 235, 238, 244, 248 cultural economy of the market for 245 economic logic and social case for working with 240 exchange-traded 250 false starts and slow momentum of market for 245 forerunners of 254 n importance of indices for success of markets 247 infrastructural requirements of a market for 246 insurance function of 239 over-the-counter markets for 241 potential to change the way credit risks are experienced 253 housing markets 21, 171, 233–4, 238, 241–7, 249, 252–7, 272 affordable units 195, 201, 203 appreciation in 239 bubble in 1, 10, 54, 61, 295 downturn triggered 64 exchange trading and 248 expected growth in 13 funds into 54 gathering boom in 62 geographically stratified nature of 14 higher rates of return 13 increased demand 197 local low-income tax credits 198, 199 marginality to virtual economy 251 market pricing of risks 224 mortgage and financial markets and 237 national, organization of 124 near-term surplus of supply 10 portfolios disproportionately exposed to mixed fortunes of 240 price movements in 20 slowdown in 236 synthetic 235, 237, 238, 250 turbulence emanating from 27 uneven distribution of wealth 273 n HSBC (Hongkong & Shanghai Banking Corporation) 126 Huber, M 212 hurricanes 209–10, 211, 215, 216, 218–19, 222, 227 n hydropower production 220 Ibbotson, R 204 n Iceland 269 312 ICT (Information and Communication Technologies) 123, 136 identity theft 294 illiquidity 192, 236, 245 financial returns measured and adjusted for 200 long-term 194, 197, 202 IMF (International Monetary Fund) 28, 29, 37, 38, 51, 57, 58, 59, 128 imperfect markets 193, 198 inappropriate behaviors 183 inclusion 285 index-based financial instruments 242, 251 India 166, 227 n., 254 n indices 163, 184, 214, 236, 254 n climate change 225 energy sector 217 funds that have out-performed 189 global warming 20, 220, 221, 223 hedonic 246, 247, 254 n house-price 241, 246–7, 248, 249, 296 hurricane 218–19 meteorological 217 repeat sales 246, 247, 249, 254 n stock market 296 sustainability 213 tradeable 247, 249, 250 see also ABS-HE; FT; Lehman; MSCI; Nationwide-Anglia; NCREIF individuals 19–20, 144, 146, 231–300 enlarged involvement in investment 224 obliged to provide for own freedom and security 285 portrayed as natural utility maximizers 263–4 individuals role of 70 Indonesia 58 inequalities: economic 210 exacerbated 270 gender 21, 259, 260, 261, 272 racial 62 social 210 inertia 264, 269 institutional 75 inflation 18, 140, 165 accelerating/rising 52, 271 house-price 1, 2, 12 killing off 53 minimal price 59 poor hedge against 262 inflationary pressure 51, 52 information asymmetries 11, 134, 136, 145, 146 Index risks associated with 12, 191 trading free from 135 information-based assets 58 information circulation 155–6 information costs 198 information overload 144 information-sharing 32, 40 informational advantage 144, 146, 147, 151, 152 informational disadvantage 151, 152 infrastructure investment 18, 190 and management of risk 163–88 inside information leakages 151 insiders 13, 65, 127, 134, 145 Insley, J 286 insolvency 33, 61 Institutional Investor (periodical) 124–5 institutional investors 13, 134, 143, 146, 198, 203 emerging domestic markets 196 governance of 16 innovative practices 19, 189 investment imperatives 262 long-term investment horizons 190 means of managing long-term risk for 18 political risk for 202 risk management and 69–91 strategic asset allocation policy 193, 202 transformation into active financial players 128 urban investments as means to diversify risk 19 insurance 4, 52, 129, 168, 287 catastrophe 214 collective 281, 285 common problem with 222 declining ability to keep up with rise in payouts 225 deposit 40, 56 environmental finance and 222, 226 flood 213, 215, 223 legitimated 210 new forms of coping mechanism within the industry 216 regulation of 210, 215 sharp increase in price for 127 state as enabler of 224 subsidized 215 insurance regulators 84 integration 31–4, 35 see also financial market integration intellectual property rights 123, 124 interbank markets 127, 128 interdependence 3, 113 interest rates 177, 246, 59, 292 affordable 282 climbing 53 forced into the stratosphere 53 graduated 285 high 54, 62 historically low 289 instability of 52 low 13, 289 minimized 282, 292, 295 nominal, unprecedented 53 option of increasing 291 spiked 52 stubbornly high 297 zero percent 288 intermediaries/intermediation 27, 38, 50, 54, 99, 167, 196, 199, 254 n., 267 discipline of 56, 57 globally expansive 29 improved risk management practices by 43 knowledgeable 202 liquidity-intensive 61–4 maintaining public confidence in 49 mechanisms for governing 10 national and international, local operations of 43 neutral 36 regulated 52, 55 regulators with potential interests in 32 reinsurance 218 role of 19 sophisticated 193, 202 systemically significant 40 urban infrastructure brought to center stage by 87 internal control procedures 151 International Accounting Standards Board 83 international cooperation 42 International Financial Reporting Standards 155 internet 145 see also Egg intraday trading 144 investment allocation investment banks 1, 63, 136 branch autonomy in decision-making 150 bulge bracket 128, 133, 134 fee incomes 123 international 150, 175 major most important markets 134 sophisticated 124, 126 313 Index investment decisions 14 efficacy of 74 institution monitors implementation and execution of 75 legitimization of mental shortcuts to make 144 predominant force driving 147 investment sentiment 147 investment trusts 240 investor confidence 163 investor sophistication 146 investor subject 260, 268, 269, 281 investors-of-last-resort 28 IPOs (initial public offerings) 3, 19, 134, 175 IRR (internal rates of return) 200 irrational exuberance 86, 295 Isin, E 224 IT (information technology) 183, 184 advancement in 156 Italy 32, 124 Ivkovic, Z 142, 144, 146, 148 J-Curve effect 201 Japan 53, 54, 151, 216 ‘‘rice tickets’’ 254 n Jasanoff, S 212 Jefferis, C 176 Jericho Partners 88 n Jewish populations 142 Jianakoplos, N A 266 job security 265 Jones, A 150 Julien-Labruye`re, F 280 Kahneman, D 78, 81 Kaiser, R W 204 n Kalthoff, Herbert 99, 114 n Kane, E J 56 Kaniel, R 149, 154 Kaplan, P 204 n Kapstein, E 30 Katkov, N 66 n Keloharju, M 143, 146 Kempson, E 266, 267, 273 n Keynesian tradition 37, 169 Kihlstrom, J F 88 n Kindleberger, C 37, 50, 54, 122 Klagge, B 150 Klinenberg, E 210, 224, 226 Knight, Frank H 128, 129, 168, 169, 284 Knights, D 169, 280, 285 knowledge creation 154 Kohlberg Kravis Roberts 168 314 Kohler, F 204 n Korea 58 Korean War 51 Kregel, J 66 n Kremer, I 149, 154 Krueger, J I 78 Kubik, J D 147 Kynaston, D 123 labor markets 260 choices and constraints 21 knife-edge flexibility 296 opportunities 269 precarious 21 shifting fortunes 297 women’s subordinate position in 265 Labour government (UK) 262 Labuszewski, John 248 Laffargue, J.-P 37 Lamfalussy process 37 Land Registry (UK) 254 n Langley, P 21, 236, 251, 258, 260, 262, 264, 266, 268, 281, 285, 289, 290, 295 language proficiencies 183 large banks 30 dissolution of 54 distressed 55 global 64 liability management 52 stress-test scenarios 64 threatened 28 last resort, see LLRs Latin America 53, 57 debt crises 28, 31, 37, 55, 56 foreign equity analysts 153 stagnation 54 Latinos 66 n laws of chance 128 LCFIs (large, complex financial institutions) 34, 37 prospect of failures 38 leadership role 72, 73 LeComte, P 247, 254 n Lehman Aggregate Bond Index 200, 201 Lehman Brothers 1, 126, 134 Lemke, T 284 Lerner, J 87, 2014 n leveraged commitments/strategies 62, 199, 204 n buy-outs earning opportunities 63 margin plays 58–9 mortgage finance 233, 234 Index position-taking possibilities 60 Leyshon, A 11, 12, 13, 283 liability rates 51 liberalization 27 promoters of 29 liquidation 40 liquidity 36, 54, 58, 121, 218, 219, 251 access to 17, 32, 157 adverse impact on 152 drying up of 127, 128 emergency assistance 31 excess 128 high 13 immediate support 32 key ingredient in derivatives trading 250 local ownership and monitoring versus 152 market 10 pools of 124 reliable provision at core of payments systems 38 risk dissipated by 170 rural stocks 152 trade-off between proximity and 151, 157 liquidity-intensive strategies 49, 61–4 bounding of 65 liquidity risk 51, 151 increased 52 problems solved 56 restrained 51 litigation 223 LLRs (lenders-of-last-resort) 15, 28, 34, 37, 43, 48–51, 56, 57, 59 countries with reserve-currency status 16 strong 50, 65 Lo, V 141 loan guarantees 200 loan markets 157 local bias 141, 142, 143, 144, 145, 147, 149 factors underpinning 148 persistence of 156 related negatively to individual wealth 146 Lockheed 242 logarithmic trading 123 lognormal distribution 110, 115 n London 19, 38, 123, 124, 128, 184, 209 Loughran, T 142, 150–1, 152 Louisiana 55 lower-income areas 61, 62, 194, 199, 296 women 270 LTCM (Long-Term Capital Management) 58–60, 63, 64 Luhmann, N 283 Lusardi, A 267, 269 Maastricht Treaty ratification (1993) 31 McDowell, L 164, 272 n McFall, John 286 MacIver, R M 98 McKay, S 273 n MacKenzie, D 86, 99, 123, 124, 129, 136, 243, 245–6, 252, 253, 254 n., 268 McKinnon, R I 66 n McLean, B 186 McLeman, R 215, 223 McNamara, Paul 243, 244 Macquarie Bank 18, 87, 163–5, 168, 171, 172, 174–86 macroeconomic growth 60 macroeconomic policies 29 neoliberal-friendly 57 Madureira, L 145, 146 Mahbubani, K 136 Maine 218 Malawi 227 n Maley, Karen 163, 175, 182 Malloy, C J 144–5, 146, 153 Manhattan 209 manipulation 247 margins 104–8, 110–12, 115 n market capitalization 140, 142 foreign 41, 148 mandatory 121 market-driven models 190 market intelligence 11 market-makers 141, 146, 245, 247, 248 market segments 11, 54 most profitable 124 sub-prime 12, 13, 14 market-sensitive information 13 market share: Europe-wide scramble for 55 global-North banks 60 market volatility 80, 134 avoiding 185 exposures to 185 problems in response to 77 public interest in ameliorating costs of 86 unexpected 83 marketing 11, 283 aggressive 163 marketization 263, 283 Marsh & McLellan 216 Marshall Plan (US 1947) 51 Martin, M 169, 170–1, 174, 181 Martin, R 150, 258 Masco, J 209 Massa, M 143, 144, 145, 146, 152 315 Index MassPRIM (Massachusetts Pension Reserves Investment Management Board) 194, 195, 204 n., 205 n material sociology 242, 245–50 mathematical techniques/models 123, 129, 153 Mathiason, N 286 Maurer, B maximization 16, 27, 70, 79, 130, 189, 194, 263–4, 268, 285, 290, 291 MBNA Bank 289 MBS (mortgage-backed securities) 12, 63, 125, 127, 237, 238, 240 global demand of 10 rate-of-return premium on 13 megabanks 56, 59, 64 global 60 MEL (macroeconomic-linkages) measure 184, 185 Melamed, Leo 241–2, 245 meltdown scenarios 31, 60, 64, 121 merchant banks 163 mergers 3, 134, 214 widespread 55 Merrill Lynch 1, 126, 134, 168 Merton, R 73, 114 n., 144 see also Black-Scholes-Merton Mesopotamia 254 n Mexico 28, 53, 57–8, 59 Meyer, W B 212 Middle-Eastern sovereign wealth funds 134 Miller, P 169, 171 Millo, Y 86, 129, 241, 242 minority areas 61, 62 Minsky, H 37 Mises, L von 122 missiles 242 Mitchell, O S 267, 269 Mitchell, Timothy 296 mobility of labor 190 monetary authorities 10, 37 monetary autonomy 29 monetary policy 31, 53 adjustments in 38 independent, maintaining 29 monetary union 32, 33, 38 ‘‘money flows like mercury’’ 3, 6–9 money markets 31, 41, 52 liquidity operations to safeguard 43 monitoring decision-making 75, 77 Monk, A H B 5, 88 n., 114 n., 170, 204 n., 262, 266 ‘‘monolines’’ 127 316 monopolistic positions 18, 165 monopoly supply rights 167 Monte Carlo simulation 185 Moody’s 124, 132 Moore, N 266 moral hazard 34, 35, 36, 56 social costs of 10 Morgan Stanley 1, 5, 168 mortgages 51, 290 drying up of secondary market for 127 equity withdrawal 289 estimated 10 financial markets and 235 flexible 234 government-sponsored lenders interest rates payable on 289 leverage of finance 233, 234 long-term portfolios 54 lower-than-standard down-payments 63 new millennium fiasco 238 nonconforming 62 payment protection 236 rated quality of portfolios 10 refinancing 289 repackaging residential 124 see also MBS; sub-prime crisis Moskowitz, T J 12, 142, 143, 144, 145, 146, 154 Moss, A 163, 182 Moss, M 289 MPT (modern portfolio theory) 70, 140, 148, 189–90, 194 major weakness of 147 MSCI World Diversified Financials Index 163 multi-attribute databases 11 multi-causality 130 Munnell, A H 263, 266 mutual funds 144, 281 money-market 52 remote 146 small 150 myFICO website 292 myopic investors 190 NAFTA (North Atlantic Free Trade Area) 57 Nasdaq stocks 146 national authorities 42 National Foundation for Educational Research (UK) 273 n National Pension Savings Scheme (UK) 73 nationalism 42 nationalization Index Nationwide-Anglia house-price index 241, 247, 249 natural utility maximizers 263–4, 267 NCREIF (National Council of Real Estate Investment Fiduciaries) Property Index 200–1 neoclassical approach 8, 9, 130, 131, 132 neoliberalism 48–67, 85, 210, 211, 224, 285 dangers of 190 environmental finance 222 reduction in social welfare under 262 relative strengths and weaknesses of 226 Netherlands 4, 5, 84, 85, 124 see also under ‘Dutch’ networks 131, 132 communication 11, 33 electronic 11 mobile phone towers 166 see also financial market networks; social networks New Boston Real Estate Fund 205 n new market entrants 11, 12 New Orleans 210 New York 101, 124, 128, 184, 209, 215, 247 see also NYCERS; NYSE New York State Common 194, 204 n New York Times, The 291 New Zealand 183, 253 n., 272 n Newell, Diane 88 n newspapers 145 Nixon, J 205 n no-arbitrage assumption 100 Nobel Prize in Economics 114 n non-tradeable goods and services 152 norms 71, 244 closely guarded 99 conservative 51 emotional 260 gendered 269 investment 262 rational 282 risk-taking 269 sexual 260 social reproduction 271 North America 183 Northern Ireland 273 n Northern Rock 1, 28 Norway 269 NPSS (UK National Pension Savings Scheme) 271 nuclear power productivity 220 numeracy 269 NYCERS (New York City Employees Retirement System) 194, 201, 204 n Public-Private Apartment Rehabilitation Program 200 NYSE (New York Stock Exchange) 110 O’Barr, W 71 obligations 23, 56, 263, 292 collateralized-debt 63 consultative 40 contractual repayment 48 cooperation 40 default on 284 entrepreneurially substituted 289 future 103, 280 long-term, higher-valued 13 meeting 31, 84, 280, 281, 282, 286 performance 186 political 15, 42 regulatory 83 transferred credit 56 see also outstanding obligations Obstfeld, M 58 OCC (Options Clearing Corporation) 103–10, 112, 114 n., 115 n occupational pensions 259, 264, 266 contradictory investment practices 262 decision-making 21 financialization of 260, 262 gender gap in 260–1, 272 n marketization of 263 number of active members 263 recent changes in provision 270 risk propensity among participants 268 women with 260, 264, 265, 270 see also DB; DC O’Connell, Robert 268 O’Connor, E S O’Connor & Associates) 107 Odean, T 144 OECD (Organization for Economic Cooperation and Development) 58, 69, 84, 234, 260 Principles of Corporate Governance 155 off-balance sheet investments 1, 60 threats to market stability posed by 10 Office of Fair Trading (UK) 286 oil 52, 55, 219 financing of wells 179 Oklahoma 55 O’Leary, T 99 oligopolistic positions 18, 165 O’Malley, P 211, 221, 223, 285 O’Neill, P 18, 19, 87 ONS (UK Office of National Statistics) 261, 273 n 317 Index ontology 129, 135, 267 opaqueness 120, 125, 131 openness 29 operational decision-making 76 opportunism 131 optimization 105 Option Pricing Theory 123 options 52, 170, 200, 236 clearing 103–9 dominance of model-related practices 112 short-dated 248 see also Black-Scholes-Merton; CBOE; FOX; OCC OTC (over-the-counter) derivative trade 121, 123, 127, 241, 244–5, 249, 250, 254 n outperformance 189, 204 outsiders 13, 134, 146 outstanding obligations 21, 289 entrepreneurial administration of 281, 294 manipulation of 282, 288, 290, 291, 295, 297 responsibility of meeting 283, 285 revolvers who roll 286 overseas lending 52 oversight 39, 75, 77 funds unburdened by 62 inadequate 41 loosened capacity 54 major flaw in 55 national 59 see also prudential oversight overvaluation 51 owner-occupation 238, 239, 296 rethinking the legal infrastructure for 251 widespread/high rates of 233–4, 253 n parental leave 272 Paris 123 part-time workers 259, 260, 261, 272 n., 273 n patents 156 Pauly, L W 15, 16, 31, 37, 42, 69, 84, 85 pawnbrokers 61 pay-as-you-go pension systems pay gap 273 n payday loans 62 PBW (Philadelphia-Baltimore-Washington Stock Exchange) 101 P/E (price/earnings) ratio 153 pecuniary interest 12 pension funds 4, 13, 16, 71, 72, 75, 83, 85, 195, 199, 200 assets invested in government bonds 262 318 best practice 73, 77, 88, 204 decision-making 79 diversifying risk 19 exposure to alternative investments 189 failed investments in 192 financial returns 190 governance of 73, 79 in-state investments 203 infrastructure investing highly attractive to 18 performance of 74, 87 personal savings lodged in 167 regulated 84 restrictions on cross-border investment 69 risks associated with investment 84 socially-responsible investment strategic asset allocation policy 189, 191 sufficient 270 transparent 201 trustees of 5, 70, 73, 77, 192, 194, 259, 264, 266 funds urban investments 19 see also occupational pensions; publicsector pension funds Pensions Commission (UK) 260, 262, 263, 264, 267, 271, 272 n., 273 n Pensions Regulator (UK) 85 people of color 62 performance 74, 87, 171, 185, 186 past 192 superior 146 unknowns around 241 see also out-performance performativity thesis 97, 129, 131, 136 performing markets 250–3 personalization 221, 224 pesos 57 petrodollars PHLX (Philadelphia Stock Exchange) 101 Pillar Trust 287 Plaza Accord (1985) 53 pluvius insurance 215 Podolny, Joel 132, 133, 135 Polanyi, Karl 98 political authority 34, 42 political instability 14 political mediation 33 Pollard, J S 219 pollution 209, 212 Ponzi schemes 186 Porter, Michael 193 Portes, R 142 portfolio diversification 140, 169–70, 189, 194, 202 Index potential benefits of 141–2 universal recommendation of 147–8 post-Fordist society 259 poststructural international relations 211 pound sterling devaluation 51 poverty in old age 21 Power, M 97 Pratt, G 265 Pratt, J 11 PRB (Population Reference Bureau) 166 precipitation 217 predatory loans 62 prediction error 128 preferences 130, 273 n housing and consumption 171 inconsistent 264 investor 142 premium-based method 104, 105 premiums 85, 152 prevention function 210 prices: call option 109 energy 220 equity 140 falling 236 insurance 226 lognormal distribution of 110 oil 52, 55 production of 99 sticky 236 stock market 143 see also house prices Prinsky, C 143, 147 private-equity funds 61–3, 128, 168, 182, 193, 196, 198, 200, 201 cut off from existing circuits of capital 133 strategic growth of placements 185 targeted portfolios 204 n private information 145, 149 remote investor can access 145 spatially limited circulation of 150 private pensions 263 gendered inequality in wealth 261 mis-selling 266 privatization 18, 55, 57, 165, 167, 186, 222, 233, 263 probability 72, 110, 167 application of theory to business management 169 default 285 variance turned into 129 productive function 190 professional proximity 143 profit amassed through unorthodox strategies 58–9 ECB operations 32 potential 217 rapidly declining 124 risk-free opportunities virtually nonexistent 100 volume expanded to meet targets 61 profitability 146 failings in calculations 290 maximized 290, 291 threat to 287, 290 undercut by bad debts 291 property derivatives 245, 247, 249 checkered history of 243 commercial 241, 244, 252 experts in 243 limited market for 246 residential 244, 252 see also housing derivatives proximity 5, 16 cognitive 18 functional 17, 121–2, 132 institutional 18 organizational 17, 18, 132, 150 political-economic reputational 121 role in secondary equity markets 140–60 social 18, 121 spatial 121, 135, 150 territorial 17, 132 see also geographical proximity ‘‘prudent expert’’ system 71 Prudential (insurance company) 287 prudential oversight 49, 56, 59 asymmetric 50, 65 clearly lacking 64 PRUPIM (real estate investment management specialists) 243 Pryke, M 242, 243, 252 PSE (Pacific Stock Exchange) 101 psychology 88 n group 147 public information 145, 149 public-private partnerships 165, 215 public-sector pension funds 193–4, 199, 204 n prudent investment philosophy 196 structural aspects 191, 192 PWC (PriceWaterhouseCoopers) 166, 217, 227 n quantification 211, 213, 214 ‘‘Quants’’ 123 Quigley, J 236, 239, 247 319 Index racial inequality 62 Radar Logic 249 Rafferty, M 171, 241, 251 Ramamurtie, S 213 Randalls, S 19, 20, 87 rate tarts 288–9 rates of return above-benchmark 87 annualized 200 assets to fund retirement premised upon 268 competitive 202 expected 12, 86, 87 higher 13, 14, 85 inflation-adjusted 18 internal 200 mandates to maximize 16, 27, 70 market 19, 87 real 87 risk-adjusted 14, 88, 202, 203 short- to long-run 86 superior 144, 146, 149, 150 underwritten by economic growth 13 unrequited demand for 10 rationality 130, 169, 263, 267 gendered 270 rationalization 58 RBS (Royal Bank of Scotland) 126 Reagan Administration 53 ‘‘real bills’’ doctrine 51 real estate 54, 149, 157, 205 n., 240, 247 debt-based 196 equity 19, 193, 196, 197, 198, 199, 200 investment management 243 opportunistic 194, 197, 201 tax abatements 199 reality 130 recapitalization 55, 59 recession 52, 53 recovery function 210 recruitment process 164, 182–3 red-flagged characteristics 12 refinancing: asset position 53 mortgage 289 regional banks 1, 126 hierarchically-organized 55 regulation 52, 55, 69, 70, 73, 112, 156, 157, 244 division of 106, 110 global 128 international coordination/harmonization of 121, 156 loosened 64 320 social and environmental 212 supervision and 83–5, 86 regulatory innovation 28, 42 cross-national 41 reinsurance 214, 216, 217, 218 Reiss, Jonathan 245, 249, 251 relational banking 136 remittances 61 remote areas 146 repeat sales indices 246, 247, 249, 254 n repetition 133 repossession 234, 236 reprivatization 55 reputation 121, 133, 134, 136, 137, 184 reputational risk 253 reserve-currency status 15–16, 49–50 reservoir water planning 212 responsibilization 259, 283, 285 retail markets 11 consumer banking in upscale areas 61 investment management boards 71 retirement income 16, 20, 21, 83, 85, 87, 262, 273 n income drive to privatize 263 retrenchment 262 revolvers 286, 287, 288, 289, 297 busted 290 Rey, H 142 right-to-buy legislation 253 n risk and return 4, 189–208 see also rates of return risk assessment 97, 100, 137 accurate 60 bank’s explanation of 185 on-site client-specific 11 transformed into risk management 101, 103 risk-aversion 79, 264, 269, 291 risk-based pricing 283, 285, 290, 295 risk characteristics 11, 63 risk-evaluation 106 new methods 106 strategy-based 104 risk-free portfolios 100 risk management 2–3 consumer credit, self-discipline and 280–300 global 14–16 housing 233–57 infrastructure investment and 163–88 innovations in 41 institutional investors and 69–91 market integration and 31–4 micro-level changes in 27, 41 social geography of 95–119 Index sophisticated methods of 13, 30 unique culture of urban environments 198–200, 209–29 Risk Management Solutions (specialist risk company) 214 risk profiles 11, 79, 121, 181, 182, 264 risk tolerance 259, 260, 269 low levels of 270 significantly affected 268 Roe, M J 73 Rona-Tas, A 283, 286 Rose, N 171, 283, 285, 292 Ross, Stephen 115 n Rothstein, H 212 Rotman Center for International Pension Management 88 n Rubinstein, Mark 115 n rules 51, 60, 169, 244 breaching 131 common financial 55 derivatives accountancy 217 distinctive 71 EU-level 40 hard and fast 72 national, idiosyncratic, elimination of 55 new and enforceable 29 non-bank, arbitrage-based lending 59 specific procedures and 183 thrift investment 54 rural firms 146, 150–1, 152 Russia 31, 59, 166, 174 Sachsen LB San Francisco 101 sanctions 283 Santander Group 245 satellite financial vehicles 169 savings 245, 267, 268, 271, 281 household 51 savings & loan associations (US) 31, 51 see also thrifts Sayer, A 129, 135 scandal 266 Scandinavia 220, 272 Sceats, Peter 243, 249 scenario-simulating systems 102 Schoenberger, Erica 242 Schoenmaker, D 32, 35 Scholes, Myron 114 n see also Black-Scholes-Merton Schultz, P 142, 150–1, 152 Schumpeter, J A 122 scoring technologies 11, 13, 14 sea-level rise 209 Seasholes, M S 144, 147 SEC (US Securities and Exchange Commission) 100, 101, 102, 103, 107–9, 111–13, 114 n capital requirements 104, 105, 115 n discussions between OCC and 110 division of market regulation 106, 110 secondary equity markets 17, 61, 62, 140–60 expanded 54 understanding of 18 securitization 12, 124, 125, 126, 135, 237, 287 enhanced 56, 62 financial scene disrupted by disintermediation of 168 infrastructure earnings 174, 176 predictable long-term cash flows 177 reinsurance risk 216 self-discipline 280, 281, 291, 292, 294, 295, 296 discipline and 282–6 Egg and 286–90 entrepreneurial 21 self-regulation 121 Seoul 184 service sector 265 settlement costs 148 Shadow Financial Regulatory Committee 56 Shanghai 147 shareholder value 262 Sheppard, R 176, 179 Shiller, R J 70, 76, 83, 86, 238, 239, 295, 296 see also Case-Shiller indices shocks 52, 250–1 downward 185 short-term borrowing 52 Shukla, R K 144 Simon, H A 78 Simonov, A 143, 144, Singapore 184 single market project (EU) 32 SIVs (structured investment vehicles) 164 small business development finance 196 small firms 16, 149, 150, 151–2 Smart 2003, 59) 265 Smit, B 215, 223 Smith, Adam 10, 12 Smith, Simon 247 Smith, Susan J 20, 281 snowfall 212, 217 social change 169 social constructions 98 social interaction 147 social networks 5, 98–9 321 Index social networks (cont.) see also techno-social networks social reproduction 260, 269 social solidarity 71, 264 social welfare 262, 269 socialization 269 socially responsible investment socioeconomic geography 223 sociology 121, 242, 245–50 see also economic sociology soft information 145, 149, 154, 157 conversion into hard information 155, 156 distinction between hard and 153 investment firm size and 150 spatially limited circulation of 150 software programs 12, 99 solvency crises/problems 58, 135 Sorensen, B 142 Soskice, D W South America 136 South East England 273 n Southeast Asia 58, 134, 136 Southern European jurisdictions 253 n sovereign wealth funds 134, 135 Spain 124 spatial variegation 135 specialized investments 191, 197 profitable returns on 198 speculative schemes 52, 54, 58, 271 Spence, A M 191 spin-offs spot markets 122, 135 gold 179 spread-betting companies/market 239, 254 n spreading procedure 100–1, 103 SSF (social studies of finance) 97, 114 n stagnant wages 271 stagnation 53, 54 stakeholder pensions 272 n Standard & Poor’s 124, 125, 126, 132, 241, 246–7 standardization 283, 285 Starke, P 262 state charters 54 state-funded public pension schemes 263 State of New York Mortgage Agency 200 state sovereignty 42 deepening complexity of 15, 27–8 problems of 69 Statutory Credit Reports (UK) 293, 294 Steiger, A 199 Stein, J C 147, 149 322 Stiglitz, J E 66 n., 191 Stilwell, F 176 stock exchanges 105, 141 online residential property 254 n see also AMEX; Nasdaq; NYSE; PBW; PHLX; PSE stock markets 143, 148, 152, 296 bubbles 13, 54 crashes 109–12, 185 discrediting of 271 households not saving enough for retirement 270 large firms from capital cities more likely to be listed 151 mass investment 281 new economy 295 stock price appreciation 152 Stockhammer, E 258 strategic asset allocation policy 189, 191, 192 diversifying risk through 19 institutional investors 193, 202 investment selection and 193–6 strategic blackouts 226 n strategic decision-making 74, 76, 77 strategy-based method 104, 105, 107, 110–11 Strauss, Kendra 21 stress-testing 11, 60, 64 strips 12, 14 strong ties 132 structural decision-making 74, 77 structural holes 132 structured-investment funds 61 Stulz, R M 142, 148 sub-prime crisis 2, 3, 9–14, 86, 127, 128, 135, 211, 271, 291 hedging against loans investment strategies and liquidityintensive intermediation 61–4 overexposure to problems in 121 prospect presented by 50 uncertainty resulting from 17 write-downs and credit losses of banks a result of 134 subsidies 190, 197, 198, 199, 200 sulphur dioxide 212 superannuation 163, 167, 168, 186 supervision 42 case-by-case control protocols 65 cross-border 69 home-country 15 prudential 38, 39, 48 Index regulation and 83–5, 86 see also banking supervision; oversight supervisory agencies 49 supply and demand 131 Surowiecki, J 88 n surpluses 85 suspicion 121 Sweden 32, 73, 142, 143, 144, 269 Swidler, S 254 n Swift, B 185 Switzerland 142 Sydney 18, 163, 171, 179 multi-ethnic graduate market 183 synchronization 283 syndicates 185 systemic risk: and financial market integration 28–31, 42 vulnerability to 85 systemic stability 65 tacit information 145 tactical decision-making 74–5, 76, 77 Taiwanese market 153 takeovers 33 targeted investment 195–6, 205 n capital-driven 191 in-state 192 market-driven 190, 203 see also ETIs tax advantages 13 tax credits 198, 199 tax relief 234 teaser rate 288 technological artefacts 99 techno-social networks 103, 109, 110, 112 telecommunications 166 telephone call traffic 142 temperature 218 degree-days 217, 220 temporary employment 265 Tequila crisis (Mexico 1994–5) 57, 59 Tesobono bonds 57 Tett, G 124 Texas 55, 218 Thailand 58 Thames Barrier 19 Thomson Financial Venture Economics 200 Thrift, N 11, 71, 79, 224, 242, 264, 283 thrifts (US savings & loan associations) 56, 64 deregulated 54 failed 55 Tickell, A 224, 258 tight-money policy 53 TIMS (Theoretical Intermarket Margining System) 110–12, 115 n TMT (technology, media, and telecommunications) bubble 76 Tobin’s q 152 Tokyo Disney 216 tombstones 133, 134 Toronto 184 toxic products 121, 127, 128 trade balances 51 trademark rights 170 Tradition Property 243 transaction costs 148, 193, 198, 199, 240 transparency 59, 121, 128, 130, 135, 247 high 17, 132 regulatory measures aimed at increasing 151 TransUnion 292, 293, 294 Treasury Select Committee (UK) 286 ‘‘trips’’ 12 TrueCredit website 292, 293, 294 trust: building 121, 132 interpersonal 11 local 11 network-generated 136 relational 17, 131 trustworthiness 121, 131, 134, 137, 283, 287 reputation as marker of 133 turbulence 27, 37, 185 asymmetric hegemonic protection and 57–61 credit market 189 Turkey 59 Turner, R 197 turnover 248, 249 Tversky, A 78 Twain, Mark 148 typhoons 218 UBS (Union Bank of Switzerland) 126, 134, 168 Global Warming Index 220, 221, 223 uncertainty 1, 2, 87, 120, 136, 137, 287, 291, 297 coping with 122 distinction between risk and 128–9, 284 financial decision-making under 16, 70 future access to credit 281, 282 outbreak of sub-prime crisis reintroduced 17 reducing 241 return of 121, 135 social responses to 131–5 323 Index underserved markets 190, 194, 196–8, 201, 203 Underwood, S 145, 146 underwriting facilities 52 unfunded liabilities 189 United Kingdom 32, 41, 51, 124, 174 see also Abbey; Barclays; FSA; National Pension Savings Scheme; Nationwide-Anglia; Northern Rock; Pensions Commission; Pensions Regulator; RBS United States, see under various headings, e.g ASCE; Bretton Woods; FACT Act; Fannie Mae; Federal Trade Commission; Federal Reserve; Freddie Mac; General Electric; Marshall Plan; PRB; SEC; thrifts; US Senate; US Treasury; Wall Street University of Oxford 114 n unlisted funds 185 urban risk/infrastructure 18–20, 87, 161–230 Urwin, R 70, 73, 74, 79, 80, 86, 88 n US Senate Joint Economic Committee 289 US Treasury 28, 37 USA Fund 199, 205 n utilities 165, 167, 168, 176 control over 186 mobilization and securitization of earnings from 174 Uzzi, Brian 98, 114 n valuation 135, 174 cost-effective techniques 87 pre-money company 200 value-added 262, 293 Valverde, M 283 Van Hemert, O 66 n Van Inwegen, G B 144 Van Order, R 237 VaR (Value at Risk) methodology 102, 184–5 venture capital 19, 193, 194, 200, 201, 205 n early and later stage 196, 198 mission-oriented companies 196 product-focused investments 197 Vietnam War 51 virtualization 123 vital payments systems 30 volatility: benefits of risk management systems that dampen 86 buying or selling 103 equities 185 expected return 75 exploitation of minor differences that engender 169 extreme 111 324 high 134 non-calculable 284 price 109, 236, 241 see also market volatility Volcker, Paul 53, 54, 57 volume 142, 248 voluntarism 40–1 Vurdubakis, T 169, 280, 285 Wachovia 126 Wagner, R K 78 Waine, B 262 Waisman, M 152 Wall Street 29, 57, 60 megabanks 59, 64 money-center banks 59 shut down (1914) 238 Wallerstein, I 136 Wang, Q 143, 147 Ward, Greg 179 Washington Consensus period 57 Washington Mutual 126 weak ties 132 wealth 236, 238, 240 asset-based 296 family 253 n housing 273 n limited 234 private pension 261 proxy for 269 risk taking increases with 270 weather derivatives 19, 210, 213, 221, 225 airport meteorological data records 218 characteristic of 217 energy and urban focus 220 risks that form the heart of 215 World Bank projects 227 n Weather Risk Management Association 217 Weber, Max 128, 244 Weisbrenner, S 142, 144, 146, 148 welfare 238, 239, 259 asset-based 234, 281 basic needs 236 lost 69 maximization of 79 negative long-term 14 occupational 260 redistributive 269 reduction under neoliberalism 262 well-being 235, 238, 286 long-term 85 West Germany 36 wholesale markets 38, 281, 291 Williams, P 259 Index Wo´jcik, D 6, 7, 13, 17, 29, 141, 148, 151, 154, 155 women: occupational pensions 260, 264, 265, 270 part-time working 259, 260, 261, 272 n., 273 n retirement planning/saving 267, 271 risk-aversion 269 risk propensity 268 World Bank 233, 261 weather derivatives projects 227 n World Systems Theory 136 write-downs 10, 127, 134, 175, 287 Wyatt, Watson 88 n Yom Kippur 142 325 .. .Managing Financial Risks This page intentionally left blank Managing Financial Risks: From Global to Local Edited by Gordon L Clark, Adam D Dixon, and Ashby H B Monk Great Clarendon Street,... subtitle could be ‘ From the Local to the Global. ’’ We leave it to our contributors to articulate the local global local connection in ways that help us understand what is in play in global markets,... for embedded market participants was being discounted by both the flow of transactions from the local to the global and by the perfection of mathematical models that deliberately eschewed local knowledge
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Xem thêm: Managing financial risks from global to local edited by gordon l clark adam d dixon and ashby h b monk , Managing financial risks from global to local edited by gordon l clark adam d dixon and ashby h b monk , The Practicalities of Being Inaccurate: Steps Toward the Social Geography of Financial Risk Management, Learning to Cope with Uncertainty: On the Spatial Distributions of Financial Innovation and its Fallout, Managing Financial Risks: The Strange Case of Housing, Gender, Risk, and Occupational Pensions, Consumer Credit, Self-Discipline, and Risk Management

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