Financial Alchemy in Crisis: The Great Liquidity Illusion

217 Pages·2010·3.48 MB·English

by  Anastasia Nesvetailova

Financial Alchemy in Crisis
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Financial Alchemy in Crisis
The Great Liquidity Illusion
AnAstAsiA nesvetAilovA
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First published 2010 by Pluto Press
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175 Fifth Avenue, new York, nY 10010
www.plutobooks.com
Distributed in the United states of America exclusively by
Palgrave Macmillan, a division of st. Martin’s Press llC,
175 Fifth Avenue, new York, nY 10010
Copyright © introduction, Chapters 2, 3–6, Conclusion
Anastasia nesvetailova 2010
Copyright © Chapter 2 Anastasia nesvetailova and Ronen Palan 2010
the rights of Anastasia nesvetailova and Ronen Palen to be identified
as the authors of this work has been asserted by them in accordance
with the Copyright, Designs and Patents Act 1988.
British library Cataloguing in Publication Data
A catalogue record for this book is available from the British library
isBn 978 0 7453 2878 2 Hardback
isBn 978 0 7453 2877 5 Paperback
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For Alexandre Gennady Palan
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Contents
Abbreviations ix
Acknowledgements x
Introduction: the end of a Great Illusion 1
‘liquidity’ and the crisis of invented money 4
liquidity illusion and the global credit crunch 17
1. the stages of the Meltdown 24
the prelude: the American sub-prime crisis 24
From sub-prime crisis to the global credit crunch 28
From global credit crunch to global recession 33
2. the tale of northern Rock:
Between Financial Innovation and Fraud 40
(Anastasia nesvetailova and Ronen Palan)
the controversy over financial innovation 43
offshore: the uses and abuses of sPvs 48
northern Rock and Granite 51
3. How the Crisis has been Understood 62
Ex-ante and ex-post visions of the credit crunch 62
structural theories of the credit crunch 71
Cyclical theories of the crisis 80
4. some Uncomfortable Puzzles of the Credit Crunch 90
Dismissed: the warning signs and the
whistleblowers 91
Ponzi capitalism: a crisis of fraud? 100
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viii fInancIaL aLchemy In crIsIs
5. 2 002–7: the three Pillars of the Liquidity Illusion 113
liquidity and the paradigm of self-regulating
credit 113
P laying with debt – together. liquidity as a
‘state of mind’ 121
the alchemists: turning bad debts into ‘money’ 131
6. A fter the Meltdown: Rewriting the Rules of
Global Finance? 143
the three stages of the policy response 144
the crisis and geopolitics: a new special
relationship? 149
Conceptual dilemmas and traps 156
Conclusion: A Very Mundane Crisis 172
Notes 177
Bibliography 184
Index 197
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Abbreviations
ABss Asset-backed securities
Bis Bank for international settlements
CDos Collateralised debt obligations
Ceo Chief executive officer
CRA Credit rating agencies
eCB european Central Bank
FsA Financial services Authority (UK)
FsF Financial stability Forum
FsB Financial stability Board
GDP Gross domestic product
iMF international Monetary Fund
MBAs Mortgage-backed assets
MBss Mortgage-backed securities
niFA new international financial architecture
oFC offshore financial centre
oRD originate and distribute (model of banking)
otC over-the-counter (trade)
siv special investment vehicle
snB swiss national Bank
sPe special purpose entity
sPv special purpose vehicle
vAR value at risk (model)
ix
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