Table Of ContentPalgrave Macmillan Studies in Banking and Financial Institutions
Series Editor: Professor Philip Molyneux
The Palgrave Macmillan Studies in Banking and Financial Institutions are international
in orientation and include studies of banking within particular countries or regions, and
studies of particular themes such as Corporate Banking, Risk Management, Mergers and
Acquisitions, etc. The books’ focus is on research and practice, and they include up-t o- date
and innovative studies on contemporary topics in banking that will have global impact
and influence.
Titles include:
Steffen E. Andersen
THE EVOLUTION OF NORDIC FINANCE
Mario Anolli, Elena Beccalli and Tommaso Giordani (editors)
RETAIL CREDIT RISK MANAGEMENT
Seth Apati
THE NIGERIAN BANKING SECTOR REFORMS
Power and Politics
Caner Bakir
BANK BEHAVIOUR AND RESILIENCE
The Effect of Structures, Institutions and Agents
Dimitris N. Chorafas
BASEL III, THE DEVIL AND GLOBAL BANKING
Dimitris N. Chorafas
HOUSEHOLD FINANCE
Adrift in a Sea of Red Ink
Dimitris N. Chorafas
SOVEREIGN DEBT CRISIS
The New Normal and the Newly Poor
Stefano Cosma and Elisabetta Gualandri (editors)
THE ITALIAN BANKING SYSTEM
Impact of the Crisis and Future Perspectives
Violaine Cousin
BANKING IN CHINA
Peter Falush and Robert L. Carter OBE
THE BRITISH INSURANCE INDUSTRY SINCE 1900
The Era of Transformation
Juan Fernández de Guevara Radoselovics and José Pastor Monsálvez (editors)
CRISIS, RISK AND STABILITY IN FINANCIAL MARKETS
Juan Fernández de Guevara Radoselovics and José Pastor Monsálvez (editors)
MODERN BANK BEHAVIOUR
Franco Fiordelisi and Ornella Ricci (editors)
BANCASSURANCE IN EUROPE
Past, Present and Future
Franco Fiordelisi, Philip Molyneux and Daniele Previati (editors)
NEW ISSUES IN FINANCIAL AND CREDIT MARKETS
Franco Fiordelisi, Philip Molyneux and Daniele Previati (editors)
NEW ISSUES IN FINANCIAL INSTITUTIONS MANAGEMENT
Kim Hawtrey
AFFORDABLE HOUSING FINANCE
Jill M. Hendrickson
FINANCIAL CRISIS
The United States in the Early T wenty- First Century
Jill M. Hendrickson
REGULATION AND INSTABILITY IN U.S. COMMERCIAL BANKING
A History of Crises
Otto Hieronymi and Constantine Stephanou (editors)
INTERNATIONAL DEBT
Economic, Financial, Monetary, Political and Regulatory Aspects
Paola Leone and Gianfranco A. Vento (editors)
CREDIT GUARANTEE INSTITUTIONS AND SME FINANCE
Caterina Lucarelli and Gianni Brighetti (editors)
RISK TOLERANCE IN FINANCIAL DECISION MAKING
Roman Matousek (editor)
MONEY, BANKING AND FINANCIAL MARKETS IN CENTRAL AND EASTERN EUROPE
20 Years of Transition
Gianluca Mattarocci and Alessandro Carretta (editors)
ASSET PRICING, REAL ESTATE AND PUBLIC FINANCE OVER THE CRISIS
Philip Molyneux (editor)
BANK PERFORMANCE, RISK AND FIRM FINANCING
Philip Molyneux (editor)
BANK STRATEGY, GOVERNANCE AND RATINGS
Imad A. Moosa
THE MYTH OF TOO BIG TO FAIL
Simon Mouatt and Carl Adams (editors)
CORPORATE AND SOCIAL TRANSFORMATION OF MONEY AND BANKING
Breaking the Serfdom
Victor Murinde (editor)
BANK REGULATORY REFORMS IN AFRICA
Bernardo Nicoletti
CLOUD COMPUTING IN FINANCIAL SERVICES
Anders Ögren (editor)
THE SWEDISH FINANCIAL REVOLUTION
Özlem Olgu
EUROPEAN BANKING
Enlargement, Structural Changes and Recent Developments
Fotios Pasiouras
GREEK BANKING
From the P re- Euro Reforms to the Financial Crisis and Beyond
Daniela Pîrvu
CORPORATE INCOME TAX HARMONIZATION IN THE EUROPEAN UNION
Ramkishen S. Rajan
EMERGING ASIA
Essays on Crises, Capital Flows, FDI and Exchange Rate
Allesandro Roselli
FINANCIAL STRUCTURES AND REGULATION
A Comparison of Crises in the UK, USA and Italy
Yasushi Suzuki
JAPAN’S FINANCIAL SLUMP
Collapse of the Monitoring System under Institutional and Transition Failures
Ruth Wandhöfer
EU PAYMENTS INTEGRATION
The Tale of SEPA, PSD and Other Milestones Along the Road
The full list of titles available is on the website:
www.palgrave.com/finance/sbfi.asp
Palgrave Macmillan Studies in Banking and Financial Institutions
Series Standing Order ISBN 978–1–403–94872–4
You can receive future titles in this series as they are published by placing a standing
order. Please contact your bookseller or, in case of diffi culty, write to us at the address
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Household Finance
Adrift in a Sea of Red Ink
Dimitris N. Chorafas
© Dimitris N. Chorafas 2013
Softcover reprint of the hardcover 1s edition 2013 978-1-137-29944-4
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No portion of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of
the Copyright, Designs and Patents Act 1988, or under the terms of any
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Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
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work in accordance with the Copyright, Designs and Patents Act 1988.
First published 2013 by
PALGRAVE MACMILLAN
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ISBN 978-1-349-45276-7 ISBN 978-1-137-29945-1 (eBook)
DOI 10.1057/9781137299451
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10 9 8 7 6 5 4 3 2 1
22 21 20 19 18 17 16 15 14 13
Contents
List of Tables ix
Acknowledgements xi
Introduction: Reasons for a Unified Approach to
Economic Theory xiii
PART I SOCIETY IS UNDER STRESS ALL OVER THE
WESTERN WORLD
1 Our Society Has to Review its Business Model 3
1.1 Pericles 2013 3
1.2 The growing gap in wealth and income 6
1.3 The standard of living and rent seeking 9
1.4 “Occupy Wall Street” 13
1.5 Intergenerational equity and debt 16
1.6 Globalization’s trilemma 20
1.7 The advent of “financialization” 23
2 Entitlements 29
2.1 Galbraith’s warning about employment and
consumer debt 29
2.2 Jobs, taxes and the middle class 33
2.3 Rights without responsibilities 38
2.4 Who pays the costs of pensions? 41
2.5 Who pays the zooming health care costs? 46
2.6 Clinton Care, Obama Care and the looting
of the health care system 50
3 Jobs and Education 55
3.1 The price of education 55
3.2 “Free education for all” is a myth 59
3.3 Siren song: the saga of student loans 63
3.4 The university bubble 68
3.5 Reasons for unemployment 72
3.6 Filling the talent gap 76
3.7 Revaluing human capital 81
v
vi Contents
PART II HOUSEHOLDS MUST GET THEIR ACT TOGETHER
4 The IOU Abyss 87
4.1 Democratization of credit and socialization of risk 87
4.2 Consumer spending 91
4.3 The state supermarket 95
4.4 Household leveraging 99
4.5 It is not easy to restore public confidence 103
5 Households and the Value of Money 107
5.1 Household disposable income 107
5.2 Household liabilities 110
5.3 Consumer protection through regulation? 113
5.4 The budget of a household 117
5.5 The discipline of a household budget 119
5.6 Household balance sheets 123
5.7 The management of assets and liabilities 126
6 Managing Family Wealth 131
6.1 Investments by households 131
6.2 Bond investments 134
6.3 Equity investments 140
6.4 Households should not invest in derivatives 145
6.5 The pain of deleveraging 149
7 The Market Does Not Crawl; It Jumps 155
7.1 Qualitative factors and market dynamics 155
7.2 Never panic 158
7.3 Investments can turn on their head 162
7.4 Can we depend on prognostication? 166
7.5 The government is not a white knight 170
7.6 Wrong solutions and their consequences 173
8 Home Ownership: Shelter or Burden? 177
8.1 Your home is your castle 177
8.2 Home mortgages and the law of the land in
Canada: a case study 181
8.3 The Clinton Administration’s scenario on
home mortgages: a case study 183
8.4 Benefits and risks from real estate investing 185
8.5 Family homes and foreclosure risk 190
8.6 Do your homework prior to choosing a property 194
Contents vii
9 A Chapter on the Blind for the Benefit of Those
Who Can See 199
9.1 Mortgages with currency risk: a case study
on Hungary 199
9.2 Alternative investments and paper oil 203
9.3 Paper houses through real estate derivatives 208
9.4 Leveraged trading and wealth creation are opposing
concepts 212
9.5 The problem is mismanagement and subdued ethics 216
9.6 Questioning whether a steady financial innovation is
useful to society 219
Notes 225
Index 235
List of Tables
5.1 Household debt as a percentage of disposable income 115
5.2 Typical layout of a balance sheet 123
ix
Acknowledgements
I am indebted to a long list of knowledgeable people and o rganizations
for their contribution to the research which has made this book
feasible. I would also like to thank several senior executives and
experts for constructive criticism during the preparation of the man-
uscript. Dr Heinrich Steinmann, Dr Nelson Mohler and Eva Maria
Binder have, as always, made a significant contribution.
Let me take this opportunity to thank Peter Baker for suggesting
this project, for seeing it all the way to publication, and for the
editing work. Thanks also to Nick Fox for the copy-editing, David
Jon Beverley for his contribution to checking style and spelling, and
Keith Povey for overall coordination on the book’s production.
DIMITRIS N. CHORAFAS
xi
