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Echoes Dispatches From Economic History


With central bankers and market participants rushing to find an alternative to the London Interbank Offered Rate (or Libor), the interest-rate index that sets borrowing costs for consumers and multinational corporations, it’s a good time to ask where Libor came from. And to ask how the midmorning estimates of a handful of London-based bankers came to play such an outsized role in the modern, quant- driven financial system.

Libor represents the cost of one large bank borrowing unsecured funds from another, in various currencies and at varying maturities, in the London market. Each day, the British Bankers’ Association asks a panel of market participants, “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 a.m.?” The answers are then compiled and published by Thomson Reuters Corp. (Bloomberg LP, the parent of Bloomberg News, competes with Thomson Reuters in selling financial and legal information and trading systems.)


Philip Scranton

A Market Recovery False Dawn

over 3 years ago
Echoes: 8/13

Stock values had plummeted by July 1932. Yet from July to August, the Dow Jones Industrial Average doubled, a huge leap given that bad news seemed to flow in from all directions.

Other positive reports also surfaced that summer. Were they to be taken seriously as a sign of recovery?


Peter A. Coclanis

In Carnegie's Improbable Life, a Parable of Capitalism

over 3 years ago
Andrew Carnegie

By any standard, Andrew Carnegie, who died 93 years ago today, was one of the greatest entrepreneurs in American history. He was also among the most improbable: Perhaps no other life so vividly illuminates the awesome and often vicious power of capitalism's creative destruction.

Born in Dunfermline, Scotland, in 1835, Carnegie immigrated to the U.S. with his economically struggling parents and siblings in 1848. The family settled in Pittsburgh, where they had relatives. After brief stints in a textile mill and a bobbin factory, Andrew found work in a telegraph office. There he rose quickly, and by 1851, at age 16, he had become a full-time operator, earning a salary sufficient to support a family.

Echoes: The 'Greatest Philanthropist in History'

Andrew Carnegie, who died 93 years ago tomorrow, remains a polarizing figure. He has been labeled a great industrialist by some, a robber baron by others. Some argue that his impoverished childhood and work in a cotton mill enhanced his sympathy for workers, while others contend the conditions in his steel mills were inhumane.

Even his unparalleled philanthropy -- which continues to shape the American educational and cultural worlds to a remarkable degree -- has sparked its share of criticism.


In 1894, when the French baron Pierre de Coubertin established the International Olympic Committee, historians believed, wrongly, that the ancient Greek games were strictly amateur and that athletes received no material rewards for their efforts.

Based on this misunderstanding, Coubertin decided that the modern games were to be strictly separated from “sordid” commerce. For the next half-century, the IOC interpreted the amateur code so strictly that collegiate athletes who received as little as $5 for an article published in a local newspaper were considered professionals. Jim Thorpe, the American-Indian winner of the pentathlon and the decathlon at the 1912 Olympics in Stockholm, was stripped of his medals when it was discovered that he had played semipro baseball while a high-school student in Pennsylvania.

Total Volume, New York Stock Exchange

When machines replace seasoned traders and market makers, mistakes can occur at dizzying speed.

It happened with the notorious “flash crash” on May 6, 2010, and again on Aug. 1 this year, when software at Knight Capital Group Inc. (KCG) malfunctioned, triggering unintended trades and leading to a $440 million loss for the company.


Philip Scranton

The Second Republic in Disarray

over 3 years ago
Spanish Republic Stamp, 1931

The Great Depression hit Spain hard, triggering economic and political upheavals that lasted throughout the 1930s.

Gross domestic product fell about 15 percent from 1929 to 1931 while investment and imports dropped. Exports, especially wine and oranges, trended upward until other nations raised tariff rates, hindering sales.


Lawrence B. Glickman

Chick-fil-A Day a Reminder That Boycotts Often Backfire

over 3 years ago
Echoes: Chick-fil-A Day

Throughout U.S. history, Americans have periodically been forced to reckon with the moral and political impact of the goods and services they buy. Chick-fil-A Appreciation Day was one such moment.

Dan Cathy, the chief executive officer of the fast-food chicken franchise, caused an uproar recently when he said his company endorsed the “biblical definition of the family unit” in an interview. Supporters of same-sex marriage soon called for a boycott of the chain.


Kenneth D. Ackerman

How an Act of Congress Killed Off the U.S. Gold Market

over 3 years ago
Echoes: August 2

When President Abraham Lincoln acted in December 1861 to suspend the national gold standard -- the legal right to convert paper money into gold coin or “specie” -- he wasn’t trying to start a fight with financial speculators in New York.

Lincoln had a bigger headache at that moment: trying to finance his rapidly growing Union Army in its fight against the South.


Philip Scranton

Burning out the Bonus Army

over 3 years ago
Echoes: 7/30

Many expected it would end badly, but hardly like this. By early summer 1932, about 20,000 men, many of them war-era veterans, and a sprinkling of women and children had occupied makeshift quarters in Washington’s Anacostia Flats neighborhood and several unused federal buildings nearby.

Facing mass unemployment, they urged Congress to authorize early payment of a World War I bonus due in 1945, an expenditure of $2.4 billion that Time magazine called “printing-press money.”


Adrian R. Bell, Chris Brooks & Tony K. Moore

Libor Scandal Is No Match for Its Medieval Precedent

over 3 years ago
Echoes: July 30

The financial news has recently been dominated by the scandal over the London interbank offered rate (known as Libor), with allegations that leading banks have manipulated a financial benchmark determining the interest rates charged to millions of borrowers and used in derivatives contracts worth hundreds of trillions of dollars.

The U.K. Parliament has become involved, grilling the former chief executive officer of Barclays Plc (BARC), Bob Diamond, over these events. But none of this is entirely without precedent.

Uploaded by UUID:6697267 at 7/25/2012 2:07 PM

When self-help author and business motivational speaker Stephen R. Covey died last week, few would have suspected that his life’s work shared a central concern with that of Karl Marx.

Covey’s work held enormous appeal for business leaders. His numerous bestsellers, starting with “The Seven Habits of Highly Effective People,” in 1989, were purchased in bulk by human-resource departments, given away in management-training programs, and widely read by women and men straddling that late 20th-century temporal abyss that came to be known as the work-life divide. The book sold more than 25 million copies.


Regina Lee Blaszczyk

’Mad Men’ Chic, Brought to You by the Chemical Industry

over 3 years ago
Echoes: Mad Men

In the first episode of “Mad Men,” on the AMC television network, the character Don Draper, an advertising executive, uttered memorable words that captured the hearts of many viewers: “What you call love was invented by guys like me to sell nylons.”

Those nylon stockings were invented by the U.S. chemical industry, and embodied the high-tech dreams of the postwar world that “Mad Men” visually expresses.


Philip Scranton

The Battle for the Wheat Market

over 3 years ago
Cartoon of Chicago Board of Trade

In summer 1932, as American industry struggled with insufficient demand and banks contended with impaired liquidity, U.S. farmers suffered collapsing prices for commodities, the consequence of oversupply.

Corn, cotton, oats and especially wheat sold for far less than their 1929 peaks. Wheat returned an average $1.03 per bushel in the crash year but trended erratically downward to 61 cents in 1930, 44 cents in 1931 and 38 cents by mid-1932.


Kirsten Salyer

Weekly Links

over 3 years ago

Bloomberg Businessweek on historical echoes to the U.S.-China rivalry
Disunion on women's economic opportunities during the Civil War
Zerohedge on lessons from U.S. fiscal deleveraging after World War II
Universidad Carlos III de Madrid on the Spanish debt crisis in the 19th and 20th centuries
Federal Reserve Bank of Atlanta on the shadow banking crisis of 1763
The Federal Reserve Bank of Cleveland on historic patterns of recovery from recessions
Read more from Echoes, Bloomberg View's economic history blog.

Echoes: 7/18

With the U.S. space-shuttle program over, companies and governments are rushing to privatize travel into the cosmos. This spring, Space Exploration Technologies Corp., known as SpaceX, launched a capsule that docked with the International Space Station -- the first commercial space vehicle to do so.

In the desert of New Mexico, Virgin Galactic is preparing for the first suborbital space flights for paying customers, with actor Ashton Kutcher one of the latest to sign up for the privilege. In Huntsville, Alabama, Stratolaunch Systems Inc. is busy dismantling Boeing 747s, hoping to use their engines and other systems to build the world’s largest plane, which will help propel a new spacecraft into flight.


Jane Gleeson-White

How a Medieval Friar Forever Changed Finance

over 3 years ago
Echoes: 7/17

Consider some headlines from the past week. China announced its gross domestic product had slowed to a three-year low of 7.6 percent in the latest quarter. The International Monetary Fund cut its global growth forecasts to 3.9 percent for 2013. And Citigroup Inc. announced its net income was down 12 percent.

The system that generates these 21st-century accounting figures -- the numbers that run our nations and corporations -- was first codified by a Renaissance friar named Fra Luca Bartolomeo de Pacioli. He was at one time more famous, as a mathematician, than his collaborator Leonardo da Vinci.


About Echoes

Echoes is Bloomberg View's economic history blog. It is edited by Stephen Mihm, an associate professor of history at the University of Georgia and the author, with Nouriel Roubini, of "Crisis Economics: A Crash Course in the Future of Finance," and of "A Nation of Counterfeiters: Capitalists, Con Men and the Making of the United States."

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