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Why do stock and housing markets sometimes experience amazing booms followed by massive busts and why is this happening more and more frequently? In order to answer these questions, William Quinn and John D. Turner take us on a riveting ride through the history of financial bubbles, visiting, among other places, Paris and London in 1720, Latin America in the 1820s, Melbourne in the 1880s, New York in the 1920s, Tokyo in the 1980s, Silicon Valley in the 1990s and Shanghai in the 2000s. As they do so, they help us understand why bubbles happen, and why some have catastrophic economic, social and political consequences whilst others have actually benefitted society. They reveal that bubbles start when investors and speculators react to new technology or political initiatives, showing that our ability to predict future bubbles will ultimately come down to being able to predict these sparks.
In this article, using new estimates of the size of the UK's capital market, we examine financial development and investor protection laws in Britain c.1900 to test the influential law and finance hypothesis. Our evidence suggests that there was not a close correlation between financial development and investor protection laws c.1900 and that the size of the UK's share market is a puzzle given the paucity of statutory investor protection. To illustrate that Britain was not unique in its approach to investor protection in this era, we examine investor protection laws across legal families c.1900.
Item 9 of the Patient Health Questionnaire-9 (PHQ-9) queries about thoughts of death and self-harm, but not suicidality. Although it is sometimes used to assess suicide risk, most positive responses are not associated with suicidality. The PHQ-8, which omits Item 9, is thus increasingly used in research. We assessed equivalency of total score correlations and the diagnostic accuracy to detect major depression of the PHQ-8 and PHQ-9.
We conducted an individual patient data meta-analysis. We fit bivariate random-effects models to assess diagnostic accuracy.
16 742 participants (2097 major depression cases) from 54 studies were included. The correlation between PHQ-8 and PHQ-9 scores was 0.996 (95% confidence interval 0.996 to 0.996). The standard cutoff score of 10 for the PHQ-9 maximized sensitivity + specificity for the PHQ-8 among studies that used a semi-structured diagnostic interview reference standard (N = 27). At cutoff 10, the PHQ-8 was less sensitive by 0.02 (−0.06 to 0.00) and more specific by 0.01 (0.00 to 0.01) among those studies (N = 27), with similar results for studies that used other types of interviews (N = 27). For all 54 primary studies combined, across all cutoffs, the PHQ-8 was less sensitive than the PHQ-9 by 0.00 to 0.05 (0.03 at cutoff 10), and specificity was within 0.01 for all cutoffs (0.00 to 0.01).
PHQ-8 and PHQ-9 total scores were similar. Sensitivity may be minimally reduced with the PHQ-8, but specificity is similar.
Different diagnostic interviews are used as reference standards for major depression classification in research. Semi-structured interviews involve clinical judgement, whereas fully structured interviews are completely scripted. The Mini International Neuropsychiatric Interview (MINI), a brief fully structured interview, is also sometimes used. It is not known whether interview method is associated with probability of major depression classification.
To evaluate the association between interview method and odds of major depression classification, controlling for depressive symptom scores and participant characteristics.
Data collected for an individual participant data meta-analysis of Patient Health Questionnaire-9 (PHQ-9) diagnostic accuracy were analysed and binomial generalised linear mixed models were fit.
A total of 17 158 participants (2287 with major depression) from 57 primary studies were analysed. Among fully structured interviews, odds of major depression were higher for the MINI compared with the Composite International Diagnostic Interview (CIDI) (odds ratio (OR) = 2.10; 95% CI = 1.15–3.87). Compared with semi-structured interviews, fully structured interviews (MINI excluded) were non-significantly more likely to classify participants with low-level depressive symptoms (PHQ-9 scores ≤6) as having major depression (OR = 3.13; 95% CI = 0.98–10.00), similarly likely for moderate-level symptoms (PHQ-9 scores 7–15) (OR = 0.96; 95% CI = 0.56–1.66) and significantly less likely for high-level symptoms (PHQ-9 scores ≥16) (OR = 0.50; 95% CI = 0.26–0.97).
The MINI may identify more people as depressed than the CIDI, and semi-structured and fully structured interviews may not be interchangeable methods, but these results should be replicated.
Declaration of interest
Drs Jetté and Patten declare that they received a grant, outside the submitted work, from the Hotchkiss Brain Institute, which was jointly funded by the Institute and Pfizer. Pfizer was the original sponsor of the development of the PHQ-9, which is now in the public domain. Dr Chan is a steering committee member or consultant of Astra Zeneca, Bayer, Lilly, MSD and Pfizer. She has received sponsorships and honorarium for giving lectures and providing consultancy and her affiliated institution has received research grants from these companies. Dr Hegerl declares that within the past 3 years, he was an advisory board member for Lundbeck, Servier and Otsuka Pharma; a consultant for Bayer Pharma; and a speaker for Medice Arzneimittel, Novartis, and Roche Pharma, all outside the submitted work. Dr Inagaki declares that he has received grants from Novartis Pharma, lecture fees from Pfizer, Mochida, Shionogi, Sumitomo Dainippon Pharma, Daiichi-Sankyo, Meiji Seika and Takeda, and royalties from Nippon Hyoron Sha, Nanzando, Seiwa Shoten, Igaku-shoin and Technomics, all outside of the submitted work. Dr Yamada reports personal fees from Meiji Seika Pharma Co., Ltd., MSD K.K., Asahi Kasei Pharma Corporation, Seishin Shobo, Seiwa Shoten Co., Ltd., Igaku-shoin Ltd., Chugai Igakusha and Sentan Igakusha, all outside the submitted work. All other authors declare no competing interests. No funder had any role in the design and conduct of the study; collection, management, analysis and interpretation of the data; preparation, review or approval of the manuscript; and decision to submit the manuscript for publication.
Long-term forest dynamics plots in the tropics tend to be situated on stable terrain. This study investigated forest dynamics on the north coast of New Guinea where active subduction zones are uplifting lowland basins and exposing relatively young sediments to rapid weathering. We examined forest dynamics in relation to disturbance history, topography and soil nutrients based on partial re-census of the 50-ha Wanang Forest Dynamics Plot in Papua New Guinea. The plot is relatively high in cations and phosphorus but low in nitrogen. Soil nutrients and topography accounted for 29% of variation in species composition but only 4% of variation in basal area. There were few areas of high biomass and most of the forest was comprised of small-diameter stems. Approximately 18% of the forest was less than 30 y old and the annual tree mortality rate of nearly 4% was higher than in other tropical forests in South-East Asia and the neotropics. These results support the reputation of New Guinea's forests as highly dynamic, with frequent natural disturbance. Empirical documentation of this hypothesis expands our understanding of tropical forest dynamics and suggests that geomorphology might be incorporated in models of global carbon storage especially in regions of unstable terrain.
In this study we correlate temporal features within the electrical conductivity (acidity) traces of four shallow firn cores obtained from the southern Antarctic Peninsula to synoptic-scale variations in the regional climate, as depicted by a numerical weather prediction model. It is demonstrated that the three high-acidity features present within the 1992-93 accumulation correspond to periods of significant precipitation, a hypothesis supported by the association of these events with strong onshore winds, ideal for transporting the biogenically derived sources of precipitation acidity to the core sites. The longitudinal location of depressions within the Bellingshausen Sea is shown to be the principal factor governing the volume of precipitation that they give over the western Peninsula. Annual accumulation in the model is ~25% lower than revealed by the cores; although there are too many uncertainties to provide a definite reason for the deviation, the smoothed model orography and inaccurate land-sea mask are believed to be significant factors. It is postulated that the acidity pattern within southern Peninsula cores may reveal an El Niño-Southern Oscillation signal.
A small number of Wolf-Rayet colliding-wind binaries studied at extremely high angular resolution show elegant dust plumes with an intuitive geometry: that of an Archimedian spiral. A great deal of fundamental information on the binary and the winds is encoded, ultimately teaching us about dust formation and wind-wind collision zones in these fascinating systems. New results are presented summarizing a concerted campaign encompassing a number of systems studied with various techniques over the last five years.
Scholars have long debated whether ownership matters for firm performance. The standard view regarding Victorian Britain is that family-controlled companies had a detrimental effect on performance. In this article, we examine this view using a hand-collected corporate ownership dataset. Our main finding is that it was not necessarily the broad structure of corporate ownership that mattered for performance, but whether family blockholders had a governance role. Large active blockholders tended to increase operating performance, implying that they reduced managerial expropriation. Contrastingly, we find that directors who were independent of large owners were more likely to increase shareholder value.
This article addresses the issue of whether large shareholders in Victorian public companies were active in the control of companies or were simply wealthy rentiers. Using ownership records for 890 firm-years, we examine the control rights, socio-occupational background, and wealth of large shareholders. We find that many large shareholders had limited voting rights and neither they nor family members were directors. This implies that the majority of public companies in the second half of the nineteenth century cannot be characterized as family companies and that large shareholders are better viewed as wealthy gentlemen capitalists rather than entrepreneurs.
Imidazoles present a tunable, versatile and economical platform for the development of novel liquid solvents and polymer membranes for CO2 capture. An overview of our studies in this area is presented, with emphasis on characterization of structure-property relationships in imidazole-based materials through both experimental and computational studies. To this end, a growing library of systematically varied imidazole compounds has been synthesized using only commercial available starting materials and straightforward reactions. Using this library of compounds, we have sought to understand and develop predictive models for thermophysical properties relating to process design, including: density, viscosity, vapor pressure, pKa and CO2 absorption capacity. Furthermore, we have discovered that imidazoles are stable in the presence of SO2 and can form reversible 1:1 adducts, which can be beneficial as SO2 is typically present at ppm levels alongside CO2 in flue gas from coal-fired power plants.
Each separate panic has had its own distinctive features, but all have resembled each other in occurring immediately after a period of prosperity, the hollowness of which it has exposed. So uniform is this sequence, that wherever we find ourselves under circumstances that enable the acquisition of rapid fortunes, otherwise than by plodding industry, we may almost be justified in auguring that the time for panic is at hand.
D. Morier Evans
The previous chapter established that there were major banking crises in the United Kingdom in 1825–6 and 2007–8 and that in the interim period, there was a series of what we termed minor crises (i.e., 1836–7, 1847, 1857–8, 1866–7, 1878–9 and 1974). In this chapter, we develop narrative accounts of these major and minor crises. The main reasons for doing so are twofold.
First, we need a qualitative idea of the extent and scale of these crises to confirm (or otherwise) the results from the quantitative measures of stability developed in Chapter 3. In particular, we explore how each crisis developed and analyse anecdotal evidence of its severity. In addition, to understand why they failed, we examine the major institutions that experienced difficulties or failed during each crisis episode.
Second, we want to examine the possible triggers for and precursors to each crisis. Because easy monetary and credit conditions and speculation are important elements of both the Kindleberger and Minsky explanations for crises, we examine monetary and credit conditions in the run-up to each crisis and also consider whether speculation in assets of various types preceded each crisis.
But we know that generations do not always act upon the experience of their predecessors. There are periods of confidence in which all ordinary maxims of prudence are neglected…and all banking is in its very nature liable to abuse.
Looking to the past
My first introduction to banking was playing Monopoly, the popular board game, with my siblings on rainy Sunday afternoons in the early 1980s. I learned two things from Monopoly. First, if one wished to mortgage property, the bank would advance no more than 50 per cent of the property’s value. In other words, the loan-to-value ratio was 50 per cent. Second, the banker, usually my brother, had to be constrained from cheating via a combination of monitoring, punishment and appropriate incentives. Fast-forward several decades and real British banks were granting mortgages with loan-to-value ratios of up to 125 per cent and British bankers, instead of being constrained to behave prudently and cautiously, were incentivised to increase bank leverage and take imprudent risks with other people’s money. The lessons of my youth suggested that such a system was doomed to implode, which it duly did in spectacular fashion in the autumn of 2008.
The portents of the collapse of the British banking system, as well as the breakdown of the banking system in the United States and in European economies, appeared in the summer of 2007, when banks ceased lending to one another. By September 2007, Northern Rock was receiving emergency loans from the Bank of England and facing depositor runs, with long queues of depositors outside many of its branches shown on BBC news broadcasts. It took an announcement by Alastair Darling, the Chancellor of the Exchequer at the time, of a taxpayer guarantee for all of Northern Rock’s deposits and various wholesale liabilities to bring the run on the Rock to an end.
Banks and governments have always had a symbiotic relationship.
Anat Admati and Martin Hellwig
Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.
History and the Great Crash
From the long-run perspective developed in this book, it is relatively easy to understand why the 2007–8 crisis happened. Although popular opinion places the blame at the feet of reckless bankers and their huge bonuses, these are only symptoms of a much deeper problem. This book argues that bankers simply respond to the prevailing incentive structures – the culture of greed and excessive compensation were simply endogenous to the institutional setting.
The concept of risk shifting is endemic to banking and has had to be addressed by bankers, depositors and governments from earliest times. Until the interwar period, risk shifting in the United Kingdom was curtailed by the fact that bank shareholders had not only invested substantial amounts of capital in banks, they also were liable beyond what they had paid in through unlimited liability, reserve liability or uncalled capital. There was a substantial decline in this contingent capital, as well as paid-up capital relative to deposits or bank assets, during the interwar era and the 1940s. However, the low levels of capital and contingent capital that were reached in the 1950s did not concern the Bank of England, the Treasury or depositors. Why not? Quite simply, from 1939 onwards, the banking system was in lockdown due to financial-repression policies put in place to reduce the huge debt incurred fighting World War II.
Any propping up of shaky positions postpones liquidation and aggravates unsound conditions.
In ordinary times the Bank [of England] is only one of many lenders, whereas in a panic it is the sole lender…
The Bank of England financed merely the crisis: the private bankers of London and the provinces financed the boom.
Arthur D. Gayer, W. W. Rostow and Anna Jacobson Schwartz
Thus far in this book, we discovered that the UK banking system experienced two major crises: one in 1825–6 and the other in 2007–8. We also discovered that the stability of the system for a significant part of the interim period (at least until the 1920s and possibly beyond) is closely connected to the incentives provided first by unlimited liability and then by reserve liability and uncalled capital. The aim of this chapter is to understand how the Bank of England and the Treasury may have contributed (or otherwise) to the stability of the UK banking system in the past two centuries. In particular, the chapter analyses the evolution of the Bank’s (and the Treasury’s) fire-fighting role during crises. The chapter argues that the Bank’s role as a classical lender of last resort (LLR) was key to ending stress in the banking system during episodic pressure in the money market. However, the evolution of its role as a bailout coordinator or facilitator, backed by the Treasury, ultimately undermined the stability of the banking system.
Bagehot and Thornton on the theory of the lender of last resort
According to Kindleberger, the LLR ‘stands ready to halt a run out of real and illiquid financial assets into money by making more money available’. However, when we ask more questions, the LLR becomes a complex notion that means different things to different economists and that has changed over time. For example, who should be the LLR? How much should be loaned and on what terms? Should its availability be unambiguously signalled ex-ante? Should last-resort loans be made to the market or to individual institutions? If last-resort loans are to be made to individual institutions, should it be only to illiquid institutions or also to insolvent institutions? Can last-resort lending be structured so as to prevent moral hazard?
The history of money, banking, and financial legislation can be interpreted as a search for a structure that would eliminate instability. Experience shows that this search failed and theory indicates that the search for a permanent solution is fruitless.
H. P. Minsky
This chapter attempts to conceptualise and theorise the reasons why banking becomes unstable and why banking systems experience crises. This chapter is not about how crises should be tackled once they occur; rather, it is about why crises occur in the first instance. It is important to think conceptually about banking stability because it helps to organise and interpret the historical narrative of banking stability in the United Kindgom during the past two centuries.
The first section explains why banking instability matters by describing how banking crises can have widespread ramifications for the economy and even for political stability. The second section uses a hypothetical bank to explore the traditional reasons given in the extant literature as to why a bank might fail. It demonstrates the vulnerabilities in the nature of banks’ assets and liabilities that may make them prone to instability. The third section contends that these vulnerabilities highlighted in the extant literature are an incomplete explanation of banking instability. Consequently, this section takes a hypothetical bank and develops a theory of banking instability based on the incentive structures of bankers, shareholders and depositors. In particular, the concept of ‘risk shifting’, which is when bankers opportunistically – and unobserved by depositors – increase the risk of a bank’s asset portfolio, is highlighted.
In this chapter, we measure and assess the stability of the British banking system from 1800 to the present, using a combination of bank-failure data and bank-stock prices. The main finding from this analysis is that there have been two major or systemic banking crises in the past two centuries: 1825–6 and 2007–8. In the interim, there were several minor or nonsystemic crises.
However, before we examine the stability of the banking system, we need to understand how the structure of British banking has evolved since 1800, for at least three reasons. First, we need background and context if we are going to examine the stability of the banking system. Second, the structure of the banking system may have a bearing on its stability and vice versa. Third, the two ways that we have to assess banking stability require us to comprehend the basic evolution of UK banking structure. Thus, the following section describes and explains how the UK banking system evolved. The two subsequent sections explore the stability of the British banking system since 1800 and the effect of banking instability on the real economy.
The development of the British banking system
At the time of the Great Crash of 2007–8, Britain’s banking system was dominated by a small number of banks that had branches not only throughout the United Kingdom but also subsidiaries around the globe. However, two centuries earlier, the United Kingdom had literally hundreds of banks, all of which had a limited geographical reach. How did this transformation happen? To fully understand the evolution of the UK banking system, we must recognize the fact that it evolved from separate systems in England and Wales, Scotland, and Ireland.