Midterm | HATE | William Roberts | Financial News

Dutch East India Company (VOC)

One of the first publicly traded companies; created the Amsterdam Stock Exchange and first board of directors

British East India Company

Company chartered by Queen Elizabeth I in 1600; ancestor of the modern multinational

Virginia Company of London

1606 joint-stock venture that financed Jamestown as a profit-seeking colony

Dutch West India Company

1626 company that founded New Amsterdam (Manhattan) and brought Amsterdam's financial culture to America

Wall Street

Named after a defensive wooden palisade built by the Dutch in 1653

Buttonwood Agreement (1792)

Agreement where 24 brokers agreed to trade securities among themselves at fixed commissions; origin of the NYSE

James River Company (1785)

Virginia company created to build a canal to the western frontier; George Washington was honorary president

Railroads

America's first big business; created a mass market for corporate securities and helped develop modern management

Railroad annual reports

Standardized accounting reports created for absentee shareholders; direct ancestors of the SEC's Form 10-K

Standard Oil

Company controlled by John D. Rockefeller that controlled 90–95% of U.S. oil refining by 1882

Trust

Legal device allowing one board to control many nominally separate companies

Railroad rebate

Secret refund from a railroad to a favored shipper, used by Standard Oil to undercut competitors

Ida Tarbell

Investigative journalist who spent five years reporting on Standard Oil using internal documents

Muckraker

Investigative journalist exposing corruption; the term became a badge of honor

Documents over assertions

Muckraker principle emphasizing evidence from documents instead of unsupported claims

Sources over rumor

Muckraker principle emphasizing reliable sources instead of rumors

Pattern over incident

Muckraker principle emphasizing broader patterns rather than isolated events

Sherman Antitrust Act (1890)

Law banning monopolizing trade

Standard Oil breakup (1911)

Supreme Court unanimously ruled Standard Oil violated the Sherman Act and split it into 34 companies

Clayton Act (1914)

Law that, with the Sherman and FTC Acts, forms the basis of the U.S. antitrust system

FTC Act (1914)

Law that helped complete the U.S. antitrust system

Crash of 1929

Stock market crash in which $30 billion was wiped out in two days

Information failure

Lack of reliable financial information and regulation that contributed to the Crash of 1929

Securities Act of 1933

Required companies to register public offerings and provide audited financial disclosures

Securities Exchange Act of 1934

Created the SEC and established ongoing disclosure requirements for public companies

SEC

Securities and Exchange Commission; created in 1934 to enforce ongoing disclosure rules

10-Q

Quarterly financial report filed by public companies

10-K

Annual report that every public company must file with the SEC

8-K

Report used for immediate disclosure of material events

Material event

Information a reasonable investor would consider important and that must be disclosed

Postwar boom (1945–1965)

Period when the U.S. dominated global manufacturing and developed a mass consumer market

GI Bill

Program that helped create a mass consumer market through education, housing, and rising wages

Nifty Fifty

About 50 blue-chip growth stocks treated as "one-decision" stocks

One-decision stock

Stock investors were told to buy and never sell

Price-to-earnings (P/E) ratio

Share price divided by earnings per share; shows how much investors pay for each $1 of profit

Story stock

Stock driven more by narrative than fundamentals

Blue chip

Large, established, financially sound company

Nixon Shock (1971)

Nixon ended dollar-gold convertibility and froze wages and prices for 90 days

Bretton Woods

1944 system of fixed exchange rates backed by dollar-gold convertibility

1973 Oil Crisis

OPEC embargo that quadrupled oil prices and increased inflation

Nifty Fifty bust (1973–74)

Bear market that cut the S&P 500 by about 45%

1979 Oil Shock

Oil shock connected to the Iranian Revolution and reduced Iranian oil production

Stagflation

High inflation and high unemployment occurring at the same time

The Death of Equities

1979 BusinessWeek cover arguing inflation had made stocks a permanent loser; the market later began a major bull run

Magazine-cover indicator

Idea that when a major magazine cover declares a trend, the reverse often follows

Paul Volcker

Fed chairman appointed in 1979 who raised interest rates to fight inflation

Volcker Shock

Severe recession caused by Volcker's high interest rates that eventually reduced inflation

Asset-liability mismatch

When a financial institution earns low fixed rates on assets while paying high rates on liabilities

S&L crisis

Crisis where savings and loans faced losses from high rates and risky real-estate investments

FIRREA (1989)

Law that abolished FSLIC and created the Resolution Trust Corporation

Resolution Trust Corporation (RTC)

Agency created to resolve failed savings and loans

Junk bond

Below-investment-grade debt that pays higher interest

Michael Milken

Financier at Drexel Burnham Lambert who popularized junk bonds for hostile takeovers

Hostile takeover

Buying control of a company over management's objection

Carl Icahn

Corporate raider associated with hostile takeovers and greenmail

Greenmail

Threatening a takeover and then selling the stake back to the company at a premium

Corporate raider

Investor who buys large stakes to force a sale, breakup, or company buyback

T. Boone Pickens

Corporate raider who built Mesa Petroleum and pursued major oil-company takeovers

Leveraged buyout (LBO)

Buying a company mostly with borrowed money

RJR Nabisco LBO

$25 billion leveraged buyout that defined the 1980s M&A era

Barbarians at the Gate

Book by Bryan Burrough and John Helyar about the RJR Nabisco takeover

NAFTA (1993)

Trade agreement between the U.S., Canada, and Mexico that phased out tariffs

Maquiladora

Mexican border-town assembly plant producing goods for export

Fast-track authority

Authority allowing Congress to vote a trade deal up or down without amendments

WTO

World Trade Organization; created in 1995 to replace GATT and enforce trade rules

GATT

Postwar international trade framework replaced by the WTO in 1995

China Shock

U.S. job losses caused by Chinese import competition after China joined the WTO

Permanent normal trade relations

Congressional grant giving China low-tariff access to U.S. markets

Irrational exuberance

Alan Greenspan's 1996 phrase describing asset prices potentially outrunning fundamentals

Dot-com bubble

Technology-stock bubble driven by companies with big ideas and little revenue

Nasdaq

Stock exchange heavily associated with technology companies

IPO

Initial public offering; a company's first sale of stock to the public

Dot-com bust

Collapse of technology stocks that caused the Nasdaq to fall nearly 78% by October 2002

Enron

Energy-trading company whose executives hid debt and manipulated financial results

Bethany McLean

Fortune reporter who wrote "Is Enron Overpriced?" and challenged Enron's accounting

Peter Elkind

Fortune reporter who worked with Bethany McLean to investigate Enron

Andrew Fastow

Enron CFO who hid billions of dollars of debt in partnerships

Jeffrey Skilling

Enron CEO who resigned abruptly in August 2001

Arthur Andersen

Enron's auditor that collapsed after being convicted of obstruction of justice

Restatement

Revision of previously reported financial results

Off-balance-sheet partnership

Entity used to keep debt off a company's books

WorldCom

Telecommunications company that inflated profits by capitalizing ordinary operating costs

Bernard Ebbers

WorldCom CEO involved in the company's accounting fraud

Cynthia Cooper

WorldCom internal auditor whose team uncovered fraudulent accounting

Capitalizing expenses

Recording ordinary costs as long-term investments to inflate profit

Sarbanes-Oxley Act (SOX)

2002 law passed after Enron and WorldCom that strengthened corporate accounting and disclosure rules

PCAOB

Public Company Accounting Oversight Board; created by SOX to register, inspect, and discipline auditors

Section 404

SOX requirement for companies to report on internal financial controls

Whistleblower

Insider who exposes wrongdoing

Obstruction of justice

Interfering with an investigation, such as by shredding documents

September 11, 2001

Terrorist attacks that killed nearly 3,000 people and caused major financial-market disruption

Liquidity

How easily an asset can be converted to cash without affecting its market price

Liquidity crisis

Situation where an institution cannot raise cash fast enough to meet its obligations

Catastrophe bond

Bond that transfers disaster risk from insurers to investors

Subprime mortgage

Home loan made to a borrower with weak credit

Securitization

Bundling loans into securities that are sold to investors

Mortgage-backed security (MBS)

Bond built from a pool of mortgages

Collateralized debt obligation (CDO)

Bond built from pools of mortgages or other debt

Credit-default swap

Insurance-like contract that pays if a borrower or bond defaults

Housing bubble

Period when home prices rose rapidly before peaking in 2006 and collapsing