Last week marked the fifth anniversersay of the credit crisis. We seem to have had nothing but bad new and banking scandals since 2007. Yesterday we had another one with Standard Chartered agreeing to pay $340m to New York regulators to settle claims that it hid transactions with Iran. The bank was accused of laundering up to $250bn and was under threat of having its US banking licence revoked.
This excellent and very readable book by Niall Ferguson will give you some of the background to why money has become so important in our economy. Curiously, he began work on in in 2006 predicting that a banking crisis was about to occur.
In early 2007, Niall Ferguson, a professor of finance from Harvard Business School gave a speech to a group of investment bankers stating that they should be wary of possible troubled times that lay ahead. They were so unimpressed (lest we forget, the world economy had enjoyed 10 years of sustained growth) that one person suggested next year’s key note speaker be replaced with by the Mary Poppins film. What arrogance! These were the people that tax payers were bailing out just 9 months later.
This book gives an incite into why money and baking have become so important in society and what led to such arrogance from those who work in financial institutions. Ferguson believes that the general public is ignorant of the working of the financial world. He therefore gives a very readable account of the history of credit, bond markets, the stock market, insurance, the real-estate market, and international finance. Does that sound a bit boring? Well, actually itisn’t. This is an excellent and fascinating read whether you have studied finance or not.
Some things you didn’t know:
Christians were banned from lending money under their faith. Jews were banned too, but “they had a get out clause” since they were allowed to lend money to anyone that was not their ‘brother’ i.e. not a Jew. This led to Jewish involvement in lending and thus banking.
The word ‘bank’ comes from the Italian word for bench or ‘banca’ where money was origally laid out to be lent.
Some great quotes from the book:
Before this crisis, there were people who thought there would never be another recession–that kind of crazy, myopic, unhistorical belief. That was followed in the last month or so by wild panic, as if it’s the end of the world.
- Financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty.
- Bubbles are more likely to occur when capital flows freely from country to country.
- …as John Maynard Keynes once observed, in a crisis ‘markets can remain irrational longer than you can remain solvent’.
- Kahneman and Tversky identify a striking asymmetry: risk aversion for positive prospects, but risk seeking for negative ones. A loss has about two and a half times the impact of a gin of the same magnitude.
Business School Grenoble EM International Affairs Higher Education ESC Grenoble Strategy Blog Global Ed Graduate Business School Mark Thomas
Other Book Reviews
NY Times: “Ferguson takes us on an often enlightening and enjoyable spelunking tour through the underside of great events, a lesson in how the most successful great powers have always been underpinned by smart money. “The ascent of money has been essential to the ascent of man,” he writes, making a conscious reference to the BBC production he loved as a boy, Jacob Bronowski’s “Ascent of Man.””
The Economist: “This rushed, uneven book, by a British-born Harvard University professor who made his name a decade ago with a history of the Rothschild banking dynasty, will contribute less than expected to that debate. It has strengths, including a tidy account of the run-up in housing markets and of the symbiotic rivalry between America and China. But in the earlier chapters—the history, oddly enough, where you would expect Mr Ferguson’s ambitions for his subject to quicken his judgments—the words rarely come to life, either as a source of ideas or as narrative.”
The Guardian: “There’s no denying that Niall Ferguson is a brilliant historian but his latest work, a hymn to global capitalism, has been cruelly overtaken by events.”