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The S&Ls were simultaneously losing money on long-term fixed-rate mortgages, because of inflation, and haemorrhaging deposits to higher-interest money market funds.
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Niall Ferguson |
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then resold their loans in bulk to Wall Street banks. The banks, in turn, bundled the loans into high-yielding residential mortgage-backed securities (RMBS) and sold them on to investors around the world, all eager for a few hundredths of a percentage point more return on their capital. Repackaged as collateralized debt obligations (CDOs), these subprime securities could be transformed from risky loans to flaky borrowers into triple-A rated..
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Niall Ferguson |
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1969729
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non-Western countries had, until quite recently, highly unreliable legal systems and differing accounting rules. If a foreign trading partner decided to default on its debts, there was little that an investor situated on the other side of the world could do. In the first era of globalization, the solution to this problem was brutally simple but effective: to impose European rule.
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Niall Ferguson |
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5e3925e
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For the majority of mortgages continued to enjoy an implicit guarantee from the government-sponsored trio of Fannie, Freddie or Ginnie, meaning that bonds which used those mortgages as collateral could be represented as virtually government bonds, and hence 'investment grade'.
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Niall Ferguson |
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1bc5393
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The idea was to reinvent mortgages by bundling thousands of them together as the backing for new and alluring securities that could be sold as alternatives to traditional government and corporate bonds - in short, to convert mortgages into bonds.
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Niall Ferguson |
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9a8bb4e
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Why, to give another suggestive example, did it take an American journalist sixty-five days to get official permission (including, after a wait of up to five weeks, a Food
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Niall Ferguson |
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Protection Certificate) to open a lemonade stand in New York City?
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Niall Ferguson |
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the crisis prompted the issue of emergency paper money: in Britain, PS1 and 10s Treasury notes; in the United States, the emergency currency that banks were authorized to issue under the Aldrich-Vreeland Act of 1908.46 Then, as now, the authorities reacted to a liquidity crisis by printing money.
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Niall Ferguson |
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Protection Certificate) to open a lemonade stand in New York City?12 This is the kind of debilitating red tape that development economists often blame for poverty in Africa or Latin America. The rationale for the FDA's rigid standards is to avoid the sale of a drug like thalidomide. But the unintended consequence is almost certainly to allow many more people to die prematurely than would have died from side-effects under a less restrictive ..
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Niall Ferguson |
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Any investor unwise or patriotic enough to hang on to gilt-edged securities (consols or the new UK War Loans) would have suffered inflation-adjusted losses of -46 per cent by 1920. Even the real returns on British equities were negative (-27 per cent).51 Inflation in France and hyperinflation in Germany inflicted even more severe punishment on anyone rash enough to maintain large franc or Reichsmark balances. By 1923 holders of all kinds of..
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Niall Ferguson |
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autarky),
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Niall Ferguson |
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why, when its causes today seem so numerous and so obvious, were contemporaries so oblivious of Armageddon until just days before its advent? One possible answer is that their vision was blurred by a mixture of abundant liquidity and the passage of time.
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Niall Ferguson |
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the lights in financial markets were flashing green, not red, until the very eve of destruction.
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Niall Ferguson |
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volte-face
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Niall Ferguson |
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Exchange rates would be fixed, as under the gold standard, but now the anchor - the international reserve currency - would be the dollar rather than gold (though the dollar itself would notionally remain convertible into gold, vast quantities of which sat, immobile but totemic, in Fort Knox).
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Niall Ferguson |
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seigniorage
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Niall Ferguson |
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complaints from France that Washington was exploiting its reserve currency status in order to collect seigniorage from America's foreign creditors by printing dollars, much as medieval monarchs had exploited their monopoly on minting to debase the currency.
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Niall Ferguson |
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b568e64
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Only by historical methods can we explain why, over the past thirty years, so many countries created forms of debt that, by design, cannot be inflated away; and why, as a result, the next generation will be saddled for life with liabilities incurred by their parents and grandparents.
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Niall Ferguson |
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ae20e12
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hapless
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Niall Ferguson |
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Soros regards himself as more a philosopher than a hit man. His book The Alchemy of Finance (1987) begins with a bold critique of the fundamental assumptions of economics as a subject,
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Niall Ferguson |
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ec88bdd
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The imposition of British rule (as in Egypt in 1882) practically amounted to a 'no default' guarantee; the only uncertainty investors had to face concerned the expected duration of British rule.
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Niall Ferguson |
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Europe's central banks had nearly all committed themselves to the gold standard by 1908; that meant that they nearly all had to target their gold reserves, raising rates (or otherwise intervening) if they experienced a specie outflow. At the very least, this simplified life for investors, by reducing the risk of large exchange rate fluctuations.
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Niall Ferguson |
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fd308ce
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Kaffir
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Niall Ferguson |
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0fb1bd7
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Balkan Wars
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Niall Ferguson |
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well as illiterate, unhealthy and bloody. I admire contemporary social scientific work that distinguishes between 'open' and 'closed' sets of institutions,18 but as an historian I find that distinction too simplistic. For one of the puzzles of modern history is that successful societies - like eighteenth-century England - often had institutions that today most people would be inclined to condemn. Already by the time of the Victorians, Hanov..
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Niall Ferguson |
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Significantly, Smith singled out its socially regressive character. First, wages for the majority of people were miserably low: Though the wealth of a country should be very great, yet if it has been long stationary, we must not expect to find the wages of labour very high in it . . . It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, tha..
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Niall Ferguson |
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approach reveals a point that is often overlooked. It is certainly desirable that societies with bad institutions should get better ones. We see that process going on today all over the world, in much of Asia, in parts of South America and even in Africa. But there is a more insidious process that is going on at the same time, whereby societies with good institutions gradually get worse ones. Why is this? Who exactly are the enemies of the ..
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Niall Ferguson |
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happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state. The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining melancholy.
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Niall Ferguson |
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academic literature. Major influences on my thinking include Douglass North, who won the Nobel Prize for Economics for his work on institutions; the pre-eminent economist of modern Africa, Paul Collier, author of The Bottom Billion and Plundered Planet; Hernando de Soto, the Peruvian economist and author of The Mystery of Capital; Andrei Shleifer and his numerous co-authors, who have pioneered an economic approach to the comparative study o..
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Niall Ferguson |
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The second hallmark of the stationary state was the ability of a corrupt and monopolistic elite to exploit the system of law and administration to their own advantage: In a country too, where, though the rich or the owners of large capitals enjoy a good deal of security, the
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Niall Ferguson |
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For some readers, I dare say, the word 'institution' still conjures up a Victorian vision of lunatic asylums: poor old Niall, he's in an institution now. That is not the kind of institution I mean. I am talking about, for example, political institutions, like the British Parliament or the American Congress. When we talk about
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Niall Ferguson |
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Tarek Mohamed Bouazizi, who burned himself to death in front of the governor's offices in the town of Sidi Bouzid in December 2010.12 Bouazizi killed himself precisely one hour after a policewoman, backed by two municipal officers, had seized from him two crates of pears, a crate of bananas, three crates of apples and a second-hand electronic weight scale worth $179. Those scales were his only capital. He did not have legal title to his fam..
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Niall Ferguson |
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Once the United States was famed as a land of opportunity, where a family could leap from 'rags to riches' in a generation. But today, if you are born to parents in the bottom income quintile, you have just a 5 per cent chance of getting into the top quintile without a college degree. What Charles Murray has called the 'cognitive elite', educated at exclusive private universities, intermarried and congregated in a few
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Niall Ferguson |
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two square yards of public land. Their arbitrary act of expropriation cost Mohamed Bouazizi his livelihood and his life. But his self-immolation sparked a revolution - though how glorious a revolution remains to be seen. It will depend on how far new constitutional arrangements in countries like Tunisia and Egypt achieve the shift from an extractive to an inclusive state, from the arbitrary power of rent-seeking elites to the rule of law fo..
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Niall Ferguson |
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poor or the owners of small capitals enjoy scarce any, but are liable, under the pretence of justice, to be pillaged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it can never be equal to what the nature and extent of that business might admit. In every different branch, the oppression of the poor must establish the monopoly of the rich, who, b..
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Niall Ferguson |
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In their book Why Nations Fail, Daron Acemoglu and Jim Robinson make a striking comparison between Egypt today and England in the late seventeenth century: The reason that Britain is richer than Egypt is because in 1688 . . . England . . . had a revolution that transformed the politics and thus the economics of the nation. People fought for and won more political rights and used them to expand their economic opportunities. The result was a ..
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Niall Ferguson |
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super zip codes', looks increasingly like a new caste, equipped with the wealth and power to override the effects of mean reversion in human reproduction, so that even their dimmer progeny inherit their lifestyle.14
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Niall Ferguson |
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trajectory, culminating in the Industrial Revolution.8 In their terms, England was the first country to move to having 'inclusive' or 'pluralistic' rather than 'extractive' political institutions. Note that other West European societies - for instance, Spain - failed to do this. As a result, the outcomes of European colonization in North and South America were radically different. The English exported inclusive institutions; the Spaniards w..
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Niall Ferguson |
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Somehow no really terrible Western ideas like, say, witch-burning or communism ever get mentioned, though they seem just as plausibly the products of Judaeo-Christian culture as the spirit of capitalism. In any case, while culture may instil norms, institutions create incentives. Britons versed in much the same culture behaved very differently depending on whether they emigrated to New England or worked for the East India Company in Bengal...
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Niall Ferguson |
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The Four Black Boxes To demonstrate that Western institutions have indeed degenerated, I am going to have to open up some long-sealed black boxes. The first is the one labelled 'democracy'. The second is labelled 'capitalism'. The third is 'the rule of law'. And the fourth is 'civil society'. Together,
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Niall Ferguson |
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they are the key components of our civilization. I want to show that inside these political, economic, legal and social black boxes are highly complex sets of interlocking institutions. Like the circuit boards inside your computer or your smartphone, it is these institutions that make the gadget work. And if it stops working, it is probably because of a defect in the institutional wiring. You cannot understand what is wrong just by looking ..
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Niall Ferguson |
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The key point is that not all sets of institutions, when you add up the sum of the parts, are equal. There are good and bad combinations. In some sets of institutions, people can flourish freely as individuals, as families, as communities. That is because the institutions effectively incentivize us to do good things - like, for example, inventing new and more efficient ways of working, or co-operating with our neighbours rather than trying ..
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Niall Ferguson |
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there are institutional frameworks that have the opposite effect: incentivizing bad behaviour like killing people who annoy us, or stealing property we covet, or idling away our time. Where bad institutions pertain, people get stuck in vicious circles of ignorance, ill health, poverty and, often, violence. Unfortunately, history suggests that there are more of these suboptimal frameworks than there are optimal frameworks. A really good set ..
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Niall Ferguson |
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All these people want is a chance for the future, a chance they will follow with a strict consequentness [sic]. They will resent pity, they will be suspicious of oversolicitousness. They have seen man from his most evil side, who can blame them for being suspicious? They will resent having somebody plan every little detail for them. And in all fairness, who can blame them for that? Have they not lived in the land of the dead and so what can..
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Niall Ferguson |