A Bit of Blather with Bookworms then it’s off for a Wild Swim
In the past seven days I’ve taught my last class of the year at Harvard, I’ve (nearly) marked my final paper and – nomad that I am – I’ve kicked the Massachusetts earth from my feet and started my travels. First stop was the velvet-green hills of Hay-on-Wye. Last year, thanks to torrential rain, the literary festival was more like Glastonbury for bookworms than the Woodstock of the mind (as Bill Clinton famously called it). This year the Welsh soil was baked dry. Hay without wellies is heaven. It was also a pleasure to discuss the 90th anniversary of the Versailles treaty with the Marxist historian Eric Hobsbawm, who, at 92, is two years older than the treaty and has stood the test of time much better. Although we are poles apart politically, I deeply respect him as a historian.... Read more

Corrupt, Amoral Politicians. An Economy Sinking in Terrifying Debt. And a People Enraged. Britain Has Been Here Before... and the Lesson Should Chill Us All
A corrupt parliament; an unprincipled government; an economy sinking under a mountain of debt - and a people enraged. Not a bad description of Britain in 2009. Also not a bad description of Britain nearly two centuries ago, in the dismal decade of distress and discontent that followed the Napoleonic Wars. Yes, we've been in this mess before. The question is: How did we get out of it? And can we do it again? In his Rural Rides, which he began writing in 1822 and published in 1830, the radical journalist William Cobbett portrayed a country groaning under the twin burdens of debt and sleaze. The 1820s were a time of acute financial crisis - of deflation, a crashing stock market and soaring unemployment - and Cobbett expressed better than anyone the bitter national mood. Unlike the economists of his time, he dismissed the idea that the crisis was the result of a natural business cycle. For Cobbett, it was clearly a consequence of political corruption. 'A national debt,' he wrote, 'and all the taxation and gambling belonging to it, have a natural tendency to draw wealth into great masses - for the gain of a few.' Now, Cobbett lamented, 'the Debt, the blessed Debt' was 'hanging round the neck of this nation like a millstone'. Ring a bell? It should. Under Gordon Brown's stewardship of the nation's finances, we have witnessed both an explosion of public debt and a marked increase in inequality. We can already feel the millstone growing as taxes rise to pay the interest on the money borrowed to bail out the greedy incompetents who blew up the big banks. The UK Debt Management Office estimates that the Government will have to sell a record £147.9 billion of new bonds in the 2009-10 financial year. But that understates the magnitude of the debt mountain. According to one estimate, the various guarantees, asset purchases, capital injections and stimulus measures introduced by the Government since this crisis began amount to 59 per cent of gross domestic product.... Read more

Diminished Returns
If financial crises were distributed along a bell curve — like traffic accidents or people’s heights — really big ones wouldn’t happen very often. When the hedge fund Long-Term Capital Management lost 44 percent of its value in August 1998, its managers were flabbergasted. According to their value-at-risk models, a loss of this magnitude in a single month was so unlikely that it ought never to have happened in the entire life of the universe. Just over a decade later, many more of us now know what it’s like to lose 44 percent of our money. Even after the recent stock-market rally, that’s about how much the Standard & Poor’s 500 index is down compared with October 2007. Financial crises will happen. In the 1340s, a sovereign-debt crisis wiped out the leading Florentine banks of Bardi, Peruzzi and Acciaiuoli. Between December 1719 and December 1720, the price of shares in John Law’s Mississippi Company fell 90 percent. Such crashes can also happen to real estate: in Japan, property prices fell by more than 60 percent during the ’90s.... Read more

An Interview with Niall Ferguson
The Great Repression is of course is a play on words. Repression is a psychological term. We often talk about being in denial about a trauma. I think there are a great many people who are still in denial about the scale of this economic crisis. The Obama administration, for example, published a budget document not so very long ago which projects US economy will grow 3% next year 4% the year after that and 4.6% the year after that. That’s a fairy story. Anybody who bases their budget plans on a forecast like that is exhibiting all the symptoms of the great repression.... Read more

Beyond the Age of Leverage: Alternative Cures for the Global Financial Crisis
It began as a sub-prime surprise, then became a credit crunch and is now a global financial crisis. At last week’s World Economic Forum at Davos there was much retrospective finger-pointing—Russia and China blamed America, everyone blamed the bankers, the bankers blamed everyone—but little in the way of forward-looking ideas. From where I was sitting, the majority of attendees were still stuck in the Great Repression: deeply anxious, but fundamentally in denial about the nature and magnitude of the problem.... Read more

Beyond the Age of Leverage: New Banks Must Arise
Call it the Great Repression. The reality being repressed is that the western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More importantly, households are groaning under unprecedented debt burdens. Worst of all are the banks. The best evidence that we are in denial about this is the widespread belief that the crisis can be overcome by creating yet more debt.... Read more