Saturday, September 5, 2009

Tuesday, September 1, 2009

The Ascent of Money

The Ascent of Money by Niall Ferguson is a worthwhile read for anybody who saves money, owns a home or makes a living paid in some form of currency.  In other words, it is for just about everybody, but most importantly, it is useful for those who make our living in the mortgage investment field, and those whose income is derived from mortgage investments.
"Of far greater interest is Mr Ferguson’s general theory, which does not emerge until the end of the book. He thinks that finance evolves through natural selection. Although the professor cautions against the sort of Darwinism that sees evolution as progress, he believes that new sorts of finance are constantly coming into being as the environment changes. The sequence of creation, selection and destruction is what has generated many of the financial techniques that modern economies depend on." The Economist Book Review
And then there is the tendency of the United States to have a major financial services conflagration every fifteen to twenty years, the last one being the most severe since the Great Depression.

No one should ever bet against the Americans coming to the forefront again. They still have the world's largest economy despite its difficulties with its fundamental financial and regulatory institutions. It may even be that these fundamental flaws allow for an evolutionary die-off of participants including major banks and other financial institutions every few years to allow the new growth of a entirelyh new generation.
The rebirthing of the American economy allows the weak to die and the strong to thrive. This may not be what Adam Smith (the Scottish economist who founded economics as a discipline) had in mind when he talked about the "invisible hand." However, unfortunately for the weak, economic Darwinism may be just what the doctor ordered for a stronger economy long term.
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....Niall Ferguson in "The Ascent of Money"