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Four Centuries Of Financial Debacles
The April Fools Investment Club15 November 2016, Charlotte
Graham SettleFour Centuries Of Financial Debacles
Schadenfreude German: 'harm-joy' the pleasure derived from the misfortune of others.
Why look at history of finance?
Physics envy and lost wisdom of 21 th century economists, and the role of money and credit in boom and bust.
Tulipmania (Amsterdam 1634–1637)The original sin, but what really happened?The rest of the story…
Bank of Amsterdam (money supply) Irrational exuberance, but mania? Time horizons were affected by Plague Government stayed out of the solution Minimum long-term effects
Four Centuries Of Financial Debacles
Mississippi Company Scheme (1720)
John Law 1671-1729
Quantitative Easing (QE) Of French Debt
South Sea BubbleQE 2?
Copy the French “Model” Less economic effect–partial
monetization Bubble Acts harmed Britain for
100 years
Chart of South Sea Company Stock (1720)
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Source: Garber, Peter M. Famous First Bubbles
"I can calculate the motions of heavenly bodies, but I can not the madness of people."
-- Sir Isaac Newton, Upon losing 20,000 pounds sterling in South Sea Company
Four Centuries Of Financial Debacles
The Ponzi Scheme Boston June-August 1920A Nonbank bank run. Fed was goosing money.Previously known as robbing Peter to pay Paul Ponzi stayed and paid so he got the “Credit”Three Boston banks went down, too.
Carlo "Charles" Ponzi (1882–1949)
“The scheme that defines it all”
Madoff: The Biggest Fraud Ever? -- Not so fast. Bernie = $13 billion.
The Match King Buys The WorldKreuger & Toll Company (1932)
“The greatest fraud in history.” -- JK Galbraith Monopoly of world match market Loaned money to many countries Swedish company US Fed backing
Look for it in the Fed audit, if it ever comes.
The Match King = $50 billion
Ivar Kreuger (1880-1932)
The Wall Street Crash 1929 and 30's Depression Banks lending with 10 to 1 leverage New technologies – RR, Electricity, Auto Trade monopoly promoted-isolationism Vast increase in state control What of the 1921 depression? What about Marx? The other one.
1987, 1998, 2000, 2008
Safety nets turn to performance features
Moral Hazard: TBTF: Greenspan Put +LTC + Bear = Lehman
1987 was a preview, but LTC was the original Greenspan PutGoldman Sacks: Partnership IPO Deposit bankLaid off risk: Insiders Shareholders TaxpayerSet up the Bear Sterns/Lehman moment 2008
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Four Centuries Of Financial Debacles
Lessons from history:
Systemic risk is state sponsored
Fraud is not a free market tenant
Regulation can “Crowd Out” reputation
Regulation may act as “fig leaf” for reform
Artificial confidence is harmful
Safety becomes performance enhancer
Money is a key to boom and bust cycles. But what is money anyway?
Should money be managed by Central Planners or market based?
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” -- F A Hayek, The Fatal Conceit
Fatal Conceit Of Central Planers
Professor Ben Bernake, Planner Extraordinaire
Graham Settle
Graham Settle, CFA Founding member of
CYBER SECURITY FIRM
WWW.INFORARMOR.COM
Courses and Lectures Case Studies
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Graham Settle1. “10 Ancient Economic Fallacies in the 21st Century”
2. “Evolution of The Company…A Better Model For Investors”
3. “Future Crimes: Cyber Risk, The Dark Web And You”
4. “What Is The Private Sector And Why Do We Develop It?”
5. “Four Centuries of Financial Debacles”
6. “City, Inc.: Urban Competition In The 21st Century”
7. “Passing The CFA Exam: Ethics and Standards Of Practice”
8. “Dear Board Of Directors, Do You Know What Your Subsidiaries Are Up To?”
9. “Your Digital Security Is At Risk: Why Cyber Security Matters to You.”
10. “Corporate Governance: Still Developing After All These Years”
1. “The Arizona Market” The case of how a devastated piece of land, forsaken after the war in Bosnia, attracted former enemies who built a dynamic regional market, creating jobs and attracting customers from far away. And why the international community decided that it had to be destroyed.
2. “The Milosevic Debt” The study of the negotiation leading to the solution of Yugoslavia’s outstanding debt to multilateral development banks. Ten years of financial sanctions that included the breakup of the state of Yugoslavia, a new and inexperienced government of intelligentsia, complicate efforts of an intriguing array of stakeholders. Lessons learned in understanding hidden agendas, overestimation of authority, leads to a surprise ending of betrayal.
3. “Smart Glass, A Journey” Case study of a company’s struggle to advance a technology from concept to commerce. Case reveals an unusual business model for a growth company; demonstrates pluses and minuses of licensing and royalties, and how some of our latest technological “inventions” were “discovered” by accident years ago
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