Niall Ferguson: He hates to say 'I told you so,' but historian foresaw crisis
Long before the subprime meltdown, renowned Scottish historian Niall Ferguson began warning that the world was not immune from a great liquidity crunch.
Prof. Ferguson is a Harvard and Oxford-based expert on the history of economics and empires and has written many bestselling books, including The War of the World. His latest, The Ascent of Money: A Financial History of the World, explores the power, achievements and monumental failures of finance throughout history. Although he finished it more than six months ago, it is well timed to supply the nerve-racked among us with some much-needed historical perspective.
Prof. Ferguson will be speaking in Toronto at the Grano Series this Thursday. I spoke to him about the meltdown, what lies ahead and why he switched his allegiance from John McCain to Barack Obama.
[Q] Okay, you were right. You saw this coming.
[NF] That's true. I don't really like people who say, "I told you so." But a knowledge of financial history can prepare you for this kind of crisis. Back in 2006, I went around giving talks at investment banking firms saying a liquidity crisis is something very nasty, and when it happens it will be quite devastating, particularly given the high levels of debt held by households and banks. And everybody just said, "Forget about it." I was struck by this collective euphoria. So I decided to write a book that would anticipate this crisis, or at least make sense of it.
[Q]How come so many smart people didn't see it coming?
[NF] They drank their own Kool-Aid. In 2004, Ben Bernanke, the chairman of the U.S. Federal Reserve, gave a lecture called "The Great Moderation." He argued that central banks were so good at their jobs that the world was becoming a wonderfully smooth ride. The central bankers ... believed their own increasingly narrow doctrine that all you had to do was target core consumer price inflation, and you could ignore what asset prices did. You didn't have to worry about the stock market or the housing market. Derivatives were wonderfully innovative things and so were hedge funds. And economic theory tended to reinforce this approach....
Read entire article at Globe & Mail
Prof. Ferguson is a Harvard and Oxford-based expert on the history of economics and empires and has written many bestselling books, including The War of the World. His latest, The Ascent of Money: A Financial History of the World, explores the power, achievements and monumental failures of finance throughout history. Although he finished it more than six months ago, it is well timed to supply the nerve-racked among us with some much-needed historical perspective.
Prof. Ferguson will be speaking in Toronto at the Grano Series this Thursday. I spoke to him about the meltdown, what lies ahead and why he switched his allegiance from John McCain to Barack Obama.
[Q] Okay, you were right. You saw this coming.
[NF] That's true. I don't really like people who say, "I told you so." But a knowledge of financial history can prepare you for this kind of crisis. Back in 2006, I went around giving talks at investment banking firms saying a liquidity crisis is something very nasty, and when it happens it will be quite devastating, particularly given the high levels of debt held by households and banks. And everybody just said, "Forget about it." I was struck by this collective euphoria. So I decided to write a book that would anticipate this crisis, or at least make sense of it.
[Q]How come so many smart people didn't see it coming?
[NF] They drank their own Kool-Aid. In 2004, Ben Bernanke, the chairman of the U.S. Federal Reserve, gave a lecture called "The Great Moderation." He argued that central banks were so good at their jobs that the world was becoming a wonderfully smooth ride. The central bankers ... believed their own increasingly narrow doctrine that all you had to do was target core consumer price inflation, and you could ignore what asset prices did. You didn't have to worry about the stock market or the housing market. Derivatives were wonderfully innovative things and so were hedge funds. And economic theory tended to reinforce this approach....