Saturday, September 20, 2008
An Incovenient Truth - Its all about leverage
"As to new financial instruments, however experience establishes a firm rule, and on few economic matters is understanding more important and frequently, indeed, more slight. The rule is that financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design, one that owes its distinctive character to aforementioned brevity of financial memory. The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves, in one form or other, the creation of debt secured in greater or lesser adequacy by real assets. ...All crises have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment."
So said John Kenneth Galbraith in his famous 1990 book "A Short History of Financial Euphoria"
"We learn from history that we learn nothing from history."
So said George Bernard Shaw
Hath I say more?