Historical perspective

The financial system | What went wrong | Economist.com

“A COMPANY for carrying out an undertaking of great advantage, but nobody to know what it is.” This lure for the South Sea Company, published in 1720, has a whiff of the 21st century about it. Modern finance has promised miracles, seduced the brilliant and the greedy—and wrought destruction. Alan Greenspan, formerly chairman of the Federal Reserve, said in 2005 that “increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago.” Tell that to Bear Stearns, Wall Street’s fifth-largest investment bank, the most spectacular corporate casualty so far of the credit crisis.

It seems like whenever there’s a a major disaster in one of the markets, the comparison to the South Sea Bubble inevitably gets trotted out … but rather than bore you all with a history lesson, I’m going to recommend a wonderful novel by David Liss, entitled A Conspiracy of Paper, a historical mystery set during the the world’s first stock market crash, which will give some insight into what happened nearly 300 years ago, wrapped up in a story of pugilism and prostitution.

And then, once you’ve finished A Conspiracy of Paper, you can read The Coffee Trader (the introduction of coffee to the commodities exchanges in Amsterdam in the mid 17th Century) and A Spectacle of Corruption (about the machinations involved in an early 18th Century British national election) … all are timely novels to read in the current political and economic climate … a little history to put current events into perspective.