Money of the Mind - James Grant

[cobafdek]

[amazonsearch]Money of the Mind:  How The 1980's Got That Way[/amazonsearch]

 

One of the best history books I've ever read - in all history categories, not just financial.  The spectacle of the credit markets can hold its own with the better-known stock market history.  With this book, you also get the author's talent for finding appropriate quirky anecdotes and citing contemporaneous quotations, all delivered with Grant's idiosyncratic and subtle but wickedly funny and ironic prose.

 

Students of banking history will get the beginnings of Citibank, as National City Bank, one of the first nationally chartered banks.  To qualify as a customer, you had to have at least a six-figure account, therefore, only companies and corporations, not the hoi polloi.  Deposits were non-interest bearing.  Accounting policy was so conservative that loans were charged off if 24 hours delinquent.  Real estate lending was forbidden.  Stockholders were subject to "double liability," meaning they were also personally liable for depositors' losses up to the par value of their stock.  Leading banks in the late 1800s repeatedly rescued the government, the most vexing of their large borrowers.  Any of these features recognizable today?

 

All the major events are covered from the mid-1850s, including the devolution of the gold standard, the panics, the establishment of the Fed, wartime inflations and post-war deflations, up to the junk bond era and S&L disaster of the 1980s.  The American credit system evolved with the democratization of credit and the socialization of risk, but the occurence of booms and busts was a constant. 

 

If only all this history were a reliable guide to the future results of today's widespread quantitative easing.  Grant:  "History repeats itself, but not so literally as to enrich historians."  What we can count on is "Knowing the past, one reads the morning newspapers with a sense of fatalism.  One believes in the powers of markets and reason, but not in the perfectability of lenders and borrowers."