Edward ChancellorReseñas

Aquest títol ha estat nominat pel diari Financial Times al millor llibre de negocis de 2022, i ha guanyat el premi Hayek en el 2023; es tracta doncs, d'una obra que com a mínim té el contingut treballat. Comença relatant l'origen de l’ús de l’interès en els préstecs, i les primeres evidències es troben a les tauletes d’argila de la civilització de Babilònia. A mida que progressa la història, es va desenvolupant la idea central del llibre: els baixos tipus d’interès afavoreixen l’increment de preus dels actius i l’aparició de bombolles especulatives, que causen greus desequilibris a l’economia i acaben desembocant en una crisi econòmica greu. Els tipus baixos també creen problemes de rendibilitat als sector financer (bancs, fons de pensions, assegurances), desincentiven i/o impossibiliten l'estalvi, fomenten la desigualtat social, mantenen vives companyies que haurien de plegar i permeten alts nivells d'endeutament. Res d'aixó és bo per a una economia.

El fet que la crisi de 2008 fos internacional, independent de les regulacions locals, sembla assenyalar els baixos tipus d’interès com a principal responsable de la gran bombolla financera que va esclatar el 2008. Certament al tipus baixos també s’hi pot afegir una multiplicitat de forces casuals, com són la proliferació de productes financers complexes, classificacions de crèdit maldestres, models de risc carregats de problemes, una conducta de passar el problema a un altre en l’àmbit del crèdit hipotecari, regulacions insuficients, eufòria col·lectiva, tassa excessiva d’estalvi a nivell mundial i altres. Però això no treu responsabilitat als baixos tipus interès.

L'autor té una visió crítica dels governadors de la Reserva Federal dels Estats Units Alan Greenspan i Ben Bernanke, els quals es preocupaven principalment de regular la política monetària per assolir un objectiu d’inflació anual del 2% i obviar l’increment desmesurat i especulatiu de preus de la borsa, l’habitatge i altres actius.

Els economistes monetaristes tendien a pensar que la gestió de la massa monetària i els tipus d’interès només afectaven a la inflació, i que les bombolles econòmiques eren producte d’una regulació mal feta. El fet que l’increment especulatiu de preus fos un fenomen internacional, amb regulacions locals diferents, sembla desmentir en part aquesta afirmació. Però el paper galdós dels bancs centrals respecte a la regulació bancària i regulació dels productes financers també tenen una responsabilitat en la bogeria que es va produir. Més viat sembla que els governadors dels bancs central estaven molt focalitzats en el seu objectiu de mantenir la inflació anual en el 2% i consideraven que les bombolles especulatives no afectaven a l'economia productiva. Cagada pastoret.

La tesi principal del llibre, el fet que els baixos tipus d’interès fomenten l’economia financera i afavoreixen als tenidors d’actius especulatius, és contrària a la famosa obra de Thomas Piketty, “El capital en el segle XXI”, la qual aposta pel contrari: els major retorns del capital (interessos, beneficis, dividends i rendes) afavoreixen als rics. Els fets empírics donen la raó a Edward Chancellor.

L’argument bàsic d’aquest llibre també es pot trobar a "Dogs and Demons: Tales From the Dark Side of Modern Japan", títol d’Alex Kerr que ve a explicar el mateix en el seu capítol dedicat a la bombolla japonesa de la dècada de 1980.

El que sembla clar és que quan un factor de producció (ja sigui capital o treball) és molt barat i abundant, s'assigna de forma ineficient a l'economia i la seva productivitat és baixa perquè no hi han incentius per incrementar-la. Només cal veure els baixos salaris de Catalunya per confirmar aquesta tesi. Han afavorit el creixement desmesurat del sector turístic, creant treballadors pobres. En l'àmbit del capital, el mal ús que a vegades s'ha fet dels préstecs ICO creats per mitigar la crisi del COVID ha permès que algunes empreses zombies tinguin activitat algun temps més, ha possibilitat inversions estrafolàries, prostituint preus i allargant agonies.

Títol recomanable, d'una certa extensió i que incorpora una bona bibliografia. Per aprofitar-lo, cal una lectura reposada. Com a curiositat, cita la legislació catalana del segle XIV, on al banquer que no podia tornar els dipòsits acabava amb el cap tallat. Referenciat a "Power and Profit: The Merchant in Medieval Europe", de Peter Spufford½

The book without the last 2-3 chapters is worth 5 stars. The entertainment value is huge. The last three chapters were a bit boring -- maybe because the focus changed from fraudsters and industry millionaires to policy makers and large groups of anonymous brokers? Or maybe I just prefer pre-post-modern history... -- and the language became more Academese. It took me some time to process the text, as the author likes to use a lot of complicated words where simpler ones would have sufficed.

This is the second Chancellor book that I've just read, the first being "Devil Take the Hindmost," a history of financial speculation. If you've read that book, a good bit of the first third of this one will be familiar.

Chancellor's central thesis is that interest rates establish asset prices and that interest rates over the past fifteen years have been dangerously low.

As this book is a mix of history and current analysis, Chancellor comes across as a curmudgeon (as opposed to the more scholarly tone of "Devil Take The Hindmost"). If you're willing to forgive this, the book is a worthwhile investigation into a range of issues surrounding interest rates.

For all their importance, Chancellor does note the challenges of precisely establishing the true interest rate (nominal interest with inflation factored in) at any given moment. That said, it is still possible to establish a ballpark number.

An interesting fact from the history: did you know that Mesopotamia had two interest rates? They had a rate of 33% for barley loans, and 20% for silver loans.

I feel like Chancellor's takedown of Piketty's theory that wealth inequality increases when growth is less than the rate of return on capital is unfair. Chancellor is talking about interest rates while Piketty focuses on return on capital; Chancellor conflates the two, when they are distinct. In commercial banking, return on capital is the difference between market rates and central bank rates. To try to boil down return on capital to just bottom line interest misses a lot of the nuance and difference across different sectors and times in history.

There are a few areas in the book that are worth exploring further. In particular, I'd love to learn more about appropriate and inappropriate uses of demurrage. Chancellor seems to feel that it is inappropriate across the board, but I think this is a fundamentalist stance. I'm also interested in further exploring the ways that interest rates should or shouldn't enter into credit-based (as opposed to commodity-based) monetary systems.

Overall, Chancellor does make a strong case that interest rates should be somewhere in the 5% region.

If you're a finance geek, you'll like this book. If anything, interest rate rises over the past two quarters have vindicated Chancellor's position.

Although this book came out back in 1999, it is still the best history of speculation that I have come across.

Backdrop to the book: in what circumstances is speculation positive for a society? In what situations is it negative?

One of the first things that Chancellor establishes is that, although, at the extrema, "speculation" (stereotypically harmful) and "investment" (stereotypically beneficial) can clearly be differentiated, like most things, most of the economy lives in the murky middle, where there is a mix of both.

There is another way to look at speculation though (which, again, is helpful in some instances and inappropriate in others): that it is only with speculation that we get anything new. There is no such thing as zero risk, but if we're always minimizing risk, we're maximizing stasis (which, in its own way, ends up creating existential crisis). In other words, there is absolutely a utility to some forms of speculation (although this argument can get overblown).

One of the things that I found most stunning about the book is how severe some of history's bubbles have gotten. Did you know that, during the South Sea bubble in London in the early 1700s, that the entire economy basically slowed to an idle as a significant portion of all investable funds we're dumped into the stock of one company? Hundreds of merchant vessels just sat, unused, down at the docks, as no one was willing to forgo investing in the South Sea Company to fund merchant activity. There are numerous examples like this throughout the book. One of the takeaways: cryptocurrency has not yet seen a bubble anything like on this scale yet...

Chancellor does an expert job tracing the parallels between various bubbles (and the countless times nations have stated: "this time it will be different"). The Tulip Mania in the Netherlands in the 1600s was very much like the bubble in Japan in the 1980s for example (swap tulips for golf memberships).

In reading the book, I'm reminded of David Flemming's emphasis on the core importance of "carnival" to a healthy society. For a society to have any stability, it needs to regularly experience moments of inversion, where up becomes down, where peasants can become kings (and kings peasants). In this way, speculative bubbles serve a foundational societal purpose: to show that anything really is possible (for a time). Better to be a millionaire and a pauper than just humdrum middle-of-the-road all of your life...

Looking to speculate? Chancellor will help you brush up on tell-tale "top" and "bottom" signals, and help keep your aspirations sober.

A good interesting book that was strongest in the first half. The second half, especially the part about "Kamikaze Capitalism" starts to feel a bit bloated and unfocussed, which is very much a pity as there's a lot of gold in there. I had to keep checking the copyright date to confirm that it was, in fact, written a decade before the 2008 financial crisis, as he spends a fair amount of ink on the derivative market and its risk of bringing down the global economy. So it's really a pity that that portion of the book seemed a bit scatterbrained. Still, very much worth the time to read (and the $7 overdue fine I'll be paying for the privilege.)

A super book - especially when read alongside "This time is different". As Barton Biggs said, " a truly insightful study of speculation and bubbles". The book really gives a sense of the mania and how it was at the time. It also shows that the lessons are never learned and that we will experience speculative bubbles in the future. The author drops a few hints that he is less than enamoured with free capitalism, and this is particularly obvious in the last chapter on hedge funds. It's only a shame he doesn't explicity set out his philosophical position and his reasons for holding it. Overall an entertaining, scholarly wor. Absolutely required reading for anyone involved with investing.
PS I liked the way the author sets out distinctions between investing and speculation in the opening pages!.

Edward Chancellor carefully searches speculative history from the 17th Century onwards looking for commonality and differences in speculative situations and gives the history and his conclusions in this superb book.
He's not writing with an "agenda" and common themes emerge in a quite natural way from his narrative:

1) Speculation in modern times is closely connected with technological development eg. railways, electricity, automobiles, radio, computers, internet, etc. and this is undoubtedly positive as it directs capital at areas that offer fast increases in productivity.

2) Speculation tends to need a widely publicised "success story" to take off eg. 1767 the Duke of Bridgewater's highly profitable 30 mile canal from the coalmine on his estate at Worsley to the new textile factories at Runcorn, or, in more modern times the shockingly successful 1995 Netscape Communications internet flotation.

3) As a speculative area becomes widely subscribed excitement mounts, profitability declines and an urgent demand for credit (to speculate with) is met by the banks eg. 1720 the City exhausting its possibilities of lending against South Sea Company stock and the South Sea Company itself exhausting the possibilities of lending to its own buyers, or, more recently in 2007, (after this book was written), mortgage backed securities accommodating and extending the great New Millennium property speculation.

4) Late stage speculative booms combined with easy credit and lax government supervision attract a fine collection of opportunists and thieves floating overpriced (or worthless) shares onto a gullible public or issuing valueless bonds, eg. 1998 Yahoo! capitalization = 800 times earnings = $35 million per employee, or 1988 Michael Milken fabricating junk bonds (supposedly only junk in name) to finance the LBO wrecking of perfectly good companies for his and his friends vast profit. As the author says, "...junk bond purchasers taking most of the risk and "takeover entrepreneurs" snaffling most of the rewards."

I can highly recommend this book, especially for the way the author evaluates the interaction between investment and speculation. Is investment a by product of speculation or is speculation a by product of investment?

A sobering examination of capitalism run amok ... again and again and again.

http://driftlessareareview.wordpress.com/2009/05/17/book-review-devil-take-the-h...

Dense book, but interesting. Reads a bit easier than a textbook once you start ignoring the footnotes, of which there are a ton. Gives a thorough overview of a topic covered only in passing by most portfolio theory oriented finance books (e.g. Malkiel's "A Random Walk Down Wall Street" or Bernstein's "The Four Pillars of Investing").

Recommended in today's volatile economy if you're into textbook style non-fiction.

Speculation: A Necessary Scourge?
Published at the height of the 1990s technology bubble and two years after the onset of the Asian financial crisis, "Devil Take the Hindmost" offers a remarkably insightful examination of historical asset bubbles. Chancellor first takes us to ancient Rome, where currency crises were the norm due to currency speculation, and where the Forum Romanum served as the venue for shady deals in stocks and bonds. Indeed, speculation as an economic activity was ab urbe condita, or literally since the founding of the city of Rome. He then takes us to Venice circa the Middle Ages, where, in all probability, some of the earliest instances of insider trading took place. A spectacular panorama of financial shenanigans then unfolds, chapter by chapter: the overblown demand for tulips in the Netherlands during the 17th century; the British debt conversion scheme during the 1700s which led to the South Sea bubble; the Gilded Age in the US; the Wall Street crash of 1929; and the bursting of the Japanese economic bubble.

Speculators absorb risk and provide liquidity in the marketplace. Arguably, their insight into market fluctuations and their intrepidity in assuming risk help lower the bid-ask spread of a certain asset. Speculation itself is not demonstrably malevolent, but is an intrinsic component of a functioning asset market. But at many junctions in history, as Chancellor prolifically demonstrates, excessive speculation had reached a point wherein prices had ceased to serve as useful signals of the intrinsic value of an asset.

Chancellor contends that speculative activities, at their crescendo, are intrinsically irrational, and convincingly argues that asset markets all too often went to excess. The potential for amassing gains through trading and speculation are nearly limitless, yet the social cost of market collapse due to manipulation and abuse cannot be ignored.

The book in effect questions the dogma regarding the seemingly omniscient ability of free markets to assign prices to assets, and the ability of prices to serve as an effective signaling mechanism. This is not a new argument. In their 1934 classic "Security Analysis," Dodd and Graham wrote that "[i]t is customary to refer with great respect to the bloodless verdict of the market place, as though it represented invariably the composite judgment of countless shrewd, informed, and calculating minds. Very frequently, however, these appraisals are based on mob psychology, on faulty reasoning, and on the most superficial examination of inadequate information."

Ultimately, however, unfettered speculation may be due to the incontrovertible propensity of people to hitch their wagons to a star, and this propensity is unduly magnified by a "vita brevis" (life is short) mentality. Through this depressingly short--given the significance of the topic--yet highly edifying volume, Chancellor gives us the opportunity to reflect on speculation, which he considers "an anarchic force."

Read it again whenever you think the market is irrational and crazy. They have been much crazier before, and will be again in the future.

Received from Helen