Book about the 1929 crash

anamik

I found a link to a book called "The Bubble that broke the World" about the 1929 crash while reading the comments to Roubini's latest missive. Some passages from the book are strikingly relevant:

"Second, a social and political doctrine, now widely accepted,
beginning with the premise that people are entitled
to certain betterments of life. If they cannot immediately
afford them, that is, if out of their own resources
these betterments cannot be provided, nevertheless people
are entitled to them, and credit must provide them. And
lest it should sound unreasonable, the conclusion is annexed
that if the standard of living be raised by credit,
as of course it may be for a while, then people will be
better creditors, better customers, better to live with and
able at last to pay their debts willingly."


Thought readers here would find it useful:

http://www.mises.org/books/bubbleworld.pdf

SeattleMoose

Great read...very informative. What I found most telling is the eerie resemblance to the current bubble in the following words.

"Since John Law and his Mississippi Bubble, individuals have been continually appearing with the same scheme in new disguise. The principle is very simple. You have only to find a way to multiply your creditors by the cube and pay them by the square, out of their own money. Then for a while you are Nabob. One fish cut up for bait brings three. Two of these cut up for bait bring eight, the cube of two. Four of these cut up for bait bring sixty-four, the cube of four. Sixteen of these for bait bring 4,096, and 256 of these, which is the square of sixteen, will bring 16,777,216, which is the cube of 256.

The fatal weakness of the scheme is that you cannot stop. When new creditors fail to present themselves faster than the old creditors demand to be paid off, the bubble bursts/Then you go to jail, like Ponzi, or commit suicide, like Ivar Kreuger.

There is nothing new in the scheme. What is new is that for the first time the whole world tried it. The whole world cannot put itself in jail, nor can it escape the consequences by suicide. When the delusion breaks, people all with one impulse hoard their money, banks all with one impulse hoard
credit, and debt becomes debt again, as it always was.

Credit is ruined. Suddenly there is not enough for everyday purposes. Yet only a little while before we had been saying and thinking there was a great surplus of American credit and the only thing we could do with it was to export it.

How absurd it sounds in echo. It was absurd at the time. "

Evidently history is about to repeat itself.

Thanx for the great link!!!!

anforowicz

Thank you very much for the link.

I find it interesting that author doesn't believe there is anything that can be done to prevent the kind of financial crisis that happened in 1929:

We go on the assumption that a bank is more interested
in gain than in its own solvency and if it is not watched
its greed for gain will wreck it. Therefore it must be
policed. Examiners clothed with arbitrary power must
appear at unexpected moments, taking the bank by sur-
prise in any wickedness, and say: "Throw open your
books." And yet they fail.

It will be always impossible to keep a bank solvent by
law. The law that specifies the maximum risk a bank may
legally take with other people's money turns out to be a
law of minimum security. A good banker will not take a
risk simply because the law says he may; he will use his
own judgment. On the other hand, a reckless banker will
find a way to do what his greed desires, no matter what
the law is, even a legal way