1/ The Ascent of Money: A Financial History of the World (Niall Ferguson)

"The ‘masters of the universe’ paid far too little heed to lessons of the past, preferring to pin their hopes on elaborate mathematical models that proved to be false gods." (p.12)

https://www.amazon.com/Ascent-Money-Financial-History-World-ebook/dp/B0018QQQKS/
2/ "Very few economists foresaw the 2008 crisis, but a great many tried retrospectively to explain it, generating a literature of distinctly mixed quality.

"Banks are better capitalized than ten years ago. In other respects, however, the system remains surprisingly unchanged.
3/ "If the system has not changed fundamentally, does that mean that there will sooner or later be another financial crisis? Yes.

"Which borrowers have overextended and will begin to fail in the event of rising real rates? Who will be in trouble if defaults exceed expectations?"
4/ "Events made a mockery of the claim that lavish compensation was justified by exceptional skills, particularly in risk management.

"Citigroup lost $18.7 billion in 2008, wiping out its earnings since 2005. Merrill Lynch lost $35.8 billion, wiping out its earnings since 1996.
5/ "Goldman Sachs and Morgan Stanley were forced to convert themselves from investment banks into bank holding companies, signaling the death of a business model that dated back to the 1930s.

"All surviving banks accepted capital injections from the Treasury under TARP." (p. 2)
6/ "Throughout the history of Western civilization, there has been a recurrent hostility to finance and financiers. Debtors outnumber creditors, and financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty rather than prosperity.
7/ "Financial services all over the world were disproportionately provided by members of ethnic or religious minorities, who had been excluded from land ownership or public office but enjoyed success in finance because of their own tight-knit networks of kinship and trust.
8/ "Despite our deeply rooted prejudices against ‘filthy lucre’, however, money is the root of most progress.

"The evolution of credit and debt was as important as any technological innovation in the rise of civilization, from ancient Babylon to present-day Hong Kong.
9/ "Banks and the bond market provided the material basis for the Italian Renaissance. Corporate finance was the foundation of the Dutch and British empires, just as the triumph of the U.S. was inseparable from advances in insurance, mortgage finance and consumer credit.
10/ "Perhaps, too, it will be a financial crisis that signals the twilight of American global primacy.

"Behind each great historical phenomenon there lies a financial secret, and this book sets out to illuminate the most important of these." (p. 3)
11/ "According to one school of thought, financial innovations had brought about a fundamental improvement in the efficiency of the global capital market, allowing risk to be allocated to those best able to bear it.

"In 2006, enthusiasts spoke of the death of volatility." (p. 6)
12/ "Only when borrowers have access to efficient credit networks can they escape from the clutches of loan sharks, and only when savers can deposit their money in reliable banks can it be channeled from the idle to the industrious or from the rich to the poor.
13/ "As we are learning from research in behavioral finance, money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong.

"Booms and busts are products, at root, of our emotional volatility." (p. 13)
14/ "Primitive peoples are more likely to fight over scarce resources than to engage in commercial exchange. Hunter-gatherers do not trade. They raid. Nor do they save, consuming their food as and when they find it. They therefore have no need of money.
15/ "The most sophisticated society in South America, the Inca Empire, was also moneyless.

"Labor was the unit of value in the Inca Empire, just as it was later supposed to be in a Communist society. The economy depended on often harsh central planning and forced labor." (p. 18)
16/ "Demand for money was greater in the much more developed commercial centres of the Islamic Empire that dominated the southern Mediterranean and the Near East, so precious metal tended to drain away from backward Europe.
17/ "Crusades and conquests that followed were as much about overcoming monetary shortages as about Christianity.

"Governments failed establish stable relationships between different kinds of metal. Smaller coins were subject to shortages, depreciations and debasements." (p. 23)
18/ "The Spanish monarchs of the sixteenth century found that an abundance of precious metal could be as much a curse as a blessing. They dug up so much silver to pay for their wars of conquest that the metal itself dramatically declined in value.
19/ "The abundance of silver also acted as a ‘resource curse’, like oil of Arabia, Nigeria, Persia, Russia and Venezuela in our own time, removing the incentives for productive economic activity and strengthening rent-seeking autocrats at the expense of representative assemblies.
20/ "Money is worth only what someone else is willing to give you for it. An increase in supply will not make a society richer, though it may enrich the government that monopolizes the production of money. All else equal, monetary expansion merely makes prices higher." (p. 25)
21/ "Money is a matter of belief, even faith: belief in the person paying us; belief in the person issuing the money or the institution that honours cheques or transfers. Money is not metal. It is trust inscribed.

"In this electronic age, digits can serve as money too." (p. 27)
22/ "The Merchant of Venice illustrates the extortionate interest charged when credit markets are in their infancy, court-resolved disputes without recourse to violence, and the vulnerability of minority creditors to backlash by hostile debtors in the ethnic majority." (p. 35)
23/ "It is easy to condemn loan sharks. Gerard Law was sentenced to ten months in prison. Yet we need to try to understand his economic rationale. First, he was able to take advantage of the fact that no mainstream financial institution would extend credit to the unemployed.
24/ "Second, Law had to be ruthless precisely because the members of his small clientele were very likely to default on their loans. The business is too small-scale and risky to allow low interest rates. But because of high rates, only intimidation ensures people keep paying.
25/ "So how did moneylenders learn to overcome the fundamental conflict?— if they were too generous, they made no money; if they were too hard-nosed, like Gerard Law, people eventually called in the police.

"The answer is by growing big – and growing powerful." (p. 37)
26/ "Where did the money come from to pay for masterpieces like Sandro Botticelli’s radiant Birth of Venus? The simple answer is that the Medici were foreign exchange dealers.

"Prior to the 1390s, it might legitimately be suggested, the Medici were more gangsters than bankers:"
27/ "Then came Giovanni di Bicci de’ Medici. It was his aim to make the Medici legitimate.

"The real key was diversification. Whereas earlier Italian banks had been easily brought down by one defaulting debtor, the Medici bank was multiple related partnerships." (p. 40)
28/ "By engaging in currency trading as well as lending, they reduced their vulnerability to defaults.

"The Medici were the first bankers to make the transition from financial success to hereditary status and power." (p. 44)
29/ "Cursed with an abundance of precious metal, Spain failed to develop a sophisticated banking system, relying instead on short-term cash advances against future silver deliveries.

"The Spanish crown defaulted on all or part of its debt fourteen times from 1557-1696." (p. 48)
30/ "Breaking the link between money creation and a metallic anchor has led to an unprecedented monetary expansion – and with it a credit boom the like of which the world has never seen.

"Banks are taking in more deposits and lending out a greater proportion of them." (p. 57)
31/ "Since 1957, the dollar's purchasing power, relative to the CPI, has declined by a staggering 87%. Average annual inflation in that period has been over 4%, twice the rate Europe experienced during the so-called price revolution unleashed by the silver of Potosí." (p. 58)
32/ "It is only when borrowers have access to efficient credit networks that they can escape from loan sharks; only when savers can put their money in reliable banks that it can be channeled from the idle to the industrious (or from the thrifty to the spendthrift).
33/ "The financial crisis that began in August 2007 had relatively little to do with traditional bank lending or, indeed, with bankruptcies, which (because of a legal change) actually declined in 2007. Its prime cause was the rise and fall of ‘securitized lending.’ " (p. 59)
34/ "The bond market passes a daily judgment on the credibility of every government’s fiscal and monetary policies. But its real power lies in its ability to punish a government with higher borrowing costs.

"In a crisis, it can end up dictating government policy." (p. 63)
35/ "Whereas towns, with oligarchical rule and locally held debts, had incentives not to default, this wasn't true of absolute rulers. The Spanish crown became a serial defaulter, wholly or partially suspending payments in 1557, 1560, 1575, 1596, 1607, 1627, 1647, 1652 and 1662."
36/ "The system of paper securities frees men to choose whatever place of residence they like; they can live anywhere, without working, from the interest on their bonds, their portable property, so they gather together and constitute the true power of our capital cities." (p. 83)
37/ "Wars hit the price of existing bonds by increasing the risk of default.

"Now, having made their money, the Rothschilds stood to lose more than they gained. It was for this reason that they were consistently hostile to strivings for national unity in both Italy and Germany.
38/ "They viewed with unease the descent of the U.S. into internecine war. The Rothschilds had decided the outcome of the Napoleonic Wars by putting financial weight behind Britain. They would help decide the outcome of the Civil War by choosing to sit on the sidelines." (p. 85)
39/ "The finances of the Confederacy are one of the great might-have-beens of American history.

"It was as much a lack of hard cash as a lack of industrial capacity or manpower that undercut what was, in military terms, an impressive effort by the Southern states." (p. 86)
40/ "The South’s ability to manipulate the bond market depended on one overriding condition: investors should be able to take physical possession of the cotton which underpinned the bonds if the South failed to pay. Collateral is only good if a creditor can get his hands on it.
41/ "That is why the fall of New Orleans in April 1862 was the real turning point in the American Civil War. With the South’s main port in Union hands, any investor who wanted to get hold of Southern cotton had to run the Union’s naval blockade not once but twice, in and out.
42/ "If the South had managed to hold on to New Orleans until the cotton harvest had been offloaded to Europe, they might have managed to sell >£3 million of cotton bonds in London.

"The Confederate government was forced to print a billion dollars' worth of unbacked paper.
43/ "By the end of the war, the Union’s ‘greenback’ dollars were still worth 50¢ in gold; the Confederacy’s ‘greybacks,’ just 1¢.

"The situation was worsened by the ability of Southern states and municipalities to print paper money of their own and by rampant forgery.
44/ "Inflation exploded. Prices in the South rose by around 4,000% during the Civil War. Prices in the North rose by just 60%.

"Even before the surrender in April 1865, the economy of the South was collapsing, with hyperinflation as the sure harbinger of defeat." (p. 88)
45/ "In Latin America, the social class most likely to invest in bonds – and therefore have an interest in prompt payment in sound currency – was weaker than it was elsewhere.

"It was also easier to default when a substantial proportion of bondholders were foreign." (p. 91)
46/ "Unlike Britain, France, Italy and Russia, Germany did not have access to the international bond market during WWI.

"Much sooner, and to a much greater extent than in Britain, the German and Austrian authorities had to turn to their central banks for short-term funding.
47/ "One way of understanding post-war hyperinflation is as a form of state bankruptcy.

"But the hyperinflation of 1923 wasn't a simple consequence of the Versailles Treaty. This would overlook the monetary crisis's political roots.
48/ "The Weimar tax system was feeble, not least because the new regime lacked legitimacy among higher income groups who declined to pay taxes.

"Public money was spent recklessly, particularly on generous wage settlements for public sector unions.
49/ "Insufficient taxation and excessive spending created enormous deficits in 1919-1920, before the victors had even presented their reparations bill.

"Inflation is monetary, but hyperinflation cannot occur without a fundamental malfunction of the *political* economy." (p. 96)
50/ "Hyperinflation was akin to a tax: a tax not only on bondholders but also on anyone living on a fixed cash income.

"This amounted to a great levelling, since it affected primarily the upper middle classes: rentiers, senior civil servants, professionals." (p. 97)
51/ This is consistent with the results of Jordà, Knoll, Kuvshinov, Schularick, and Taylor:

"Great levellings" take place in wartime when the real return on wealth (r) can be lower than real GDP growth (g). In peacetime, historically, r>g always. https://twitter.com/ReformedTrader/status/1259296204078198784
52/ "Only entrepreneurs were in a position to insulate themselves by adjusting prices upwards, hoarding dollars, investing in real assets, paying off debts in depreciating banknotes." (p. 97)

Besides Germany, Russia, Austria, Hungary, and Poland also suffered currency collapses.
53/ Wealth, War, and Wisdom (Barton Biggs) offers a detailed account of the "great levellings" that can take place during wars.

(It focuses mainly on WWII but also touches on conflicts that occurred beforehand and afterward.) https://twitter.com/ReformedTrader/status/1283459219300048897
54/ "Even as recently as the 1970s, as inflation soared around the world, the bond market made a Nevada casino look like a pretty safe place to invest your money. Bill Gross vividly recalls when US inflation was surging into double digits, peaking at just under 15% in April 1980.
55/ "Real annual returns on U.S. government bonds in the 1970s were minus 3%, almost as bad as during the world wars.

"In 1979, at least seven countries had an annual inflation rate >50%. More than sixty countries, including Britain and the U.S., had inflation in double digits.
56/ "In 1913, according to recent estimates, Argentina was one of the ten richest countries in the world.

"The economic history of Argentina in the twentieth century is an object lesson that all the resources in the world can be set at nought by financial mismanagement.
57/ "Inflation was a political as much as a monetary phenomenon.

"Large-scale immigration without (as in North America) the freeing of agricultural land for settlement created a disproportionately large urban working class that was highly susceptible to populist mobilization.
58/ "There was no significant group with an interest in price stability. Owners of capital were attracted to deficits and devaluation; labor grew accustomed to a wage–price spiral. The shift to foreign financing for government deficits meant that bondholding was outsourced.
59/ "On April 28, Argentina literally ran out of money. The mint had run out of paper, and the printers had gone on strike. ‘It's a physical problem.... I don’t know how we’re going to do it, but the money has got to be there on Monday.’
60/ "By 1983, Argentina's external debt, denominated in US dollars, stood at $46 billion (40% of national output). No matter what happened to the currency, this dollar-denominated debt stayed the same or tended to grow as desperate governments borrowed yet more dollars." (p. 105)
61/ "After the 1970s, we've had one of the great bond bull markets of modern history.

"Inflation has come down partly because items from clothes to computers have got cheaper as a result of technological innovation and the relocation of production to low-wage economies in Asia.
62/ "Some of the structural drivers of inflation have also weakened. Trade unions have become less powerful. Loss-making state industries have been privatized.

"But, perhaps most importantly, the social constituency with an interest in positive real returns on bonds has grown.
63/ "In the developed world, a rising share of wealth is held by private pension funds and other savings institutions that are required, or at least expected, to hold a high proportion of their assets in the form of government bonds and other fixed income securities." (p. 108)
64/ The five stages of bubbles:

"Displacement: Some change in economic circumstances creates new opportunities for certain companies

"Euphoria

"Mania (first-time investors and swindlers)

"Distress: People discern that high valuations aren't justified

"Revulsion/discredit
65/ "Bubbles are more likely to occur when capital flows freely from country to country and there is easy credit.

"Most importantly, many bubbles have their origins in the sins of omission or commission of central banks.
66/ "On Aug 13, 1979, the front cover featured a crumpled share certificate in the shape of a crashed paper dart: ‘The Death of Equities: How inflation is destroying the stock market.’

"The Dow closed barely changed after ten years and nearly 17% below its peak in January 1973.
67/ "Pessimism after a decade and half of disappointment was understandable. Yet US equities were just a few years away from one of the great bull runs of modern times.

"On September 27, 1999, the average price of a major US corporation had risen twelve-fold in twenty years.
68/ "Business Week stated, ‘the market – even at a P/E of 30 – is a steal. A perfectly reasonable P/E is 100x.‘

"This was published <4 months before the dot-com collapse.

"In April 2008, it is still trading at one-third of the level Glassman and Hassett predicted." (p. 115)
69/ 1920s to the 1990s: "Six of twenty-seven countries' stock markets suffered at least one major interruption, usually from war or revolution. Ten suffered negative long-term real returns. ‘Stocks for the long run’ is far from being a universally applicable nostrum." (p. 116)
70/ "The convicted murderer, compulsive gambler and flawed financial genius John Law was responsible for the first true boom and bust. He also have indirectly caused the French Revolution by comprehensively blowing the monarchy's best chance to reform its finances." (p. 117)
71/ "Once Dutch bankers started to accept VOC shares as collateral for loans, the link between the stock market and the supply of credit began to be forged. The next step was for banks to lend money so that shares might be purchased with credit." (p. 122)
72/ "According to Law, confidence alone was the basis for public credit; with confidence, banknotes would serve just as well as coins.

"France’s problems were desperate. Saddled with enormous public war debt, the government was on the brink of its third bankruptcy in a century.
73/ "The key was to make royal credit more productive than when the crown had borrowed for its wars. In Law’s scheme, the monarch would delegate his credit ‘to a trading company into which all the materials of trade in the kingdom fall successively and are amassed into one’.
74/ "The French economy had been in recession, and Law’s expansion of the money supply did provide a stimulus.

"He was also (not unreasonably) trying to convert a badly managed public debt into the equity of an enormous, privatized tax-gathering and monopoly trading company.
75/ "But he also had a strong personal interest in generating monetary expansion to fuel an asset bubble from which he would profit.

"It was as if one man were simultaneously running all five hundred of the top US corporations, the US Treasury and the Federal Reserve System.
76/ "Would such a person be likely to raise corporate taxes or interest rates?

"Moreover, Law’s System had to create a bubble or else fail. The acquisition of the various other companies and tax farms was financed, not out of company profits, but simply by issuing new shares.
77/ "The justification for higher share prices was the promise of future profits from Louisiana.

Law conjured up rosy visions of the colony as a veritable Garden of Eden inhabited by friendly savages ready to furnish a cornucopia of exotic goods for shipment to France.
78/ "But when the immigrants reached Louisiana, they encountered a sweltering, insect-infested swamp. Within a year, 80% of them died of starvation and disease.

"In the short term, then, a different justification was needed for the 40% dividends. It was provided by paper money.
79/ "The Banque Royale lent money using shares as collateral: money investors then invested in more shares.

"It was ‘crowded from the morning to late at night with princes and princesses, dukes and peers and duchesses. They sell estates and pawn jewels to purchase Mississippi.’
80/ "It was in these heady times that the word 'millionaire' was first coined.

"Inflation, however, was now accelerating alarmingly outside the stock market. (In the space of little more than a year, Law had more than doubled the volume of paper currency.)
81/ "Banknotes were made legal tender. The export of gold and silver was banned, as was the production/sale of gold/silver objects. It became illegal for a private citizen to possess more than 500 livres of metal coin. The authorities enforced this by searching people’s houses.
82/ "Law’s bubble and bust put Frenchmen off paper money and stock markets for generations. The fiscal crisis went unresolved: Louis XV and his successor lived from hand to mouth, lurching from one abortive reform to another until royal bankruptcy precipitated revolution.
83/ "The South Sea Bubble was significantly smaller and ruined fewer people. The South Sea Company never gained control of the Bank of England.

"Whereas all France was affected by inflation, provincial England seems to have been little affected by the South Sea crash." (p. 144)
85/ "It really did seem as if the sky was the limit as American households equipped themselves with automobiles and consumer durables: products which installment credit put within their reach. RCA, the tech stock of the 1920s, rose by 939% (1925-1929); its P/E at the peak was 73.
86/ 1929: "Goldman Sachs to announce an expansion plan, Goldman Sachs Trading Corporation; had this not been a free-standing entity, its subsequent collapse might well have taken down Goldman Sachs itself.

"At the same time, small investors bought stocks on margin." (p. 148)
87/ "If stock market movements followed the normal distribution, an annual drop of ≥10% would happen only once every 500 years instead of every five years. Plunges of ≥20% would be unheard of – but in fact, there have been nine such crashes in the past century." (p. 152)
88/ "The history of risk management is a struggle between our vain desire to be financially secure and the hard reality that there really is no ‘future’, singular. There are only multiple, unforeseeable futures which will never lose their capacity to take us by surprise." (p.162)
89/ "Mathematicians were progenitors of modern insurance. Yet it took clergymen to turn theory into practice.

"Premiums could be used to create a fund that could then be profitably invested. Widows and orphans would be paid out of the returns, not just the premiums themselves.
90/ "What no one anticipated back in the 1740s was that by constantly increasing the number of people paying premiums, insurance companies and pension funds would become some of the biggest investors in the world – the institutional investors who today dominate global markets.
91/ "Insurance premiums have risen steadily as a proportion of GDP in developed economies, from around 2% on the eve of the First World War to just under 10% today.

"Before the dawn of modern probability theory, insurers were the gamblers; now they are the casino.
92/ "The case can be made that the odds are now stacked unjustly against policy-holders. But as the economist Kenneth Arrow long ago pointed out, most of us prefer a gamble that has a 100% chance of a small loss (our annual premium) and a small chance of a large gain." (p. 182)
93/ 1880: "The first system of compulsory state health insurance and old age pensions was introduced in Germany.

" ‘A man who has a pension for his old age is . . . much easier to deal with.’ His motives were far from altruistic: ‘Whoever embraces this idea will come to power.’
94/ "The rich were outnumbered by the poor.

"If the welfare state was conceived in politics, it grew to maturity in war. The WWI expanded the scope of government activity in nearly every field.

"The state virtually nationalized merchant shipping in the case of the U.S.
95/ "With the coming of peace, British politicians cushioned the effects of demobilization on the labor market by introducing an Unemployment Insurance Scheme. This process repeated itself during and after WWII. The British version of social insurance was radically expanded.
96/ Churchill: " ‘National compulsory insurance for all purposes from the cradle to the grave’; policies to abolish unemployment; ‘a broadening field for State ownership and enterprise’; more public housing; reforms to education; and greatly expanded health and welfare services.
97/ In Japan, "individuals could not be expected to insure themselves against the US Air Force. The answer adopted more or less everywhere was for the government to take over: in effect, to nationalize risk. The Japanese set out to devise a system of universal welfare in 1949.
98/ "In reality, the Japanese set up their own welfare state long before the end of WWII. It was the state’s insatiable appetite for able-bodied young soldiers and workers, not social altruism, that was the driver: social security in exchange for military sacrifice.
99/ "The slogan ‘all people are soldiers’ was adapted: ‘all people should have insurance.’ To ensure universal coverage, the medical profession and pharmaceutical industry were subordinated to the state.

"A culture of social conformism encouraged compliance with the rules.
100/ "In Japan, firms and families continued to play substantial supporting roles in the welfare system. Employers offered supplementary benefits and were reluctant to fire workers. As recently as the 1990s, two thirds of Japanese older than 64 lived with their children.
101/ "English individualism, by contrast, inclined people cynically to game the system. Employers did not hesitate to slash payrolls in hard times, while people were much more likely to leave elderly parents to the tender mercies of the National Health Service." (p. 192)
102/ "Social transfers in Britain rose from 2.2% of GDP to 10% in 1960, 13% in 1970, and nearly 17% in 1980, more than 6% higher than in Japan.

"Marginal tax rates in excess of 100% on higher incomes and capital gains discouraged traditional forms of saving and investment.
103/ "Similar problems were afflicting the US economy, where expenditure on health, Medicare, income security and social security had risen from 4% of GDP in 1959 to 9% in 1975. In America, too, productivity was scarcely growing, and stagflation was rampant." (p. 193)
104/ "Reagan and Clinton administrations implemented what seemed like radical reforms, reducing unemployment benefits and the periods for which they could be claimed. But no amount of reform could prevent the aging of the population and the spiraling cost of private health care.
105/ "Unfortunately, many of the soon-to-be-retired have made inadequate provision for life after work. Six in ten American workers say they are saving for retirement, and just four in ten say they have actually calculated how much they should be saving.
106/ "Medicare alone may absorb 24% of all federal income taxes by 2019.

"Unfunded future Social Security and Medicare benefits ≈$34 trillion, 4x the official federal debt.

"Ironically, there’s only one country where an aging population has more serious implications: Japan.
107/ "Japan's elderly population will be equal to its working population by 2044. Its welfare budget is 3/4 of tax revenues.

"Life insurance companies struggled after the 1990 crash; three major insurers failed from 1997-2000. Pension funds are in equally dire straits." (p. 203)
108/ "Insurance/reinsurance losses from 9/11 were $30–58 billion, ≈ losses from Katrina. In both cases, the U.S. government stepped in to help insurers.

"Taxpayers in safer parts of the country are subsidizing those who choose to live in hurricane-prone regions." (p. 206)
109/ "With the development of a standard ‘to arrive’ futures contract, along with a set of rules to enforce settlement and, finally, an effective clearinghouse, the first true futures market was born. Its birthplace: Chicago." (p. 207)

More on this: https://twitter.com/ReformedTrader/status/1217961540315279360
110/ "For families in recent years, providing for an uncertain future has taken the form of an investment (leveraged, debt-financed) in a house, the value of which is supposed to increase until retirement.

"But this is a one-way, totally unhedged bet on one market." (p. 209)
111/ "The English-speaking world’s passion for property has been the foundation for a political experiment: the creation of the world’s first true property-owning democracies, with 65-83% of households owning the home they live in; a majority of voters are, thus, property owners.
112/ "The few people who borrowed to buy their houses in the 1920s found themselves in deep difficulties when the Great Depression struck, especially if the main breadwinner was among the millions who lost their jobs.

"Nervous lenders refused to renew mortgages.
113/ "By mid-1933, over a thousand mortgages foreclosed every day. House prices plummeted >20%. The construction industry collapsed, revealing (as in future recessions) the extent to which the U.S. economy relied on residential investment as an engine of growth." (p. 222)
114/ "Other countries swung toward totalitarianism. But in the U.S., the answer was the New Deal.

"Radically increasing the opportunity for Americans to own homes, the Roosevelt administration pioneered property-owning democracy. It was the perfect antidote to red revolution.
115/ "The New Deal was an attempt to step in where the market had failed. (Some favored the increased public housing; this was adopted in most European countries.)

"Mortgages would be even safer than houses, because if borrowers defaulted, the government would compensate savers.
116/ "By providing federally backed insurance, FHA sought to encourage large (up to 80% LTV), long (twenty-year), fully amortized, low-interest loans. This revived and reinvented the mortgage market, laying the foundation for a national secondary market." (p. 227)
118/ "Up until the 1980s, government incentives to borrow made sense for households. Negative real mortgage rates in the late 1960s/1970s gave debtors a free lunch (paying people to borrow)." (p. 231)

The carry trade works across asset classes as well: https://twitter.com/ReformedTrader/status/1188911052253040640
119/ "But the governments that supported ‘property-owning democracy’ also believed in price stability, or at least lower inflation, meaning higher interest rates. The unintended consequence was one of the most spectacular booms and busts in the history of real estate." (p. 232)
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