The Ascent of Money - part 3

More fascinating tidbits from Niall Ferguson's The Ascent of Money. Can you tell I like this book?

The Failure of LTCM and the Quants

The Nobel prize winning economists and rocket scientists employing the Black-Scholes formula for pricing options found out the hard way in 1998 that humans aren't easily modeled.

Meriwether himself, born in 1947, ruefully observed: 'If I had lived through the Depression, I would have been in a better position to understand events'. To put it bluntly, the Nobel prize winners had known plenty of mathematics, but not enough history. They had understood the beautiful theory of Planet Finance, but overlooked the messy past of Planet Earth.

And later...

As we have seen repeatedly, the really big crisis come just seldom enough to be beyond the living memory of today's bank executives, fund managers, and traders.

Reversal of Capital Flows

For centuries, the capital flow was generally from West to East, but has reversed over the last 20 years.

And it is a mighty flow. In 2007, the United States needed to borrow around $800 billion from the rest of the world; more than $4 billion every working day. China, by contrast, ran a current account surplus of $262 billion.

A Modern Classic

There is so much wisdom in this book that I don't feel I have even touched on a fraction of it. It puts into perspective the disorienting chaos of global financial markets. Highly, highly recommended.