One chapter is about bubbles and crashes, concentrating in particular on the exploits of John Law, the megalomanic Scottish financier who took over the entire French financial system (banking, tax-collection and corporate investment) in the early 18th century. Another chapter, about housing, explains the background to the "subprime mortgage" scandal which lies behind the current credit crunch: here Ferguson's analysis is more illuminating than all the dozens of newspaper articles I have read on the subject.
What clearly emerges from these and the other stories in this book is that financial structures are always shaped by a framework of law - and that the nature of the law is dictated, at least in part, by political pressures. It was the politics of the New Deal that set up the federal-backed guarantor-institutions Fannie Mae and Freddie Mac; it was excessive regulation that nearly destroyed the Savings and Loan associations in the late 1970s (their interest rates on deposits were limited by law), and excessive deregulation that enabled them to destroy themselves in the 1980s; it was the underlying guarantees of Fannie and Freddie that made "securitised" mortgages seem such a secure investment; and it was further legislation in 2003 that accelerated the selling of mortgages to people who could not possibly repay them.
No less important is the underlying legal set-up, which makes it so easy for ordinary Americans to declare themselves bankrupt (roughly one in ten adult Americans per decade will do this), and which also ensures, in many states, that someone who defaults on a mortgage cannot have any of his other assets or his future wages seized or earmarked to pay for it. Looking at some of the things that have gone so spectacularly wrong in financial history, and at some of the perverse incentives that still remain in place, one is almost tempted to say that politicians and legislators are the problem.
