Looking back into 1907

It was Winston Churchill who gloriously wrote, "The further backward you can look, the further forward you can see." Well, Hurrah to that. The recent credit crunch with all the witch hunting in the stock brokerages in the past 2 months, isn't really new at all to economic historians and savy financiers who bother to read their history books. The sad story is that principles from the past endure, though human beings have an abysmal record in learning from them.

I'm not saying that history repeats itself. Historians have become more prudent than to pass sweeping generalisations of that sort, rather, many times, the study of history repeats itself. Yet, if we gazed back a hundred years, a severe financial stroke paralysed Wall Street and caused a tumult of similar proportions. J.P Morgan, then the star financier employed his vast influence to rein in the bankers and prevented what economists then called "The perfect Storm" from ravaging the entire financial system of the United States. The similarities are striking, for in 1907, over expansion of loan markets coupled with the retraction of poor loans, caused by speculatory behaviour of trust funds, sent the stock market into a disastrous tumble. The debacle was thankfully halted by bankers led by Morgan, who emerged from within the clandestine back rooms with iron constitutions to match. Subsequently these bankers forced upon congress the Glass Owen Act of 1913, which eventually gave birth to the Federal reserve and essentially, the Central banking System was formed.

Today the uncanny difference is that bankers no longer bundle into the smoke lit rooms of gentlemen clubs as the modern day equivalents of well documented meetings of central bankers around large conference tables in Zurich call the shots. Yet the lessons of 100 years ago seem to have been forgotten by the army of bankers. The principle is simple, loan to those who can pay back and if they are unable to pay back, you should be able to get the equivalent back in durable assets. Sometimes the increased sophistication of financial markets have made the banks glitzy eyed and armed with econometric models that churn out favourable odds that seemed to absolve banks from the high risks of lending to people with poor credit histories, simply blinded highly intelligent bankers from banking 101.

Of perhaps even greater concern is that this crisis was predicted a year ago by most central banks and contingency plans were already in the making for some time. A GIC friend of mine, with whom i met for lunch in late 2006, told me that they were predicting the coming of a recession, one driven by weak consumer spending and untenable sub prime mortgaging. It appeared that some people read their history books and were well aware of the looming problems. Before the sub prime problems blew up, even Singaporean Ministers were making statements about looming crashes before June. Still irrational exuberance had its day in the markets as buying failed to abate and prudence became the ignored and abandoned mistress. Investors poured money with abject impunity almost ludicrously into dangerously risky securities. So Northern Rock had its run in and the credit markets are stalled and frightened. The newspapers all over write as if the crisis was the new risk of global markets and painful lessons (that should have been learned since 100 years ago) had to be learned.

Yet the concert of well timed interventions by the central banks showed that they had for the longest time prepared a response to a problem they had seen coming. Low interest rates of startling proportions had been understood to be untenable. They knew that history taught that early intervention was much more critical than intervening late. So the recent confidence building by treasury staffers and easing of credit problems with inflows of billions from the central banks. However, like the best trained soldier in the battlefield, there still is the potential of that stray bullet.

A more sinister lesson to be learned is that the panic of 1907 could be stopped by a group of Big time financiers, men who with libertarian instincts, made their fortunes in the USA which was nothing quite as integrated as the USA of 2007. The problems today demands more than national regulation, which can do less to stop contagion than before. Whilst in 1907, the bankers were up to the job, the 21st century requires a combination of constant communication across national boundaries, well timed injections by central banks, or else, financial meltdown is painfully assured. And yet there is concern that if the central banks coordinate themselves so well this round, would the swiftness of their actions allow banks to hide fundatmental errors that will surface later on in tsunami type disasters? 1929, is well remembered in the annuals of our economic past.

It is thus of certain discomfort to see so many economists and financial managers with so disparaging an understanding of the past. Had they picked up Frank Knight's seminal work on risk and uncertainty, or just spent the time gazing back into past realities from wikipedia rather than the crystal balls of mystical models, they might just have been able to avert a crisis of this proportion. The past, i'm afraid, is riddled with the bodies of these sorts.

to Malaysia and back

Went to Malaysia over the weekend to take a much needed rest, though that intention quickly dissipated. Hmmm... had a really enjoyable time in one of the Primers home. Subsequently, I was doing my quiet study of Malaysia. One of the things that I like to do is inspect the bookshops of the countries i travel to, cause it helps me to understand the sort of books that are in demand or at least constantly supplied to the intelligensia. What they read determines what they think about.

How Fascinating it is to note, that Borders in Singapore and KL could be quite so different in the quality and type of books that are on their shelves (maybe I'm over reading but its still an interesting observation for the historian in me). In Singapore, our bookshelves are dominated by Self help Books (an oxy moron since we aren't really helping ourselves, when we need a self help book to help us). In Malaysia, they actually have a more academic taste it appears . There is an extensive selection of books on Singapore, meaning that we are of great interest to our neighbours, perhaps more so than indonesia or thailand. There is almost no books on Martin Luther king, Abraham Lincoln or the American Civil War,a subject that has churned out some of the best historical material- material that deals with racial equality and liberty for all.

On closer inspection, I noticed many interesting trends, cultural idiosyncracies and I spent much time over dinner mulling over their competitive edge, bumiputra policies and political system. In the Bus I peered into the towns and registered a series of mental notes. i was hoping to see some churches, admittedly. I've arrived at some conclusions. Malaysia in short, might not be ready for a globalised world. My great concern is whether this will be good for Singapore.

The rise of the islamic intelligensia and religious middle class, the continuation of racial politics, the integration of Malaysia into the globalised society and the global discourse, looks set to create opportunities for its people as well as acccentuate tensions. Singapore will be affected, somehow. We must pay more attention to our counterparts.

These are my personal thoughts. There is actually so much more to say. But its 3am. haha... hmmm.... No man is an island, figuratively. No nation is an island :P in that thread, neither is Singapore.

Swan Song

The silver Swan, who living had no note,
When death approached, unlocked her silent throat
Leaning her breast upon the reedy shore,
thus sang her first and last and sang no more:
"Farewell all Joys, oh death, come close my eyes!
More geese than swans now live, more fools than wise.

Orlando Gibbons

In the spirit of autumn, the season so tainted with magnificent charges, I pause to think about swans. The swan song, the final gesture before the end, before the shroud edges it all into the dignified finish. That noble defiance to prolong the impending demise with the most mysterious and melodious of songs and that fragile dance is striking - intensely so.

No, I am not morbid, for I do not obsess myself with death, rather, I sense that the sublime is tinged with an awareness that the end is not far from sight. That the appreciation of beauty and the fullness of feeling is found when we comprehend our mortality, for then we touch the tip of eternity.

There is a certain joy to knowing that we are all eternal creatures, with an eternal God. That we can appreciate mortality in the light of eternity. Through my dearest friend Jesus Christ, we live in forgiveness and love forever. Autumn is here and it will give way to winter, but even winter will break for an everlasting spring.