This is an amazing piece of disinformation I have to say that the US banks started their deregulation process back in the 80's is true but that does not diminish the fact that they grabbed values from the real economy in an irresponsible if not criminal way, which they never deserved. As they cooked their books for the same length with profits and strategies which were and are still insane. The biggest Mergers they initiated all went broke and people still suffer from that just to give on example. The latest trick as the recession in 2001-3 was deepening was another insane interest rate cut strike which helped them to initiate the housing bubble to distract Americans from the fact that they never made money again in stock markets. That Rothschilds investment strategy is praised is a joke they manipulated anything to make money and one move was to buy the old Reuters - to be honest I actually suspect they also own Bloomberg but not formally. Rothschilds current value should be in the trillions which is not an official number since they started to diversify their assets also outside their family name and if they have put 33% into real estate last century that alone would count for trillions as of today. I agree that all the green shoot bullshitting campaign cannot be taken serious for many reasons and I can assure you that 2010 will be an ugly year as Zoellick from the Worldbank has put it correctly.
By ANDREW BARY
AN INTERVIEW WITH NIALL FERGUSON: The Harvard professor and media star is cautious on the global economic outlook -- and bleak about Europe.
A PROLIFIC AUTHOR AND MEDIA STAR, NIALL FERGUSON has become one of the most prominent academics in the world. The Scottish-born Ferguson, 45, is a history and business-school professor at Harvard, and holds other high-profile posts at Stanford and at Oxford -- where he earned his doctorate.
Ferguson is a provocative writer. His most recent books are The Ascent of Money (2008) and The War of the World, a study of World War II, published in 2006. He has also done several TV projects, including a multipart series based on The Ascent of Money that will air in July on PBS, the Public Broadcasting System. He is working on a book on Siegmund Warburg, who was an influential British financier from the 1940s through the 1970s.
Barron's profiled Ferguson in a cover story more than two years ago ("Wake-Up Call," March 12, 2007), in which he astutely warned that the markets were too complacent about financial and geopolitical risk. Today, the rightward-leaning Ferguson is cautious on the global economic outlook, worries about Russian intentions in Eastern Europe -- and thinks Britain's Conservative Party may finally win an election in 2010. Ferguson also has a distinctive view on investments, inspired in part by the famed Rothschilds. Barron's caught up with him recently in New York.
Barron's: Is the worst over for the global stock markets and the economy?
Ferguson: It may look that way, but appearances can be deceptive. The stock market has actually tracked almost perfectly its downward movements between 1929 and 1931. Now that doesn't mean that we are going to repeat the Great Depression. I don't think we will, because the policy responses have been different. It would be excessively optimistic, however, to conclude from a relatively small set of green shoots in the economic data that we are all going to live happily ever after. It is certainly way too early to say the Obama administration is right that the economy is going to grow at 3% next year and 4% in 2011. I find that scenario as implausible as a rerun of the Great Depression.
What is the relative position of the U.S.?
It is in significantly better shape than the other major developed economies. The U.S. can run bigger deficits at lower cost, because of its reserve-currency status. The Japanese economy has fallen off a cliff. The German economy isn't a great deal better. These two economies are suffering their worst shock since the 1930s. The contraction in Germany and Japan probably will be roughly twice that of the U.S. Real gross-domestic-product growth in Japan is almost certainly going to be a negative 6% or 7% this year. In the U.S., it is going to be about minus 2.6% for this year.
It is ironic that the U.S. may hold up better.
We have a crisis that was clearly American in origin. It had a Made in America stamp on it, yet it ends up hurting other people more than it hurts Americans. That brings to mind [19th-century Prussian leader Otto von] Bismarck's great line: "God looks after drunks, fools and the United States of America."
When will the recovery come?
Nobody has the faintest idea what next year is going to look like. It isn't clear yet that this is just a common recession. This is probably more like a slight depression. We won't see a big V-shaped bounce. Much of the consumption growth in the decade up to 2007 was fueled by things like mortgage-equity withdrawal. That game is clearly over. Strip that out, and you are looking at an annual economic-growth rate in the U.S. closer to 1½% to 2% than 4%.
What is your disagreement with New York Times columnist and Princeton professor Paul Krugman about massive government borrowing?
This is one of the most interesting questions of the moment. The view of Keynesians, their Econ. 101 textbooks and the Nobel laureate at Princeton is that the world has an excess of savings over investments and therefore the deficit can be almost any size and it will be financed. My sense is that if the U.S. government tries to borrow $1.8 trillion in a year, that is an awful lot of bonds to sell at the same time [as] all the other major governments. It looks to me like a supply-and-demand story, and what tends to happen in those stories, regardless of the macro environment, is that the price of bonds tends to fall. The U.S. 10-year Treasury rate has moved up more than 100 basis points [one percentage point] since January. There is a problem in Britain, where the Bank of England had to protest about fiscal stimulus because it was causing a huge interest-rate problem. It is also happening here.
Are you concerned about the potential for overregulation as an outgrowth of the financial crisis?
My worry is that we end up with an overreaction. Now history is something that gets written in a hurry. The consensus is that this crisis came about because of deregulation in the U.S., and that what we need is more regulation. Whether it is bankers' compensation or derivative markets, there is going to be more regulation. My feeling is that all this zeal for regulation actually grows out of a very faulty analysis. Why do I think that? For one, if this crisis was all about regulation it took a hell of a long time to come about because deregulation began in 1980. And deregulation can't be all bad because lots of good things happened in the world economy after 1980. The second problem is if deregulation was the issue, why was it that the most regulated entities, banks, caused the biggest trouble, and that unregulated hedge funds didn't? Some hedge funds have failed, but there has been no systemic downside to it. And thirdly, the regulatory frameworks are not the same on both sides of the Atlantic, and yet European banks are in as big a mess as the American ones. German banks are the most leveraged on average in the world. Now the Germans have been wagging their fingers at the Anglo-Saxon model, but their model didn't prevent extra leverage in the balance sheets.
What about your native U.K.?
The economic outlook is pretty bleak. The size of these big too-big-to-fail banks like Royal Bank of Scotland is really huge, relative to the United Kingdom's GDP. It creates a fiscal nightmare. The U.K. is taking on an enormous pile of liabilities in relation to its GDP and the existing public debt. The U.K. isn't Iceland. It isn't Ireland. They were the extreme cases where finance was vastly greater than the economy. But the U.K. is closer to them than to the U.S. Americans worry a lot about bank leverage and the scale of the government's financial commitments. But the U.S. is a pretty large economy, and the financial sector never got as big in relative terms as it did in Britain.
Any hope for the U.K.?
I am, broadly speaking, bleak about the U.K. until it gets a new government, and that almost certainly will be within the next year. Then I think we will see some radical reform. The U.K. needs another dose of Thatcherism very urgently, and I'm hoping it gets that. [Conservative Margaret Thatcher was British prime minister from 1979 through 1990.]
Are you saying the British Conservatives may actually win an election?
They can and will. The Brown government is probably the most unpopular ever, and it is really quite spectacular. [Prime Minister Gordon Brown leads the British Labour Party.] The Conservatives would have to screw up on an absolutely epic scale to lose.
What about the rest of the world?
The emerging-market story is actually much more straightforward because there is a real stimulus package out there that is working much better than the U.S. stimulus package: It is the one in China. It is giving a shot in the arm to those economies that supply commodities to China, and they are the markets that have rallied the most since the year began. The Russian stock market essentially is a play on the price of oil. Brazil is partly a food story, and India has done pretty impressively, too. So, if you had to take a view on equities, it would be the BRICs [Brazil, Russia, India, China] over the U.S. There is also a big commodities opportunity there.
Where is the biggest potential source of political instability in the world?
Eastern Europe, for sure. Four governments -- in Latvia, Hungary, the Czech Republic and Estonia -- have already fallen since this crisis began.
Americans aren't focused on that.
It is funny, because the Eastern European crisis not only is economically interesting, but [also is] strategically important: It blows a hole in balance sheets of Western European banks. We have been beating ourselves up here for the way U.S. banks were managed. But Western European banks are in worse shape, and what really is going to hurt them is the mess that is Eastern Europe, from Ukraine to the Baltics, Romania, Hungary, and Slovakia. These economies are in a terrible mess.
Are there political implications?
These new democracies that came out of the collapse of Communism have been pretty solidly pro-American. They are Donald Rumsfeld's famous "New Europe." Well, now they are being hammered by this crisis, and that creates an opportunity -- all crises are opportunities -- for Vladimir Putin and his merry men in Russia to start reclaiming some leverage over what they call the "near abroad." The gas pipeline crisis in Ukraine last January, like the invasion of Georgia, could be a foretaste of an important trend over the coming year, where domestic instability starts to create opportunities for the Russians to regain at least some of their influence in that area.
In writing about the Rothschild family, you have discussed your admiration for their old-fashioned investment approach.
There is no doubt that orthodox notions of portfolio diversification didn't help much in this crisis. There was so much correlation among asset classes last year that it was hard to avoid a pasting. But that old Rothschild model, about a third securities, a third art, and a third in real estate has a certain appeal to it.
Or having some exposure to gold. That is the thing I most regret not having done. When the Bank of England sold a pile of gold in 1999 at an incredibly low price [around $300 an ounce], I remember thinking, "That is a stupid mistake," but I didn't buy any gold. That would have been a killer investment.
Stocks haven't done well since 1999.
You are back to square one if you had bought the "stocks for the long run" story then.
How were you positioned prior to the market meltdown last year?
I didn't have much equity exposure on the eve of the crisis. But I probably had rather more real estate than I wanted, though my strategy has been consistently to buy historic real estate on both sides of the Atlantic. Nothing I own was built after around 1800. There is a premium on things that can't be replicated.
You live now in Oxford.
I divide my time between Beacon Hill [in Boston] and Oxfordshire. And the Oxfordshire house is a 17th-century farm house. The Beacon Hill house is one of the oldest in the U.S. We also have an ancient pile in South Wales, which dates back to the Middle Ages. Most of its structure is 16th century. Now that's a kind of quirky investment, because most properties of this kind aren't very liquid. But I see them as investments for the long run -- I mean, they have already been around for the long run.