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tv   Thomas Levenson Money for Nothing  CSPAN  November 12, 2020 10:27pm-11:27pm EST

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the museum, thank you so much. we had a terrific one hour with you. so informative. we know we are going to hear a lot more from you and your career very exciting. thank you. >> guest: thank you. >> weeknights this month we are featuring book tv programs as a preview of what's available every weekend on cspan2. right that we focus on neuroscience and healthcare beginning with david eagleman and his book live wired katherine even in her book bottle of laws. later lisa on scone he and the brain it all starts at 8:00 p.m. eastern. and enjoy book tv this week and every weekend on cspan2. >> you are watching book tv on cspan2. every week and with latest nonfiction books and authors. cspan2, created by america's cable television company as a
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public service. and brought to you today by your television provider. >> host: thank you for joining us for my name is alex meriwether. on behalf of harvard bookstore and very pleased to introduce our talk with thomas levenson. they panicked the nation and made the world richford tonight professor levinson is joining conversation by david dobbs. the virtual event tonight harvard bookstore continues to bring authors and their work to our community and our new digital community. finer event schedule harvar harvard.com/events we can also sign up for our e-mail newsletter and shopper shells from home. this evening's discussion will conclude for some time for your questions. if you have a question for speakers go to the queue and a
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box to submit questions at any time during the discussion. will come to those at the end of the talk. i will work on answering as many of your questions as time allow allows. and in just a moment i will post the harvard.com link to purchase money for nothing. your purchases and contributions make this virtual series possible. and not more than ever support the future of a landmark independent bookstore so thank you. we sincerely appreciate your continued support now and always. and finally, we have any tech issues tonight during the event will do our best to resolve them quickly. thank you for your patience and understanding. now i'm pleased to introduce our speaker. thomas levenson is a professor at mit and the author previous titles including the hunt for vulcan, einstein in berlin, and newton and the counterfeiter. he's also received several awards for his feature-length
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documentary films including the walter p tressler science documentary similar to the peabody award and the new york chapter. and he is joined this evening in conversation by david dobbs author of the books my mother's lover and brief madness. they'll be discussing money for nothing in which the history of science meets the history of finance. it is been long listed for the financial times and mckinsey book of the year award. an author james glick's rights in state synthesizer with the grand view of history. here's the birth of modern finance amid catastrophe and fraud. the gripping story of scientists and swindlers all too pertinent to our modern world. and so now i am pleased to turn things over to tonight speakers on the digital podium insures. >> thanks much alex.
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tom i was intrigued by this book from the get-go. because of the title which obviously references a great song by dire straits but some other things as well. what did you mean to convey by that title? >> guest: the great article of capitalism is captured by the immortal words of a cultural icon for us all. if you recall the look and i'll gladly pay you tuesday for a hamburger today that's wimpy and popeye. and that's why it's so important is that his credit. what credit does what borrowing does is it creates money in the here and now out of a promise that we make to the future. and figuring out how to do that in a way that could be sustained would not be killed by crisis action my whole book
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is exactly this figure out how to make credit work not just today's cage drinker or hamburger but for whole nations and whole economies and whole systems figuring that out was one of the great innovations of the period that historians call early modern europe. sue and as your book details that spurned a lot of other innovations too. with the other book titles are to money for nothing and one is a gave money i got nothing. and the other one was i making money and i didn't get anything. there's a lot of those here. what led you, when you start this book it would lead you to write it? >> guest: all of my books come out of something that bugs me. and usually they come out of
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some thread i find in another project. but i may not have time or may not be appropriate to go into that project. something is out of place and i want to figure it out. in this case is doing some work on isaac newton. and as a great crime story chasing counterfeiters in all the school stuff. i started reading up about newton and tried to dive more into his life and his character. i found 20 years after the event i was chronicling at that project he had some troubles with money. and he famously said i can predict the emotions of heavens but i cannot predict the madness of the folly of the people. i said i want to know more about that and that ultimately led to this. it's one that doesn't make sense. he has an extremely interesting role in this. the one role he plays is he
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suffers from i don't think it's a secret about what happened in this right? i was the bubble of all bubbles. isaac got caught in it in a bad way. also laid the foundation in a way, yes? sweet it newton is an integral partner in the entire book. and the critical thing to know is the whole story hinges on a really wonderful horrifying financial crash that occurs in 1720. the actual moment that the stock market turns on this great boon january especially from april to december. and then right into the beginning of september. and pretty much like today 300
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years ago. i turned this at all went to hell. that's happening 300 years ago. >> host: are my may have out of the bath newton took. it made my heart beat for him. traded an annuity that was worth every year more than his salary. but that into the stock that fell off a cliff. it's hard to say what each transaction cost him but overall look like alexandria ocasio-cortez 20000 pounds was the equivalent it's hard to make leaps across some much time.
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it was certainly the several millions today and depending on how you count it could be much much more. so he took a bath. he was correct. and it bugged him. she wanted to have any money left? >> yes he did. he bent half his fortune on this and he still had the other half. and he still had a job that paid him okay. he was out on the street, but he had been, he built from being ordinarily modest and prosperous middle level member of lead in society to someone who's genuinely rich. sue and for a few months. [laughter] switches hugely rich for a few months for the real heartbreak for him said got out of the market with a reasonable
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profit. and one of the telling parts of the story, or leaping ahead of the narrative. he got out, he figured he's made as much money as he needs, he was happy with his return but the stock kept rising and feed on itself frenzy that we've all experienced her own lives quite recently. the two thousands of them them before that the tech bubble. the housing boom in that other stuff. revolt experience that. newton was sitting there with his real profits that was cash in the bank, he had it was safe. i cannot stand watching looking at it from the outside losing money by not getting those gain gains. so he sold for on average around 500,000 a share or something like that. the share from the hit a peak about six weeks to two months
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after he sold to double again. this starts beginning of the around 100. as a really big rapid boom almost tenfold. >> host: he sold and bought in again. but didn't sell fast enough right? >> guest: he bought some of it, not all of it. when he reentered the market he but some of it literately it almost the highest price they paid for. >> host: you're not nearly as smart is isaac newton look what he did. there's probably a lesson here. go back then and, till briefly what created this bubble? >> guest: this to a silica what created this bubble per
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there is a set of decisions and there was a huge intellectual culture on political change that took place in mid 1700s that 17th century through to right around the time of the bubble. over 50 to 70 years there were big changes going on in the way britain and europe in general thought about all kinds of things that they found to be important. basically it's a scientific revolution. in some of things that go along with it along with england and then britain specific revolution. which makes the role of parliament and running the country in the role of the money and funding the company much more important him previously. >> guest: this is because a new set of tools and calibrating work money moves and how it works, made it for
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the first time appear that it was possible to try to manage an economy. is that right? >> guest: there people who were really thinking about running the whole business of getting and spending for the nation in a way that would maximize national power. they thought in france, they thought in london. there was a belief that on some level that cracked if they figured it out. this is a cartoon, right? but it's a curtain was some truth to it. could almost produce the scientific revolution to core concepts. one is that quantify and then experience to gain more understanding gain the ability to predict the future. one of the critical things of the basic mathematical ideas
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including especially crucially newton's great invention a calculus is about to change over time right? the other thing that newton and many others did i was never just one person in some ways the leader of the climactic battle of the revolution as it were. everything is imperialism. not looking at the world but systematic observing, measuring experimenting on the world. trying things, getting this information turning it into numbers and performing now fondant allows you not to just think about abstract things like howdy to logarithm howdy work out an intimate or even just celestial things like where is jupiter going to be in six months time? what governs the behavior of the moon or the tides for instance. but the idea that quantification and rigorous
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imperialism can be applied to you and me here and now figure out how to borrow all these kinds of things. they were doing it back then. one of the things that gets worked out in this. this present value. if i have a peace of land court may be a business or a ship that's going to do things over time that makes money, what's his value right now? finally take the income stream i get off of growing wheat on this acre of land for 20 years , how should i think about what that is worth given what i know? >> host: because your ability to predict change over time. she said earlier newton said he could not predict the dynamics something to that effect.
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were trying to manage this pandemic knowing the virus is one thing but predicting people is another. so in the way against cartoon initially is it accurate to say hopefully say this book is a story about a minor while quickly foundered and then also the atomic science of this past century when they thought they had the knowledge to control, to predict markets thereby control them to keep them calm but growing, they unleash some powerful forces. and in some cases they were so powerful they could not control it. which i think that's right.
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one of things i found very late we try to as a passage by daniel defoe like newton devotions up over and over again. he's one of the first journalist susan muckraker he is a moral thinker. but one things i think people know a little less about him is that he was from the very beginning and enthusiast for this new ideas his very first book was an acacia on projects. was a catalog and celebration of all the things people were trying to do, new ways to form the land and manufacture you just love that stuff. unless brinton invented the tools of credit really
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aggressively on the 1690s inventing what we call a national debt. that's the thing that has a birthday it's in 1693. the reason is up until then the you're in the european system, and certainly in england the idea behind running state finances wasn't ultimately rested on a person holds the, many, many removes but still in theory it's the king's purse or the queen's purse. no one in the 1690s that changed. they sort of contracting stetson enacting them by parlett and trying different revenue streams they could create by passing. this was a radical change on something as seemingly dull
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and boring as a borrowing money to pay the soldiers, right? i'm so defoe watches all the stuff i know i'm ramming on but i have a point. [laughter] daniel watches all this and he sees at work. in england is able to do things with this borrowing and really expand its reach and power by having access to credit and await other european for able to do. and he said this is her secret powers or superpowers. and he writes this passage when he talks about how the government raises that's and manages them. and he has whole elaborate metaphor it's a machine. that's both amazing because he is a vision of it as being something he can rational, design and control which is something you're talking about. it is also explicitly, the
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ide idea's. [booing] it's as predictable. [inaudible] was interesting to that he got mixed up in it and many other ways. so this is important at a time, this quite a few revelations in the book. at the end you talk about why this is so vital to britain. at first they regrouped when they figured out how to have the cake, look that's the wrong metaphor. 's. [booing]
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was wide written trip to see countries with more riches and more soldiers because they could raise money quicker to punch up their weight. as you put it. >> guest: the bible itself emerges from the successes of the first attempts to use these new ideas about money. because what happens in the 1690s forward, britain gets involved in a series of wars that last until 1815. sometimes referred to as the long 18th century. one of the things that defines it as the first of william and mary's wars against louis the 1h and the last british war against france ended with the defeat of napoleon, that is the parameters. in this first round the invention of the national debt explicit responsible cost of war that britain cannot handle
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out of everyday receipts. it's not coming it enough to keep the army in the field. they start raising really vast sums. starting from 1693. in that first war ends and the kind of regroup a little. but then another war starts in the keep doing the same thing. and they always borrow when there right at the point of crisis parts of the terms of the loan for decades and decades of high interest rates. by the mid- 17 teens, over half of britain's annual revenue, the money they taken from all other sources is going off to pay interest on the debt that has been accumulated over the previous 25 years. so the key here is they thought they found a way, this company at first was to take
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the first shot at consolidating this debt. and then selling the right to receive the payment on the debts. you can attain that by buying stock in theory. right? so they packaged it as an asset. in a sense it was but only if you count it as an acid something to come. >> guest: absolutely was an asset. britain barred everywhere they could they sold lottery tickets and carried interest payments for years. they sold annuities so people could buy a guaranteed payment for life or for two lives are three lives. they sold straight up debt. they all had different terms in different constraints. in one of the things about almost all of them is the people who lent money to the government and receive these
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annuities are lottery tickets or whatever and return could keep the income stream but they could not sell the underlying asset. suffice it 100 pounds to bison from the government they get their 5 pounds or 8 pounds it was per year. they would never get their 100 pounds back the keep. but the sassy company did as i said let's get rid of this complete mess. it's too complicated and nobody gets their money out. we will trade our stock, if you give us your debt the government will allow us to create more stock will give you the stock. the government will pay us interest at a reduced rate will pass on the dividends. who will use anything we can to fund the trading operation that will make us all very rich. and best of all, if you take stock instead of holding onto your debt and you ever with the money that you can just walk down to exchange allie johnson's coffeehouse and said
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got share to sell who wants it? and the government has better terms on their debt they got the ability to retire all kinds of good things. in the sassy company got this business. it was supposed to be a win, win, win kind of deal. and the problem was they were right. this kind of swap can work it worked on a small scale before this. it has worked since. but they set it up in a way that would, if it had all hung together it would've made the people who were inside the company before the deal happen insanely rich. i mean richer than you can imagine. richer than anyone previously had been. when this sounds vaguely familiar. the government agreed to this because they were so desperate.
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>> guest: they really need to solve this problem is a great deal for the government. >> it was good for them the time it seemed like it was good for everybody at the time. but what ensued was, will tell me a little bit i want to get into and amendments about how the bubble that is essentially a combination seems to me from the description some people and others there were people who were worse deceiving others and including deceiving their selves for that includes isaac newton. it's what we now the stock market, yes? the modern won this centered around a place jonathan's
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coffeehouse. >> guest: 's are in the book called coffee house culture and ask him how he wanted his beans. the stock market, there had been joint stock companies for 150 years or more at that point. but up until the 1680s or so they were very few shares and they were almost never traded for the east india company the hudson dade company the royal african company which is a slave trading company. they existed and they were in fact companies that had shares that in theory could move between cable but they very rarely did. when they tend to be bought and sold by very small group of people, correct?
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>> guest: in the 1680s that started to change change very, very rapidly class, mining companies insurance companies the coldest. from 1690s called the financial revolution eight term of art amongst historians in th the. they understand the financial revolution as simply as part of the scientific revolution. it was a large interim intellectual going on. the people doing them did not separate just wake up people like edmund talley working out the math newton himself writing about how interest rates were. they quantify how important things work.
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people who had interest were a normatively broad in their interest. but anyway, the stock market existed. there is a place originally stock brokers worked in this building called the royal exchange. and they got booted out for basically being too loud and obnoxious. and they moved more or less about wondered yard yards to this little alleyway called exchange allie which had for five copies of drink coffee shops set up in the coffee rooms and started trading there. the most important of those was jonathan's which became the center of was increasingly understood as the london stock exchange. there's nothing left of that no now. start to walk down it it is a horrible post blitz bland building in one of those little blue oval plaques it says this is where jonathan's
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wants. the thing about the bubble itself the key thing is how you design the deal. this is the first time in the thing to remember about this is yes this was a bubble. yes there was deception, yes people deceived others and were self deceived. sometimes the same people were actually conning others were there fooling themselves. this was the first time any of this had happened. the deal was set up with the fatal flaw in the middle of it nobody ever said how much, what the value of a peace of debt in terms of these shares. we'll give you three shares that peace of debt today. but tomorrow movable just give you two are debbie get to keep the difference for it get to keep some of the shares we would have otherwise traded. >> the market is setting that price. >> they are ad-libbing it.
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they started out really big there creating what worked in the end of effectively bonds this is to leap ahead of the story of how the modern bar owned market first starts to form. people who are in finance will tell you the stock market is where the headlines come but it's much much larger than the fate of the nation hangs on the bond market that the stock market reflects but is not driving the same way. that is all starting right here. they set up a really interesting deal it could've worked under certain circumstances but the way they set it up had a flaw in it the whole idea should work only if the stock stayed extensive. >> you are doomed.
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your supposedly buying these assets should been buying the rise. it's expected to go up. it would have 50 pounds yesterday got 50 pounds tomorrow but i will be rich. there's an e-mail coming out for the wall street journal every day call for the intelligent investor. and right now there is amateur boom and options trading freedom reading this going i've seen this before and it happened in june 1720. in fact, in 1720 there using the same option some of the same options we use today. call options put options by option sell options. as further little new under the sun. still the same way we did three did years ago. so when there's a question i want to turn to hear.
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but first this was in 2008 the collapse of this fancy derivative that gathered and kept safe tons of. [inaudible] proved to be not safe income lately as michael lewis writes about in his book, virtually no one understood the algorithm that supposedly explained. you have to wonder things like that are going on now. it's amazing how closely that south sea bubble parallels with this containment of debt and an estimate people don't understand explodes.
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and one big thing that is change simply was it was complicated then, complicated enough that is hard to understand. ministers way more complicated now. you have the same problem. : : : my book is the prequel to
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lewis' book. the parallels are the structure of the level how it inflated and why, what was required for people to believe it, what happened to those who didn't. just as lewis chronicled these people who saw that this was an unsustainable, could never work. the critical thing was these assets that were thought to be uncorrelated so you couldn't have, you couldn't lose the value of the mortgage-backed security because you had thousands of houses all over the country and this, that and the other. it turned out that all those houses and values were much more correlated and got more so as the market got more inflated. same thing happening in the
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bubble with the price of the stock rising and everybody's ability and willingness to bid on new releases turning on the fact it continued to grow and when there was ever a reason top believing that just as there was any reason to suddenly realize that in fact these assets that were supposedly secure because they were diversified the moment that occurs you discover. >> one question regards something you addressed and that
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has to do with the history of government lottery and her ancestors emigrated from germany to britain selling lottery tickets and it's her family is research that suggested at the time we did have opportunities and it was a way to survive will. >> it's quite interesting. i don't go into detail in the book but jews were kicked out of england in the medieval period by edward the first because he
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was fighting wars he couldn't afford and from his attempts to subdue and conquer and they were not left back officially into england so the middle of the century. so you come back and they don't have deep roots or a huge number of ways to make a living. when england starts trying to raise money for the war, one of the things they try that's invented in italy but these ideas of doing lottery sales that are actually ways to persuade people to use the thrill of gambling 5%, 10%.
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this started happening in 1693, 94 and one of the innovations in england was to sell them cheaply enough so that you are not just borrowing money from the gentry and aristocracy that women were involved in the markets in a quite significant way in the 1970s and that you know,
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people would band together for the chance of the lottery and then keep it for the interest rate and all that sort of thing. there's a huge expansion of the pool of people you get to extract money from and people had to sell those things. you can see how big of a public frenzy this is. a. >> i don't know if she is still on. there is anothethere's another t you do address that concerns the importance of these instruments they had the success and what is
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the connection between the industrial revolution started not long after this period and the introduction of the use of credit that helped support new industries and so on. >> it's complicated.
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whether it is the bank of england or the duke of portland. started as the richest man in england and so far broke you couldn't see broke from where he was he was so far underwater so much so he was forced to avoid imprisonment and took the usually lucrative to try to rebuild the fortunes he died the
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yellow fever after three or four years in office. >> [inaudible] fewer people went to jail than m should have that to the question john was asking what happened after the bubble crashed is not
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everybody went to jail and they could get a post to get them out of dodge and all that but critically he is often referred to as the true prime minister said we are not going back on the deal. the point of turning all of britain's debt into the stock was too rationalize and we are going to hang onto that. they were going back on the original deal. if you loan the government money, you will not get screwed. >> in france they've done something very similar at almost the same time and when they had to rebuild we are not going to
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risk any kind of fancy shenanigans again we are going to go back to the old ways of borrowing money with these long-term promises paying higher interest rates and they said no. between 1722 and the early 1750s, the successor basically supervised the construction and the rest of the british government debts into uniform trade stock and showed britain could pay its interest on a regular basis with little risk of interruption and in general made the entire apparatus into a
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simple. there was never an occasion again. >> it came to resemble a bit more of what we had. in 1720 it's the wild west in 1750 you can no longer carry your guns into town and by the 19th century you've got councils and just this enormously stable and reliable credit financial system but the interesting thing what britain does was this this they reserve for the government. they set up rules so the private companies cannot use this new apparatus of credit so what britain gets out of it is that first real boost in their ability to exert power across
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the globe. >> in a minute i want to ask if we have time after questions what the u.s. did differently. one question isn't trivial but the other one is the american additions of the different subtitle what do you prefer and why? >> i love all my children equally. there are different covers and i think they are both gorgeous. the american one is more brash and high contrast and lovely
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blues and subtle textures. it's great. the difference is in britain there is more broad cultural memory of this is a london story but their title reflects that. i don't have a preference. i think that's great. this is not financial advice. i am happiest when i have more cash right now.
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financial capitalism is extraordinarily powerful and an effective tool. the contrast and the way people can organize using the prospect for the future to build and the economic life now that secures that the future is extraordinary. it was truly a radical change in our relationship to time and our lives and how we can build a future for ourselves and our children read that's all great. it also has the flip side is it comes with a systematic failure
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mode built in because human beings are less rational than they think they are and seem to be an integral part of the way finance works so i can say with absolute certainty that we will have a major downturn. certainly within my lifespan i fear the full extent of how long and one of the things we see is we don't know what it is that when the various frailties that affect modern finance leverage contagion, the unstable relations, these kind of things recur over and over again and there'there is always some trigr
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point that creates a sort of rippling effect that goes through the system and causes instead of a minor correction, the crash. but it seems to be it has been for the first 300 years of financial capitalism, a regularly occurring feature. i am trying to remember there were these stalls everyone had to have one christmas. there are commodity bubbles and sometimes they are set up and and and attempt to manipulate
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but sometimes there is a human fancy that gets engaged and if people mortgage their souls to buy a tulip bulb it can add more serious consequences. >> in those options we were talking about earlier. >> that is what makes it so hard.
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>> and that is sort of true and one thing that stuck with me is they seem to be on the same shelf of invest or by one of them being nothing you understand which almost everybody in that bubble did as well as the mortgage securities and such. people bailed when they had a moment of revelation and realized and they recognized that it had changed.
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if they made a profit, it wasn't huge. >> he was a bookseller that bought the stock during the decade before the bubble and was a slow moving company that basically paid interest on a certain amount of government securities so it was an indirect way to hold the government.
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he got out at basically roughly half the value that it would obtain at the peak. he made a net profit of 250,000 and remember i said earlier 20,000 was millions.
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that seems a good place unless you have one last thing you want to tell us thanks to harvard bookstore. it's one of the great bookstores in the country. i've been buying books from them since 1976, and i'm so glad they are still around. whether or not anybody still listening wants to buy my book, please still buy some books from them. by all means, by my book but they are other deserving of any support anybody can give them. the other thing i want to say is monday, wednesday, friday i look at this triumphant story where people discovered a new way to think about human life and made terrible mistakes on the way but what came out of it are some of the abstract tools and intellectual engines that allow
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us to lead a life of more comfortable than those in the bubble did. it's a really sad story because in 1720 someone even as smart as isaac newton can be forgiven for not having figured it out because there was no experience. there was no body of accumulated learning to sort of recognize what was happening. this happened in 1929 and in the 70s and in the '90s. it happened in 2007 and a 2008. there are signs something is brewing that will happen sometimes. if newton and his peers and his contemporaries have an excuse for not grasping the predicament, we have seen it happen through history and our own lives we absolutely do not have that excuse and one of the
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things i hope people get out of the book is the sense that we have to hold our feet to the fire so we don't get burned again in the same way. >> word for the wise. >> thank you, everybody for coming. >> thank you indeed.
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thank you for joining us at this

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