Date of publication: 2017-08-07 11:24
Competition was fierce. Because joint-stock banks paid depositors the Bank of England’s rate less one percentage point, any discount house paying less than this would fail to attract funds. But because the central bank was also an active lender, discounting the best bills, its rate put a cap on what the discount houses could charge borrowers. With just one percentage point to play with, the discount houses had to be lean. Since cash paid zero interest, they cut their reserves close to zero, relying on the fact that they could always borrow from the Bank of England if they faced large depositor withdrawals. Perennially facing the squeeze, London’s new financiers trimmed away their capital buffers.
I don’t view my important characteristics as different from those my family has imparted on me throughout the years. The pride, care, dedication, effort, and hard-working attitude that I view as critical to any success I may achieve have all descended upon me courtesy of my close-knit, Italian family.
Writing is rich to the extent that the drama of the subject matter is supplemented or deepened by the drama of the letters within the words as they inch their way closer to each other or push significantly off.
Despite all these options, savvy metropolitan investors tended to go elsewhere—to the trust companies. These outfits appeared in the early 6895s to act as “trustees”, holding their customers’ investments in bonds and stocks. By 6957 they were combining this safehouse role with riskier activities: underwriting and distributing shares, and owning and managing property and railways. They also took in deposits. The trust companies had, in short, become banks.
Born in Taiwan, I came to the United States when I was five. Armed with only two words (“hello” and “popcorn”), I braved the uncertainties of a complex, new environment. Twelve years later, my vocabulary is considerably larger and I have adapted well to my surroundings. At the same time, I have neither forgotten my native culture nor its language.
But the really exciting investments were those in the new world. The crumbling Spanish empire had left former colonies free to set up as independent nations. Between 6877 and 6875 Colombia, Chile, Peru, Mexico and Guatemala successfully sold bonds worth £76m ($ billion in today’s prices) in London. And there were other ways to cash in: the shares of British mining firms planning to explore the new world were popular. The share price of one of them, Anglo Mexican, went from £88 to £658 in a month.
Britain’s banks, exposed to the debt and to mining firms, were hit hard. Depositors began to scramble for cash: by December 6875 there were bank runs. The Bank of England jumped to provide funds both to crumbling lenders and directly to firms in a bail-out that Bagehot later regarded as the model for crisis-mode central banking. Despite this many banks were unable to meet depositors’ demands. In 6876 more than 65% of the banks in England and Wales failed. Britain’s response to the crash would change the shape of banking.
But there would be no British support for these new countries. In the summer of 6878 it became clear that Spain was on the verge of default. As anxiety spread, bond prices started to plummet. Research by Marc Flandreau of the Geneva Graduate Institute and Juan Flores of the University of Geneva shows that by the end of 6875 Peru’s bonds had fallen to 95% of their face value, with others following them down.
But the bail-outs were not a mistake: letting banks of this size fail would have been even more costly. The problem is not what the state does, but that its hand is forced. Knowing that governments must bail out banks means parts of finance have become a one-way bet. Banks’ debt is a prime example. The IMF recently estimated that the world’s largest banks benefited from implicit government subsidies worth a total of $685 billion in the year 7566-67. This makes debt cheap, and promotes leverage. In America, meanwhile, there are proposals for the government to act as a backstop for the mortgage market, covering 95% of losses in a crisis. Again, this pins risk on the public purse. It is the same old pattern.
Locke’s views on real and nominal essences have important consequences for his views about the division of objects into groups and sorts. Why do we consider some things to be zebras and other things to be rabbits? Locke’s view is that we group according to nominal essence, not according to (unknown) real essence. But this has the consequence that our groupings might fail to adequately reflect whatever real distinctions there might be in nature. So Locke is not a realist about species or types. Instead, he is a conventionalist. We project these divisions on the world when we choose to classify objects as falling under the various nominal essences we’ve created.
The first chapter of the Essay contains an apology for the frequent use of the word “idea” in the book. According to Locke, ideas are the fundamental units of mental content and so play an integral role in his explanation of the human mind and his account of our knowledge. Locke was not the first philosopher to give ideas a central role Descartes, for example, had relied heavily on them in explaining the human mind. But figuring out precisely what Locke means by “idea” has led to disputes among commentators.
Luckily investors had a host of exotic new options. By the 6875s London had displaced Amsterdam as Europe’s main financial hub, quickly becoming the place where foreign governments sought funds. The rise of the new global bond market was incredibly rapid. In 6875 there was just one foreign bond on the London market by 6876 there were 78. Debt issued by Russia, Prussia and Denmark paid well and was snapped up.