The High Cost of Financial Panics

Roman emperors and American presidents alike have struggled to deal with sudden economic crashes

ILLUSTRATION: THOMAS FUCHS

On January 12, 1819 Thomas Jefferson wrote to his friend Nathaniel Macon, “I have…entire confidence in the late and present Presidents…I slumber without fear.” He did concede, though, that market fluctuations can trip up even the best governments. Jefferson was prescient: A few days later, the country plunged into a full-blown financial panic. The trigger was a collapse in the overseas cotton market, but the crisis had been building for months. The factors that led to the crash included the actions of the Second Bank of the United States, which had helped to fuel a real estate boom in the West only to reverse course suddenly and call in its loans.

The recession that followed the panic of 1819 was prolonged and severe: Banks closed, lending all but ceased and businesses failed by the thousands. By the time it was over in 1823, almost a third of the population—including Jefferson himself—had suffered irreversible losses.

As we mark the 200th anniversary of the 1819 panic, it is worth pondering the role of governments in a financial crisis. During a panic in Rome in the year 33, the emperor Tiberius’s prompt action prevented a total collapse of the city’s finances. Rome was caught among falling property prices, a real estate bubble and a sudden credit crunch. Instead of waiting it out, Tiberius ordered interest rates to be lowered and released 100 million sestertii (large brass coins) into the banking system to avoid a mass default.

But not all government interventions have been as successful or timely. In 1124, King Henry I of England attempted to restore confidence in the country’s money by having the mint-makers publicly castrated and their right hands amputated for producing substandard coins. A temporary fix at best, his bloody act neither deterred people from debasing the coinage nor allayed fears over England’s creditworthiness.

On the other side of the globe, China began using paper money in 1023. Successive emperors of the Ming Dynasty (1368-1644) failed, however, to limit the number of notes in circulation or to back the money with gold or silver specie. By the mid-15th century the economy was in the grip of hyperinflationary cycles. The emperor Yingzong simply gave up on the problem: China returned to coinage just as Europe was discovering the uses of paper.

The rise of commercial paper along with paper currencies allowed European countries to develop more sophisticated banking systems. But they also led to panics, inflation and dangerous speculation—sometimes all at once, as in France in 1720, when John Law’s disastrous Mississippi Company share scheme ended in mass bankruptcies for its investors and the collapse of the French livre.

As it turns out, it is easier to predict the consequences of a crisis than it is to prevent one from happening. In 2015, the U.K.’s Centre for Economic Policy Research published a paper on the effects of 100 financial crises in 20 Western countries over the past 150 years, down to the recession of 2007-09. They found two consistent outcomes. The first is that politics becomes more extreme and polarized following a crisis; the second is that countries become more ungovernable as violence, protests and populist revolts overshadow the rule of law.

With the U.S. stock market having suffered its worst December since the Great Depression of the 1930s, it is worth remembering that the only thing more frightening than a financial crisis can be its aftermath.

WSJ Historically Speaking: The Perils of Cultural Purity

PHOTO: THOMAS FUCHS

“Cultural appropriation” is a leading contender for the most overused phrase of 2017. Originally employed by academics in postcolonial studies to describe the adoption of one culture’s creative expressions by another, the term has evolved to mean the theft or exploitation of an ethnic culture or history by persons of white European heritage. Continue reading…

WSJ Historically Speaking: The Tragic Side of Weddings

Weddings are happy affairs. What could possibly go wrong? From left, Christian Bale, Calista Flockhart, Dominic West, Anna Friel in 1999’s ‘A Midsummer Night's Dream.’ PHOTO: FOX SEARCHLIGHT/EVERETT COLLECTION

Weddings are happy affairs. What could possibly go wrong? From left, Christian Bale, Calista Flockhart, Dominic West, Anna Friel in 1999’s ‘A Midsummer Night’s Dream.’ PHOTO: FOX SEARCHLIGHT/EVERETT COLLECTION

If April is the cruelest month, then June is the happiest—at least for those hoping to say “I do.” Surveys show that in America, about 16% of all weddings occur in June, making it the most popular wedding month. In many parts of the country, flowers are at their peak and the weather is perfect. What could go wrong?

A great deal, it turns out. With so much riding on the day, weddings occupy a curious place in the human psyche, wedged somewhere between the heights of ecstasy and the depths of despair. The notorious “Red Wedding” episode a few years back in HBO’s “Game of Thrones,” in which the host Lord Frey massacres his helpless guests, may have pushed the envelope in terms of good taste, but its bloody denouement came as no surprise to lovers of tragic opera—or the classics.

The ancient Greeks regarded weddings as potentially very dangerous. Too much happiness was thought to incur the wrath of the gods. Only a prodigious number of sacrifices could stave off disaster, and even then the slightest mistake could upset all the careful preparations. A wedding day transformed into a funeral was a stock theme in Greek mythology and poetry. In one version of the Trojan War narrative, Iphigenia, the daughter of King Agamemnon, walks to the altar dressed as a bride, unaware that she is about to be killed to appease the goddess Artemis, who had held up the warriors’ voyage to Troy. Continue reading…

The Sunday Times: Click with care – we’re close to giving the bad guys control of the internet

Source: Creative Commons

Source: Creative Commons

WHOM do you trust more with your freedom: America or Russia? The Edward Snowden revelations about government surveillance have made that more of a loaded question than it used to be, so I’ll rephrase it. Who do you think is more protective of human rights: America or Saudi Arabia?

You would have to be a moral idiot to choose Saudi Arabia, the country of routine beheadings, public floggings and judicial torture. Yet it’s chairing one of the key committees of the United Nations human rights council (UNHRC). That’s the way things work at the UN: smoke, mirrors and rampant horse-trading. The latest WikiLeaks cache has revealed something of the back story to the Saudi Arabia fiasco.

No doubt there’s a similar load of emails elsewhere that explains how Iran was able to strong-arm its way to chairing the 120-country Non-Aligned Movement, which has many members in the UNHRC. (Using this muscle, Iran submitted a resolution last month that says sanctions are a violation of human rights.)

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DailyMail: The agony of living with bound feet: Chinese woman, 84, reveals how her feet were broken and bound when she was just six years old

Photo: BBC/Silver River

Photo: BBC/Silver River

By Lucy Waterlow

A Chinese woman has revealed how she endured having her feet bound when she was only six years old, even though the painful procedure had been outlawed.

Wang Huiyuan, now 84, who lives in the rural Tonghai County, Yunnan, had the ‘beauty treatment’ in the 1930s, decades after it had been officially banned in 1902.

‘Then it was fashionable to bind feet. Everyone did it. If not, you’d be laughed at, “look at her big, flat feet”. Once I was laughed at, I bound my feet,’ she explained to Dr Amanda Foreman on BBC documentary The Ascent Of Woman.

The octogenarian recalled how the process of binding her feet to make them smaller – an ancient practice that can be dated back to the 13th century – was unbearably painful.

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