This Time Is Different: Eight Centuries of Financial Folly

The book is significant and substantial. The data collated by the authors from other sources or emanating from their own research is impressive. But the book is not simply the product of hard working and meticulous authors but also of intelligent ones. The authors are insightful and incisive. The wealth of data render tables and graphs illustrate the points made in the text with crystalline clarity. The authors certainly do not lack wit but their aim is not to entertain and create pyrotechnics but to inform, provide substance and in this way fulfill the reader in his/her gaining insight into the nature, severity, indicators and sequencing of a wide array of financial crises. The authors are meticulous and explain with professional integrity to the reader the methodologies they employ and the merits but also limitations of these methodologies;they are considerate to the reader to the point of advising which parts to skip without losing continuity. It is true that the book is rigorous and scholarly but accessible to the intelligent layman with elementary knowledge in Statistics and modest exposure to Economics vocabulary. The authors dispel compellingly and conclusively the "this-time-is-different" syndrome. The syndrome simply stated is that the old rules of valuation no longer apply and that the current boom, unlike the many that preceded catastrophic collapses in the past, is built on sound fundamentals, structural reforms, technological innovation, and good policy. The book in detailing crises that have arisen over the past eight centuries exposes this myth and shows that boom-bust cycles recur with relentless regularity, a trend that is likely to continue in the future. But the preceding serves simply as a point of departure and the focus of the book is on the crises themselves while systematic data and Macroeconomic Time Series cover the period 1800-2008. The book examines a wide array of financial crises such as sovereign defaults (foreign and domestic), banking crises, exchange rate crises, hyperinflation while it observes that crises often occur in clusters. The penultimate chapter examines situations such as the Great Depression of the 1930s and the latest world wide financial crisis which it labels the "Second Great Contraction"- in which crises occur in clusters and on a global scale. The book shows that advanced countries and economies may have "graduated" from serial default on sovereign debt and recurrent episodes of very high inflation as the cases of Austria, France, Spain and others illustrate. But History tells us that "graduation" from recurrent banking financial crises is much more elusive and that advanced economies are as vulnerable to them as emerging economies. The literature suggests that markedly rising asset prices, slowing real economic activity, large current account deficits, and sustained debt built ups (whether public, private, or both) are important precursors to financial crisis;also sustained capital inflows are particularly strong markers for financial crises. The preceding were very prevalent and pronounced preceding the subprime crisis in the United States which evolved into a major global financial crisis parallel only to the Great Depression of the 1930s. The aftermath of severe financial crises particularly global are characterized by asset market collapses which are deep and prolonged, profound collapses in output and employment, and government debt that explodes not only due to bail outs but also due to collapse in revenues and soaring interest rates on debt. Serious global financial crises are painful and protracted events extending over several years. In concluding, I cannot recommend the book strongly enough to the serious reader but at the same time I caution that the book is not suited to the casual reader and the faint-hearted.

This is a good book full of robust analyses, a clear structure, nice examples and conclusions. It covers all the major types of market & state financial failures. However, the writting style is sometimes repetitive and cumbersome or too academic/boring.

This book investigates datasets connecting financial measures such as debt or real estate price changes to financial turmoil. Its a huge work, and I guess academics could not previously have conducted this without the computational tools which are now available. In the same way we now have software to decode DNA, we can apply similar computational tricks to financial data. The book analyses domestic debt; data that has apparently been unavailable previously, as governments are not that willing to reveal how much they have borrowed historically. Indeed, the authors make it clear that there is obfuscation going on here, as with modern technology, this data should be readily available. Nevertheless, they have tacked bits of domestic internal debt data together in order to aid the analysis. Future generations will look back at our present financial easing and wonder what the hell we were thinking, trying to dig ourselves out of a financial crisis (bought on by real estate lending), by trying to further stimulate the real estate market. All the more so given analysis which is now readily available, such as in this book. One extension which I would like to see would be to include implicit debt, such as historic promises of state benefits, in order to draw further conclusions about our current financial situation. In the UK, we have the NHS and public sector pensions to finance. In the US, there is the medicare bill. It would be interesting to have seen the impact of these implicit debts being quantified in This Time is Different.

This book was praised extravagantly when it was released in 2009, which was obviously perfect timing for an analysis of the history of financial crises, given that we were (and arguably still are) in the middle of a biggie. There has clearly been a huge amount of work involved in collating data on previous crises, which is a considerable achievement. However, the book is unsatisfying in many ways. Firstly, I'm not sure how much I learned from this book. I am reasonably historically literate and therefore did not find it surprising that sovereign default and financial crises have always been with us, although I suppose it is nice to have this confirmed and nicely summarized, and one clear lesson from the Financial Crisis is that most people are not as informed about economic history as they should be. If people had realized that, as of 2007, Greece had been in default 50% of the time since attaining independence in 1829 then recent events would perhaps have been less of a shock! There aren't that many new insights, however. One thing that is useful is that it is clear that from long term viewpoint it is only recently that most of the debt of emerging sovereigns has been raised externally and predominantly for the short term: eg from 1914-1959 70-80% of Latin American sovereign debt was long term. Also it appears that the incidence and impact of sovereign debt crises are not that different between emerging and more developed markets (which is perhaps less surprising now than it was when the book was published!). The book also shows how difficult it is for serial defaulters to break out into investment grade status. Investor confidence is crucial for the ability to sustain and rollover debt and therefore default can occur at relatively low levels- eg Ecuador's external debt/ GDP ratio when it defaulted in 2008 was a seemingly modest 20%. The authors very often try to summarize their main points in graphs: this has merits but is used to often without more detailed analytical support. I found that there were too many graphs and not enough detailed analysis, with the result that the treatment often seems superficial. One graph that is very powerful however is the median inflation rate from 1500 onwards, from page 181. This clearly shows that although there is a clear inflationary bias through history, it spiked radically in the 20th century with the advent of fiat or paper money. Inflation has leapt to a whole new level, however spectacular some of the historical coinage debasements were. A minor problem I have with the book is the uneven style, which may reflect different chapters being written by one of the two authors. It is pithy and witty in places but elsewhere one gets the worst kind of dense `academese'. For example on page 31 (the context is the all or nothing nature of emerging nations access to international debt markets):- `Arguably limited but stable access to capital markets might be welfare improving relative to the boom-bust pattern we so often observe'. The fog index is getting pretty high here for what is essentially a simple point. The book ranges over long periods, and this causes a problem given that the analyses are organised by country, and countries are not static things. It is not always clear that the authors are aware of the differences, a good example being the British Isles. They use the terms England, Britain and the United Kingdom interchangeably, which will no doubt annoy the Scots, Welsh and Irish even more than it does me. For example, in the section on currency debasement, statistics are given for the `United Kingdom' for the periods 1260-1499 and 1500-1799, whereas the United Kingdom did not exist until 1800, and Great Britain not until 1707. They say on page 175 that Henry VIII of England began a huge currency debasement, which was carried on by his son Edward VI after his death in 1547, but on the next page state that the United Kingdom achieved a 50% reduction in silver content in its coinage in 1551. I presume this is meant to be the English kingdom at the time, and not a weighted average including Scotland. Another error is quantifying the number of defaults by Spain (admittedly we are dealing with big numbers here). On page 70 it is stated that Spain has defaulted 13 times but on page 87 there are only 12 instances listed (1560 is omitted in error). It is unreasonable to expect a book with so much detail and analysis to be error-free but if it is easy enough for me to spot that is worrying! I know a lot more about banking crises than about the history of sovereign defaults, and this is the area where I have most concerns about the book's approach. The authors acknowledge that defining a banking crisis is very difficult. Their definition (page 10) is as follows:- "We mark a banking crisis by two types of events: (1) bank runs that lead to the closure, merging, or takeover by the public sector of one or more financial institutions and (2) if there are no runs, the closure, merging, takeover, or large-scale government assistance of an important financial institution (or group of institutions) that marks the start of a string of similar outcomes for other financial institutions." The difficulty with this definition is that it is at once too inclusive and not inclusive enough. It includes events that are clearly not systemic banking crisis & misses others. Too inclusive because the failure of one bank for idiosyncratic reasons is surely not what we mean by a banking crisis, and yet, for example, the authors include the failures of Johnson Mathey in 1984, BCCI in 1991 and Barings in 1994, all of which, as far as I remember the market shrugged off as `sui generis' events, and there were certainly no systemic concerns. Not inclusive enough because historically the authorities have often been able to manage systemic crises behind the scenes, which I suppose could be called `suppressed' crises. A classic example would be the Latin American Debt Crisis of the 1980s, which was clearly a systemic banking crisis as well as a Sovereign Debt crisis. It was widely acknowledged at the time that if most of the larger international banks had been forced to reflect the true value of their exposures to Latin American and other emerging sovereigns their capital would have been decimated, and many would probably have failed. However, they were not forced to do so, with many a nod and wink between regulators, bank management & auditors. In fact, one of the many differences between the current crisis and previous ones is that in today's world, with the accountant's focus on the income statement, fair value accounting, and the abolition of hidden reserves, `regulatory crisis suppression' (to coin a phrase) is no longer feasible, for better or worse. The identification of banking crises is inconsistent as well. I would argue that there was an international banking crisis in 1974, as major economies were driven into recession after OPEC ramped up the world oil price. This crisis was partially suppressed. The secondary banking crisis in the UK is mentioned, but not the failure of Herstatt in Germany or the Franklin in the US, both of which had significant international impacts. Again, the authorities had to work hard to suppress these effects. Two recent events are not even included in the detailed list:- a) Switzerland had a significant banking crisis in the 1990s, mainly due to policy lending by the cantonal and regional savings banks which led to a property bubble. More than half of the regional savings banks (over 180 banks) disappeared, and many of the cantonal banks required state support to prevent collapse, including Vaud, Geneva, Berne and Glarus b) The German banking system came under severe pressure in the early noughties. Dresdner was effectively rescued by its largest shareholder, Allianz and many other banks received state support, either explicit or implicit. There were several crises in the US during the 1980s, for example the failure of Continental Illinois, The Savings & Loan crisis, and the impact of the Latin Amercian Debt Crisis as referred to above. However, these are just lumped together as `1,400 savings & loan failures & 1,300 bank failures 1984-1991', with no further comment! In fact these were a series of separate events with distinct causes and effects, for example regional and sectoral crises and the impact of deregulation. I have to conclude therefore that the analysis of banking crises is seriously flawed. The statistics presented on the basis of this analysis must also be suspect as a result;: the claim that the peak to trough decline in house prices after banking crises averages 35% and persists over 6 years sounds credible but if banking crises have been imperfectly identified in the first place, can we believe it? The authors deserve credit for trying to analyse crisis over such a broad sweep of history but perhaps the project was just too ambitious to be covered in one go. However, they have certainly provided a basis for discussion and no doubt will stimulate a lot of future research.

This, I suspect, is one of those books, like Stephen Hawking's A Brief History Of Time, which far fewer people read than own. It is not a book of popular economics, and it does not have a straightforward story line. It is, however, a book of extraordinary significance to our times, and of more immediate importance, I'd venture, than Professor Hawking's opus. This is a book that looks backwards, sideways and forwards all at the same time, examining financial crises of the past, drawing comparisons with the current crisis, and outlining some ways those of the future may be spotted on the horizon and at least alleviated. It warns particularly of the all-too-frequent tendency of developing countries to assume that times of plenty will never end and therefore to spend profligately, a tendency also seen in certain developed countries. Find the steepest point in the uptrend and extrapolate to infinity. We're rich forever! In creating this relatively short but gigantically impressive and influential (while some possibly have not read it, many nevertheless have) work the authors have dug deep into what archives they have been able to delve. At times the charts are so numerous the text has a job keeping up. The tables, too, are frequent, informative and, often, frightening. But they underline the herculean task involved in prising the data out of some hands, and make a case for a centralised clearing house for making such data transparent, rather than the current opacity and obfuscation. The central point, of course, is that the fundamental tenets of economics do not change. You can't spend what you'll never have and get away with it. There's a price to pay, always, as the world economy, and especially the increasingly pauperised south Europeans are now finding. This time, and any other time you care to mention, really is not different. The dotcom boom was replete with spotty youths accusing the oldsters that they didn't "get it", all too often hounding them out of the boardroom so they could observe at a distance as their dire predictions came true. Ditto with the armies of derivatives sellers explaining how their CDOs, CDSs and their like would completely diversify risk away. Instead, they were the root of the problem as the subprime deck of cards came tumbling down, leading to the discovery that much of the risk had been diversified away to the same place. Perhaps of most pressing interest is the coverage received by Greece, including the disclosure that since independence in 1820 the country has spent over half the time in default, and looks like continuing that illustrious achievement for a few more years still. But the authors use the example of Argentina in 2001-2 to demonstrate the perils awaiting should Greece leave the eurozone, a sentiment echoed by, amongst others, former central-bank governors of Argentina and Mexico (The Economist, February 18th 2012), who remind us of the chaos following the abandonment of Argentina's peg to the dollar and point out that, given the deep integration of Greece with the rest of Europe, the result of the country abandoning the euro would be many times worse. We have, say Reinhart and Rogoff, learnt a lot about the way the world economy works since the Great Depression. But we have much left to learn, and besides, the world is constantly in a state of change and the learning process never ends. Their book is a valuable part of that learning process.

Book in excellent condition and delivered on time.

The authors have written a monster of a refence book which spans 800 years of financial history. It's somewhat galling to see Brown/Darling on TV declaring "this time is different", and "we're in uncharted waters, we've not been here before", only to read just how many times we HAVE been here before. Wasn't it Einstein who said that the definition of stupidity is making the same mistake again and again? I wholeheartedly recommend this book. It's not a light bedtime read but is accessible and more than readable, and more's the point, you can dip in to whatever chapter is relevant for your enquiry. There are swathes of tables and reference charts, and the later chapters deal with the current crisis - which we learn is not new (though the debt mountain is the greatest on record). I would suggest it helps to have a modicum of understanding of world finance, this is not a book for beginners (for that go to "Conspiracy of the Rich" by Robert Kiyosaki - possibly the best there is to really get inside what's going on in the world of finance and highly readable), but for those already engaged in this area, "This Time is Different" is essential.

Despite the conclusions being discredited by a US student who found an error in the data analysis this book still provides an invaluable insight into the workings of the global economic cycle. This time is no different is the point, being evidenced by the sovereign defaults starting in the emerging economies following the Global Financial Crisis. It is well written and easy enough to read for non-financial readers with the stats and data included in the appendix, allowing the story to be told without getting bogged down in technical detail. Highly recommended read for those seeking more in depth knowledge after watching The Big Short.