Written through a series of anecdotes (sort of Malcolm Gladwell style), the book covers the development of the many types of instruments and markets that are a part of today’s modern financial system. Starting with the development of the Bond Markets, it touches on Equity Markets, the Insurance Market, the Housing Market, and finishes with a section on Modern International Finance. Generally, each chapter covers some about what brought about the origin of each market innovation and details some of the implications that each brings to bear in the financial markets and the world.
While Mr. Ferguson plies through history, he attempts to weave a story of the Ascent of Money, how each individual innovation has developed to create the web of financial systems the world uses every day. His one failing, however, is to tie the individual anecdotes together to provide for the larger picture, many of the individual examples remain just that.
In addition to his major anecdotes, there are many incongruous parts that do not seem to fit anywhere within the framework. In the final section, in a discussion of Long Term Capital Management, Ferguson introduces the Black-Sholes option pricing formula.
Feeling a bit baffled? Can’t follow the algebra? Too be honest, I am baffled too. But that was just fine by the quants. To make money from this insight, they needed markets full of people who didn’t have clue to price options but relied instead on their (seldom accurate) gut instincts.
Granted Mr. Ferguson is a historian, but if the example is only to prove the complexity of the models used by these groups, it doesn’t serve it purpose. If the motive was to take a dig at the intentions of those employing the models, perhaps it worked. Ulterior motives come to bear in other examples. While discussing stock bubbles, Mr. Ferguson includes,
Like Law, too Lay had friends in high places. Himself a long-time ally of the Texan energy industry, President George H. W. Bust supported legislation in 1992 that degulated the industry and removed government price controls. Around three quarters of Enron’s $6.6 million in political contributions went to the Republican Party, including $355,000 from Lay and his wife in the 2000 election.
The regulation, and subsequent deregulation, of commodity markets (which are only briefly covered) could possibly provide for some interesting commentary from a historical perspective. Unfortunately, other than an initial discussion of commodity futures, this irrelevant lecture is as far as Ferguson gets into commodity markets. This appears to simply be an ax to grind, and provides for a random, disconnected interlude in the commentary.
Overall, while perhaps a very smart man, Ferguson’s writing makes him look like a very small man.