My life has been less remarkable than lucky. I was born in Lynn, Massachusetts and was a member of the first class to graduate from St.Thomas Aquinas High School in Dover,New Hampshire. There I was lucky enough to get selected for something called the Advanced Studies Program at St.Paul's School which gave me the ambition to apply to Harvard which I attended on a scholarship. I wanted to be an historian but lost my way and ended up leaving graduate school and teaching at Harvard to become an international banker in London and New York. I met many interesting people in the process and more to the point learned most of contents of this book through personal observation.
The working title of this book, which is really an extended essay in the style of the great Victorian banker, author and journalist Walter Bagehot was Lombard Street Revisited after his most famous book. Bagehot's Lombard Street has been much quoted but it would seem little read since he published it in 1873. To my mind it is only great book ever published on the nature of money, financial markets and crises, great because Bagehot did not disdain to explain the basics in plain language but also because of his voice of authority as both a practitioner in finance and someone who knew the "real history" of money. Bagehot demystified the world of the financial market for the general reader, making it as concrete, simple and readable as possible. In doing so he empowered those who bothered to read him to make up their own minds about seemingly arcane matters that deeply affected their wellbeing. This is precisely what Financial Market Meltdown sets out to do for men and women now living through the worst financial crisis of post-war history.
I first came across Bagehot through the study of history at Harvard, I think through my advisor Prof. Harry Hanham. In the mid 1970's I found myself through a series of accidents working as a banker in the City of London, a few steps from Lombard Street. My job was to sell US dollar banking services to all the financial institutions in London. I soaked up the lore of the Bank of England, the Clearing Banks, Merchant Banks and Discount Houses, the Stock Exchange and Lloyds. My turn of mind and my study of history always made me go back to first principles about why things worked the way they happened to work and how they came about. I was fortunate in my colleagues and bosses in London, mostly men who had left school at fifteen or sixteen to become bank clerks. They knew their stuff and gave me an invaluable education in banking and the traditions of the City that I would not otherwise have received.
Later I was involved in the same business globally based in New York, followed by a series of planning and staff jobs for top management that exposed me to every aspect of the business of banking as it was then practiced. The thing that struck me was that most of the American bank executives I worked for knew a lot about being executives but understood little about banking. Worse, they often leaned heavily on brand name management consultants that knew even less.
My bank died of terminal mismanagement as most businesses do sooner or later and through yet more accidents I became a consultant myself, sort of a gamekeeper turned fox. My work took me to Europe, Asia, Latin America and the Middle East, and my clients expanded to governments, central and development banks and even regulators. I kept returning to Bagehot for insights and frameworks. Various drafts and sketches of the ideas in this book began to pile up in my files.
The crisis which began forming in the financial markets in the summer of 2008 caused an editor friend of mine who knew about my embryo banking book to ask me to reframe it in the context of the financial market meltdown. The current book is the product of that effort, carried out in great haste and without formal research except to check the odd fact. This is, in fact, exactly what Walter Bagehot did in quickly writing Lombard Street in the wake of the panic of 1873. It is, like that work, an highly personal viewpoint informed by a lifetime in the financial world, not a formal work of economic history such as those produced by scholars such as Niall Ferguson
Bagehot wrote to inform intelligent lay people how the financial markets worked but also to influence a political debate around the proper role of the Bank of England in preventing and managing panics, an argument not unlike our current debates about the role of the Federal Reserve and financial regulation generally. My purposes are the same.. Like Bagehot, I am a classic liberal as it was understood in his day, and like him I am deeply skeptical of all abstract systems and innovations rooted in ideology. At the same time as Bagehot put it "money will not manage itself". For better or worse, the future of money and finance is now more than ever in the hands of the state. In a democratic nation it is vital that individuals be empowered to ask the right questions of their representatives and public servants as well as their financial institutions. If this essay has helped empower even one reader I am fully satisfied that it has been worth writing