Ferguson Faults Fed in Failure

Professor Niall Ferguson argued that the current economic crisis developed largely as a result of widespread ignorance of financial history, while speaking to a packed house at the Harvard Book Store last night to promote his new book, “The Ascent of Money.”

Ferguson faulted the U.S. Federal Reserve for complicity in the stock market bubble, claiming that home ownership had become over-politicized in recent years as a result of efforts by the federal government to increase ownership rates and widespread leveraging of real-estate assets.

“Real financial alchemy was performed in order to transform the lead of sub-prime mortgage to the gold of a AAA-rated piece of collateralized debt,” said Ferguson, a professor of history in the Faculty of Arts and Sciences and business administration at Harvard Business School.

In order to avoid future economic crises, it may be necessary to create an international financial regulatory body similar to the World Trade Organization, Ferguson said.

He added that financial crises occur infrequently enough for regulators and investors to blissfully ignore the warning signs that can lead to very real economic pain.

Arguing that economic systems reflect human nature, Ferguson said that economists’ over-reliance on mathematical models results in a failure to account for the fear, euphoria, and panic that often drive markets.

Combining his expertise in history and economics, Ferguson traced the historical development of the modern financial system.

“He bridges two disciplines in a way that makes him really insightful,” said Edwin O. Robinson, an attendee, after the talk.

Ferguson questioned the global appetite for U.S. debt, adding that the global bond market that has financed American deficit spending may not be willing to continue buying Treasury Bonds.

He characterized the relationship between the United States and its foreign creditors as a marriage of convenience.

“The U.S.-China marriage is in fact like many marriages: One partner does all the saving, and the other partner does all the spending,” Ferguson said.

But Ferguson did not come bearing only bad news. During previous eras of economic stagnation, he said, venture capitalists tapped into American innovation in order to propel the economy forward.