As I mentioned in an earlier post, the book I’ve been listening to on the long drive to PA is Niall Ferguson’s “The Ascent of Money,” a history of finance. It can be tough going for someone like me, but it’s mostly an excellent example of explanatory history — that is, of explaining how we arrived at the financial practices and institutions that we have today. It can be a really exciting story. Take the rise of the Medici family, for example. I had no idea that they were basically a pack of medieval Sopranos who were ruthless and smart, and made themselves indispensable to the society of their day, and therefore bought immense respectability. Or take the truly amazing story of the Rothschild banking family, and how the genius of N.M. Rothschild, combined with the close-knit family network spanning the European continent, made the family wildly rich, and massively powerful. Ferguson quotes a harsh letter N.M.R. wrote to the Prussian finance minister when the latter tried to change the terms of an agreement he’d made with the Rothschild bank. That the son of a man (dynasty founder Mayer Amschel Rothschild) who had been born in the Jewish ghetto of Frankfurt would be able to speak that way to a Prussian minister of state shows you how very, very far they had come on their wits. As Ferguson tells it, the revolution the Rothschilds helped make with their financial innovations helped doom the ancien regime, in which wealth was tied to land.
Listening to Ferguson’s stories impressed upon me how very much the stability of states depends on finance. He tells the startling tale of John Law, a Scottish gambler and rapscallion who weaseled his way into the good graces of the last kings of France, and became an immensely powerful state minister in charge of the economy.He pumped up a massive bubble based on investment in France’s Louisiana colonies, and when it burst, the effect was catastrophic on the French economy, leading to the bankruptcy of the royal house, and to the French Revolution. This story, as well as Ferguson’s discussion of what hyperinflation and other drastic economic instability did to the lives of ordinary people — and how it panicked them — made me appreciate much more why the Russians support Vladimir Putin. His extensive discussion of Pinochet’s dictatorial rule in Chile, and what it accomplished economically (versus the wreck the Marxist Allende made of the economy), gives me a more sure grasp of how liberal democracy depends on economic stability. Ferguson also writes well of the moral complexities involved in finance (of which the Pinochet story is one). Though people can be cutthroat when dealing with money, ultimately the entire global economy, which is based on credit, is in turn based on trust. And because it is based on trust, there is an inseparable moral core to finance — and indeed a psychological dimension as well. If people do not believe they can trust the system to act fairly, they will lose faith in it — and this can lead to revolutions. It certainly has done.
(To be sure, Ferguson’s book is by no means a moral indictment of financiers; in fact, he praises them throughout the ages for having made us all freer and more prosperous. If not for finance, we would all be living much poorer, riskier, anxious lives.)
Anyway, tonight I logged on to get the news and saw that the stock market is way off this week, in part because of the populist victory in the Massachusetts Senate race, and in part because it looks like Ben Bernanke might not get a second term at the Fed. Floyd Norris, writing in the Times, says this instability — which might cause a huge selloff on Monday — might have been avoided had the following things occurred:

* If the Fed had shown a lot more contrition for its errors of monetary policy and regulation.
* If the banks had shown similar contrition, and accepted the idea that people who — as a group — almost sank the financial system did not deserve to return quickly to mega-bonuses.
* If Goldman Sachs, in particular, did not insist that it never needed a bailout and was never in danger of collapse.
* If the Obama administration had chosen to include only people with no ties to the past errors.

See? It’s all about morality, in particular, accountability for incompetence and greed, the people’s righteous disgust that the class most responsible for our current misery are refusing to take meaningful responsibility for what they did, and our government being unwilling to meaningfully hold them accountable. Faith in the system must be restored, and I don’t see how it can be restored without some sort of reckoning — which the political class seems determined to prevent. This could get real interesting, real fast. Which, if you’ve read Ferguson’s book, is not something to look forward to.
UPDATE: I’m with Megan McArdle in wondering how come people who are mad at the banksters are taking it out on Ben Bernanke? If he were Alan Greenspan, sure. But as Megan writes:

Bernanke didn’t become Fed chair until 2006, long after it was realistically possible to do much about the bubble except wait for it to pop. He shepherded us through the financial crisis without another Great Depression–maybe not perfectly, but no Fed chair would have been perfect.

I’d say a lot of this is about displacing blame. How many sitting members of Congress voted over the years for deregulatory policies that made it much easier for bankers to take foolish risks? How many of them took campaign money from financial interests that wanted this to happen, against the public interest? And now they’re going to scapegoat the Fed chairman??