My Review of Robin Wigglesworth's "A Fabulous Debt: How Bonds Built the Modern World

 A Paean to Debt

Less than a month after the release of Financial Times editor Robin Wigglesworth’s paean to the heroic role debt has played in the building of the modern world, France has become consumed by a debt crisis. Only in the very last chapter does Wigglesworth discuss the risk of governmental over-indebtedness, otherwise governmental debt is a “blessing” in the words of Alexander Hamilton. For example, he ignores the Argentine debt crisis of 1890, the interwar debts arising out of World War I, the collapse of Latin American bonds in the 1930’s and again in the 1980’s. 

 

Nevertheless, Wigglesworth has written a lively history of the bond market from the Venice of the middle-ages, to Amsterdam, to London and then on to the United States. He rightly attributes a good part of England’s victory over Napoleon to its ability to issue a perpetual bond called CONSOLS that enabled it to fund Wellington’s army and to subsidize Prussia.

 

When his history moves to the United States, we are in the room with Hamilton consolidating the America’s Revolutionary War debt in 1791 which a decade later enabled the Louisiana Purchase. I did not know that bankers from Baring Brothers and Hope & Co. assisted Special Envoy James Monroe in his negotiations over Louisiana with Napoleon. The result was an $11.5 million bond issues with Barings on the right and Hope & Co of Amsterdam on the left. In many real estate classes that I have taught the Louisiana Purchase was the first cross-border real-estate transaction with due diligence taking place after the signing of the deal. As a side note Lewis and Clark’s expedition did the due diligence.

 

He discusses the role of Jay Cooke in financing the Civil War and his subsequent but and goes on to discuss the role of Treasury Secretary William Gibbs McAdoo in his selling liberty bonds to fund World War I. That effort introduced the American public to the securities market that enabled the 1920’s to roar.

 

 

As he moved into the modern era, we witness the role of Michael Milken in establishing the high yield market that enabled companies hitherto frozen out of the bond market to fund their efforts and to be utilized in financing hostile takeovers. Wigglesworth highlights the role of my old firm Salomon Brothers and Lou Ranieri in particular in creating a vast securitization market for mortgages and other assets. The 1980’s see the flowering of the futures markets for interest rates and currencies along with giant swaps market that has the ability to convert fixed rate debt to floating and vice versa, for example. His character portraits of both Milken and Ranieri are both vivid and accurate.

 

To be sure he discusses the Long-Term Capital Management blowup in 1998 and the financial crisis of 2007-09. In both cases the plumbing of the repo market became crucial in exacerbating the situation and in the case of the financial crisis securitization run wild accompanied by corruption in the ratings agencies led to a near complete meltdown.  The aftereffects of the financial crisis led to a long period of financial repression caused by quantitative easing that was further exacerbated by the COVID epidemic of 2020 which brough the yield on the 10-year U.S. Treasury Bond to an all-time low of 0.56% in August of that year. As I have noted before that marked the end of the bull market in bonds that began in 1981. (See: https://shulmaven.blogspot.com/2025/01/we-are-in-early-stages-of-bond-bear.html )

 

“A Fabulous Debt” is an easy and enjoyable read. His character sketches of such personages as Nathan Rothschild, SG. Warburg and Jay Cooke are a joy to read. I only wish that he tempered his enthusiasm for debt. To be sure it helped bring on the modern world, but as France and soon other are about to learn, the piper must be paid.