May 27, 2011
The following quote is taken from the start the book, “This Time Is Different: Eight Centuries Of Financial Folly” by Reinhart and Rogoff:
“The essence of the this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises do not happen to us here and now. We are doing things better, we are smarter, we have learned from past mistakes. The old rules of valuation no longer apply. Unfortunately, a highly leveraged economy can unwittingly be sitting with its back at the edge of a financial cliff for many years before chance and circumstance provoke a crisis of confidence that pushes it off.”
I have been waiting several months to post that quote on this blog. Alas I and my book were in different countries until now.
The book is an economic text that investigates 800 years of financial crises (hyperinflation, currency devaluations, debt defaults and such) by sovereign governments. It is not a pretty sight.
The short version of the book could be summarised as, “Governments are not very good at managing money and if sooner or later it can go wrong, it will”. If you would like a better understanding of why so many European governments are currently in such financial peril, this is a great place to start. But be warned, it is a very big book. Yes, there have been a LOT of governments in financial trouble…financialguy