Full Transcript for Embracing the Bond Market: Masters in Business with Robin Wigglesworth

At Brookfield, we invest in the thing behind the thing behind the next big thing. Our focus across infrastructure, energy, real estate, private equity and credit is helping to build the backbone of the global economy. We combine deep operational expertise with disciplined long -term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today.

Learn how you can own what's next at brookfield .com slash own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital.

Exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs. And hands -on experience matters more to recruiters than advanced degrees. With the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, must be willing to work extended hours and weekends as needed.

One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChachiPT. Get started at ChachiPT .com.

If you listen to financial news, you know a lot of time is spent thinking about what's next. The next opportunity. The next investment. The next move. But sometimes what matters most is being ready for what you never saw coming. For more than 75 years, Cincinnati Insurance has worked with independent agents to help protect businesses, homes, valuables, and more.

Because planning for the future isn't only about knowing what's next. It's about making sure you're ready for what you can't predict. Let Cincinnati Insurance make your bad day better. Find an independent agent at CINFIN .com.

Bloomberg Audio Studios. Podcasts. Radio. News. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest returning to us. Robin Wigglesworth. Editor of FT Alphaville. One of my favorite sites on the web. Financial. It's the Financial Times finance blog. Which he runs from Oslo, Norway. With a team of writers.

Both in London and New York. He co -hosts the story of money. A financial history pod. And writes the newsletter. Buy the dip. His new book. A Fabulous Debt. The epic story of how bonds built the modern world. Is out. It frames bonds as the world's largest. Most powerful financial engine. I'm halfway through it. And I've been loving it. The conversation was fascinating.

I think you'll really enjoy it. With no further ado. My interview. Of Robin Wigglesworth.

Robin. Welcome to Bloomberg. Well it's a massive honor to be here. So thanks for that Barry. So before we talk about the book. I want to spend a little time. Discussing your very interesting background. You get a bachelor's in journalism. And contemporary history. From City University. And then a master's in history. Of international relations.

From the London School of Economics. Focused on political Islam. Was the original career plan. Always journalism. No. I always dreamt of being a physicist. Maybe specifically astrophysicist. There is zero. Physics. In international. Relay. I guess that's really. Intergalactic relations. Well weirdly. You know. When you try to self -analyze.

It always gets a little bit weird. But. I like figuring out. How the world worked. And I like physics. I love understanding. And learning about. The galaxies. And I realized. I was pretty good at maths and physics. Up until a point. I realized. I would be nothing other than. A mediocre physicist. It's amazing. You can be great. At the secondary level.

And suddenly in college. Oh. Those guys. Are really good. Those guys. Are really good. Experience. Yeah. And it's fine. It's kind of knowing your limitations. What you're good at. But journalism. In many ways. I've kind of come to see. Is similar. In that you're just. Figuring out the world. From a different perspective. And financial journalism.

Has at least a little bit of math. Albeit not quite on the level. Or at. So PhDs. Physics. So am I correct in saying. Your first gig out of LSE. Was Bloomberg News. Is that right? No. I had one intermediate step. I was a financial journalist. For a small trade mag in Dubai. And it was. It was. They just ingest journalists. And then spit them out.

If they're bad. And. I didn't know anything. But it was kind of this first. All inspiring moment. We're like. Oh my God. I get paid to ask. Smart people about stuff. And it was so fun. I knew nothing. And luckily. I didn't embarrass myself. So they kept me around. And. But I. Quickly moved to Bloomberg. Because I knew that was a great place to learn.

So. The Middle East and Dubai. Is a theme that comes up. You're the Gulf correspondent. In Abu Dhabi. Covering the Arab sports. Covering. Yeah. From both Bahrain and Libya. How do you go from that. To covering finance? Well. So the first job. Had been covering bonds. Islamic bonds. Actually. Sukuk. And. I worked at Bloomberg. As an economics and politics reporter.

But also. Kind of. You get roped into everything. Bloomberg. It's a great place. If you want to spread your wings. So. I covered like. FX and rates. A lot as well. So the FT. Was a Middle East correspondent. Gulf correspondent. But you kind of do a bit of everything then. And it was a lot of Dubai. Going bankrupt. This was 2008. Dubai was going.

You know. Having a hard time. It was fascinating. I was also covering things like. Labour. Movements in Bahrain. And Saudi Arabia. But when the Arab Spring happened. I did get to cosplay. As a war correspondent for a bit. And it was. A wild time. I'm actually interviewed. For a financial journalist job. At the FT. Back in London. From the army barracks.

Of the rebel government. In Benghazi. Oh my god. Yeah. So. So how do you end up. Covering capital markets. In New York. For the Financial Times. Well. I went to London. I did get that job. Despite the. Slightly bad backdrop. Of Benghazi army barracks. Got the job. Covering capital markets. For the FT. In Europe. And it was the Eurozone crisis.

And it was an incredible time. You learn. As you know. You learn so much more. So much quickly. In a crisis. So. It's terrible for the world. Great for us. And. After a few years. I got moved to New York. To head up the markets team there. And that's kind of. For me. That's the. That's the Premier League. Or the World Series. You know. It's New York.

Finance. It doesn't really get better. You know. I. Love quoting. Robert Duvall. In Apocalypse Now. During the financial crisis. To some. Young. Analysts. There's a line. Someday son. This war is going to end. He says. Wistfully. And in the middle of a crisis. There's very much. That experience. Like. You better appreciate this. Because these only come along.

Every 20 years or so. And their amazing learning experiences. Yeah. You. You. You experience that. Repeatedly. Yeah. First with the Arab Spring. Then with the great financial crisis. What was the next big economic crisis that really affected how you saw the world? I'd say COVID is the obvious one. There were lots of little mini things in there.

I remember all the brouhaha about the first time the Fed was going to raise interest rates. That was a big deal, but actually ended up being a bit of a nothing burger. But COVID was incredible just on the personal but also professional level. I remember talking to one of our best young promising journalists who was feeling quite stressed out at the time.

I said, look, it's tough. It's difficult, but this will make your career. If you just throw yourself into it, you will grow by leaps and bounds over the next days, weeks, months. We don't know how long this is going, but just try to enjoy it, get enough sleep, and just try to almost revel in it. Try to turn around. This isn't just stress.

It's something that will shape you. It shaped me as well. It was incredibly exciting. So your last book was about index funds. This book is about bonds and debt, which occasionally blow up and cause a crisis. I'm curious, how fundamental was the Dubai debt crisis you mentioned to how you frame the world of debt and credit and how you think about the bond market, which you've described as the most powerful financial engine in the world? That's a great question, actually.

I'd always thought my first job was covering these Islamic bonds and I had to learn about the bond market that way. And they're really quite funky. They're kind of structured. No interest rates, right? No interest rates in theory, but kind of it walks, talks, and quacks like a fixed income bond. You're buying it at a discount, so it's like a zero coupon bond.

So there is interest. Yeah. They do it with leasebacks, basically. Like, I'll lease. You buy a house. The bank will buy it for you and lease it for you at fixed payments for the next 20 years, for example. And then you own it. Yeah, and then you own it. Then for Bloomberg, I covered most of the rate space. So it was quite exciting because Iceland was part of it.

And you remember Iceland really blew up during the financial crisis. Oh, it was completely wiped out. Yeah. It was. And again, it's terrible because obviously, you know, terrible people in Iceland had a terrible time. But great. But fantastic at the same time. So interesting. But yes, Dubai, I think, was the first time I really covered kind of distressed death and realized the full panoply of crazy stuff that can happen with fixed income.

And how much it pays to read the bond docs. Lots of investors don't really read the documentation, as we've seen again and again. There was one Islamic bond issued by Dubai. It was backed by land that was actually supposed to be reclaimed from the sea. But it literally was the seabed. And good luck trying to seize that if you're a creditor, right? It's underwater.

Yeah. Both literally and figuratively. So it was a wild time. And the characters in that world, they were just very different. The credit investors, the special situations people from the rates people I'd kind of mostly known. So it was fascinating. So it definitely kind of deepened my love affair with fixed income. And we're going to talk more about the book, but I love all the examples you pull and these great narrative tales throughout history to illustrate.

I found the book really fascinating. You must have studied, I want to say centuries, but maybe it's millennia. Maybe it's a thousand years of government borrowing, of bond issuance, of debt, of credit.

Why do we see the same patterns happen over and over again? There's credit. Sometimes you have people creating frauds. Sometimes there's a mania. Like who would have imagined, wait, railroad bonds? Why is that sexy? And yet we see the same things over and over and over again. Is it just this is our nature? You have to accept it? I think that's exactly it.

I mean there's a famous quote. I never remember which British philosopher said it. But from the crooked timber of mankind, never a straight thing was made. And the technology changes. Society changes. Human nature doesn't change that much. And we can see the patterns again and again. And, you know, that's great for financial journalists like us, but that's bad for society.

But, you know, broadly speaking, that still, despite those big crises, those big cycles, those huge mess ups basically along the way, we're still better off now than we were before. Right. So I think that's part of the magic of maybe even modern capitalism. No longer living in caves. Yeah. Indoor plumbing. Yeah. I like indoor plumbing. I'm a big fan, to say nothing, of Japanese toilets, which is just next level.

But all these things, all these infrastructure things, electricity, light, internet, made possible from the fixed income markets. You note bonds financed infrastructure and innovation, but also conquest and slavery. How do you assess their contribution to progress while simultaneously acknowledging some of the destruction that bond underwriting has funded? No, it was something I struggled with, but to what extent do I sort of– I mean this is unquestionably my love letter to the bond market.

Yeah. The working title was The Greatest Show on Earth, An Affectionate Biography of the Bond Market. A Fabulous Dead is an even better title. It's a great quote from– somebody will get to that in a bit. But as I read through the book and that construction and destruction, the bond market is essentially a tool. Yeah, exactly. You could build something with a hammer.

You could collapse someone's skull. It's the same tool. Exactly. So basically any big project in mankind, whether it's wars of conquest, wars of liberation, slavery, hospitals, they have all at their heart actually had debt. And it's almost overwhelmingly the bond at their center. You know, there have been plantation -backed bonds. The first investment fund ever in history is a Dutch fund.

It was literally a steel chest or an iron chest, sorry, locked with three locks with little bond certificates inside that. Some of those bonds were slavery bonds basically, plantation bonds. There are also highway bonds in Sweden and Denmark. There are also Dutch perpetual bonds as well. So it goes both ways. Like America financed its war of revolution by the sale of bonds to foreign investors.

You know, World War II, World War I. One of the large reasons why the Allies won in the end was because they were able to finance themselves more efficiently. So, yes. To say nothing of Napoleon, to say nothing of the U .S. Civil War. Again, we'll get into the details. You know, I have a friend I speak to all the time. And once a week they always ask me, who are you going to sit down? Who are you talking with this week? And I said, oh, Robin Wigglesworth.

Who's he? FT reporter. He's like, oh, I know the name. What's the book about? And I mentioned, I go, well, his first book was about index investing called Trillions. This book is called The Fabulous Dead About Bonds. And the immediate answer was, why is he so attracted to the most boring aspects of finance? But when you read the book, it is not.

It's everything from catastrophe to war to innovation. Bonds sound boring, but they really aren't. Yeah, I mean, bonds are kind of designed to be boring. But, yeah, this is my attempt to reclaim that kind of that or revive its reputation for being where the real stuff happens. I mean, I always joke, and this is slightly me, because I do love the stock market as well.

And some of my best friends are equity investors. But it's like trading Pokemon cards. Like, it doesn't really matter. The overwhelming amount of activity in the stock market is secondary market staff. It's one person buying or selling a stock from another person. It doesn't matter to the company whatsoever. We talk a lot about the theory, about the signal it sends, but really it isn't that important.

The bond market, every single day, there is a bond being sold. Financing, sewage plants, walls, companies. Not just traded, but the underwriting. Yes, exactly. That's where if you want to see where capital actually flows, like capitalism, at its most primal, that's the bond market. And to put some numbers on this, the bond market is a multiple of the size of the equity market.

3x, 4x, something like that? Well, it depends on how you cut and how you define the equity market. In the US, certainly. Globally, the bond market actually is bigger than the entire banking system as well. That's one of the reasons why I wrote it, because, look, I love the stories. I think it's fascinating. I love history. And the bond market is blessed with some incredible characters.

But the reason why I think something warrants being a book isn't just that it's navel -gazing, backward -looking history. It's because it's relevant to the present day. And the bond market is now the engine of the global economy, more than the stock market, more than the banking system. It's the bond market that, to paraphrase the Wu -Tang Clan, bonds rule everything around us.

That's exactly right. But I have to ask one question. Why eight and a half centuries of bond history? Well, I studied even more. As you said, I studied over a millennia. I studied a few millennia, in fact. And I wasn't quite sure where I was going to start. The Mesopotamians, 4 ,000 years ago, traded clay tablets of loans, where they had a little thing called the tankerum clause, almost, where basically you'd rather than give a loan to Barry, just write it to a merchant.

So that person could sell the loan to somebody else. That's what we think they did. So that's a few thousand years ago. I want to say about 1 ,500 years ago, you could buy Japanese rice futures. And there was an underwriting on that. Also, that was transferable. It's really fascinating how far back this goes. Yeah, finance and credit is actually a far longer, more vibrant history, most people realize.

But the reason why I decided to start in Venice in 1171 is because, really, when I see, I want to see intellectual genealogy, as it were. Like, what really was the stuff that led to B, to C, the D? And, you know, the Mesopotamian invention, they invented credit, they invented, they discovered, they used credit. They had a very vibrant system of credit, in fact.

But really, when you see what the acorn was that everything grew from, it was this humble, accidental war loan in Italy in 1171. Because that's what you can see then copied in the other Italian city -states. Then France and Spain, the Netherlands really jacked it up. They really cranked it up by six notches. And the British copied that. Then the Americans, I'll get the Hamilton, copied that again.

And that's basically where it all came from. Really fascinating. Coming up, we continue our conversation with Robin Wigglesworth discussing his new book, A Fabulous Death, the epic story of how bonds built the modern world. I'm Barry Riffoltz. You're listening to Masters in Business on Bloomberg Radio. At Brookfield, we invest in the thing behind the thing behind the next big thing.

Our focus across infrastructure, energy, real estate, private equity, and credit is helping to build the backbone of the global economy. We combine deep operational expertise with disciplined long -term investing, uncovering value, and partnering alongside clients to shape tomorrow's economy today. Learn how you can own what's next at brookfield .com slash own.

This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. This is the Bloomberg Tech Minute brought to you by ChachiPT. I'm Carol Masser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush.

She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs. And hands -on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence.

A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices. But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, must be willing to work extended hours and weekends as needed.

One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChachiPT. Get started at ChachiPT .com.

Running a small business takes everything you've got. But with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day -to -day needs, they provide products and guidance built to help you thrive. Right now, earn $500 when you open a new Chase Business Complete Checking Account for new business checking customers with qualifying activities.

Offer expires January 21st, 2027. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence. Learn more at Chase .com slash podcast biz offer. Chase, make more of what's yours. Fees may apply to Chase Business Complete Checking Accounts. The $500 offer is available for new business checking accounts with qualifying activities through 1 -21 -2027.

Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, NA. Member FDIC. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working. Comcast Business keeps you totally in step with secure AI -backed networking built to power the way modern business gets things done today in more than 100 countries around the world.

That's some serious muscle. And get this. Comcast Business powers over 90% of the Fortune 500 and millions of small businesses. Behind it all, network engineers, cybersecurity specialists, support teams, thousands of experts answering your call at 2 a .m. Like it's 2 p .m. Always on, always ready. That's a lot of coffee. One partner powering how business gets done for companies of every size all around the globe.

When you add it all up, no one does business like Comcast Business. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Robin Wigglesworth, whose name is fun to say. You should try it at home. He is not only the editor of FT Alpha, AlphaVille. He is the author of a fabulous new book, A Fabulous Debt, the epic story of how bonds built the modern world.

His first book was Trillions, all about index fund investing. That was published in 2021. So you mentioned earlier you start in Venice in 1172. Tell us a little bit about what was going on in Venice with the spice trade, what was happening with sort of city -states and local wars, and how the idea of doing an underwriting really came about.

Have you been to Venice, by the way, Barry? I've been all over Italy I have never been to Venice. Well I definitely recommend it. I want to go back there because it has extra emotional resonance for me now. I went there as a feckless teenager many years ago and it's beautiful Gotta see it before it sinks beneath the sea. Exactly. Venice is just an incredible place the history of the place is incredible.

So it was actually founded not by some some royal offshoot of the family as it were but it was actually refugees fleeing the Vandals. The Vandals were actually just German tribes barbarians that would periodically raid into northern Italy and they fled to Venice because it was a swampy hellhole that nobody else wanted to live in. It had no natural resources no farmland no metals nothing.

All it had was essentially being anonymous. Because of that they had to learn off their wits so they became kind of Europe's preeminent traders their most mercantile city -state kind of like Singapore on steroids maybe and they were technically ruled by the Byzantine Empire in Constantinople in today's Istanbul because Charlemagne never managed to conquer Venice and really didn't really care that much about it but they were Catholics they were part of Italy as well so it was kind of they were caught between East and West and they were there the main some intermediaries there but the the Byzantines really thought they were an uppity bunch of nouveau riche arses basically

they didn't like them at all and they argued and argued until basically Constantinople quietly said we're gonna arrest every single Venetian they just were fed up we're gonna arrest every single Venetian in the Byzantine Empire. So when this came out the Venetians were outraged they decided to send a fleet to teach their leisure lesson and but they needed money lots of lots and lots of money because wars were expensive they normally had borrowed money from some of the bankers that started crop up in Italy they're called bankers because they literally had like wooden tables in the square called the Rialto which were called Banky but they needed too much money so they

basically force everybody in the city to pay a proportional war tax according to their wealth and to soften the blow they said well it's not gonna everybody has to pay it but we're going to make it a loan and we'll pay you five percent the year until we've taught Constantinople a lesson and freed our citizens and exacted reparations and we'll also make the receipts tradable and that bit was revolutionary so we don't know how much they raised we do know they actually lost that war and because of that and that the doge who engineered all this he was murdered by his own citizens who were so outraged

he the bond was kind of made permanent because they couldn't pay it back but they could pay the five percent and actually quite quickly the Venetians discovered that actually it was pretty cool being able to buy an income stream you could actually then make money from your savings and in fact you can use that receipt as collateral and for merchants like the Venetians this was revolutionary suddenly this was a whole new use case for it giant spice trading a lot of a lot of international trade gold iron to the rest of your everything they were like Marco Polo was from Venice there's no re no um that's no coincidence Shakespeare name checks the Rialto square and the

merchants of Venice many centuries later it became famous it was it was kind of I mean the New York and Chicago and Amsterdam and Singapore of its era it was the beating heart of the Mediterranean and uh and and this kind of unfortunate accident kind of a relic of one of their lowest points as a city -state actually became kind of a testament to their commercial ingenuity their financial ingenuity that it actually became a super valuable thing people wanted to buy this stuff and they'd pay it back gradually and then occasionally if they fought another war which always happened in Italy around that and they were expensive they'd sell more of these pristiti as it was called

and yeah and other people copied it and it spread from there so let's talk about the next group that copied it uh there's a stretch in the book about the Netherlands and the Dutch water boards uh and you know most of uh Holland and and that region is below sea level so building dikes and managing uh the infrastructure of keeping the sea at bay is a giant part of what the government does explain how flood controls become a milestone in fixed income history well you don't know exactly when the Dutch started to use bonds so they spread from Italy northwards around Europe where they're called like Reims in France and Renton in Germany and the Netherlands but the Dutch really

discovered the potential of mobilizing the savings of its own industrious people they were kind of the successors to Venice as the most commercially minded people in Europe at the time the Dutch the Dutch yeah and and they kind of invented modern capitalism I'd say uh they use them because you know building dikes these incredibly elaborate intricate waterworks and dikes and and and flood uh guards is super expensive it's capex expensive essentially so they sold bonds to do this every single local waterworks and hundreds of them spread across the entire country that high region uh the low countries the Netherlands um and bonds were the way they did it and and that kind of

started what was probably the first true proper bond market by lots of different issues that would sell bonds fixed rate often at a fixed maturity but mostly perpetual and at market set interest rates and there are still some perpetual bonds from the 1600s that are still generating yield yes so there's eight in particular issue by one waterworks they're still outstanding one of them is owned by the New York Stock Exchange it's celebrated its 400th birth birthday party uh in uh early December 2024 I actually was invited invited to that birthday party and my wife thought I was mad uh but luckily she's used my madness so she let me go and I had a had a blast it was uh I got

to meet the world's oldest living bond that still pays interest 13 euros a year to the New York Stock Exchange that's very funny so that's the 1600s let's fast forward a century and change Napoleon is running roughshod all over Europe he hasn't quite yet stumbled into Russia which doesn't work out but he dismisses Britain I love the quote a nation of shopkeepers but at the same time London's bond market and the ability to collect all of the savings of those shopkeepers and combine it into the largest pool of capital the world has ever seen to quote you um arguably is what defeated Napoleon explain how shopkeepers brought down the greatest general maybe in European history

yeah well France was the superpower of the era huge country bigger country than England they controlled everything they had Napoleon uh and Britain was able to fight for so long because it could finance itself almost indefinitely I mean not indefinitely it's felt like that to the French and send material and subsidize its allies like the Prussians for years and years and years because they could use the bond market they had created they basically seen what the Dutch had done the Dutch had kind of surpassed them and that was very embarrassing for the Brits so they basically they imported a Dutch prince imported things like the Bank of England or a central bank they

imported lots of some the way they sold the bonds they consolidated all the state debts into something called the consolidated annuities market consoles consoles and that really is the bedrock that's the world's first true free risk risk -free rate it was the earned treasury market as it were that's what people bought around the world the Dutch bought it the Germans bought it the French bought it even.

And that meant that England could finance itself almost forever in this war to the immense frustration of the French who, you know, Napoleon was actually quite an able administrator, but France's credit worthiness was pretty feeble. So they paid two, three times the interest rates that England did. And so it was much more expensive. Really, you know, the modern world, we're seeing this war of attrition between thousand dollar drones versus million dollar missiles.

It's very parallel to Napoleon. So so there were a number of people, some of whom opposed the war, some of whom were just more of whom were more kind of puritanical about the debt. The title of the book comes from Thomas Babington Macaulay's dismissal of predictions of disaster due to Britain's enormous accumulation of debt. Fabulous debt is how he described it.

Explain. Well, so I was looking into the history and how the British were talking and thinking about the debt, especially that they had accumulated after the Napoleonic Wars. It is still the biggest debt burden, debt to GDP burden we've ever seen in history pretty much. But obviously, England, as we know, managed to grow out of it. It was completely fine.

But there were periodic freak outs over the expense of wars. And the discussions were incredibly strikingly modern, as in what I call the repeated protestations of the debt skulls. and not to say that these aren't things that we are fair to worry about but Babington Macaulay, not the Macaulay of Macaulay duration unfortunately which I was disappointed to learn but Babington Macaulay, he wrote this phenomenal polemical book on the history of Britain around this time and he pointed out that every time people said after this war, after this war, after this war the British debts kept growing and growing and growing and actually no, rather than leading to ruin it was not just

not impeding Britain's wealth and growth it was actually helping capitalise it the fact that Britain had a vibrant bond market because these consoles could be used as security for loans you could buy an income stream it was in fact a fabulous debt it was a blessing and I thought that was just, when I stumbled over it I thought that, that's it, that's my title, love it The shocking parallel, and I don't recall if this is Macaulay or not they erroneously imagined there was an exact analogy between the case of an individual who was in debt to another individual and the case of a society which is in debt to a part of itself that analogy leads to endless mistakes first, was

that Macaulay? and second, isn't that the argument the deficit scolds have been having both here and abroad for, I don't know, the past 50 years? yeah, no, it's over 200 years ago Macaulay, Baring and Macaulay pointed exactly that issue that you cannot consider government debts in the same way you do with the household it is a seductive but wrong assumption, a metaphor and it will lead you astray essentially it's really quite amazing let's stay with some history and fast forward a little more you have Alexander Hamilton who decides to take the mess that is just a run of of Revolutionary War debt and all sorts of different state debts and create a sort of more modern basis

for financing a government and I'm curious what did he do that was so smart and how much does the modern treasury owe to Hamilton? I mean, an immense amount I mean, I had to have a dot ham in the book but even I was surprised at how

corusatingly brilliant the guy was I mean, how far ahead of his time and reading between the lines of what he says and some of his speeches and his writings and his thinkings and his first credit report that he presents to Congress about what to do with all these defaulted state bonds after the revolution I think is, I mean, incredible I mean, it is almost like a founded document for the United States of America so he realizes when he was a soldier and before that he'd studied the British financial system he'd studied the consul market he realized that consuls actually were not a public curse as people like James Madison would say they were a national blessing that this

was actually a key source of Britain's financial strength and he realized after the war because they can become like money like essentially bonds especially when they were physical objects you could use them as collateral also use them as money and in a country or a very newborn country that had a desperate lack of speech of coins, gold, silver and things like that that could be incredibly powerful so he proposed to take all the state debts that were defaulted on all the external debts but everything else domestic bondholders they'd be restructured but they'd get some paper they'd get some money back the external debt would be turned into these new treasuries they would

the federal government would assume responsibility for all those bankrupt states and their debts and by doing so the argument was that this was about restoring America's creditworthiness her credit making her stand upright among the other nations of the world but really I think it's because he realized a new treasury bond market would be incredibly powerful and catalytic for the US economy that was still struggling after the revolution after it just suddenly being cut off from its single biggest trading partner and also and this is something the Venetians discovered almost by accident if you make your citizens creditors as well they have a vested interest in your good

governance so suddenly by making all these American soldiers and Wall Street speculators and farmers creditors to this new federal government they had a vested interest in it sticking together and it holding that actually was very powerful glue at an incredibly wildly chaotic time for the republic and soon after and Napoleon plays comes back into the story he needs to raise some capital to continue funding his world and was it Madison sends somebody over to negotiate or was it Madison who went over to negotiate with the French to essentially buy everything west of the Mississippi that the French owned from Louisiana west well Louisiana was important I mean it was big of

course and it's at the mouth of Mississippi from which all commerce in the middle of the country traveled or at least most of it and having the French control that was strategically problematic yes even Jefferson who was fairly sort of non -interventionist talked about you know this would be like somebody holding the juggler of the American economy the Mississippi was so important they couldn't let another big potentially hostile country own it and the French had basically taken it from Spain and it was what do they do about it well it turns out that Napoleon was desperately short of money and he didn't really want to spend expand in the western hemisphere so that a deal

could be made it was Monroe James Monroe also another future president that was sent to negotiate and it was because of Alexander Hamilton's restoration of American credit that a British investment bank bearings together with its allied shop in Amsterdam called Hope and Co was able to engineer what I think is probably one of the most remarkable financial deals in the history of the planet $15 million

that's the original sum which was over his I think what was the budget $9 or $10 million originally and he just said yes I'll hit it I don't care this is a good deal and he was right to do so and I mean can you imagine if you I mean investment bank is now always worried about hung deals and deals going bad there's no limited liability in this day so bearings is taking the entire risk because basically the US didn't have the money so they had to sell bonds and basically sell those bonds to France and bearings would have to underwrite and manage the whole thing and they were getting paid at the time generational wealth to do so in fact if you look at it if you look at the

fee they got paid versus what they paid for Louisiana it's like getting paid all of North Dakota but there's no limited liability and the letters between the bearings partners keep talking about like how they tremble at the size of this American business this is not make or break this is literally dying in debtor's prison or the deal going through amazing and then let's fast forward a couple a quick century

the argument in the book is that the North won over the South in the US Civil War because because the North had all the banks and bankers and Wall Street and they were able to finance Lincoln and the North's ongoing battle to reign in the South how accurate is that? Well I'm no Civil War historian so I'm not an expert on that but I do know that many people

Bloomberg News Sam and Chase, the Treasury Secretary at the time, was not an enormously competent Treasury Secretary, probably. So he essentially privatized the role of selling all these war bonds to a private banker called Jay Cook. And he did a phenomenal role. And actually, it was the first time you really see bonds mass marketed to people with propaganda and flyers and advertising and newspaper articles.

Because they had to teach people what even a bond was. He also touched upon that a bond is not like a government bond is not like a household finance. You need to think about this differently. Britain is strong because of its large console market. We can do the same. And he sold a prodigious amount of bonds to help finance the North's victory.

Now, Cook, if I'm remembering correctly, big on the railroad bonds as well. Well, so I love this line. The bond market was the track on which the trains truly ran. That's a huge statement. How giant was the appetite for railroad bonds? And how huge was laying intercontinental rail? How big a deal is this? Yeah. I mean, we think of rail as just such a sort of ordinary means of transport now, right? It's so old world.

But it was unimaginably revolutionary at the time. And people were genuinely concerned that the human mind couldn't handle those kind of speeds. That people would go mad. The newspaper was right. Horror stories about people going mad when trains that drove faster than 20, 30 miles an hour. At one point, some people genuinely thought that maybe over 40, 50 bodies might get vaporized.

We weren't built for those kind of unimaginable speeds. That's amazing. And in Europe, I mean, railways, there were railway manias everywhere. Lots of them. There were almost like a series of mini booms and busts around the world. But in Europe, you know, rails connected one town to the other. In the U .S., rail built towns. They built states, essentially.

It really created America as we know it. The U .S. embraced railways with more zeal, with more mad abandon than anywhere else. And Jay Cook was at the center of it first before the Civil War. That was where he made his first fortune as a banker. And then afterwards, well, he kind of stepped away. It was clearly a mania. He wasn't sure about it.

But the transcontinental railways were so exciting. They were like the Apollo programs of the era. And especially symbolically important after the Civil War, binding the country together, binding Western Eastern Coast together. So he got sucked into this belatedly. And it ended very, very badly. Well, he was briefly, or maybe not so briefly, the wealthiest person in the country before it all went belly up.

You know, we call the 1930s the Great Depression. But before that, the panic of 1873, driven primarily by railroad bonds, was originally known as the Great Depression. How did all of this blow up? What is– it sounds vaguely familiar. A debt -fueled infrastructure build out bigger than anything. Why does that sound so familiar? Yeah. It does feel a little bit uncannily familiar.

No, I mean, it is complex. And it actually kind of almost seems a little bit more modern. Where the real trigger was a financial crisis in Europe, in Germany and Austria of all things. It was a big mass of stock market mania in Germany and Austria. A tech bubble, basically. It was called the founder's bubble. And it became the founder's crash.

The Grunderkrack in German. But unfortunately, lots of European investors who had lost money on German and Austrian stocks also had lots of money invested in U .S. railways. So they pulled their money out. Classic, like, you know, you lose money in one area, then you have to pull it back somewhere else. And that hammered railway bonds in the U .S.

Just as people were getting worried because of all sorts of dodgy scandals. There were so much bribery going on at the time. And it implicated even the vice president. Also, you know, corruption high up in administrations also. Couldn't happen to that. No, no, of course not. And so then Jay Cook was stuck with all these bonds. He'd promised to sell for the Northern Pacific Railway on his balance sheet.

There's no Federal Reserve. In other words, when you say on his balance sheet, he's going to syndicate this. Yes. But essentially, he's assuming all the responsibility and the liability. Exactly. There is no limited liability. So the bank is basically by the bonds and at a discount from the seller and then sell them ideally, hopefully at a higher price.

But if you can't sell them at all, you're on there. You're on the hook. And he'd personally advanced money to the Northern Pacific. Repeatedly. He took control, yes, many times. He just kept doubling down. And the Northern Pacific was plagued by all sorts of problems because it was crossing straight through Sioux lands, for example. Meaning hostile Indian territory.

Yeah. Basically, it was a very troubled project from the get -go. And somehow, this brilliant, brilliant man, he was undoubtedly brilliant, was blinded somehow. And suddenly, with no Federal Reserve, no other way of supplying liquidity, they abruptly have to close their doors on 1873. In 1873. And this is unimaginably shocking. I mean, this is like suddenly if we wake up tomorrow and JP Morgan says they're bankrupt.

This is not just the biggest bank in America at the time. It's Jay Cook, the dominant financier of the era. He was John Pierpoint Morgan before John Pierpoint Morgan was anybody. So it's such a psychological shock that this shock that first maybe starts in Europe and ricochets over to the US. Then ricochets back to Europe and it starts feeding on itself.

It just becomes an epic financial crisis. One of the biggest we've seen in the world. And it leads to this very long Nazi recession. Which became known as the Great Depression for, until 50 years later, a bigger Great Depression. And we call it now the Long Depression. Because it's still the longest economic contraction in US history. So before we move into the 20th century, you've mentioned Barings and you've mentioned Hope.

We haven't talked about Rothschild, which was by far the biggest, most powerful bank and banker, not just in Europe, but in the whole world. Tell us a little bit about Rothschild and how he managed to become such a dominant figure in the world of bonds and banking. Well, so the Rothschild family started as a merchant family, like many things.

But it was Nathan Meyer Rothschild that morphed that into a bank. And that was not uncommon for the era. But he was also, I mean, unquestionably a coruscatingly smart man. And he kind of single -handedly created what I call the first international, truly international bond market. Something that looks, walks and talks and quacks a bit like what we see today.

So he was shut out from some of the Napoleonic financing. For example, Barings was very close to the US government. So he didn't get into those mandates. Shut out also because he was Jewish and they weren't happy. Yeah, and the Barings was a proper English family. And they, like, I mean, it's just, it's amazing what people with chips on their shoulders can do, right? Like, I'm going to prove them wrong.

And he basically did. It's motivational. Yeah. And he had, obviously, the whole family had, were wealthy little outposts in Paris, in Frankfurt, in Vienna. So strategically positioned, they're quite capital rich. They made a lot of money in the Napoleonic Wars, mostly smuggling gold on behalf of the British. But they're good British contacts then, good British contacts among British investors.

So when Prussia, Spain, even France, Italy, all these new states or older states started wanting to issue bonds to rebuild after the Napoleonic Wars, he became the go -to person to do so. And that really stated he made them explicitly bearer bonds. So they'd be stateless and became portable wealth, essentially. And you can go to any of the Rothschild houses and collect the interest.

In cities dotting all of Europe, you show up with a bearer bond and you can present it and get paid in the local currency. And that was hugely powerful. Investors loved it. He also got a lot of these countries to open up a little bit of their books because he said, well, British investors, who were the biggest in the world then, they want to see a bit of transparency.

That's what they've gotten used to. So he told them there's lots of these remarkable letters that Neil Ferguson, the historians, found going between the Prussian finance minister, getting almost told off by a Jewish banker in London saying, dude, you have to open up your books. You have to be accountable. You have to do this and that. Otherwise, like, I've done what I can.

And Gingely is able to coax them into doing a little bit of that because generally speaking, investors like countries that are credible, that are trustworthy and transparent and well governed. And the bond market has rewarded those with lower borrowing costs. And then it becomes a positive feedback loop. Who knew bond vigilantes existed a couple hundred years ago.

Rothschild eventually becomes like a peer in British society. He's given some official rank because he's just been so helpful to the British government. And the Rothschild fortune that still exists in some form today, doesn't it? Yes. So he had a lot of sons and cousins of the family. It was kind of royal Jewish, royal family of Europe for a long time.

The immediate generation was actually also incredibly talented, if not maybe as talented as Nathan, my Rothschild. But also the family starts spreading. But still to this day, there are prominent investment banks that are smaller these days called the Rothschilds. And it's a very wealthy family. They own Chateau Lafitte, for example, I think they still own.

So they're still a very prominent family today, albeit not as titanically, dynastically wealthy as they were back in the 1800s. We even still, two centuries later, still, you know, used to be three generations from shirtsleeves to search leaves. Yes. They've beaten that. So now let's move forward to the 1980s. And I have to talk about Louis Ranieri, who really pioneered securitization, converting individual residential mortgages into collateralized mortgage -backed obligations, CMOs.

This traces back to an earlier form from Fannie Mae, that part of the post -Depression era financing. I'm fascinated by this area because I don't think many Americans understand how unusual and rare a 30 -year fixed mortgage is. And I also think people don't realize how productive and powerful that tool is. Yeah. No, I think he– because of what happened in 2008, securitization and mortgage -backed securities became a dirty word.

But it is genuinely one of the most fascinating and important financial innovations of the past half century. And Louis Ranieri, you've seen the big short, right? Of course. Yeah. Well, he's introduced as this big loud mouth, and he changed your life more than the iPod. And that's true. He really did. And, you know, my view of financial history, having studied a lot of this now over the years, is that, you know, we take stuff too far.

But the bad inventions, they die, and they don't always come back. The good ones are reforged, reinvented, rebuilt on, and they stick. And securitization is still a massively powerful force thanks to, you know, some of the work that Larry Fink at First Boston as well did, his team there, and Louis Ranieri at Solomon Brothers. And the 30 -year mortgage that we have today, or we– you guys here have today, it's kind of a miracle of the modern world.

Yeah. No, very much so. But I want to stay with the idea of some of these things blowing up. When you look at most of the giant financial masses of the past 50 or 800 years, it's not usually stocks. I mean, the dot -com implosion was kind of mild. Yeah. The NASDAQ fell over 81%. But most of the big blowups, the GFC, long -term capital management, portfolio insurance in 87, maybe not a true bond.

But it always seems that bond underwritings that go bad do much more damage than a stock that blows up. Yeah. No, I mean, I think there are many reasons. I'm glad you raised the dot -com because, I mean, that's a great example. I mean, the stock market fell, what, 50% from peak to trough pretty much? That's about right. Yeah. I think the Dow only fell about 36%, 37%.

Yeah, because it was a bit more industrial. Right. It hadn't as much tech stuff. Well, I mean, economically, it was a nothing burger. That was like one of the shortest, shallows recessions in U .S. history. And I think that shows that, you know, obviously, it wasn't fun for people that lost money. And it was a big event. Even I remember that pretty well.

But economically, it doesn't matter as much as when the bond market even slows down. It's quite painful. And when it breaks bad, it's horrifically bad. Because it's kind of the bond market represents money. And the bond market breaking, it's like money dying. You know, there's this famous quote from Mark Twain. He said, it's not what you know for sure.

No, it's not what you don't know that's the problem. It's what you know for sure that just ain't so. Right. It's when you take something that you think is safe and solid and good and it blows up in your face. That's when you get shocked. That's when the big, nasty economic outcomes happen. See, if you invest money in stocks or even like junk bonds, you kind of know it can go bad.

It's right there in the title. Exactly. If you're going to call it junk, you can't be surprised when it goes bad. But at the same time, you think of treasuries. You think of conservative, A -rated, even corporate bonds, investment -grade bonds. They're called investment -grade. You don't expect them to go belly up. So there's so many things I want to talk about with this.

You trace the ancestry, since we're talking about junk and high investment -grade, you trace the ancestry of credit ratings to Louis Tappan, an abolitionist who built a credit reporting business more than a century ago. How did gathering information about borrowers become not only an industry but an industry with huge authority? That was one of the more delightful chapters to write, actually, and it surprised me because I didn't think it was going to be that interesting.

There were lots of abolitionists, actually, in various stages of this story I was pleased to see. So Louis Tappan, him and his brother, ran a classic sort of merchanting business. They were ardent, hardcore abolitionists. They were for not just abolishing slavery. They were for, for example, full equal treatment, which even for some abolitionists would have been a step too far at the time.

So the famous Amistad case, they were the ones that bankrolled that on the abolitionist side. So if you see the film, he's played by Stalin Skarsgård, Louis Tappan. But at one point, the business, because they're boycotted by the South, they're hated broadly in the South, they're boycotted, they have a hard time in one of the periodic downturns, and they come through, but they almost go bankrupt.

They still eventually manage to pay back every creditor, but they learn to distaste debt and also be wary of clients going bankrupt. So they buy, basically Lewis Tappan buys from a bankrupt law firm, a big registry, or basically like judgments of how creditworthy various businesses in America or in New York primarily on the East Coast are.

And they build this into something called the Mercantile Agency, which some people almost historically call like a private spy ring. But really what it was, it was like agents who worked for mostly part time who would report on like which people were seen to be trustworthy, which were fine, upstanding citizens and worthy of credit. And for anybody merchants, because a lot of this actually all happens, commerce has always happened a lot on credit and trust and merchant advances and things like that.

So who do you trust is was a hugely valuable thing. And among those people were a young, all these reporters that worked for the Mercantile Agency were a young Abram Lincoln, Ulysses S. Grant, a few other future presidents. And I think Harding as well worked for one of them. And, you know, that morphs into like this credit reporting side, morphs eventually into statistical analysis and into ratings.

Ratings eventually the actual the famous letters that we know that John Moody invented to build on. First, there was the credit reporting agencies. Then you had Standard& Poor's. That was Henry, Vaughn& Poor. They actually kind of cajoled bond issuers, primarily railways, to give him data. He said, look, if you guys are going to sell bonds to the public, you should give us information.

So you really push that quite hard, that transparency. And John Moody took that information and did it with a bit of marketing flair, turned them into grades that have over time kind of become what I call the language of credit. And rating agencies get a lot of, you know, bad press. And Lord knows they can make mistakes, but so can everybody else.

And in fact, there's this other great saying I love that all models are wrong, but some are useful. George Box. Yeah. And the rating agency, the ratings can be wrong, but it's just a very handy shorthand. And if they didn't exist, we'd have to probably invent something like it. There's being wrong and then there's selling you ratings to the highest bidder.

Yes. Which we saw during the financial crisis. And they gave up a lot of their financial authority and credibility. I have to be honest. I don't really think bond investors give a wit anymore about rating agencies because they proved, hey, you're not trustworthy if you're willing to sell yourself to the highest bidder. Why should I care what you have to do? Those incentives haven't changed.

That is unquestionably problematic. I still remain concerned about that. But I would say investors have never really, unless you were the proverbials of idiots in Dusseldorf buying AAA CDOs unquestionably, most investors have traded ratings at the starting point. No self -respecting bond and analysts would treat it as the ending point. And actually, look, I studied a lot of financial crisis post -mortems because there's an entire chapter on how that all played out.

But the ratings were, I was staggered to see pretty good. Oh, really? Yes. So the price action was awful because obviously people didn't trust anything. So the prices, even on AAA tranches of these CDOs just tumbled and lots of the synthetic stuff completely blew up. But most of the stuff, like if you look at the actual RMBS and CMBS markets, they track pretty much.

There were losses in AAAs, which there shouldn't be. That's supposed to be like as good as gold. But broadly speaking, they definitely like weren't massively out of whack when the final losses were counted out. And I was shocked as well. I would love to see that data because I am absolutely on the other side of that trade. For sure. Coming up, we continue our conversation with Robin Wigglesworth, author of A Fabulous Debt, looking at how the history of bonds compare to the current bond market.

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

This is the Bloomberg Tech Minute brought to you by Chachi PT. I'm Carol Masser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk.

To get hired, candidates must demonstrate their achievements from past jobs. And hands -on experience matters more to recruiters than advanced degrees. With the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices. But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company.

And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, must be willing to work extended hours and weekends as needed. One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time.

That's the Bloomberg Tech Minute brought to you by Chachi PT. Get started at ChachiPT .com.

Running a small business takes everything you've got. But with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day -to -day needs, they provide products and guidance built to help you thrive. Right now, earn $500 when you open a new Chase Business Complete Checking Account for new business checking customers with qualifying activities.

Offer expires January 21st, 2027. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence. Learn more at Chase .com slash podcast biz offer. Chase, make more of what's yours. Fees may apply to Chase Business Complete Checking Accounts. The $500 offer is available for new business checking accounts with qualifying activities through 1 -21 -2027.

Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N .A. Member FDIC. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working. Comcast Business keeps you totally in step with secure AI -backed networking built to power the way modern business gets things done today in more than 100 countries around the world.

That's some serious muscle. And get this, Comcast Business powers over 90% of the Fortune 500 and millions of small businesses. Behind it all, network engineers, cybersecurity specialists, support teams, thousands of experts answering your call at 2 a .m. like it's 2 p .m. Always on, always ready. That's a lot of coffee. One partner powering how business gets done for companies of every size all around the globe.

When you add it all up, no one does business like Comcast Business.

Your team is on a deadline, but moving all your enterprise data will take time your business simply doesn't have. IBM Technology lets AI work with your data where it already

I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Robin Wigglesworth. Not only is he editor at FT Alphaville, one of my favorite sites, and the author of Trillions about the history of indexing, his new book, A Fabulous Debt, the epic story of how bonds built the modern world, is out now.

So I'm curious that there are so many fascinating characters throughout the book, and we've mentioned a few. I'm curious, who kind of surprised you? This is almost a thousand years of research. Who surprised you as someone who maybe isn't well remembered, but perhaps should be? Well, it's hard to, I mean, people often ask my favorite, and that's always so difficult.

It's like choosing your favorite child. Well, the other question is simply so many fraudsters. Oh, yeah. And so many, I don't know, is the phrase financial adventurers a real thing? Who in the book do you think would be a great movie character? Yeah. Well, I mean, Gregor McGregor, I mean, he's obviously not a hero and shouldn't be rehabilitated, but just delightful delightful scoundrel who invented an entire country to sell bonds in the 1800s in England.

And he's just, his entire life is just, I'm astonished somebody hasn't made a movie about him already. Because, I mean, he's like, he fought with Simón Bolívar in Venezuela. He was a soldier in the Napoleonic Wars. And then he did this, one of the most outrageous financial scams in history. Though he might have actually, ironically, somehow believed this country, it might be he was essentially trying to do a 19th century version of fake it till you make it.

Right. Like, he wasn't just trying to scam people. He was trying to will a new country into existence. And he was just incompetent, essentially. We don't know exactly. But he was incredible. But Jay Cook was like, he was a guy who hugely admired Native Americans. He named his palatial estate after a chief he'd befriended in his youth in Ohio.

But obviously, his railways just trampled through a lot of Native American lands. He hated graft. He hated graft. He always says that. I think corruption is awful. It's the root of all evil. But he was pretty good at it. Sometimes you want to get something done. Yeah, exactly. Keep it fair. A little something on the side. And he had this incredible palatial mansion, one of the biggest houses in America at the time built.

It was just like fake Roman ruins. His own private cinema radio. It's a whole work. It's incredible. But really, the only thing he really enjoyed was talking about theology with priests. And he'd let the priests run cheap. Poor priests could come and stay with him whenever they wanted in his holiday home. He discussed theology and fishing.

So his biography, he has an entire chapter about fishing. But his wife gets mentioned, I think, two or three times. So he's just an incredibly complex character and was clearly quite– he looks also in pictures. He looks like kind of an evil Santa Claus, like very intense eyes, big, big, bushy white beard. I think he was fascinating. And also maybe because he's now so synonymous with the crash of 1873, his genuinely valuable role that he played in America.

And I think maybe deserves recognition as well, I guess. So I'm legally obligated to ask a question about AI these days. Yes. You were quoted saying you were profoundly relaxed about the possibility of an AI bubble. But then piling on all of this debt changes things. So what changed your mind? Well, I'm profoundly relaxed about bubbles just because I'm not an efficient market zealot.

But I just– I can't spot them, certainly. I don't really believe anybody can. And in fact, I think bubbles are an essential part of how the world works. They are an important part. They're even a valuable part. We want people to occasionally take leave of their senses and chuck money at stuff, to hope and dream rather than just kind of be a boring journalist who always thinks everything's going to go badly.

That is how quite often big leaps of progress happen. But I do think that bubbles, when they burst, they tend to burst in more violent, nasty ways when they are driven primarily by credit. So we talked about the dot -com bubble as a classic example. Although it was primarily in the equity landscape, it didn't really matter economically.

That's how I felt about the AI bubble for a long time. Yes, it's great. I mean, I'll write about things. This is mad or this is good or who cares. Nobody cares. I don't know. I'm a journalist. But I do see the signs that it is becoming increasingly fueled not just by the cash flows of these incredibly successful tech companies, but also by credit and now increasingly off balance sheet liabilities.

And I'm not saying that we should freak out now. But I think if there is, but eventually. And I think it's a classic thing that if we talk in a few years this time about the big AI crash of 2027 or eight or nine, 29, we'll point to this as symptoms. Obviously, we saw this coming. It was this and that and that. You remind me there's a wonderful book that if you haven't read, you should absolutely put in the top of your list, which is it's by Dan Gross.

Pop. Why bubbles are great for the economy. My favorite chapter is all of the fiber that was laid. Yeah. Rollable crossing, Metro Media fiber, thousand dollars a mile. And afterwards, after it comes out of bankruptcy and gets bought for pennies a mile, you know, no one would pay 300 a month for YouTube. But, you know, $10 a month is affordable.

So I'm assuming you believe there's a giant misallocation of capital to AI. And on the other side, it'll work to everybody's benefit. I don't know. I don't know whether it's misallocated. I mean, if it is, if it's going to cure cancer, bring peace to the Middle East and make us an interplanetary species, maybe this isn't misallocation. I don't know.

And I think we all have to be humble given what's going on about how much we do know. I'm just inherently cynical. I'm a journalist. It's kind of a professional requirement. But I tend to be happy about it. I think this is a good thing. And, yes, maybe we'll just have if essentially the future is a small language models. But actually stuff you can run on the phone.

I mean, most people, most ordinary people that use AI today, as far as I can see, it's like a souped up Google search. They want a pair of wine with their dinner or whatever. And you don't need. That's not AI. You don't need. That's not. Well, basically, if chat GPT, if you look at what people are actually using chat GPT and Claude for, we hear about the cutting edge examples.

But really the vast majority of usage, I suspect, is that very low level stuff that you don't need massive data centers to write. Right. The best description I heard is if you're doing it on a transactional basis, it's the same as Google search. But if you're using it on a collaborative basis, you're going to make your own work deeper, broader, and potentially better as long as you don't cut and paste AI -generated text, which continues to be garbage.

But that's a whole other story. It's getting a lot better. I think people– I mean, some of the newer Frontier models, we've kind of had this crystallized view of what it looks like because we've tested chat GPT 2 or 3 or something. It is getting incredibly good. And I've been in AI nuts since– look, I've spent part of my paternity leave here in New York in March 2016 watching AlphaGo beat LisaDoll at Go.

Which was a big deal. It was a huge deal. It was one of those first– it was the last game. First you had chess. Yeah. Then you had Jeopardy. And for reasons inherent in the rules of Go, it's even harder than all of– both of those because those are so predefined. Yeah. It is so difficult. I mean, AlphaGo is now almost trivial for what these models can do.

But for me, it was– I covered quantitative hedge funds. I could see how they were using things that we don't talk that much about but machine learning and neural nets. I mean, neural nets obviously are coming back now and natural language processing. And it was super cool. And I could see how Quants– there was some Quants at a hedge fund that in their holiday downloaded lots of heart scans from the Cleveland Clinic, I think it was, as a Kaggle competition.

And we're able to design something that better and more quickly identified heart disease than human doctors. And that's just– so for me, it was mind -blowing. I'm a huge optimist on all these things. But I think we just– we do– I also know the pattern that we get overly optimistic and we talk about human extinction and curing– we'll see.

All I know is there's a lot of money going into this. It's increasingly debt financed. It's increasingly off -balance sheet financed. And historically, that has not ended well. And rail, like you say, rail is a great example of a CapEx boom that ended badly economically and financially, but still was a huge societal being for America, a cable as well, all the cable we laid.

But that lasts longer than a GPU chip. That's for sure. So that's what I'm a little bit worried about. So what's the bigger issue? Is it the size of the debt that's being issued? Is it the circularity or is it just the overall quality with that off -balance sheet stuff, which ultimately I believe the reason Lehman wasn't rescued is Repo 105.

They were pretty much insolvent and had spent a good couple of years hiding it. Yeah. No, I think that's very right. And also that when you don't see, it's the stuff you don't see, like that old Mark Twain quote, the stuff you don't know about. But I'm not actually worried because, I mean, so AI hyperscalers, I think, have issued around $500 billion worth of debt this year after $200 billion or so last year.

I mean, it's like big numbers. But these are incredibly large, successful big companies. YouTube still prints money. Amazon still prints money. Facebook, WhatsApp still prints money. It's fine. They could even issue lots more. And the rating agencies, God bless them, they are actually looking past these and into these off -balance sheet commitments.

It is getting integrated. And despite all those liabilities, these are still pretty strong companies. There are asterisks around, let's say, an Oracle that is looking like the weaker member of the herd. But even that doesn't look like an imminent disaster. But, you know, we are still in the foothills. And we can see where things are going.

So right now, I struggle to see this ending horrifically badly. But, you know, I've been wrong before. And we might be talking in a year's time. And it's like, oh, my God, that broke pretty bad. So let's talk about U .S. debt and U .S. Treasury.

We discussed earlier how the debt deficit scolds, you know, everything they've been warning about, the U .S. won't be able to finance its debt. It will crowd out private capital. It will cause hyperinflation. All those things, none of them come true. At what point do you begin to get worried about U .S. debt? You said you've gone from 1% worried to 3% worried.

What would take you up to 15%, 20% worried? Yeah, I've been thinking, I mean, this is the big subject. It's the $40 trillion question, I guess. Or really, given the importance of the U .S. economy, it's the biggest question in the world right now.

I'm not that worried. I mean, the numbers are staggering. I came across a stat that the U .S. celebrated its 250th birthday this year. Happy birthday, Barry.

In its first 240 years, the U .S. borrowed around $20 trillion. And it's borrowed another $20 trillion in just the past 10 years. Yeah, it's really a story of unforced errors this past decade. Yeah. I mean... Giant tax cuts, wars of choice, tariffs. You could go down the list. Yeah. All these things were decisions, not, hey, sometimes there's a catastrophe or a pandemic and it requires a response.

Other times, we just make bad decisions. No, completely. I mean, you and I, we remember the late 90s. There were genuine concerns that what would happen if the U .S. paid down us all its debts. Because it was running such big, bad budget surpluses. It stopped issuing 30 -year treasuries for a period. That's right. I mean, you tell kids that these days, it's kind of, that sounds like fantasy land.

But there were genuine concerns about what would the global financial system look like if there were no treasuries. And now that is not the thing we're worried about. Not a concern. I spent the better part of the 2010s begging the Treasury Department to issue 50 or 100 -year debt. And by the way, refinance everything. Rates are at record lows.

And the response was, well, if we lower our interest rate, we'll just spend more money. No, you're going to spend more money anyway. The question is, what's it going to cost to service it? And just generational idiocy. Since you quoted Twain, I'll quote Twain. He is an idiot and a congressman, but I repeat myself. I mean, that is just the greatest observation about politicians.

Yeah. I mean, Mark Twain had a way with words. He should have written some books. He should have. He absolutely should have put some pen to paper. So let's stay with– When do I worry? Yeah. Okay. So people focus on debt to GDP, but that's a nothing indicator. It doesn't say anything about a country's ability to carry debt. Japan is a great example of that.

Well, it should argue that if you have a big, robust GDP, you can afford servicing that debt, right? The doom mongers who you talk about in the book, they only look at the debt. They don't look at the other side of the ledger. Hey, it's called double entry accounting for a reason. Yeah. If people want to think of it in household terms, imagine if you borrowed– bought a house for one time.

Your income wouldn't feel very levered, would it? Right. No, exactly. Yeah. And the rule of thumb is what? Three or four times income? So the U .S. has a way to go before. I'm not saying that's good. And I have to admit, I cannot look at the budget situation now and think that given the health of the U .S. economy, given the health of the global economy, given the lack of any major crises, that 6% budget deficit is a good thing.

That is unambiguously not a good thing, but I think the U .S. has far more capacity to carry debt than most Americans certainly realize. I've looked at this. If you look at debt servicing as a percent of GDP, just how much it pays, how much it costs to pay interest. As a part of the budget in the U .S., it looks pretty big because the U .S.

government is pretty small compared to the size of the economy, compared to most other developed countries. So the U .S. can tax a lot more and it can spend probably a bit less as well. But if you look at its percent of GDP, it's around 3 .5% of GDP. It's really very modest. Yes. It's up from around 2 .5% a few years ago, but it's actually less than most other developed countries.

It's really only when you get around 5% of GDP when you can see some evidence of other countries historically struggling a bit more. So we're two -thirds of the way there. We have to do something to either lower rates or lower our deficit or some combination there, or we will eventually run into trouble. So the CBO, I think the last calculations, I think they indicate it will hit around 5%, all things being equal, in a decade or so, like 10, 12 years.

And even then, frankly, countries are fine. It's just that quite often we've seen countries then reverse course. So the U .K. in 1980 is a great example under Thatcher. Yep. A country that didn't reverse course and the debt started snowballing is Canada in the 90s. Oh, really? Yeah. So the Canadian, for all sorts of fun reasons, but also they struggled to get inflation down after the 80s.

They had lots of– not a huge debt stack, but it became quite onerous to service. So Canadian government debt as a percent of GDP peaked at almost 10% of GDP in 95. But then they had a big austerity program. It was in the 90s. It was kind of fine. It was good to retrench a bit when the global economy is doing fine. I really want to study that episode because I only looked at the numbers on the IMF database because I'm a sad person who spends my evenings looking at IMF data.

But I really want– that's one of the things I'd love to dig into, to finding out like how Canada– how they got that far. Like why did things start snowballing at around 5%? Why they didn't stop then and how they did eventually stop stuff. So we're talking globally. The number in the book about global debt is $340 trillion. What does that mean for the world to be carrying all of this global debt? Well, I mean the book is already out of date.

I think it's $370 trillion now. A trillion here, a trillion there, pretty soon it all adds up, right? Yeah, exactly. Well, look, I am both very insistent that I am not a debt scold, but debt unambiguously does make stuff more fragile. Debt is an asset as well as a liability. I think some countries could and should borrow more. I think this is a healthy thing, but it does make the system fragile.

We have a lot of stuff in the world that encourages people to borrow money, whether it's like an interest rate deduction for interest payments to, you know, it's just favorable tax break. Or like if you're a private equity firm, you're always optimizing the balance sheet to increase your equity returns. I don't think that's healthy. It does mean that it's an economy that is more fragile to shocks.

And I would, in an ideal world, have a system that is a little bit more resilient because there are always shocks coming. And I think we could do a bit more to maybe buttress the sinews of the bond market, especially to help that. So when the tariffs were introduced, when there was a whole bunch of all the nonsense with Canada and Greenland and all this back and forth and to say nothing of the Iran war, some folks talked about the end of the U .S.

hegemony, perhaps the end of the dollar as a reserve currency or the central role of the U .S. Treasury in global finance. What's your take on that? Is that an overreaction? Is there an alternative to the dollar? Is there an alternative to Treasuries? I think it's both an overreaction and there is an alternative. So I think even if there was an alternative, I think people underestimate the immense force of inertia and how slowly things change.

So I am on the scale of the spectrum of how worried people are, I am definitely on the very relaxed side of things. Maybe wrongly, who knows? But I also definitely think there is no alternative. I mean, Europeans own, I think, 15, 16 trillion dollars worth of U .S. assets. There was lots of talk and chatter about them withdrawing, pulling out.

But, you know, where are you going to put that money? I mean, there is no other market. Japan? The euro? Yeah. Beijing? Do you trust Beijing? I mean, despite the administration's foibles, do you trust Beijing more than you trust D .C.? I'm not so sure. So I think people will, like, you know, there's some things we underestimate the rate of change on and some things we massively overestimate.

We think, almost feel innately that, yes, the U .S. should be punished. Us Europeans, even Asians. I've talked to people about this. There's almost this visceral sense there should be consequences. I just don't say it, if I'm being honest. All right. Before I get to my favorite questions, I have one last question. And it's a quote that I love that I recognize in the book, J .K.

Galbraith. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Why is that? I mean, all the information is here. You can find these mistakes. And yet we relive them over and over again. Yeah. Well, some of it's human nature doesn't change. And I think also finance is. And one of the reasons why I love it is its complexity, its nuance, its depth.

And it just means that if you are a world -class bond person, it's very– how much time do you really have to get it to suck into the history or know about the equity world? I mean, you and I see this probably all the time, that people are world -class experts in this one narrow field. If you take them– if they start appining about central bank monetary policy, you realize they're over their skis.

And things are very smart, intelligent people. I mean, world -class people. It's just very hard to know this. It's a very complex system, our global world. And I think history– I wish more people studied it because it has at least helped me understand the world. I'm not saying the world makes perfect sense when you know it's history. But it has helped me enormously.

I'm hoping it can help other people as well. I couldn't agree more. I'm always surprised when I'm speaking to someone and I'll reference what I think of as a well -known historical fact. And they're like, no, that can't be. It's the same mistake we made now. We couldn't have done that in 1987. Yeah, no, it's exactly what they did. No, exactly.

All right. Let me jump to my favorite questions I ask all my guests, kind of revealing about who you are. Starting with, who are your mentors that helped shape your career? Well, the first guy who gave me a job in journalism was a guy called Paul McNamara. And he was very sort of– almost performatively daubed in quite a funny way. He's a very dry person.

But he was one of the first people that made me think, actually, maybe I can do this for a living. Because when you're young, you're always filled with insecurity. And he was not somebody who gave praise lightly. But he said I was not terrible. And that meant a lot coming from him. And I learned a lot from him. Here at Bloomberg, actually, since we're here, there was an editor here when I worked here called Chris Kirkham, who was my team leader when I covered economics and politics in the Nordic region.

I thought he was phenomenal. Very old school. He'll very happily yell at you if you screwed up. But if you'd done– the only time I had a really big mistake, he didn't say anything. He called up, said, look, I'm not going to say anything. I think you know that was not great. Go out. Get drunk. I'll pay for it all. And then come back tomorrow.

And tomorrow's a new day. And I really appreciated that. He'd yell at the small stuff. But the big stuff, he knew he didn't need to beat you up. I beat myself up more than anybody else could. So I thought that was quite inspirational, actually. Really interesting. So you wrote two books, Trillions and A Fabulous Dead. What are some of your favorite books? And what are you reading currently?

Peter Bernstein, Against the Gods, classic. It's just incredible. I mean, somebody once said that Trillions was similar. And I've never blushed such a crimson shade ever in my life. It was incredible. And it's not true. Bernstein is a giant.

I mean, this– I mean, God. I mean, I always feel like I can think of all the people that I'd love to say. But, like, I've recently read Liarqat Ahamud's 1873 book, which was spectacular. Also covers some of the same ground. And he's the author of The Lords of Finance, which won a Pulitzer. I have that book next up in my queue. Oh, enjoy it.

And I've heard from several people it's spectacular. Yeah. No, I love it. And I love it because it's almost like a compliment to my book because he talks about some of the same stuff. But from that Grundekrack perspective in Europe primarily and through the prism of the Rothschild family. And, I mean, Lords of Finance is– I've read some Pulitzer Prize winning books that have been disappointing.

Lords of Finance is spectacular. It's one of the best narrative history books ever. It's incredible. And told from the point of view of four separate central bank chiefs. Yeah. Is such a great frame. Yeah. Anything else that you've read recently that you want to mention? Well, I– belated because I spent so long studying and researching for my own book.

I only read stuff that was relevant to my book until recently. So I've been catching up on some old stuff. My colleague, Dan McCrum, who took down the German company Wirecard, he wrote a book called Money Men, which is– look, I read it because, like, he's a friend and a colleague. And it's an incredible story. But I thought– I knew that story.

I read about it in the FT. The book is incredible. And actually telling– writing a narrative story about something like a German payments company is such a feat of writing. I just thought– I just admired the craft. I thought it was incredible. What about streaming? Are you listening to any podcasts or watching any streaming shows that are worth repeating? I am watching The Beer with my wife.

It's making us very hungry and miss New York a lot. I know it's set in Chicago, but generally having a food scene slightly better than the one in Oslo is something we'd appreciate. So we're about to finish that, so if you've got any good tips, I need something new. I listen to more podcasts now certainly than I used to because we have our own The Story of Money, a financial history podcast.

But yeah, the rest is history. I mean they don't need a shout out from me. It's a juggernaut at this point. What sort of advice would you give to a recent college grad interested in a career in either journalism or finance? Probably for both to learn basic data work. One thing I've noticed, you know, some things change and some things don't.

When I joined the FT, the fact that I knew how to use Excel and was at least I could put two and two together. No, I was an Excel wizard because I knew how to use it. I very quickly got sort of skilled out of that science. So now, you know, not just we have a data and visualization team that is just does astonishing work and are extremely world class programmers in their own right.

But even the average of the grad trainees that don't do this are still just so much better than me. And if I had more time, but you kind of always have to run to say still, I'd relearn so much more. I'd love to learn to code properly. I'd love to really get better at that. But I think at this point, maybe I just need to defer to people younger than and smarter than me.

That's it for sales. I think that's incredibly handy because you don't actually maybe need to have to learn to code, but being facile with data, that I think in almost any job is going to be incredibly handy. A hundred percent. And our final question. What do you know about the world of bonds, credit, debt today might have been useful 30 or so years ago when you were first getting started? Yolo my student loan into Apple stock, maybe.

I almost did. I mean, not the entire student loan, but I remember buying the first iPod in Norway. Probably I was told it was, but I don't know if it's true. And I was just blown away by the God. This is incredible. It's the only time I thought about buying a stock and I didn't and I've never dared to go. I would have sold it off. So wait, you don't have any equity investments.

I do on behalf of my children. Okay. But I am extremely leveraged long Norwegian property and a little bit London property as well. When you say leveraged long, that just means you have a mortgage. Yes. Essentially. Yes. Thank you, Robin, for being so generous with your time. We have been speaking with Robin Wigglesworth, editor at the FT Alpha Bill, author of Trillions and his latest book, A Fabulous Debt, the epic story of how bonds built the modern world is out now.

Now, I would be remiss if I didn't thank the crack team that helps put together all of these podcasts over the past 12 years. This is six 64 or so. Samantha Denziger is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I'm Barry Rittholz. You've been listening to Masters in Business on Bloomberg Radio.

With ChatGPT, you can do more than get answers. You can get things done. Whether you're leading a big project, planning an elaborate trip or trying to balance work and life, ChatGPT can help. Give it a goal, plus things like files, notes or project plans, develop a trip itinerary with daily updates or create a prioritized schedule. So you can spend less energy sorting out the details and more on bringing your biggest ideas to life.

Get started at ChatGPT .com. This is Robert Smith from Business History. If you're listening to this, there's a good chance you're a small business owner. And like every small business owner, you started with a dream to do what you love and watch it grow. What you probably didn't dream about? Keeping up with cyber threats. That's where MasterCard can help with access to tools that help identify cyber threats to better protect your business.

Building your dream business? Priceless. For cybersecurity in a changing world, there's MasterCard.

Learn more at MasterCard .com slash small business. What does Clinique Moisture Surge feel like? Like a tall glass of water. Because Clinique Moisture Surge absorbs instantly and keeps hydrating for 100 hours. That's thanks to the help of hyaluronic acid and aloe bioferment, Clinique's own form of the aloe plant. It's concentrated over 500 times and then fermented through a 10 -step process.

All that for instant absorption, 100 hours of hydration, and plump glowing skin. It feels like everything a moisturizer should be. It just feels like moisture surge. Okay, mi gente, it's holiday season and yes, we want to look cute, but we also want to be comfy. Right? Like, why get all dressed up when you can slay the season in cozy PJs? You can be cute, take family pics, eat all the holiday food, and still be ready for a little siesta.

I mean, priorities. And Old Navy has matching family PJs that make Christmas morning extra cute. So, en estas fiestas, keep it cozy, keep it cute, and let the slumber party begin. Old Navy. Santa and Slee all the way. Shop in store or online at oldnavy .com.