The world is in the throes of a Bull Market in everything. – The Economist
C. P. Snow titled his last book, written shortly before he died, A Coat of Varnish. What he meant, as he put it, was that “Civilization is hideously fragile.” Civilization, that is to say, is like a thin coat of varnish spread on top of human savagery. The varnish looks terrific, but scratch it and what you find underneath is much uglier.
Since human beings settled into communities – that is, since most of us stopped being hunter-gatherers – a primary goal of mankind has been to improve how we are governed. We wanted governments that were more representative, more fair, more efficient, governments that could improve our economic circumstances and defend themselves (and us) from outside influence or destruction. We wanted governments that would constrain the worst of our instincts while giving free reign to what is good and creative in us.
Between the wars most of the European governments – Britain and, to a lesser extent, France, being exceptions – lived lives that were, to paraphrase Hobbes, weak, unstable, and short.
Civilization is like a very fine suit of clothes that is just slightly too small for us.
If we care about the health of free market economies, then we need to care about how efficiently capital is allocated in those economies. And if we care about efficient capital allocation, then we need to care about the health and efficiency of capital markets, because those markets are the principal instruments we have for the allocation of capital. And if we care about the efficiency of capital markets, then we need to care about the asset management business, because that is what makes capital markets efficient.
The core problems with central bankers, which have led directly to the catastrophes of the Tech Bust, the Financial Crisis, the pathetically weak recovery from the Great Recession of 2008-09, and the near-destruction of the asset management business, are these:
We are talking about the traumatizing events that rocked the asset management business, to say nothing of the world, beginning in 2008, a calamity brought to us courtesy of the world’s central bankers.
The asset management business as we know it today got started in the mid-19th century. The impetus for investment management firms separate from banks arose out of the awkward fact that banks often fail, while asset management firms hardly ever do.
I would rather be governed by the first 2,000 names in the Boston phone book than by the Harvard faculty. William F. Buckley