He was called the scoundrel who invented credit. John Law was a Scottish libertine who rescued France from ruin, then ruined her again, by basing prosperity on credit. He gave us a glimpse of the future. It didn’t work then, and its given us a mess of problems since….
Law was born in Edinburgh in April 1671. His father was a goldsmith and a moneylender as well, for goldsmiths often found it more advantageous to lend their gold than to work it. The boy was a brilliant student, especially in mathematics, and a tennis champion. His father, having died, Law set off at twenty with an important sum in his pocket, to try his fortune in London. He was tall, handsome, red haired with a large aquiline nose, a compelling bass voice, and gracious manners; “beau law,” he was called. He used his powers of persuasion to bewitch lovely ladies, and also cards and dice.
After killing an old, bald, bewigged and rich man in a duel in London’s Bloomsbury Square, Law was jailed, tried and condemned to death, but through the machinations of a great lady he was spirited out of prison and out of England.
In Amsterdam, Law became secretary to the English resident. He observed with fascination the operation of the Bank of Amsterdam and the almost alchemical process of making money out of money. With pockets well filled he returned to Scotland in 1700. Shocked by the poverty of his native land, he proposed to establish a national bank, which would collect public revenues and control manufactures, fisheries etc. However, the cautious and prudent Scots balked at his grandiose ideas. He left for the Continent, accompanied by Lady Catherine Senor, sister of Lord Banbury. The pair visited the courts of Europe, supporting themselves by their skill at faro, basset, omber, and loo.
In 1705 he published a remarkable booklet, Money and Trade Considered, with a Proposal for Supplying the Nation with Money. Gold and silver he said were losing value by their abundance. He proposed that Scotland issue notes based on land. Credit, he went on, is a kind of money and should be so managed as to produce prosperity. Banks could impart a real value to paper, which would replace gold and silver for common exchange.
In 1707 the couple came to Paris, then under the shadow of grim old Louis XIV. Law kept the faro bank in the house of the wanton elderly actress, la Duclos. His style was much admired. With two sacks of gold at his feet, he won or lost with an imperturbable smile. He encountered in a bawdy house, so popular gossip says, Philippe d’Orleans, nephew and son-in-law of the king, and there, amid chatter and pouts, expounded his financial theories. These he developed in lengthy reports, asserting that wealth could be better created by governmental action than by the free play of individual enterprise. …. to be continued
Greg Smith: The goal is not to help a client but to strike a favorable deal with a counterparty. Through the years, there were legendary struggles between bankers and tradersleadership of Wall Street firms. For the most part, however, the bankers ran the firms.
The world shifted. Trading exploded, largely fueled by information technology. It seemed that every number on earth could be divided by every other number, all in real time. Everything could be priced, and, once priced, could be traded. Markets were deregulated and carved into pieces, each representing a trading opportunity. The Wall Street firms, and Goldman in particular, with their enormous capital resources, could dominate more and more of the price points in the American economy, extracting value from the producers and consumers. Software programs could be written to access electronic trading platforms so that the enormous force of the trading houses could be brought to bear without the inefficiency of human intervention. It seemed that a business model relying on dispassionate exploitation of immediate opportunity had been perfected.
The concept of “immediate gain” is limited only by technology. It led to an epidemic of “I’ll be gone, you’ll be gone” opportunism among Wall Street elites. And like Tom and Daisy Buchanan, “they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made.” Read More:http://www.concurringopinions.com/archives/2012/03/the-material-foundations-of-corporate-culture-goldmans-lessons-for-silicon-valley.html