Monday, March 17, 2014

Knight, Panic, Prosperity, and Progress

Timothy Knight, best known as the founder of Prophet Financial Systems (now part of the TD Ameritrade stable) and the blog Slope of Hope, has cast himself in a new role, that of economic/market historian.

Panic, Prosperity, and Progress: Five Centuries of History and the Markets (Wiley, 2014) recounts twenty-four economic events that were historical forces, from the tulip madness of the seventeenth century to the great recession. All of these events have been well documented; each has been the subject of multiple books, both popular and academic. Knight’s contribution is to bring them together into a single narrative, manifesting “how in spite of extraordinary technological, political, and legal changes, the templates that govern humanity’s relationship with both opportunity and fear are surprisingly steady.” (pp. 446-47)

Most of the chapters deal with negative financial disruptions—for example, the panics of 1837, 1893 and 1907, Weimar hyperinflation, the Latin American debt crisis, the savings and loan debacle, the Asian contagion, and the Internet bubble. (Knight offers a personal perspective on the dot-com days, interspersing an account of the ups and downs of his own startup, Prophet Financial Systems, with a broader-based history of the era.)

Even events that benefited some people handsomely and that eventually had a significant positive impact on the course of history, such as the California gold rush, were injurious to many. Thousands of Chinese immigrants who came to California in pursuit of “the mountain of gold” were chased away from gold mining, “through both threats of physical violence and punitive legislation.” (p. 69) An act passed by California’s new legislature “expressly allowed for the white settlers to capture and enslave the Indians as workers. … During the gold rush years, about 4,500 Native Americans died at the hands of whites.” (p. 70)

Knight’s book prompts a range of emotional responses—Schadenfreude at the dramatic fall of the Hunt brothers, disgust at the machinations of Charles Keating, mixed feelings, at least initially, about the Germans in the hyperinflationary Weimar Republic who “began to lose their moral grounding as they became more desperate.” (p. 138)

Fear and greed. They’re always with us and often bring out the worst in us. Sometimes it seems positively miraculous that economies can not only survive but actually thrive and make people’s lives better.

1 comment:

  1. Interesting review. Guess he has found a new gig, hopefully he does better with this one than with his hedge fund. I remember arguing with Tim about the market in 2010 when he was something like 200% short. Nice guy, but stubborn.