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Here’s why the Federal Reserve rejected the safest bank in America
Here’s why the Federal Reserve rejected the safest bank in America
In the spring of 1692, an energetic young Scotsman named John Campbell started a new business in central London.
Campbell was a goldsmith, and his business sold jewelry and other crafted metals like plates and silverware.
But Campbell’s new company had another business line as well: banking. And the company he started eventually became Coutts & Co., a bank that still exists today in the UK.
Since the dawn of the Bronze Age thousands of years ago, metal workers (‘smiths’, from the word ‘smite’– to strike) were prominent, highly valued members of society.
Smiths were instrumental in construction, architecture, science, warfare, and art.
And they also provided some of the world’s earliest banking services.
For most of human history, money was metal– primarily gold and silver. And people knew that storing large quantities of gold and silver in their homes made their wealth prone to theft.
Goldsmiths already had tight security in their shops due to their significant inventories of precious metals.
So it was commonplace for other residents in town to store their own gold with the local smith, piggybacking on his security, in exchange for a nominal fee.
This was banking in its most traditional form: customer paid a fee to store wealth at a goldsmith’s shop.
By the time John Campbell set up his bank in the late 1600s, however, times had changed. Goldsmith-bankers had begun making loans… keeping only a small portion of their customers’ gold on reserve in the vault, and loaning out the rest at interest.
This is essentially the same model of banking that still exists today.
Giant institutions control trillions of dollars that we depositors dutifully provide to them.
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Robert Shiller: Unlike 1929 This Time Everything – Stocks, Bonds And Housing – Is Overvalued
Robert Shiller: Unlike 1929 This Time Everything – Stocks, Bonds And Housing – Is Overvalued
Robert Shiller is a professor of economics and finance at Yale University. He is the author of Irrational Exuberance, which in 2000 predicted the collapse of the tech bubble and is now in its third edition. He was awarded the Nobel Prize in Economic Sciences in 2013 for his work on asset prices and financial market behavior.
In the attached interview he observes that the recent equity run-up seems to be driven more by fear than by exuberance, as a lack of confidence in the future prompts investors to save more and thereby bid up asset prices.
Below is an interview he gave to Goldman Sachs’ Allison Nathan
Allison Nathan: Are US stocks overvalued today?
Robert Shiller: I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007—all moments before market crashes.
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