2) Finance also exaggerates the differences between us, enriching the lucky and the smart, impoverishing the unlucky and not-so-smart.
3) The Spanish 'piece of eight', which was based on the German thaler (hence, later the 'dollar'), became the world's first truly global currency.
4) Money is worth only what someone else is willing to give you for it. An increase in its supply will not make a society richer, though it may enrich the government that monopolizes the production of money. Other things being equal, monetary expansion will merely make prices higher. This statement is made based on the collapse of silver which subsequently caused the massive increase in cost of food across Europe during 1540s until the 1640s. With the current quantitative easing (i.e. money printing) in the United States, are we heading to a similar devaluation of the dollar and subsequent massive inflation in commodities?
5) Money is a matter of belief, even faith; belief in the person paying us; belief in the person issuing the money he uses or the institution that honours his cheques or transfers. Can the US dollar maintains its position as the world currency in the near future?
6) In finance small is seldom beautiful.
7) In the modern world, power would go to the bankers, not the bankrupts.
8) All of us, whether we like it or not (and most of us do not even know it), are affected by the bond market in two important ways. First, a large part of the money we put aside for old age ends up being invested in the bond market. Secondly, because of its huge size, and because big governments are regarded as the most reliable borrowers, it is the bond market that sets long-term interest rates for the economy as a whole. When bond prices fall, interest rates soar, with painful consequences for all borrowers.
9) The cost of credit, the interest rate (on a benchmark bond), ultimately determines the value of stocks, homes, all asset clases.
10) 'Inflation', wrote Milton Friedman in a famous definition, 'is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.'
11) Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in the sense that it cannot occur without a fundamental malfunction of a country's political economy.
12) Worthlessness was the hyperinflation's principal product.
13) The English economist John Maynard Keynes had theorized in 1923 that the 'euthanasia of the rentier' through inflation was preferable to mass unemployment through deflation - 'because it is worse in an impoverished world to provoke unemployment than to dissapoint the rentier'.
14) In the four hundred years since shares were first brought and sold, there has been a succession of financial bubbles. Time and again, share prices have soared to unsustainable heights only to crash downwards again. So familiar is this pattern that it is possible to distil it into five stages:
a) Displacement: Some change in economic circumstances creates new and profitable opportunities for certain companies.
b) Euphoria or overtrading: A feedback procress sets in whereby rising expected profits lead to rapid growth in share prices.
c) Mania or bubble: The prospect of easy capital gains attracts first-time investors and swindlers eager to mulct them of their money.
d) Distress: The insiders discern that expected profits cannot possibly justify the now exorbitant price of the shares and begin to take profits by selling.
e) Revulsion or discredit: As share prices fall, the outsiders all stampede for the exits, causing the bubble to burst altogether.
15) We tend to assume in the English-speaking world that property is a one-way bet. The way to get rich is to play the property market. In fact, you're a mug to invest in anything else. The remarkable thing about this supposed truth is how often reality gives it the lie.
16) People don't realize you have a real estate industry, an appraisal industry, a mortgage industry now that can really push to put people into houses that a lot of times they really can't afford.
17) .....houses are not a uniquely safe investment. Their prices can go down as well as up. This is a very important message. Without realising it, many people are saddled with huge debts simply because they believe that buying a house can go no wrong!
18) Remember: it's not owning property that gives you security; it just gives your creditors security. Real security comes from having a steady income..........
19) In cities all over the world, house prices soared far above what was justified in terms of rental income or construction costs.
20) The key to financial security should be a properly diversified portfolio of assets.
21) One important lesson of history is that major wars can arise even when economic globalization is very far advanced and the hegemonic position of an English-speaking empire seems fairly secure. A second important lesson is that the longer the world goes without major conflict, the harder one becomes to imagine (and, perhaps, the easier one becomes to start). A third and final lesson is that when a crisis strikes complacent investors it causes much more disruption than when it strikes battle-scarred ones. A scary thought. Are we at the brink of a major war? A war between US and China simply due to the fact that China is now the US largest creditor?
22) Institutions with a 'selfish gene' that is good at self-replication and self-perpetuation will tend to proliferate and endure.
In summary, this book brings the reader through an interesting journey of financial history. From the first Mississipi Bubble to the recent subprime crisis, we are sure to have many more bubbles in the future. And with globalization and inter-connectivity of global finance and trade, the effect of future bubbles will be likely to be more catatrophic and the effects will be felt all over the world. Is there a possibility of collapse in house prices in 2012 in Malaysia when the loan for the first batch of "innovative loan" of pay nothing during construction offered during 2008 needs to be serviced and we found that supply of houses far outstrip demand?
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