Transcript: Robin Wigglesworth, on Embracing the Bond Market

The transcript from this week’s MiB: Robin Wigglesworth, on Embracing the Bond Market, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

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MASTERS IN BUSINESS: Robin Wigglesworth
Editor, FT Alphaville · Author, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

Bloomberg Radio  ·  Interview transcript  ·  Running time 1:24

BARRY RITHOLTZ: [00:00:07] I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest, returning to us, is Robin Wigglesworth, editor of FT Alphaville, one of my favorite sites on the web. It’s the Financial Times’ finance blog, which he runs from Oslo, Norway, with a team of writers both in London and New York.

He co-hosts The Story of Money, a financial history pod, and writes the newsletter Buy the Dip. His new book, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World, is out. It frames bonds as the world’s largest, most powerful financial engine. I’m halfway through it and I’ve been loving it.

The conversation was fascinating. I think you’ll really enjoy it. With no further ado, my interview of Robin Wigglesworth. Robin, welcome to Bloomberg.

ROBIN WIGGLESWORTH: [00:01:15] Well, it’s a massive honor to be here, so thanks for that, Barry.

BARRY RITHOLTZ: [00:01:19] So before we talk about the book, I want to spend a little time discussing your very interesting background. You get a bachelor’s in journalism and contemporary history from City University and then a master’s in history of international relations from the London School of Economics, focused on political Islam. Was the original career plan always journalism?

ROBIN WIGGLESWORTH: [00:01:44] No, I always dreamt of being a physicist, maybe specifically an astrophysicist.

BARRY RITHOLTZ: [00:01:48] There is zero physics in international relations. I guess that’s really intergalactic relations.

ROBIN WIGGLESWORTH: [00:01:55] Well, weirdly, you know, when you try to self-analyze it always gets a little bit weird. But I like figuring out how the world worked. And I liked physics. I loved understanding and learning about the galaxies. And I realized I was pretty good at maths and physics, up until a point I realized I would be nothing other than a mediocre physicist.

BARRY RITHOLTZ: [00:02:12] It’s amazing. You could be great at the secondary level, and suddenly in college, oh, those guys are really good.

ROBIN WIGGLESWORTH: [00:02:18] Yeah, those guys are good.

BARRY RITHOLTZ: [00:02:18] I had that same experience.

ROBIN WIGGLESWORTH: [00:02:19] Yeah. And it’s fine. It’s kind of knowing your limitations, what you’re good at. But journalism in many ways, I’ve kind of come to see, is similar in that you’re just figuring out the world from a different perspective. And financial journalism has at least a little bit of math, albeit not quite on the level of PhDs in physics.

BARRY RITHOLTZ: [00:02:36] So am I correct in saying your first gig out of LSE was Bloomberg News? Is that right?

ROBIN WIGGLESWORTH: [00:02:42] No, I had one intermediate step. I was a financial journalist for a small trade mag in Dubai, and they just ingest journalists and then spit them out if they’re bad. And I didn’t know anything, but it was kind of this first awe-inspiring moment where, like, oh my God, I get paid to ask smart people about stuff. And it was so fun.

I knew nothing. And luckily I didn’t embarrass myself, so they kept me around. But I quickly moved to Bloomberg because I knew that was a great place to learn.

BARRY RITHOLTZ: [00:03:09] So the Middle East and Dubai is a theme that comes up. You’re the Gulf correspondent in Abu Dhabi, covering the Arab Spring from both Bahrain and Libya. How do you go from that to covering finance?

ROBIN WIGGLESWORTH: [00:03:24] Well, so the first job had been covering bonds. Islamic bonds, actually, sukuk. And I worked at Bloomberg as an economics and politics reporter, but also, you get roped into everything. Bloomberg’s a great place if you want to spread your wings. So I covered FX and rates a lot as well. So at the FT I was a Middle East correspondent, a Gulf correspondent, but you kind of do a bit of everything then.

And it was a lot of Dubai going bankrupt. This was 2008. Dubai was having a hard time. It was fascinating. It was also covering things like labor movements in Bahrain and Saudi Arabia. But when the Arab Spring happened, I did get to cosplay as a war correspondent for a bit. And it was a wild time. I actually interviewed for a financial journalist job at the FT back in London from the army barracks of the rebel government in Benghazi.

BARRY RITHOLTZ: [00:04:09] Oh my God. So how do you end up covering capital markets in New York for the Financial Times?

ROBIN WIGGLESWORTH: [00:04:16] Well, I went to London. I did get that job, despite the slightly bad backdrop of the Benghazi army barracks. Got the job covering capital markets for the FT in Europe. And it was the euro in crisis. And it was an incredible time. You learn so much more, so much more quickly, in a crisis. So it’s terrible for the world, great for us.

And after a few years, I got moved to New York to head up the markets team there. And for me, that’s the Premier League, or the World Series. It’s New York finance. It doesn’t really get better.

BARRY RITHOLTZ: [00:04:51] You know, I love quoting Robert Duvall in Apocalypse Now during the financial crisis to some young analysts. There’s a line, “Someday, son, this war’s gonna end,” he says wistfully. And in the middle of a crisis, there’s very much that experience. Like, you better appreciate this, because these only come along every 20 years or so. And they’re amazing learning experiences. You experience that repeatedly.

First with the Arab Spring, then with the Great Financial Crisis. What was the next big economic crisis that really affected how you saw the world?

ROBIN WIGGLESWORTH: [00:05:32] I’d say COVID is the obvious one. There were lots of little mini things in between. I remember all the brouhaha about the first time the Fed was going to raise interest rates. That was a big deal, but it actually ended up being a bit of a nothingburger. But COVID was incredible, just on the personal but also the professional level.

I remember talking to one of our best young, promising journalists who was feeling quite stressed out at the time. And I said, look, it’s tough, it’s difficult, but this will make your career. If you just throw yourself into it, you will grow by leaps and bounds over the next days, weeks, months. We don’t know how long this is going, but just try to enjoy it, get enough sleep, and just try to almost revel in it. Try to turn it around. This isn’t just stress, it’s something that will shape you. And it shaped me as well. And it was incredibly exciting.

BARRY RITHOLTZ: [00:06:23] So your last book was about index funds. This book is about bonds and debt, which occasionally blow up and cause a crisis. I’m curious how fundamental was the Dubai debt crisis you mentioned to how you frame the world of debt and credit, and how you think about the bond market, which you’ve described as the most powerful financial engine in the world.

ROBIN WIGGLESWORTH: [00:06:49] That’s a great question, actually. My first job was covering these Islamic bonds, and I had to learn about the bond market that way. And they’re really quite funky. They’re kind of structured to have…

BARRY RITHOLTZ: [00:07:00] No interest rates. Right.

ROBIN WIGGLESWORTH: [00:07:01] No interest rates in theory, but it walks, talks and quacks like a fixed income…

BARRY RITHOLTZ: [00:07:05] Bond. You’re buying it at a discount. So it’s like a zero coupon bond. So there is interest.

ROBIN WIGGLESWORTH: [00:07:09] Yeah. They’re sale-leasebacks, basically. Like, I’ll lease you, you buy a house, the bank will buy it for you and lease it to you at fixed payments for the next 20 years, for example. And…

BARRY RITHOLTZ: [00:07:19] Then you own it.

ROBIN WIGGLESWORTH: [00:07:19] Yeah. And then they own it, and then you own it. Then for Bloomberg, I covered most of the rate space, so it was quite exciting. Because Iceland was part of it. And you remember Iceland really blew up during the financial crisis.

BARRY RITHOLTZ: [00:07:30] Oh, it was completely wiped out.

ROBIN WIGGLESWORTH: [00:07:32] Yeah, it was. And again, it’s terrible because obviously, you know, people in Iceland had a terrible time, but…

BARRY RITHOLTZ: [00:07:38] But fantastic at the same time.

ROBIN WIGGLESWORTH: [00:07:39] So interesting. But yes, Dubai I think was the first time I really covered distressed debt and realized the full panoply of crazy stuff that can happen with fixed income and how much it pays to read the bond docs. Lots of investors don’t really read the documentation, as we’ve seen again and again. There was one Islamic bond issued by Dubai. It was backed by land that was actually supposed to be reclaimed from the sea, but it literally was the seabed. And good luck trying to seize that if you’re a creditor.

BARRY RITHOLTZ: [00:08:10] Right, right. It’s underwater, both literally and figuratively.

ROBIN WIGGLESWORTH: [00:08:13] So it was a wild time. And the characters in that world were just very different. The credit investors, the special situations people, from the rates people I’d kind of mostly known. So it was fascinating. So it definitely deepened my love affair with fixed income.

BARRY RITHOLTZ: [00:08:30] And we’re going to talk more about the book, but I love all the examples you pull and these great narrative tales throughout history to illustrate. I found the book really fascinating. You must have studied, I want to say centuries, but maybe it’s millennia, maybe it’s a thousand years of government borrowing, of bond issuance, of debt, of credit. Why do we see the same patterns happen over and over again?

There’s credit. Sometimes you have people creating frauds. Sometimes there’s a mania. Like, who would’ve imagined, wait, railroad bonds? Why is that sexy? And yet we see the same things over and over and over again. Is it just, this is our nature, you have to accept it?

ROBIN WIGGLESWORTH: [00:09:24] I think that’s exactly it. I mean, there’s a famous quote, I never remember which British philosopher said it, but “from the crooked timber of mankind, never a straight thing was made.” And, you know, the technology changes, society changes, human nature doesn’t change that much.

And we can see the patterns again and again. And, you know, that’s great for financial journalists like us, but it’s bad for society. But, broadly speaking, despite those big crises, those big cycles, those huge mess-ups along the way, we’re still better off now than we were before. So I think that’s part of the magic of maybe even modern capitalism.

BARRY RITHOLTZ: [00:10:05] No longer living in caves. Indoor plumbing.

ROBIN WIGGLESWORTH: [00:10:08] I like indoor plumbing.

BARRY RITHOLTZ: [00:10:09] I’m a big fan. To say nothing of Japanese toilets, which is just next level. But all these things, all these infrastructure things, electricity, light, internet, made possible from the fixed income markets.

You note bonds financed infrastructure and innovation, but also conquest and slavery. How do you assess their contribution to progress while simultaneously acknowledging some of the destruction that bond underwriting has funded?

ROBIN WIGGLESWORTH: [00:10:44] No, it was something I struggled with. Like, to what extent do I sort of… I mean, this is unquestionably my love letter to the bond market, clearly. The working title was The Greatest Show on Earth: An Affectionate Biography of the Bond Market.

BARRY RITHOLTZ: [00:11:00] A Fabulous Debt is an even better title. It’s a great quote from somebody. We’ll get to that in a bit. But as I read through the book, in that construction and destruction, the bond market is essentially a tool. You could build something with a hammer, you could collapse someone’s skull. It’s the same.

ROBIN WIGGLESWORTH: [00:11:20] Exactly. So basically any big project in mankind, whether it’s wars of conquest, wars of liberation, slavery, hospitals, they have all at their heart actually had debt. And it’s almost overwhelmingly the bond at their center. You know, there have been plantation-backed bonds. The first investment fund ever in history is a Dutch fund. It was literally a steel chest, or an iron chest, sorry, locked with three locks, with little bond certificates inside. Some of those bonds were slavery bonds, basically plantation bonds. There were also highway bonds in Sweden and Denmark. There were also Dutch perpetual bonds as well.

So it goes both ways. Like, America financed its War of Revolution by the sale of bonds to foreign investors. You know, World War One, World War Two, one of the large reasons why the Allies won in the end was because they were able to finance themselves more efficiently. So yes, I think…

BARRY RITHOLTZ: [00:12:16] To say nothing of Napoleon. To say nothing of the US Civil War. We’ll get into the details.

You know, I have a friend I speak to all the time, and once a week they always ask me, who are you going to sit down with? Who are you talking with this week? And I said, oh, Robin Wigglesworth. Who’s he? FT reporter. He’s like, oh, I know the name. What’s the book about? And I mentioned, I go, well, his first book was about index investing, called Trillions. This book is called A Fabulous Debt, about bonds. And the immediate answer was, why is he so attracted to the most boring aspects of finance?

But when you read the book, it is not. It’s everything from catastrophe to war to innovation. Bonds sound boring, but they really aren’t.

ROBIN WIGGLESWORTH: [00:13:07] Yeah. I mean, bonds are kind of designed to be boring. But yeah, this is my attempt to reclaim, or revive, its reputation for being where the real stuff happens. I mean, I always joke, and this is slightly me because I do love the stock market as well, and some of my best friends are equity investors, but it’s like trading Pokémon cards. Like, it doesn’t really matter. The overwhelming amount of activity in the stock market is secondary market stuff. It’s one person buying a stock from, or selling a stock to, another person. It doesn’t matter to the company whatsoever. And we talk a lot about the theory about the signal it sends, but really it isn’t that important. The bond market, every single day there is a bond being sold financing sewage plants, wars, companies…

BARRY RITHOLTZ: [00:13:47] Not just traded. But the underwriter sold.

ROBIN WIGGLESWORTH: [00:13:49] Yes, exactly. That’s where, if you wonder where capital actually flows, like capitalism at its most primal, that’s the bond market.

BARRY RITHOLTZ: [00:13:58] And to put some numbers on this, the bond market is a multiple of the size of the equity market.

ROBIN WIGGLESWORTH: [00:14:04] Oh, yes.

BARRY RITHOLTZ: [00:14:04] Three x, four x, something like that.

ROBIN WIGGLESWORTH: [00:14:06] Well, it depends on how you cut it and how you define the equity market. In the US, certainly, and globally, the bond market actually is bigger than the entire banking system as well. That’s one of the reasons why I wrote it. Because, look, I love the stories and I think it’s fascinating. I love history, and the bond market is blessed with some incredible characters. But the reason why I think something warrants being a book isn’t just that it’s navel-gazing, backward-looking history. It’s because it’s relevant to the present day. And the bond market is now the engine of the global economy, more than the stock market, more than the banking system. It’s the bond market that, to paraphrase the Wu-Tang Clan, bonds rule everything around us.

BARRY RITHOLTZ: [00:14:41] That’s exactly right. But I have to ask one question. Why eight and a half centuries of bond history?

ROBIN WIGGLESWORTH: [00:14:50] Well, I studied even more, as you said. I studied over a millennia. I studied a few millennia, in fact, and I wasn’t quite sure where I was going to start. The Mesopotamians 4,000 years ago traded clay tablets of loans, where they had their little thing called the tamkarum clause, almost, where basically, rather than give a loan to, you know, Barry, I’d just write it to a merchant so that person could sell the loan to somebody else. That’s what we think they did.

BARRY RITHOLTZ: [00:15:15] So that’s a few thousand years ago. I want to say about 1,500 years ago, you could buy Japanese rice futures. And there was an underwriting on that also that was transferable. It’s really fascinating how far back this goes.

ROBIN WIGGLESWORTH: [00:15:28] Yeah. Finance and credit has actually a far longer and more vibrant history than most people realize. But the reason why I decided to start in Venice in 1171 is because really, I wanted to see the intellectual genealogy, as it were. Like, what really was the stuff that led to what we see today? And, you know, the Mesopotamians invented credit. They discovered, they used credit. They had a very vibrant system of credit, in fact. But really, when you see what the acorn was that everything grew from, it was this humble, accidental war loan in Italy in 1171. Because that’s what you can see then copied in the other Italian city-states, then France and Spain. The Netherlands really jacked it up. They really cranked it up by six notches. And the British copied that. Then the Americans, Alexander Hamilton, copied that again. And that’s basically where it all came from.

BARRY RITHOLTZ: [00:16:23] Really, really fascinating. Coming up, we continue our conversation with Robin Wigglesworth, discussing his new book, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Robin Wigglesworth, whose name is fun to say. You should try it at home. He is not only the editor of FT Alphaville, he’s the author of a fabulous new book, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World. His first book was Trillions, all about index fund investing, that was published in 2021.

So you mentioned earlier you start in Venice in 1172. Tell us a little bit about what was going on in Venice with the spice trade. What was happening with sort of city-states and local wars, and how the idea of doing an underwriting really came about?

ROBIN WIGGLESWORTH: [00:17:32] Yeah. Have you been to Venice, by the way, Barry?

BARRY RITHOLTZ: [00:17:34] I’ve been all over Italy. I have never been to Venice.

ROBIN WIGGLESWORTH: [00:17:37] Okay. Well, I definitely recommend it. I want to go back there, because it has extra emotional resonance for me now. I went there as a feckless teenager many years ago. And it’s beautiful.

BARRY RITHOLTZ: [00:17:49] Gotta see it before it sinks beneath the sea.

ROBIN WIGGLESWORTH: [00:17:52] Exactly. Venice is just an incredible place. The history of the place is incredible. So it was actually founded not by some royal offshoot of a family, as it were, but it was actually refugees fleeing the Vandals. The Vandals were actually just German tribes, barbarians, that would periodically raid into northern Italy. And they fled to Venice because it was a swampy hellhole that nobody else wanted to live in. It had no natural resources, no farmland, no metals, nothing. All it had was essentially being anonymous. Because of that, they had to live off their wits. So they became kind of Europe’s preeminent traders, their most mercantile city-state, kind of like Singapore on steroids, maybe. And they were technically ruled by the Byzantine Empire in Constantinople, in today’s Istanbul, because Charlemagne never managed to conquer Venice. He didn’t really care that much about it. But they were Catholics, they were part of Italy as well. So they were caught between east and west. And they were the main sort of intermediaries there.

But the Byzantines really thought they were an uppity bunch of nouveau riche, basically. They didn’t like them at all. And they argued and argued until basically Constantinople quietly said, we’re going to arrest every single Venetian. They just were fed up. We’re going to arrest every single Venetian in the Byzantine Empire. So when this came out, the Venetians were outraged. They decided to send a fleet to teach them a lesson. But they needed money, lots and lots of money, because wars were expensive. They normally had borrowed money from some of the bankers that started to crop up in Italy. They called them bankers because they literally had wooden tables in the square called the Rialto, which were called banchi. But they needed too much money.

So they basically forced everybody in the city to pay a proportional war tax according to their wealth. And to soften the blow, they said, well, look, everybody has to pay it, but we’re going to make it a loan and we’ll pay you 5% a year until we’ve taught Constantinople a lesson and freed our citizens and exacted reparations. And we’ll also make the receipts tradable. And that bit was revolutionary. So we don’t know how much they raised. We do know they actually lost that war. And because of that, the Doge who engineered all this was murdered by his own citizens, who were so outraged.

The bond was kind of made permanent because they couldn’t pay it back, but they could pay the 5%. And actually quite quickly the Venetians discovered that it was pretty cool being able to buy an income stream. You could actually then make money from your savings. And in fact, you could use that receipt as collateral. And for merchants like the Venetians, this was revolutionary. Suddenly this was a whole new use case for it.

BARRY RITHOLTZ: [00:20:38] Giant spice trading, lots of international trade.

ROBIN WIGGLESWORTH: [00:20:43] Spice, gold, iron, to the rest of Europe. Everything. Marco Polo was from Venice. That’s no coincidence. Shakespeare name-checks the Rialto square in The Merchant of Venice many centuries later. It became famous. It was kind of, I mean, the New York and Chicago and Amsterdam and Singapore of its era. It was the beating heart of the Mediterranean. And this kind of unfortunate accident, a relic of one of their lowest points as a city-state, actually became kind of a testament to their commercial ingenuity, their financial ingenuity. It actually became a super valuable thing. People wanted to buy this stuff, and they’d pay it back gradually. And then occasionally, if they fought another war, which always happened in Italy around then, and they were expensive, they’d sell more of these prestiti, as it was called. And other people copied it, and it spread from there.

BARRY RITHOLTZ: [00:21:37] So let’s talk about the next group that copied it. There’s a stretch in the book about the Netherlands and the Dutch water boards. And, you know, most of Holland and that region is below sea level. So building dikes and managing the infrastructure of keeping the sea at bay is a giant part of what the government does. Explain how flood controls become a milestone in fixed income history.

ROBIN WIGGLESWORTH: [00:22:08] Well, you don’t know exactly when the Dutch started to use bonds. So they spread from Italy northwards around Europe, where they’re called rentes in France and Renten in Germany and the Netherlands. But the Dutch really discovered the potential of mobilizing the savings of its own industrious people. They were kind of the successors to Venice as the most commercially minded people in Europe at the time. And they kind of invented modern capitalism, I’d say. They used them because, you know, building dikes, these incredibly elaborate, intricate waterworks and dikes and flood guards, is super expensive. It’s capex-expensive, essentially. So they sold bonds to do this. Every single local waterworks, and hundreds of them spread across the entire country, that region, the Low Countries, the Netherlands, and bonds were the way they did it. And that kind of started what was probably the first true, proper bond market, by lots of different issuers that would sell bonds. Fixed rate, often at a fixed maturity, but mostly perpetual, and at market-set interest rates.

BARRY RITHOLTZ: [00:23:21] And there are still some perpetual bonds from the 1600s that are still generating yield.

ROBIN WIGGLESWORTH: [00:23:26] Yes. So there’s eight in particular, from one waterworks, that are still outstanding. One of them is owned by the New York Stock Exchange. It celebrated its 400th birthday party in early December 2024. I actually was invited to that birthday party, and my wife thought I was mad, but luckily she’s used to my madness. So she let me go. And I had a blast. I got to meet the world’s oldest living bond that still pays interest, 13 euros a year, to the New York Stock Exchange.

BARRY RITHOLTZ: [00:23:55] That’s very funny. So that’s the 1600s. Let’s fast forward a century and change. Napoleon is running roughshod all over Europe. He hasn’t quite yet stumbled into Russia, which doesn’t work out. But he dismisses Britain, I love the quote, as “a nation of shopkeepers.” But at the same time, London’s bond market and the ability to collect all of the savings of those shopkeepers and combine it into the largest pool of capital the world has ever seen, to quote you, arguably is what defeated Napoleon. Explain how shopkeepers brought down the greatest general, maybe, in European history.

ROBIN WIGGLESWORTH: [00:24:38] Yeah, well, France was the superpower of the era. Huge country, bigger country than England. They controlled everything. They had Napoleon. And Britain was able to fight for so long because it could finance itself almost indefinitely. I mean, not indefinitely, but it felt like that to the French. And send materiel and subsidize its allies like the Prussians for years and years and years, because they could use the bond market they had created. They’d basically seen what the Dutch had done. The Dutch had kind of surpassed them, and that was very embarrassing for the Brits. So they basically imported a Dutch prince, imported things like the Bank of England, or a central bank. They imported lots of the ways they sold the bonds. They consolidated all the state debts into something called the consolidated annuities market.

BARRY RITHOLTZ: [00:25:22] Consols.

ROBIN WIGGLESWORTH: [00:25:22] Consols. And that really is the better act. That’s the world’s first true risk-free rate. It was the ur-Treasury market, as it were. That’s what people bought around the world. The Dutch bought it, the Germans bought it, the French bought it, even. And that meant that England could finance itself almost forever in this war, to the immense frustration of the French who, you know, Napoleon was actually quite an able administrator, but France’s creditworthiness was pretty feeble. So they paid, you know, two, three times the interest rates that England did.

BARRY RITHOLTZ: [00:25:54] And so it was much more expensive. Really, you know, in the modern world we’re seeing this war of attrition between thousand-dollar drones versus million-dollar missiles. It’s very parallel to Napoleon. So there were a number of people, some of whom opposed the war, more of whom were kind of puritanical about the debt. The title of the book comes from Thomas Babington Macaulay’s dismissal of predictions of disaster due to Britain’s enormous accumulation of debt. “Fabulous debt” is how he described it. Explain.

ROBIN WIGGLESWORTH: [00:26:34] Well, so I was looking into the history and how the British were talking and thinking about the debt, especially that they had accumulated after the Napoleonic War. It is still the biggest debt-to-GDP burden we’ve ever seen in history, pretty much. But obviously England, as we know, managed to grow out of it. It was completely fine.

But there were periodic freakouts over the expense of wars. And the discussions were incredibly, strikingly modern, as in what I call the repeated protestations of the debt scolds. And not to say that these aren’t things that we are fair to worry about. But Babington Macaulay, not the Macaulay of Macaulay duration, unfortunately, which I was disappointed to learn. But Babington Macaulay, he wrote this phenomenal polemical book on the history of Britain around this time.

And he pointed out that every time people said after this war, after this war, after this war, the British debts kept growing and growing and growing. And actually, no, rather than leading to ruin, it was not just not impeding Britain’s wealth and growth, it was actually helping catalyze it, capitalize it. The fact that Britain had a vibrant bond market, because these consols could be used as security for loans. You could buy an income stream. It was in fact a fabulous debt. It was a blessing. And when I stumbled over it, I thought, that’s it, that’s my title.

BARRY RITHOLTZ: [00:27:57] Love it. The shocking parallel, and I don’t recall if this is Macaulay or not: “They erroneously imagined there was an exact analogy between the case of an individual who was in debt to another individual and the case of a society which is in debt to a part of itself. That analogy leads to endless mistakes.” First, was that Macaulay? And second, isn’t that the argument the deficit scolds have been having, both here and abroad, for, I don’t know, the past 50 years?

ROBIN WIGGLESWORTH: [00:28:28] Yeah, no, it’s over 200 years ago Babington Macaulay pointed out exactly that issue, that you cannot consider government debts in the same way you do with a household. It is a seductive but wrong assumption, a metaphor. And it will lead you astray, essentially.

BARRY RITHOLTZ: [00:28:46] It’s really quite amazing. Let’s stay with some history and fast forward a little more. You have Alexander Hamilton, who decides to take the mess that is just a run of Revolutionary War debt and all sorts of different state debts and create a sort of more modern basis for financing a government. I’m curious, what did he do that was so smart, and how much does the modern Treasury owe to Hamilton?

ROBIN WIGGLESWORTH: [00:29:24] I mean, an immense amount. I mean, I had to have a bit of Ham in the book, but even I was surprised at how singularly brilliant the guy was. I mean, how far ahead of his time. And reading between the lines of what he says in some of his speeches and his writings and his thinking, and this first credit report that he presents to Congress about what to do with all these defaulted state bonds after the revolution, I think is incredible. I mean, it is almost like a founding document for the United States of America.

So he realizes, when he was a soldier and before that, he’d studied the British financial system. He’d studied the consol market. He realized that consols actually were not a public curse, as people like James Madison would say. They were a national blessing. That this was actually a key source of Britain’s financial strength. And he realized after the war, because they can become like money, like, essentially bonds, especially when they were physical objects, you could use them as collateral, also use them as money. And then in a very newborn country that had a desperate lack of specie, of coins, gold, silver and things like that, that could be incredibly powerful. So he proposed to take all the state debts that were defaulted on, all the external debts.

Domestic bondholders would be restructured, where they’d get some paper, get some money back. The external debt would be turned into these new Treasuries. The federal government would assume responsibility for all those bankrupt states and their debts. And by doing so, the argument was that this was about restoring America’s creditworthiness, her credit, making her stand upright among the other nations of the world.

But really, I think it’s because he realized a new Treasury bond market would be incredibly powerful and catalytic for the US economy that was still struggling after the revolution, after suddenly being cut off from its single biggest trading partner. And also, and this is something the Venetians discovered almost by accident, if you make your citizens creditors as well, they have a vested interest in your good governance. So suddenly, by making all these American soldiers and Wall Street speculators and farmers creditors to this new federal government, they had a vested interest in it sticking together. And that actually was very powerful glue at an incredibly, wildly chaotic time for the republic.

BARRY RITHOLTZ: [00:31:56] And soon after, Napoleon comes back into the story. He needs to raise some capital to continue funding his wars. And was it Madison who sends somebody over to negotiate, or was it Madison who went over to negotiate with the French to essentially buy everything west of the Mississippi that the French owned, from Louisiana west?

ROBIN WIGGLESWORTH: [00:32:26] Well, Louisiana was important. I mean, it was big, of course.

BARRY RITHOLTZ: [00:32:29] And it’s at the mouth of the Mississippi, from which all commerce in the middle of the country traveled, or at least most of it. And having the French control that was strategically problematic.

ROBIN WIGGLESWORTH: [00:32:39] Yes. Even Jefferson, who’s fairly sort of non-interventionist, talked about, you know, this would be like somebody holding the jugular of the American economy. The Mississippi was so important they couldn’t let another big, potentially hostile country own it. And the French had basically taken it from Spain, and it was like, what do they do about it?

Well, it turns out Napoleon was desperately short of money, and he didn’t really want to expand in the Western Hemisphere, so a deal could be made. It was Monroe, James Monroe, also another future president, that was sent to negotiate. And it was because of Alexander Hamilton’s restoration of American credit that a British investment bank, Barings, together with its sort of allied shop in Amsterdam, called Hope & Co., was able to engineer what I think is probably one of the most remarkable financial deals in the history of the planet.

BARRY RITHOLTZ: [00:33:30] $15 million. That’s the original sum, which was over his, I think, what was the budget? Nine or $10 million originally.

ROBIN WIGGLESWORTH: [00:33:38] Yeah. And he just said, yes, I’ll get it done. I don’t care. This is a good deal. And he was right to do so. But can you imagine, I mean, investment banks now are always worried about hung deals and deals going bad. There’s no limited liability in this day. So Barings is taking the entire risk, because basically the US didn’t have the money, so they had to sell bonds. And basically sell those bonds to France, and Barings would have to underwrite and manage the whole thing. And they were getting paid, at the time, generational wealth to do so. In fact, if you look at the fee they got paid versus what they paid for Louisiana, it’s like getting paid all of North Dakota. But there’s no limited liability. And the letters between the Barings partners keep talking about how they tremble at the size of this American business. This is not make or break. This is literally dying in debtors’ prison, or the deal going through.

BARRY RITHOLTZ: [00:34:29] Amazing. And then let’s fast forward a quick century. The argument in the book is that the North won over the South in the US Civil War because the North had all the banks and bankers and Wall Street, and they were able to finance Lincoln and the North’s ongoing battle to rein in the South. How accurate is that?

ROBIN WIGGLESWORTH: [00:35:00] Well, I’m no Civil War historian, so I’m not an expert on that. But I do know that many people in the South felt it was the North’s superior ability to finance themselves that was decisive.

BARRY RITHOLTZ: [00:35:11] That’s a theme throughout this, throughout history. Hey, if you’re going to go to war, you need guns and bullets, but you need some bankers making sure you can pay for those guns.

ROBIN WIGGLESWORTH: [00:35:21] Yeah, exactly. I mean, Ulysses S. Grant also thanked, so it was actually a private banker that engineered this, because Salmon Chase, the Treasury secretary at the time, was not an enormously competent Treasury secretary, probably. So he essentially privatized the role of selling all these war bonds to a private banker called Jay Cooke.

And he did a phenomenal job. And actually, it was the first time you really see bonds mass-marketed to people, with propaganda and flyers and advertising and newspaper articles, because they had to teach people what even a bond was. He also touched upon that a government bond is not like household finance. You need to think about this differently. Britain is strong because of its large consol market. We can do the same. And he sold a prodigious amount of bonds to help finance the North’s victory.

BARRY RITHOLTZ: [00:36:14] Now, Cooke, if I’m remembering correctly, big on the railroad bonds as well. So I love this line: “The bond market was the track on which the trains truly ran.” That’s a huge statement. How giant was the appetite for railroad bonds, and how huge was laying intercontinental rail? How big a deal was this?

ROBIN WIGGLESWORTH: [00:36:39] Yeah, I mean, we think of rail as such a sort of ordinary means of transport now, right? It’s almost so old-world. But it was unimaginably revolutionary at the time, and people were genuinely concerned that the human mind couldn’t handle those kinds of speeds. That people would go mad. The newspapers would write horror stories about people going mad when trains drove faster than 20, 30 miles an hour at one point. Some people genuinely thought that maybe over 40, 50, bodies might get vaporized. We just weren’t built for those kinds of unimaginable speeds. And in Europe, I mean, there were railway manias everywhere. Lots of them. There were almost like a series of mini booms and busts around the world. But in Europe, you know, rails connected one town to the other. In the US, rail built towns. They built states, essentially. It really created America as we know it.

The US embraced railways with more zeal, with more mad abandon, than anywhere else. And Jay Cooke was at the center at first, before the Civil War. That was where he made his first fortune as a banker. And then afterwards, well, he kind of stepped away. It was clearly a mania. He wasn’t sure about it. But the transcontinental railways were so exciting. They were like the Apollo programs of the era, and especially symbolically important after the Civil War, binding the country together, binding western and eastern coasts together. So he got sucked into this belatedly, and it ended very, very badly for him, unfortunately.

BARRY RITHOLTZ: [00:38:12] Well, he was briefly, or maybe not so briefly, the wealthiest person in the country, before it all went belly up. You know, we call the 1930s the Great Depression. But before that, the Panic of 1873, driven primarily by railroad bonds, was originally known as the Great Depression. How did all of this blow up? It sounds vaguely familiar: a debt-fueled infrastructure build-out bigger than anything. Why does that sound so familiar?

ROBIN WIGGLESWORTH: [00:38:47] Yeah, it does feel a little bit uncannily familiar. No, I mean, it is complexity. It actually almost seems a little bit more modern, where the real trigger was a financial crisis in Europe, in Germany and Austria, of all things. It was a big, massive stock market mania in Germany, Austria. A tech bubble, basically. It was called the Founders’ Bubble. And it became the Founders’ Crash, the Gründerkrach in German.

But unfortunately, lots of European investors who had lost money on German and Austrian stocks also had lots of money invested in US railways. So they pull their money out. Classic. Like, you know, you lose money in one area, then you have to pull it back from somewhere else. And that hammered railway bonds in the US just as people were getting worried because of all sorts of dodgy scandals. There was so much bribery going on at the time. And it implicated even the vice president. Also, you know, corruption high up in administrations. Also couldn’t happen today, that’s not familiar. No, no, of course not. And so then Jay Cooke was stuck with all these bonds they’d promised to sell for the Northern Pacific Railway on his balance sheet. There’s no Federal Reserve.

BARRY RITHOLTZ: [00:39:53] In other words, when you say on his balance sheet, he’s going to syndicate this, but essentially he’s assuming all the responsibility and the liability.

ROBIN WIGGLESWORTH: [00:40:01] Exactly. There is no limited liability. So the bank basically buys the bonds at a discount from the seller and then sells them, ideally, hopefully, at a higher price. But if you can’t sell them at all, you’re on the hook. And he’d personally advanced money to the Northern Pacific, repeatedly. Many times. He just kept doubling down. And the Northern Pacific was plagued by all sorts of problems, because it was crossing straight through Sioux lands, for example.

BARRY RITHOLTZ: [00:40:28] Meaning hostile Indian territory.

ROBIN WIGGLESWORTH: [00:40:30] Basically, yeah. It was a very…

BARRY RITHOLTZ: [00:40:35] Troubled.

ROBIN WIGGLESWORTH: [00:40:35] Project from the get-go. And somehow this brilliant, brilliant man, he was undoubtedly brilliant, was blinded somehow. And suddenly, basically with no Federal Reserve, no other way of supplying liquidity, they abruptly have to close their doors in 1873. And this is unimaginably shocking. I mean, this is like suddenly if we wake up tomorrow and JPMorgan says they’re bankrupt. This is not just the biggest bank in America at the time. It’s Jay Cooke, the dominant financier of the era. He was John Pierpont Morgan before John P. Morgan was anybody. So it’s such a psychological shock, this shock that first maybe starts in Europe and ricochets over to the US, then ricochets back to Europe, and it starts feeding on itself. It just becomes an epic financial crisis. One of the biggest we’ve seen in the world. And it leads to this very long recession, which…

BARRY RITHOLTZ: [00:41:30] Became known as the Great Depression until 50 years later, a bigger Great Depression.

ROBIN WIGGLESWORTH: [00:41:35] And we call it now the Long Depression. Because it’s still the longest economic contraction in US history.

BARRY RITHOLTZ: [00:41:41] So before we move into the 20th century, you’ve mentioned Barings and you’ve mentioned Hope. We haven’t talked about Rothschild, which was by far the biggest, most powerful bank and banker, not just in Europe, but in the whole world. Tell us a little bit about Rothschild and how he managed to become such a dominant figure in the world of bonds and banking.

ROBIN WIGGLESWORTH: [00:42:08] Well, so the Rothschild family started as a merchant family, like many things. But it was Nathan Mayer Rothschild that morphed that into a bank. And that was not uncommon for the era. But he was also, I mean, unquestionably a singularly smart man. And he kind of single-handedly created what I call the first truly international bond market. Something that looks, walks and talks and quacks a bit like what we see today. So he was shut out from some of the Napoleonic financing. For example, Barings was very close to the UK government. So he didn’t get any of those mandates and was shut out…

BARRY RITHOLTZ: [00:42:44] Also because he was Jewish, and they weren’t happy.

ROBIN WIGGLESWORTH: [00:42:47] Yeah. And Barings was a proper English family. And, I mean, it’s amazing what people with chips on their shoulders can do. Like, I’m going to prove them wrong. And he basically…

BARRY RITHOLTZ: [00:42:58] It’s motivational.

ROBIN WIGGLESWORTH: [00:42:59] Yeah. And he had, obviously, the whole family had wealthy little outposts in Paris and Frankfurt and Vienna. So it was strategically positioned. They were quite capital-rich. They made a lot of money in the Napoleonic War, mostly smuggling gold on behalf of the British. But they had good British contacts, then good contacts among British investors. So when Prussia, Spain, even France, Italy, all these new states, or old states, started wanting to issue bonds to rebuild after the Napoleonic War, he became the go-to person to do so. And he made them explicitly bearer bonds, so they’d be stateless. That became portable wealth, essentially. And you could go to any of the Rothschilds’ houses and collect the interest.

BARRY RITHOLTZ: [00:43:42] In cities dotting all of Europe. You show up with a bearer bond, and you could present it and get paid in a local currency.

ROBIN WIGGLESWORTH: [00:43:50] And that was hugely powerful. Investors loved it. He also got a lot of these countries to open up their books a little bit. Because he said, well, British investors, who were the biggest in the world then, they want to see a bit of transparency. That’s what they’ve gotten used to. So he told them. There’s lots of these remarkable letters that Niall Ferguson and historians found going between the Prussian finance minister getting almost told off by a Jewish banker in London saying, dude, you have to open up your books. You have to be accountable. You have to do this and that. Otherwise, like, I’ve done what I can. And gingerly he was able to coax them into doing a little bit of that. Because, generally speaking, investors like countries that are credible, that are trustworthy and transparent and well governed, and the bond market has rewarded those with lower borrowing costs. And then it becomes a positive feedback loop.

BARRY RITHOLTZ: [00:44:38] Who knew bond vigilantes existed a couple hundred years ago? Rothschild eventually becomes like a peer in British society. He’s given some official rank because he’s just been so helpful to the British government. And the Rothschild fortune still exists in some form today, doesn’t it?

ROBIN WIGGLESWORTH: [00:45:00] Yes. So he had a lot of sons, and cousins of the family. It was kind of the Jewish royal family of Europe for a long time. The immediate generation was actually also incredibly talented, if not maybe as talented as Nathan Mayer Rothschild, but also the family started spreading. But still, to this day, there are prominent investment banks, they’re smaller these days, called the Rothschilds. And it’s a very wealthy family. They own Château Lafite, for example. I think they still own it. So they’re still a very prominent family today. Albeit not as dynastically wealthy as they were back in the 1800s.

BARRY RITHOLTZ: [00:45:36] Well, even still, two centuries later. Still, you know, it used to be three generations from shirtsleeves to shirtsleeves. They’ve beaten that. So now let’s move forward to the 1980s. And I have to talk about Lewis Ranieri, who really pioneered securitization, converting individual residential mortgages into collateralized mortgage obligations, CMOs. This traces back to an earlier form, from Fannie Mae, that was part of the post-Depression-era financing. I’m fascinated by this area because I don’t think many Americans understand how unusual and rare a 30-year fixed mortgage is. And I also think people don’t realize how productive and powerful that tool is.

ROBIN WIGGLESWORTH: [00:46:31] Yeah, no, I think because of what happened in 2008, securitization and mortgage-backed securities became a dirty word. But it is genuinely one of the most fascinating and important financial innovations of the past half century. And Lewis Ranieri, you’ve seen The Big Short, right? The film, of course. Well, he is introduced as this big loudmouth, and he changed your life more than the iPod. And that’s true. He really did. And, you know, my view of financial history, having studied a lot of this now over the years, is that we take stuff too far, but the bad inventions, they die, and they don’t always come back. The good ones are reforged, reinvented, rebuilt on, and they stick. And securitization is still a massively powerful force, thanks to, you know, some of the work that Larry Fink at First Boston did as well, and his team there, and Lewis Ranieri at Salomon Brothers. And the 30-year mortgage that you guys here have today, it’s kind of a miracle of the modern world.

BARRY RITHOLTZ: [00:47:33] Yeah, no, very much so. But I want to stay with the idea of some of these things blowing up. When you look at most of the giant financial messes of the past 50 or 800 years, it’s not usually stocks. I mean, the dot-com implosion was kind of mild.

ROBIN WIGGLESWORTH: [00:47:53] Exactly.

BARRY RITHOLTZ: [00:47:54] The NASDAQ fell over 81%. But most of the big blowups, the GFC, Long-Term Capital Management, portfolio insurance in ’87, maybe not a true bond, but it always seems that bond underwritings that go bad do much more damage than a stock that blows up.

ROBIN WIGGLESWORTH: [00:48:14] No, I mean, I think there are many reasons. I’m glad you raised the dot-com, because I mean, that’s a great example. I mean, the stock market fell, what, 50% from peak to trough? Pretty much.

BARRY RITHOLTZ: [00:48:22] That’s about right. I think the Dow only fell about 36, 37%.

ROBIN WIGGLESWORTH: [00:48:27] Yeah. It was a bit more industrial. Hadn’t as much tech stuff. Well, I mean, economically it was a nothingburger. That was like one of the shortest, shallowest recessions in US history. And I think that shows that, obviously it wasn’t fun for people that lost money, and it was a big event. Even I remember that pretty well. But economically, it doesn’t matter as much as when the bond market even slows down. It’s quite painful. And when it breaks bad, it’s horrifically bad, because the bond market represents money, and the bond market breaking, it’s like money dying. There’s this famous quote from Mark Twain. He said it’s not what you don’t know that’s the problem. It’s what you know for sure that just ain’t so. When you take something that you think is safe and solid and good and it blows up in your face, that’s when you get shocked. That’s when the big, nasty economic outcomes happen. So if you invest money in stocks, or even junk bonds, you kind of know it can…

BARRY RITHOLTZ: [00:49:22] Go bad. It’s right there in the title.

ROBIN WIGGLESWORTH: [00:49:23] Right, exactly.

BARRY RITHOLTZ: [00:49:24] If you’re going to call it junk, you can’t be surprised when it goes bad. But at the same time, you think of Treasuries. You think of conservative A-rated, even corporate bonds, investment-grade bonds. They’re called investment grade. You don’t expect them to go belly up. So there’s so many things I want to talk about with this.

You trace the ancestry, since we’re talking about junk and high investment grade, you trace the ancestry of credit ratings to Lewis Tappan, an abolitionist who built a credit reporting business more than a century ago. How did gathering information about borrowers become not only an industry, but an industry with huge authority?

ROBIN WIGGLESWORTH: [00:50:18] No, that was one of the more delightful chapters to write, actually. And it surprised me, because I didn’t think it was going to be that interesting. There were lots of abolitionists, actually, in various stages of this story, I was pleased to see.

So Lewis Tappan, him and his brother ran a classic sort of merchanting business. They were ardent, hardcore abolitionists. They were for not just abolishing slavery, they were for, for example, full equal treatment, which even for some abolitionists would’ve been a step too far at the time. So the famous Amistad case, they were the ones that bankrolled that, on the abolitionist side. So if you see the film, he’s played by Stellan Skarsgård, Lewis Tappan. But at one point, the business, because they’re boycotted by the South, they’re hated broadly in the South. They’re boycotted. They have a hard time in one of the sort of periodic downturns. And, you know, they come through, but they almost go bankrupt. They still eventually manage to pay back every creditor, but they learn to distaste debt and also be wary of clients going bankrupt.

So Lewis Tappan buys from a bankrupt law firm a big registry, basically judgments of how creditworthy various businesses in America, or in New York, primarily on the East Coast, are. And they build this into something called the Mercantile Agency, which some people almost historically call like a private spying agency. But really what it was, it was agents who worked for them, mostly part-time, who would report on which people were seen to be trustworthy, which were fine, upstanding citizens and worthy of credit. And for any merchants, because a lot of this actually all happens, commerce has always happened on credit and trust and merchant advances and things like that. So who you trust was a hugely valuable thing. And among those people, all these reporters that worked for the Mercantile Agency, were a young Abraham Lincoln, Ulysses S. Grant, a few other future presidents. And I think Harding as well worked for one of them.

And, you know, that credit reporting side morphs eventually into statistical analysis and into ratings. Eventually, the famous letters that we know, that John Moody might have invented, sort of build on that. First there were the credit reporting agencies, then you had Standard & Poor’s. That was Henry Varnum Poor, who actually kind of cajoled bond issuers, primarily railways, to give him data. He said, look, if you guys are going to sell bonds to the public, you should give us information. So he really pushed that quite hard, that transparency. And John Moody took that information and did it with a bit of marketing flair, turned them into grades that have over time kind of become what I call the language of credit. And rating agencies get a lot of, you know, bad press. And Lord knows they can make mistakes, but so can everybody else. And in fact, there’s this other great saying I love, that all models are wrong, but some are useful. George Box. And the rating agencies, the ratings can be wrong, but it is just a very handy shorthand. And if they didn’t exist, we’d have to probably invent something like it.

BARRY RITHOLTZ: [00:53:31] There’s being wrong, and then there’s selling your ratings to the highest bidder, which we saw during the financial crisis. And they gave up a lot of their financial authority and credibility. I have to be honest, I don’t really think bond investors give a whit anymore about rating agencies, because they proved, hey, you’re not trustworthy. If you’re willing to sell yourself to the highest bidder, why should I care what you have to do?

ROBIN WIGGLESWORTH: [00:54:00] Yeah. And those incentives haven’t changed. That is unquestionably problematic. I still remain concerned about that. But I would say investors have never really, unless you were the proverbial idiots in Düsseldorf buying AAA CDOs, unquestionably, most investors viewed ratings as the starting point. No self-respecting bond analyst would treat it as the ending point. And actually, look, I studied a lot of post-financial crisis postmortems, because there’s an entire chapter on how that all played out. The ratings were, I was staggered to see, pretty good.

BARRY RITHOLTZ: [00:54:37] Oh, really?

ROBIN WIGGLESWORTH: [00:54:38] Yes. So the price action was awful, because obviously people didn’t trust anything. So the prices even on AAA tranches of these CDOs just tumbled, and lots of the synthetic stuff completely blew up. But most of the stuff, like if you look at the actual RMBS and CMBS markets, they pretty much… there were losses in AAAs, which there shouldn’t be. That’s supposed to be as good as gold. But broadly speaking, they definitely weren’t massively out of whack when the final losses were counted out. And I was shocked as well.

BARRY RITHOLTZ: [00:55:14] I would love to see that data, because I am absolutely on the other side of that trade.

ROBIN WIGGLESWORTH: [00:55:18] Yes, for sure.

BARRY RITHOLTZ: [00:55:19] Coming up, we continue our conversation with Robin Wigglesworth, author of A Fabulous Debt, looking at how the history of bonds compares to the current bond market. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Robin Wigglesworth. Not only is he the editor at FT Alphaville, one of my favorite sites, and the author of Trillions, about the history of indexing, his new book, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World, is out now. So I’m curious, there are so many fascinating characters throughout the book, and we’ve mentioned a few. I’m curious who kind of surprised you. This is almost a thousand years of research. Who surprised you as someone who maybe isn’t well remembered, but perhaps should be?

ROBIN WIGGLESWORTH: [00:56:20] Well, it’s hard to… I mean, people often ask my favorite, and that’s always so difficult. It’s like picking a favorite child.

BARRY RITHOLTZ: [00:56:26] Well, the other question is, there are simply so many fraudsters. And so many, I don’t know, is the phrase “financial adventurer” a real thing? Who in the book do you think would be a great movie character?

ROBIN WIGGLESWORTH: [00:56:41] Yeah. Well, I mean, Gregor MacGregor. I mean, he’s obviously not a hero and shouldn’t be rehabilitated, but just a delightful scoundrel who invented an entire country to sell bonds in the 1800s in England. And his entire life is just… I’m astonished somebody hasn’t made a movie about him already. Because, I mean, he fought with Simón Bolívar in Venezuela. He was a soldier in the Napoleonic Wars. And then he did this, one of the most outrageous financial scams in history. Though he might have actually, ironically, somehow believed in this country. He was essentially trying to do a 19th century version of fake it till you make it. Like, he wasn’t just trying to scam people. He was trying to will a new country into existence. And he was just incompetent, essentially. We don’t know exactly, but he was incredible.

But Jay Cooke was a guy who hugely admired Native Americans. He named his palatial estate after a chief he’d befriended in his youth in Ohio. But obviously his railways just trampled through a lot of Native American lands. He hated graft. He hated graft. He always says, I think corruption is awful. It’s the root of all evil. But he was pretty good at it.

BARRY RITHOLTZ: [00:57:58] Sometimes you want to get something done. You’ve got to keep it fair, a little something on the side.

ROBIN WIGGLESWORTH: [00:58:02] Yeah. And he had this incredible palatial mansion, one of the biggest houses in America at the time, built. It was just like fake Roman ruins, his own private cinema, radio. The whole works. Incredible. But really, the only thing he really enjoyed was talking about theology with priests. And a poor priest could come and stay with him whenever they wanted in his holiday home. He’d discuss theology and fishing. So his biography, he has an entire chapter about fishing, but his wife gets mentioned I think two or three times. So he is just an incredibly complex character and was clearly quite… he looks also in pictures, he looks like kind of an evil Santa Claus. Like very intense eyes, a big, bushy white beard. I think he was fascinating. And also, maybe because he is now so synonymous with the crash of 1873, he’s genuinely a valuable role that he played in America. And I think maybe deserves recognition as well, I guess.

BARRY RITHOLTZ: [00:58:58] So I’m legally obligated to ask a question about AI these days. You were quoted saying you were “profoundly relaxed” about the possibility of an AI bubble. But then piling on all of this debt changes things. So what changed your mind?

ROBIN WIGGLESWORTH: [00:59:19] Well, I’m profoundly relaxed about bubbles, just because I’m not an efficient market zealot, but I just can’t spot them, certainly. I don’t really believe anybody can. And in fact, I think bubbles are an essential part of how the world works. They’re an important part. They’re even a valuable part. We want people to occasionally take leave of their senses and chuck money at stuff, to hope and dream, rather than just kind of be a boring journalist who always thinks everything’s going to go badly. That is how, quite often, big leaps of progress happen.

But I do think that bubbles, when they burst, they tend to burst in more violent, nasty ways when they are driven primarily by credit. So we talk about the dot-com bubble as a classic example. That was primarily in the equity landscape. Didn’t really matter economically. That’s how I felt about the AI bubble for a long time. Yes, it’s great. I mean, I’ll write about things, this is mad or this is good, or who cares? Nobody cares. I don’t know, I’m a journalist. But I do see the signs that it is becoming increasingly fueled not just by the cash flows of these incredibly successful tech companies, but also by credit, and now increasingly off-balance-sheet liabilities. And I’m not saying that we should freak out now, but I think soon, if there is… but…

BARRY RITHOLTZ: [01:00:37] Eventually.

ROBIN WIGGLESWORTH: [01:00:38] Eventually. And I think it’s a classic thing that, you know, if we talk in a few years’ time about the big AI crash of 2027 or ’28 or ’29, we’ll point to this as symptoms. Obviously we saw this coming. It was this and that and that.

BARRY RITHOLTZ: [01:00:53] You remind me, there’s a wonderful book that, if you haven’t read, you should absolutely put at the top of your list. It’s by Dan Gross: Pop! Why Bubbles Are Great for the Economy. My favorite chapter is all of the fiber that was laid. Global Crossing, Metromedia Fiber, a thousand dollars a mile, and afterwards, after it comes out of bankruptcy and gets bought for pennies a mile, you know, no one would pay $300 a month for YouTube. But, you know, $10 a month is affordable. So I’m assuming you believe there’s a giant misallocation of capital to AI, and on the other side it’ll work to everybody’s benefit.

ROBIN WIGGLESWORTH: [01:01:37] Well, I don’t know. I don’t know whether it’s misallocated. I mean, if it’s going to cure cancer, bring peace to the Middle East and make us an interplanetary species, maybe this isn’t misallocation. I don’t know. And I think we all have to be humble, given what’s going on, about how much we do know. I’m just inherently cynical. I’m a journalist. It’s kind of a professional requirement. But I tend to be happy about, I think like this is a good thing. And yes, maybe, if essentially the future is small language models, stuff that you can run on the phone. I mean, most ordinary people that use AI today, as far as I can see, it’s like a souped-up Google search. They want to pair a wine with their dinner or whatever. And you don’t need…

BARRY RITHOLTZ: [01:02:21] That’s not AI. You don’t need…

ROBIN WIGGLESWORTH: [01:02:23] Well, basically, if you look at what people are actually using ChatGPT and Claude for, we hear about the cutting-edge examples, but really the vast majority of usage, I suspect, is that very low-level stuff that you don’t need massive data centers to run.

BARRY RITHOLTZ: [01:02:38] Right. The best description I heard is if you’re doing it on a transactional basis, it’s the same as Google search. But if you’re using it on a collaborative basis, you’re going to make your own work deeper, broader and potentially better. As long as you don’t cut and paste AI-generated text, which continues to be garbage. But that’s a whole ‘nother story.

ROBIN WIGGLESWORTH: [01:03:03] Well, I mean, it’s getting a lot better. I think people, I mean, some of the newer frontier models… we’ve kind of had this crystallized view of what it looks like, because we’ve tested ChatGPT two or three or something. It is getting incredibly good. And I’ve been an AI nut since, look, I spent part of my paternity leave here in New York in March 2016 watching AlphaGo beat Lee Sedol at Go, which was a big deal. It was a huge deal. It was one of those firsts. It was the last game you had.

BARRY RITHOLTZ: [01:03:30] First you had chess. Then you had Jeopardy. And for reasons inherent in the rules of Go, it’s even harder than both of those, because those are so predefined.

ROBIN WIGGLESWORTH: [01:03:42] Yeah. It is so difficult. And, I mean, AlphaGo is now almost trivial for what these models can do. But for me it was… I cover quantitative hedge funds. I could see how they’re using things that we don’t talk that much about, but machine learning and neural nets. I mean, neural nets obviously are coming back now, and natural language processing. And it was super cool. And I could see how quants… there was some quant hedge fund that in their holiday downloaded lots of heart scans from the Cleveland Clinic, I think it was, as a Kaggle competition, and were able to design something that better, more quickly identified heart disease than human doctors. And that’s just, so for me it was mind-blowing. I’m a huge optimist on all these things. But I also know the pattern that we get overly optimistic, and we talk about human extinction and curing cancer. I mean, we’ll see. All I know is there’s a lot of money going into this. It’s increasingly debt-financed. It’s increasingly off-balance-sheet financed. And historically that has not ended well. And rail, like you say, rail is a great example of a capex boom that ended badly economically and financially, but still was a huge societal boon for America. Cable as well. All the cable we laid. But that lasts longer than the GPU chip.

BARRY RITHOLTZ: [01:05:00] That’s for sure.

ROBIN WIGGLESWORTH: [01:05:01] So that’s what I’m a little bit worried about.

BARRY RITHOLTZ: [01:05:03] So what’s the bigger issue? Is it the size of the debt that’s being issued? Is it the circularity? Or is it just the overall quality, with that off-balance-sheet stuff? Which ultimately, I believe the reason Lehman wasn’t rescued is Repo 105. They were pretty much insolvent and had spent a good couple of years hiding it.

ROBIN WIGGLESWORTH: [01:05:28] No, I think that’s very right. And also that when you don’t see… it’s the stuff you don’t see, like that old Mark Twain quote, the stuff you don’t know about. I’m not actually worried because, I mean, so AI hyperscalers I think have issued around $500 billion worth of debt this year after 200 billion or so last year. But it’s like big numbers. But these are incredibly large, successful, big companies. YouTube still prints money. Amazon still prints money. Facebook, WhatsApp, still prints money. It’s fine. They could even issue lots more. And the rating agencies, God bless ’em, they are actually looking past these and into these off-balance-sheet commitments. It is getting integrated. And despite all those liabilities, these are still pretty strong companies. There are asterisks around, let’s say, an Oracle that is looking like the weaker member of the herd. But even that doesn’t look like an imminent disaster. But, you know, we are still in the foothills, and we can see where things are going. So right now, I struggle to see this ending horrifically badly. But, you know, I’ve been wrong before, and we might be talking in a year’s time and it’s like, oh my God, that broke pretty bad.

BARRY RITHOLTZ: [01:06:36] So let’s talk about US debt and US Treasuries. We discussed earlier how the deficit scolds, you know, everything they’ve been warning about: the US won’t be able to finance its debt, it’ll crowd out private capital, cause hyperinflation, all those things. None of them came true. At what point do you begin to get worried about US debt? You said you’ve gone from 1% worried to 3% worried. What would take you up to 15, 20% worried?

ROBIN WIGGLESWORTH: [01:07:13] Yeah, I’ve been thinking. I mean, this is the big subject. It’s the $40 trillion question, I guess, or really, given the importance of the US economy, it’s sort of the biggest question in the world right now. I’m not that worried. I mean, the numbers are startling. I came across a stat that the US celebrated its 250th birthday this year. Happy birthday, America. In its first 240 years, the US borrowed around $20 trillion, and it’s borrowed another $20 trillion in just the past 10 years.

BARRY RITHOLTZ: [01:07:43] It’s really a story of unforced errors this past decade.

ROBIN WIGGLESWORTH: [01:07:48] Yeah, I mean…

BARRY RITHOLTZ: [01:07:49] Giant tax cuts, wars of choice, tariffs. You could go down the list. All these things were decisions. Not, hey, sometimes there’s a catastrophe or a pandemic and it requires a response. Other times we just make bad decisions.

ROBIN WIGGLESWORTH: [01:08:05] Yeah, no, completely. I mean, you and I, we remember the late nineties. There were genuine concerns about what would happen if the US paid down all its debts, because it was running such big budget surpluses. It stopped issuing 30-year Treasuries for a period. I mean, you tell kids that these days, it sounds like fantasy land. But there were genuine concerns about what the global financial system would look like if there were no Treasuries. And now that is not the thing we’re worried about.

BARRY RITHOLTZ: [01:08:32] Not a concern. I spent the better part of the 2010s begging the Treasury Department to issue 50- or 100-year debt. And, by the way, refinance everything. Rates are at record lows. And the response was, well, if we lower our interest rate, we’ll just spend more money. No, you’re going to spend more money anyway. The question is, what’s it going to cost to service it? Just generational idiocy. Since you quoted Twain, I’ll quote Twain: “He is an idiot and a congressman. But I repeat myself.” I mean, that is just the greatest observation about politicians.

ROBIN WIGGLESWORTH: [01:09:11] I mean, Mark Twain had a way with words. He should have written some books.

BARRY RITHOLTZ: [01:09:13] He should have. He absolutely should have put some pen to paper. So let’s stay with the…

ROBIN WIGGLESWORTH: [01:09:18] And when do I worry? Yeah, well, okay, so people focus on debt-to-GDP, but that’s a nothing indicator. It doesn’t say anything about a country’s ability to carry debt. Japan is a great example of that.

BARRY RITHOLTZ: [01:09:29] Well, I should argue that if you have a big, robust GDP, you can afford servicing that debt. The doom-mongers who you talk about in the book, they only look at the debt. They don’t look at the other side of the ledger. Hey, it’s called double-entry accounting for a reason.

ROBIN WIGGLESWORTH: [01:09:47] If people want to think of it in household terms, imagine if you bought a house for one times your income. You wouldn’t feel very levered, would you?

BARRY RITHOLTZ: [01:09:56] Right. No, that’s exactly right. And the rule of thumb is what, three or four times income?

ROBIN WIGGLESWORTH: [01:10:00] Yeah. So the US has a way to go before it… I’m not saying that’s good. And I have to admit, I cannot look at the budget situation now and think that, given the health of the US economy, given the health of the global economy, given the lack of any major crises, that a 6% budget deficit is a good thing. That is unambiguously not a good thing. But I think the US has far more capacity to carry debt than most Americans certainly realize. I’ve looked at this. If you look at debt servicing as a percent of GDP, just how much it costs to pay interest as a part of the budget, in the US it looks pretty big, because the US government is pretty small compared to the size of the economy, compared to most other developed countries. So the US can tax a lot more, and it can spend probably a bit less as well. But if you look at this as a percent of GDP, it’s around three and a half percent of GDP.

BARRY RITHOLTZ: [01:10:49] Which is really very modest.

ROBIN WIGGLESWORTH: [01:10:51] Yes. It’s up from around two and a half percent a few years ago. But it’s actually less than most other developed countries. It’s really only when you get around 5% of GDP when you can see some evidence of other countries historically struggling a bit more.

BARRY RITHOLTZ: [01:11:06] So we’re two-thirds of the way there. We have to do something to either lower rates or lower our deficit, or some combination thereof. Or we will eventually run into trouble.

ROBIN WIGGLESWORTH: [01:11:16] So the CBO, I think the last calculations, I think they indicate it will hit around 5%, all things being equal, in a decade or so, like 10, 12 years. And even then, frankly, countries are fine. It’s just that quite often we’ve seen countries then reverse course. So the UK in the 1980s, a great example, under Thatcher. A country that didn’t reverse course, and the debt started snowballing, is Canada in the nineties.

BARRY RITHOLTZ: [01:11:42] Oh, really?

ROBIN WIGGLESWORTH: [01:11:43] Yeah. So the Canadians, for all sorts of fun reasons, but also they struggled to get inflation down after the eighties. They had, not a huge debt stack, but it became quite onerous to service. So Canadian government debt servicing as a percent of GDP peaked at almost 10% of GDP in ’95. But then they had a big program. It was in the nineties. It was kind of fine. It was good to retrench a bit when the global economy is doing fine. I really want to study that episode, because I only looked at the numbers on the IMF database, because I’m a sad person who spends my evenings looking at IMF data. But that’s one of the things I’d love to dig into, finding out how Canada got that far. Why did things start snowballing at around 5%, why they didn’t stop then, and how they did eventually stop.

BARRY RITHOLTZ: [01:12:32] So we’re talking globally. The number in the book about global debt is $340 trillion. What does that mean for the world, to be carrying all of this global debt?

ROBIN WIGGLESWORTH: [01:12:46] Well, I mean, the book’s already out of date. I think it’s $370 trillion now.

BARRY RITHOLTZ: [01:12:52] A trillion here, a trillion there. Pretty soon it all adds up.

ROBIN WIGGLESWORTH: [01:12:54] Right? Yeah, exactly. Well, look, I am both very insistent I am not a debt scold, but debt unambiguously does make stuff more fragile. Debt is an asset as well as a liability. I think some countries could and should borrow more. I think this is a healthy thing. But it does make the system fragile. We have a lot of stuff in the world that encourages people to borrow money, whether it’s the tax deduction for interest payments, you know, it’s just a favorable tax break. Or like, if you’re a private equity firm, you’re always optimizing the balance sheet to increase your equity returns. I don’t think that’s healthy. It does mean that it’s an economy that is more fragile to shocks. And in an ideal world, I’d have a system that is a little bit more resilient, because there are always shocks coming. And I think we could do a bit more to maybe buttress the sinews of the bond market, especially, to help that.

BARRY RITHOLTZ: [01:13:49] So when the tariffs were introduced, when there was a whole bunch of nonsense with Canada and Greenland and all this back and forth, to say nothing of the Iran war, some folks talked about the end of US hegemony, perhaps the end of the dollar as a reserve currency, or the central role of the US Treasury in global finance. What’s your take on that? Is that an overreaction? Is there an alternative to the dollar? Is there an alternative to Treasuries?

ROBIN WIGGLESWORTH: [01:14:21] I think it’s both an overreaction and there is no alternative. So I think even if there was an alternative, I think people underestimate the immense force of inertia and how slowly things change. So on the spectrum of how worried people are, I’m definitely on the very relaxed side of things. Maybe wrongly, who knows. But I also definitely think there is no alternative. I mean, Europeans own, I think, 15, $16 trillion worth of US assets. There was lots of talk and chatter about them withdrawing, pulling out. But, you know, where are you going to put that money? I mean, there is no other market in…

BARRY RITHOLTZ: [01:15:03] Japan. The euro.

ROBIN WIGGLESWORTH: [01:15:05] Beijing? Do you trust, I mean, clearly, despite the administration’s foibles, right? Do you trust Beijing more than you trust DC? I’m not so sure. So I think people… you know, there’s some things we underestimate the rate of change on, and some things we massively overestimate. We think, almost feel innately, that yes, the US should be punished. Us Europeans, even Asians, I’ve talked to people about this. There’s almost this visceral sense there should be consequences. I just don’t see it, if I’m being honest.

BARRY RITHOLTZ: [01:15:35] All right. Before I get to my favorite questions, I have one last question. And it’s a quote that I love that I recognized in the book. J.K. Galbraith: “There can be few fields of human endeavor in which history counts for so little as in the world of finance.” Why is that? I mean, all the information is here. You can find these mistakes, and yet we relive them over and over again.

ROBIN WIGGLESWORTH: [01:16:04] Well, some of it’s human nature doesn’t change. And I think also finance is, and one of the reasons why I love it, it’s its complexity, its nuance, its depth. And it just means that if you are a world-class bond person, how much time do you really have to get sucked into the history, or know about the equity world? You and I see this probably all the time, that people are world-class experts in this one narrow field. If they start opining about central bank monetary policy, you realize they’re over their skis. And these are very smart, intelligent people. I mean, world-class people. It’s just very hard to know this. It’s a very complex system, our global world. And I think history, I wish more people studied it, because it has at least helped me understand the world. I’m not saying the world makes perfect sense when you know its history, but it has helped me enormously. And I’m hoping it can help other people as well.

BARRY RITHOLTZ: [01:16:59] I couldn’t agree more. I’m always surprised when I’m speaking to someone and I’ll reference what I think of as a well-known historical fact and they’re like, no, that can’t be. It’s the same mistake we made now. We couldn’t have done that in 1987.

ROBIN WIGGLESWORTH: [01:17:17] No, exactly.

BARRY RITHOLTZ: [01:17:18] All right, let me jump to my favorite questions. I ask all my guests. Kind of revealing about who you are. Starting with, who were your mentors that helped shape your career?

ROBIN WIGGLESWORTH: [01:17:30] Well, the first guy who gave me a job in journalism was a guy called Paul McNamara. And he was very sort of, almost performatively dour, but in quite a funny way. A very dry person. But he was one of the first people that made me think, actually, maybe I can do this for a living. Because when you’re young, you’re always filled with insecurity. And he was not somebody who gave praise lightly. But he said I was not terrible. And that meant a lot coming from him. And I learned a lot from him.

Here at Bloomberg, actually, since we’re here, there was an editor here when I worked here called Chris Kirkham, who was my team leader when I covered economics and politics in the Nordic region. I thought he was phenomenal. Very old school. He’ll very happily yell at you if you screwed up. But the only time I had a really big mistake, he didn’t say anything. He called up and said, look, I’m not going to say anything. I think you know that was not great. Go out, get drunk, I’ll pay for it all, and then come back tomorrow, and tomorrow’s a new day. And I really appreciated that. He’d yell at the small stuff, but the big stuff, he knew he didn’t need to beat you up. I beat myself up more than anybody else could. So I thought that was quite inspirational, actually.

BARRY RITHOLTZ: [01:18:34] Really interesting. So you wrote two books, Trillions and A Fabulous Debt. What are some of your favorite books, and what are you reading currently?

ROBIN WIGGLESWORTH: [01:18:44] Peter Bernstein, Against the Gods. Classic, spectacular. It’s just incredible. I mean, somebody once said that Trillions was similar, and I never blush, but I blushed such a crimson shade as never before in my life. It was incredible. And it’s not true. Bernstein is a giant.

I mean, God, I always feel like I can think of all the people that I’d love to say. But I’ve recently read Liaquat Ahamed’s 1873 book, which was spectacular. Also covers some of the same ground.

BARRY RITHOLTZ: [01:19:19] He’s the author of Lords of Finance, which won a Pulitzer. I have that book next up in my queue.

ROBIN WIGGLESWORTH: [01:19:24] Oh, enjoy.

BARRY RITHOLTZ: [01:19:25] I’ve heard from several people it’s spectacular.

ROBIN WIGGLESWORTH: [01:19:29] Yeah, no, I love it. And I love it because it’s almost like a complement to my book, because he talks about some of the same stuff, but from that Gründerkrach perspective, in Europe primarily, and through the prism of the Rothschild family. And I mean, Lords of Finance is, you know, I’ve read some Pulitzer Prize-winning books that have been disappointing. Lords of Finance is spectacular. It’s one of the best narrative history books ever. It’s incredible.

BARRY RITHOLTZ: [01:19:51] Told from the point of view of four separate central bank chiefs, is such a great frame. Anything else that you’ve read recently that you want to mention?

ROBIN WIGGLESWORTH: [01:20:03] Well, belatedly, because I spent so long studying and researching for my own book, I only read stuff that was relevant to my book until recently. So I’ve been catching up on some old stuff. My colleague Dan McCrum, who took down the German company Wirecard.

BARRY RITHOLTZ: [01:20:15] Yes.

ROBIN WIGGLESWORTH: [01:20:16] He wrote a book called Money Men, which is, look, I read it because he’s a friend and a colleague and it’s an incredible story. But I felt I knew that story. I read about it in the FT. The book is incredible. And actually, writing a narrative story about something like a German payments company is such a feat of writing. I just admired the craft. I thought it was incredible.

BARRY RITHOLTZ: [01:20:40] What about streaming? You listening to any podcasts or watching any streaming shows that are worth repeating?

ROBIN WIGGLESWORTH: [01:20:49] I’m watching The Bear with my wife. It’s making us very hungry and miss New York a lot. I mean, I know it’s set in Chicago, but generally having a food scene slightly better than the one in Oslo is something we’d appreciate. So we’re about to finish that. So if you’ve got any good tips, I need something new. I listen to more podcasts now, certainly, than I used to, because we have our own, The Story of Money, a financial history podcast. But yeah, The Rest Is History. I mean, they don’t need a shout-out from me. It’s a juggernaut at this point.

BARRY RITHOLTZ: [01:21:21] What sort of advice would you give to a recent college grad interested in a career in either journalism or finance?

ROBIN WIGGLESWORTH: [01:21:30] Probably, for both, to learn basic data work. One thing I’ve noticed, you know, some things change and some things don’t. When I joined the FT, the fact that I knew how to use Excel and could at least put two and two together, I was an Excel wizard because I knew how to use it. I very quickly got sort of skilled out of that science. So now, you know, we have a data and visualization team that does astonishing work and are extremely world-class programmers in their own right. But even the average grad trainees that don’t do this are still just so much better than me. And if I had more time, but you kind of always have to run to stay still, I’d relearn so much more. I’d love to learn to code properly. I’d love to really get better at that. But I think at this point maybe I just need to defer to people younger than and smarter than me. That ship has sailed. But I think that’s incredibly handy. Because you don’t actually maybe need to learn to code. But being facile with data, I think in almost any job that is going to be incredibly handy.

BARRY RITHOLTZ: [01:22:35] A hundred percent. And our final question: what do you know about the world of bonds, credit, debt today that might’ve been useful 30 or so years ago, when you were first getting started?

ROBIN WIGGLESWORTH: [01:22:48] YOLO my student loan into Apple stock. Maybe I almost did. I mean, not the entire student loan, but I remember buying the first iPod in Norway, probably. I was told it was, but I don’t know if it’s true. And I was just blown away. I thought, my God, this is incredible. It’s the only time I thought about buying a stock. And I didn’t, and I’ve never dared to. I would’ve sold it off.

BARRY RITHOLTZ: [01:23:09] So wait, you don’t have any equity investments?

ROBIN WIGGLESWORTH: [01:23:11] I do on behalf of my children. Other than that, I am extremely leveraged long Norwegian property and a little bit London property as well.

BARRY RITHOLTZ: [01:23:18] When you say leveraged long, that just means you have a mortgage?

ROBIN WIGGLESWORTH: [01:23:20] Yes. Essentially, yes.

BARRY RITHOLTZ: [01:23:21] Thank you, Robin, for being so generous with your time. We have been speaking with Robin Wigglesworth, editor at FT Alphaville, author of Trillions, and his latest book, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World, is out now. I would be remiss if I didn’t thank the crack team that helps put together all of these podcasts over the past 12 years. This is 664 or so. Samantha Danziger is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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