In the summer of 1856, a very young and bright Karl Marx studied the European speculative mania in the trail of the Bonapartist/Pereirist scheme called Credit Mobilier. He studied their financials very meticulously and saw through them as if they had covered their nakedness with crisp October air. You only have to replace the name Credit Mobilier with Goldam Sachs, adjust the calendar 150 years and the monetary figures a couple of orders of magnitude, to read a pretty apt description of the Clinton/Bush government-enabled financial swindle of the 1990s-2000s in the run up to the financial panics of 2007-2008. Credit Mobilier finally went belly up a decade after Marx warned of its impending debacle. It is curious that the Pereires were then called the dieux of la finance, the gods of finance. It reminds one of the claim made by Lloyd Blankfein that Goldman performed God’s work. Oh boy. What was it that Yogi Berra said about déjà vu?
UPDATE: My good friend Matías Vernengo posted relevant comments on Facebook. I am also reposting my replies here:
Matias Vernengo: There is a difference between Crédit Mobilier and Goldman though. As noted by Gerschenkron big banks and the state were central for the industrialization of the late comers, and the Péreire’s bank basically built the railroad infrastructure, whereas Goldman was creating and selling complex financial assets (CDOs) and then betting they would fail. So not all financial crises and bubbles are similar.
Julio Huato: Ultimately, Goldman Sachs and the like did intermediate the building of a lot of housing and infrastructure in Florida, Arizona, Nevada, Southern Spain, Greek islands, Ireland, etc. If people didn’t want to wait until the next boom to pick up the scraps and keep such a large stock of physical wealth from idle decay, then it was up to them to expropriate it. By the way, there was also a lot of wasted, idle, decaying railroad infrastructure at time, some of it tied to long legal battles (as in the U.S., cf. the spat of legal/financial scandals that erupted after the bubble popped), so it took a while for industry, commerce, and personal travel to absorb it, which wound up happening in the 1880s and 1890s. Of course, the mututis mutandis clause applies, but perhaps the most the surprising thing is the similarity.
Matias Vernengo: I don’t think Goldman or housing has a comparable role for technical change in recent times to Crédit Mobilier and railroads for the so-called 2nd industrial revolution.
Julio Huato: But how about the telecom buildup that ended in the dot-com fiasco? That wound up being the so far existing 21st century net infrastructure. No? I am not sure I see the difference here as pointing to an epochal shift in the fundamental structures of capitalism, if that is what Gershenkron suggested.
Matias Vernengo: I would agree with the dot.com bubble Julio, but not with the housing one. Eatwell, if I’m not wrong, has a paper on useful bubbles.