What is the main focus of the video?

The video focuses on the historical and ongoing power and influence of the bond market over political and economic affairs.

Who is considered as a key figure in the bond market according to the video?

Bill Gross, the boss of PIMCO and a significant player in the bond market, is highlighted as a key figure.

What historical events does the video link to the bond market?

The video links the bond market to various historical events such as the wars in Northern Italy, the Battle of Waterloo, the American Civil War, and Argentina's economic crisis.

How did the bond market originate?

The bond market originated during the Renaissance in Italian city-states, which used bonds as a means to fund wars.

How did the Rothschilds influence the bond market?

The Rothschilds played a significant role by financing wars through bonds and becoming powerful financiers because of their strategies in the bond market.

What is the bond market's impact on everyday individuals?

The bond market affects individuals by impacting the value of pensions and setting interest rates, which in turn affects mortgage and loan costs.

How does inflation impact bondholders?

Inflation can erode the value of fixed interest returns for bondholders, making their investments less valuable in real terms.

What solved Florence's financial crisis in the Renaissance?

Florence solved its financial crisis by obligating citizens to lend money to the government through bonds.

What lesson does the Argentine crisis offer?

The Argentine crisis illustrates the dangers of poor financial management and the severe impact of hyperinflation on an economy.

How did cotton influence the American Civil War's bond market strategies?

The Confederacy used the value of cotton as collateral to support its bonds, attempting to leverage this against Britain and other investors.

The Ascent of Money Episode 2: Human Bondage

00:48:08

https://www.youtube.com/watch?v=yBQaQq0m5BA

Summary

TLDRThe video examines how power has shifted from political leaders to key financial players controlling the bond market, epitomized by figures like Bill Gross, known as 'Mr. Bond.' It traces the origins and history of the bond market, starting from Renaissance Italy where wars were financed through bonds. The video discusses the significant influence of the Rothschild family, who rose to power by manipulating the bond market during the Napoleonic wars. It highlights how the bond market dictates economic conditions, exemplified by events like the fall of Argentina into economic chaos due to hyperinflation. The bond market's impact extends to modern economies, influencing policies and interest rates that affect individual financial well-being. The narrative illustrates both the historical significance and the current vast scale and power of the bond markets in global finance.

Takeaways

💼 Real power today lies in the bond market, not political offices.
🤑 Bill Gross, a key figure in the bond market, influences global economies.
🔗 Bonds connect financial markets with political power and historical events.
📈 The bond market originated in ancient Italy to fund wars.
💰 The Rothschild family rose to power through bond trading.
🔍 The bond market affects interest rates and pension values.
⚠️ Inflation poses a risk to bondholders, devaluing bonds.
🇦🇷 Argentina's economic collapse highlights bond market risks.
🧮 Bonds were pivotal in financing historical wars like Waterloo.
🌍 The global bond market remains a dominant financial force.

Timeline

00:00:00 - 00:05:00
Power in today's world is not held by presidents and prime ministers, but by an elite group of men who control the world's bond market, such as Bill Gross of PIMCO. Bonds serve as a critical link between finance and political power, funding government deficits and impacting the global economy.
00:05:00 - 00:10:00
The history of the bond market began in the Italian Renaissance when city-states funded wars through bonds, transforming citizens into investors, and it grew to influence outcomes in major conflicts like the Battle of Waterloo and the American Civil War.
00:10:00 - 00:15:00
The bond market revolutionized state financing, setting interest rates and becoming integral to global finance. It facilitated wars but also led to complex financial dynamics, demonstrating its influence over military and economic outcomes.
00:15:00 - 00:20:00
Nathan Rothschild's financial acumen during the Napoleonic Wars exemplified how bonds could yield immense wealth and power. Despite initial setbacks, Rothschild's strategic bond trading brought unprecedented success, showcasing the bond market's potential.
00:20:00 - 00:25:00
The Rothschilds' influence through the bond market extended to global events like the American Civil War. However, their decisions reflected a preference for stability over conflict, emphasizing how bond markets could sway national destinies.
00:25:00 - 00:30:00
During the American Civil War, the South's reliance on cotton-backed bonds illustrated the bond market's power—and perils. The failure to secure foreign backing and reliance on cotton led to economic ruin and highlighted the bond market's deciding role.
00:30:00 - 00:35:00
The collapse of Confederate bonds due to military defeats and economic circumstances underscored the bond market's impact on national survival. The South's financial strategies failed against the harsh realities of war and economic isolation.
00:35:00 - 00:40:00
Argentina's hyperinflation crisis in the late 20th century demonstrated the bond market's vulnerabilities when governmental fiscal irresponsibility leads to monetary collapse, affecting bondholders, pensioners, and the broader economy significantly.
00:40:00 - 00:48:08
As modern economies continue to navigate fiscal policies, the bond market remains a key player with significant power over global economic stability, influencing decisions from interest rates to government bailouts and public confidence in economies.

Mind Map

Video Q&A

What is the main focus of the video?
The video focuses on the historical and ongoing power and influence of the bond market over political and economic affairs.
Who is considered as a key figure in the bond market according to the video?
Bill Gross, the boss of PIMCO and a significant player in the bond market, is highlighted as a key figure.
What historical events does the video link to the bond market?
The video links the bond market to various historical events such as the wars in Northern Italy, the Battle of Waterloo, the American Civil War, and Argentina's economic crisis.
How did the bond market originate?
The bond market originated during the Renaissance in Italian city-states, which used bonds as a means to fund wars.
How did the Rothschilds influence the bond market?
The Rothschilds played a significant role by financing wars through bonds and becoming powerful financiers because of their strategies in the bond market.
What is the bond market's impact on everyday individuals?
The bond market affects individuals by impacting the value of pensions and setting interest rates, which in turn affects mortgage and loan costs.
How does inflation impact bondholders?
Inflation can erode the value of fixed interest returns for bondholders, making their investments less valuable in real terms.
What solved Florence's financial crisis in the Renaissance?
Florence solved its financial crisis by obligating citizens to lend money to the government through bonds.
What lesson does the Argentine crisis offer?
The Argentine crisis illustrates the dangers of poor financial management and the severe impact of hyperinflation on an economy.
How did cotton influence the American Civil War's bond market strategies?
The Confederacy used the value of cotton as collateral to support its bonds, attempting to leverage this against Britain and other investors.

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Subtitles

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00:00:03
we may think power resides with
00:00:06
presidents and prime ministers in
00:00:08
palaces and Parliament's not so in
00:00:12
today's world real power lies in the
00:00:15
hands of an elite group of unassuming
00:00:17
men in anonymous open-plan offices the
00:00:22
men who controlled the world's bond
00:00:23
market Bill Gross is the boss of PIMCO
00:00:32
the world's biggest bond trading
00:00:34
operation which manages a portfolio of
00:00:37
bonds worth 700 billion dollars gross is
00:00:41
widely regarded as the king of the bond
00:00:44
market just call him Mr Bond
00:00:48
[Music]
00:00:52
bonds are the magical link between the
00:00:55
world of high finance and the world of
00:00:57
political power governments will always
00:00:59
spend more than they raise in taxation
00:01:02
sometimes shed loads more and they make
00:01:04
up the difference by selling bonds that
00:01:06
pay interest but and here's the magic if
00:01:09
you want to get rid of a bond the
00:01:10
government doesn't have to give you the
00:01:12
cash back you just take it to a bond
00:01:14
market like the one here took your stock
00:01:16
exchange and sell it
00:01:21
after the rise of banks the birth of the
00:01:23
bond market was the next big revolution
00:01:25
in the history of finance it created a
00:01:28
whole new way for governments to borrow
00:01:31
money
00:01:32
the bond market funded the walls that
00:01:34
plagued northern Italy six hundred years
00:01:37
ago it dictated the outcome of the
00:01:43
Battle of Waterloo and created the
00:01:45
world's greatest financial dynasty it
00:01:49
ensured the defeat of the south in the
00:01:51
American Civil War and in modern times
00:01:54
the bond market has brought once wealthy
00:01:56
nations like Argentina crashing to their
00:01:59
knees today
00:02:02
governments and companies use bonds to
00:02:04
borrow on an unimaginably vast scale all
00:02:08
told there are bonds out there worth
00:02:10
around 85 trillion dollars the fortunes
00:02:16
of most of us whether we like it or not
00:02:18
are directly linked to the bond market
00:02:20
if the bond market tanks then down goes
00:02:24
the value of our pensions and that's a
00:02:27
huge part of our wealth as individuals
00:02:28
in the financial crisis that has gripped
00:02:31
the world since the summer of 2007 US
00:02:34
government bonds have been seen as a
00:02:36
safe haven for investors seeking shelter
00:02:38
from the storm of falling property and
00:02:41
share prices so if Bill Gross were to
00:02:44
lose faith in those bonds it would hit
00:02:46
the financial world like well a fundable
00:02:51
that's why this mr. bond has become so
00:02:54
much more powerful than the mr. bond
00:02:56
created by Ian Fleming and that's why
00:03:00
both kinds of bond have a license to
00:03:03
kill
00:03:03
[Music]
00:03:14
[Music]
00:03:28
war declared the ancient Greek
00:03:31
philosopher Heraclitus is the father of
00:03:34
all things it was certainly the father
00:03:37
of the bond market for much of the 14th
00:03:44
and 15th centuries the medieval
00:03:46
city-states of Tuscany Florence Pisa and
00:03:49
Siena were at war with each other
00:03:52
this was war waged as much by money as
00:03:55
by men in Peter vanderheiden's battle of
00:04:03
the moneybags and strong boxes piggy
00:04:05
banks treasure chests and barrels full
00:04:08
of coins lay into one another with
00:04:10
Lance's and swords in a chaotic
00:04:12
free-for-all the Dutch verses inscribed
00:04:14
at the bottom read it's all for money
00:04:17
and goods this fighting and quarreling
00:04:19
but what they might just as easily have
00:04:21
said is that war is impossible if you
00:04:23
don't have the money to pay for it and
00:04:30
the way to do that the ability to
00:04:33
finance war through the bond market was
00:04:36
like so much else an invention of the
00:04:38
Italian Renaissance
00:04:43
rather than require their own citizens
00:04:46
to do the dirty work of fighting each
00:04:48
city hard military contractors
00:04:51
condottieri who raised armies to annex
00:04:54
land and Luke treasure from the others
00:04:57
among the condottieri of the 13 60s and
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13 70s one stood head and shoulders
00:05:03
above the others
00:05:07
this is his portrait in Florence's Duomo
00:05:10
earth thank you from a grateful public
00:05:15
unlikely though it may seem this master
00:05:18
mercenary was an Essex boy so skillfully
00:05:24
did he wage war that the Italians called
00:05:26
Sir John Hawkwood Giovanni Acuto John
00:05:30
the acute
00:05:33
this castle was one of many pieces of
00:05:36
prime real estate the Florentines gave
00:05:38
him as a reward for his services
00:05:44
but Hawkwood was a mercenary who was
00:05:46
willing to fight for anyone who'd pay
00:05:48
him
00:05:49
Milan Padua Pisa or the Pope
00:05:59
these dazzling frescoes in Florence's
00:06:02
palazzo vecchio show the armies of pisa
00:06:05
and florence clashing in 1364 at that
00:06:08
time hawkwood was fighting on the side
00:06:10
of pisa but 15 years later he'd switched
00:06:13
sides
00:06:14
why because florence was where the money
00:06:16
was the cost of these incessant wars
00:06:22
plunged Italy's city-states into crisis
00:06:25
expenditures even in years of peace were
00:06:28
running at double or more tax revenues
00:06:31
to pay the likes of Sir John Hawkwood
00:06:35
Florence was drowning in deficits this
00:06:44
wonderful document in the Florentine
00:06:45
State Archives shows how the city's debt
00:06:48
had exploded from around fifty thousand
00:06:51
florins at the beginning of the 14th
00:06:52
century to five million by 14:27 it was
00:06:56
quite literally a mountain of debt hence
00:06:58
the name the Monti communiy but from who
00:07:02
look at the Florentines possibly have
00:07:04
borrowed such a vast sum the answer is
00:07:07
right here from themselves
00:07:13
it was a revolutionary idea that would
00:07:16
change the world of money forever rather
00:07:19
than paying direct tax citizens were now
00:07:21
effectively obliged to lend money to
00:07:24
their own government
00:07:25
[Music]
00:07:32
in return for these forced loans they
00:07:35
received interest these debt instruments
00:07:42
simple lines in a ledger were the
00:07:45
original government bonds and the
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wonderful thing about them was that if
00:07:48
you needed your money in a hurry you
00:07:49
could sell your bonds to other citizens
00:07:52
they were liquid assets what this record
00:07:55
tells us is how Florence turned its
00:07:58
citizens into its biggest investors this
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what I'm expedient marked the birth of
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the modern bond market everyone was a
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winner bonds had saved the city-state
00:08:13
from bankruptcy the citizens were happy
00:08:16
earning their interest and the bond
00:08:18
market let them buy or sell as they saw
00:08:20
fit it seemed as if the problem of
00:08:23
public debt had been solved allowing the
00:08:26
citizens of Florence to turn their minds
00:08:28
to higher things but there was just one
00:08:32
problem
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with this brilliant idea
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there was a limit to how many more or
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less unproductive walls could be waged
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the larger the depths of the Italian
00:08:49
cities became the more bonds they had to
00:08:51
issue and the more bonds were issued the
00:08:54
less valuable they looked to investors
00:09:00
and that was exactly the sequence of
00:09:03
events in Venice
00:09:06
by the early 16th century the city had
00:09:09
suffered a series of military reverses
00:09:11
and a value of venetian bonds had taken
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a hammering
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at the nadir between 1509 and 15:29
00:09:25
Venetian Montaigne reverb bonds were
00:09:27
trading at just 10% of their face value
00:09:30
now if you buy a bond when war is raging
00:09:34
you're taking a risk the risk that the
00:09:37
city won't pay you back or pay your
00:09:38
interest on the other hand remember that
00:09:41
the interest is paid on the face value
00:09:43
of the bond so if you conveyor to just
00:09:45
10% of its face value you're earning a
00:09:48
handsome return of maybe 50% and that is
00:09:51
how the bond market works in a sense you
00:09:54
get returned for the risk you'll prepare
00:09:57
to take at the same time it's the bond
00:09:59
market that sets interest rates for the
00:10:01
economy as a whole if the state has in
00:10:03
effect to pay 50% then so do all the
00:10:06
other borrowers
00:10:11
the bond market had been invented to
00:10:13
help pay for it at his Wars but now it
00:10:16
was setting interest rates for everyone
00:10:19
its rise to par had begun over the next
00:10:24
two centuries bonds would come to rule
00:10:27
the world
00:10:37
[Music]
00:10:43
this house was built by the financial
00:10:46
dynasty that helped decide the Battle of
00:10:48
Waterloo the dynasty that produced the
00:10:52
man they called the Bonaparte of Finance
00:10:54
the Emperor of the 19th century bond
00:10:57
market he is master of unbounded wealth
00:11:02
he boasts that he is the arbiter of
00:11:05
peace and war and that the credit of
00:11:07
nations depends upon his nod ministers
00:11:11
of state are in his pay those words
00:11:19
spoken in 1828 by the radical Member of
00:11:23
Parliament Thomas Dunne scam were
00:11:25
describing Nathan Rothschild bond trader
00:11:28
extraordinaire and founder of the London
00:11:30
branch of what became the biggest bank
00:11:32
in the world
00:11:34
the bond market made the Rothschilds
00:11:37
stupendously rich so rich that they
00:11:40
could afford to build 41 stately homes
00:11:43
all over Europe this is number 29 pods
00:11:47
Dhin Manor in Buckinghamshire which has
00:11:49
been restored in all its gilded glory by
00:11:52
Jacob Rothschild Nathan's great-great
00:11:55
great-grandson well he was short fat
00:12:01
obsessive extremely clever highly
00:12:06
focused and I can't imagine he would be
00:12:10
a very pleasant person to her dealings
00:12:18
between around 1810 and 1836 the five
00:12:22
sons of Mayer Amschel Rothschild rose
00:12:25
from the obscurity of the Frankfurt
00:12:27
get'r to attain a position of unequaled
00:12:30
power in international finance it was
00:12:36
the third son Nathan who orchestrated
00:12:38
this family triumph from London
00:12:41
Evelyn de Rothschild is Nathan's
00:12:43
great-great grandson he recently retired
00:12:46
as chairman of Rothschilds the bank that
00:12:48
Nathan built he was very ambitious and
00:12:51
he moved to London and I think he was
00:12:53
determined I don't think he's half of
00:12:55
fools like him
00:12:56
maybe that's a family trait this is one
00:13:01
of the few surviving letters from Nathan
00:13:03
Rothschild to his brothers written as
00:13:05
always in udin Dodge
00:13:07
that was German transliterated into
00:13:09
Hebrew characters and it gives you an
00:13:11
idea what an extraordinary work ethic
00:13:12
the man had and how he tried to impose
00:13:15
it on his poor long-suffering brother's
00:13:17
just listen to this dear I'm sure I'm
00:13:21
writing you my opinion because it's my
00:13:23
damn duty to do so I read your letters
00:13:28
not once but often a hundred times
00:13:30
because you can well imagine that after
00:13:32
dinner I don't read books I don't play
00:13:35
cards I don't go to the theater my only
00:13:39
pleasure is my business
00:13:47
it was this phenomenal drive allied with
00:13:51
innate financial genius that propelled
00:13:54
Nathan from obscurity to mastery of the
00:13:57
London bond market once again however
00:14:01
the opportunity for a financial
00:14:03
breakthrough came from war on the
00:14:15
morning of June the 18th 1815 67
00:14:19
thousand British Dutch and German troops
00:14:21
under the Duke of Wellington's command
00:14:23
looked out across the fields of Waterloo
00:14:26
not far from Brussels towards an almost
00:14:28
equal number of French troops commanded
00:14:31
by the French Emperor Napoleon Bonaparte
00:14:36
the Battle of Waterloo was the
00:14:39
culmination of more than two decades of
00:14:41
intermittent conflict between Britain
00:14:43
and France but it was more than just a
00:14:45
battle between two armies it was also a
00:14:47
contest between rival financial systems
00:14:50
won the French based on plunder the
00:14:52
other the British based on debt to pay
00:14:57
for the war the British government had
00:14:59
sold an unprecedented amount of bonds
00:15:02
according to a long-standing legend the
00:15:05
Rothschild family made their first
00:15:07
millions by speculating on how the
00:15:09
outcome of the Battle of Waterloo would
00:15:11
affect the price of these bonds it was
00:15:17
this legend of Jewish profiteering that
00:15:19
a century later the Nazis did their best
00:15:22
to embroider in 1940 Joseph Goebbels
00:15:27
approved the release of this film dijo
00:15:29
chills it give us nathan is seen bribing
00:15:35
a french general to ensure that you have
00:15:37
Wellington's victory and then
00:15:39
deliberately misreporting the outcome of
00:15:41
the battle in London this triggers panic
00:15:44
selling of British bonds which Nathan
00:15:47
then snaps up at bargain basement prices
00:15:56
what happened here in 1815 was
00:15:59
altogether different far from making
00:16:03
money from Wellington's defeat of
00:16:04
Napoleon the Rothschilds were very
00:16:06
nearly ruined by us their fortune was
00:16:09
made not by Waterloo but despite it this
00:16:15
is how it really happened
00:16:17
selling bones to the public and raised
00:16:20
plenty of cash for the British
00:16:21
government
00:16:22
but neither bones nor banknotes were any
00:16:25
use to Wellington to provision his
00:16:27
troops and pay Britain's allies against
00:16:29
France he needed a currency that was
00:16:32
universally acceptable
00:16:35
Nathan Rothschild was given the job of
00:16:37
taking the money raised in the bond
00:16:39
market and delivering it to Wellington
00:16:41
as gold the success of this operation
00:16:47
would determine the fate of the warring
00:16:49
empires and of all Europe this letter
00:16:56
marks a turning point in the history of
00:16:57
both the Rothschild family and the
00:16:59
British government it's dated the 11th
00:17:02
of January 1814 and it's an order from
00:17:04
the Chancellor of the Exchequer to the
00:17:06
commissary in chief telling him to a
00:17:09
point Nathan Rothschild mr. Rothschild
00:17:11
as a British government agent
00:17:13
Nathan's job was to gather together as
00:17:15
much gold and silver as he could find on
00:17:18
the European continent and make sure
00:17:20
that it got to the Duke of Wellington in
00:17:21
his army who had just fought their way
00:17:23
out of Spain into the South of France it
00:17:26
was an operation that relied heavily on
00:17:28
the Rothschilds unique pan-european
00:17:30
credit network and also an Athens
00:17:32
ability to mobilize gold the way
00:17:35
Wellington could mobilize troops
00:17:38
[Music]
00:17:39
shifting such vast amounts of gold in
00:17:41
the middle of a war was hugely risky of
00:17:43
course yet from the Rothschilds point of
00:17:46
view the hefty Commission's they were
00:17:48
able to charge more than justified the
00:17:50
risks the Rothschilds soon became
00:17:56
indispensable to the British war effort
00:17:58
in the words of the British commissary
00:18:01
in chief Rothschild of this place has
00:18:03
executed the various services entrusted
00:18:06
to him in this line admirably well and
00:18:08
though a Jew we place a good deal of
00:18:10
confidence in him the Rothschilds were
00:18:15
so effective as war financiers because
00:18:18
they had a ready-made banking network
00:18:20
within the family
00:18:22
Nathan in London Amschel in Frankfurt
00:18:25
James in Paris Karl in Amsterdam and
00:18:29
Salomon roving wherever Nathan saw fit
00:18:36
if the price of gold was higher and say
00:18:39
Paris than in London James and Paris
00:18:42
would sell Nathan in London would buy I
00:18:50
think the edge
00:18:52
they were families like the bearings
00:18:54
with whom they were competing was that
00:18:56
they had their brothers in very
00:18:59
important financial centres and
00:19:01
countries now whether that was
00:19:03
premeditated whether they thought that
00:19:05
through as they got out together it's
00:19:07
not believed of them I just pass that
00:19:09
but that's what happened and once they
00:19:11
saw that it was an advantage right they
00:19:13
worked on that advantage in March 1815
00:19:17
Napoleon returned to Paris from exile in
00:19:20
Elba determined to revive his imperial
00:19:22
ambitions Rothschilds immediately ramped
00:19:28
up their gold operation buying up all
00:19:30
the bullion and coins they could lay
00:19:32
their hands on Nathan's reason for
00:19:35
buying this huge stock of gold was
00:19:37
simple he assumed that as with all
00:19:40
Napoleon's Wars
00:19:41
this would be a long one his gold would
00:19:44
be more and more sought-after and it
00:19:46
would rise in volume it proved to be a
00:19:49
near fatal miscalculation
00:19:55
wellington famously called the Battle of
00:19:57
Waterloo the nearest run thing you ever
00:19:59
saw in your life after a day of brutal
00:20:08
charges counter charges and heroic
00:20:10
defense the late arrival of the Prussian
00:20:12
army finally proved decisive
00:20:16
for Wellington it was a glorious victory
00:20:20
but not for the Rothschilds no doubt it
00:20:25
was gratifying to Nathan Rothschild to
00:20:27
be the first to hear the news of
00:20:29
Napoleon's defeat thanks to the
00:20:31
swiftness of the Rothschild couriers he
00:20:33
heard it fully 48 hours before major
00:20:36
Henry Percy delivered Wellington's
00:20:38
official dispatch to the British Cabinet
00:20:40
but no matter how early he heard it the
00:20:43
news from Waterloo was anything but good
00:20:45
from Nathan's point of view he had
00:20:47
bargained for something much more
00:20:49
protracted now he and his brothers were
00:20:52
sitting on top of a pile of cash that
00:20:54
nobody wanted to pay for a war that was
00:20:57
over with the coming of peace the great
00:21:01
armies that at fort napoleon could be
00:21:03
disbanded that meant no more gold for
00:21:06
soldiers wages and it meant the price of
00:21:08
gold which had soared during the war
00:21:10
would fall
00:21:19
Nathan was faced with heavy and growing
00:21:22
losses there was only one possible way
00:21:27
out Nathan could use the Rothschild gold
00:21:31
to make a massive and hugely risky bet
00:21:34
on the bond market July the 20th 1815
00:21:46
the evening edition of the London Korea
00:21:49
reported that Nathan had made great
00:21:51
purchases of stock meaning British
00:21:54
government bonds
00:21:55
Nathan's gamble was that the British
00:21:57
victory at Waterloo would send the price
00:21:59
of British bonds soaring upwards
00:22:05
Nathan bought and as the price of bonds
00:22:08
began to rise he kept on buying
00:22:13
despite his brother's desperate and
00:22:15
treaties to sell Nathan held his nerve
00:22:20
for another year
00:22:24
eventually in July 1817 with bond prices
00:22:28
up by 40%
00:22:30
he sold his holding his profits were
00:22:35
worth approximately six hundred million
00:22:37
pounds today
00:22:39
the Rothschilds had shown that bonds
00:22:42
were more than just a way for
00:22:43
governments to fund their Wars they
00:22:45
could also be bought and sold in a way
00:22:47
that generated serious money and with
00:22:51
money came power
00:22:56
myah Amschel Rothschild had repeatedly
00:22:58
admonished his five sons if you can't
00:23:00
make yourself loved make yourself feared
00:23:03
as they burst rode the mid 19th century
00:23:05
financial world as masters of the bond
00:23:08
market the Rothschilds were already more
00:23:10
feared than loved but now they had
00:23:14
become hated too
00:23:17
[Music]
00:23:23
the fact that the Rothschilds were
00:23:25
Jewish gave a new impetus to deep-rooted
00:23:28
anti-semitic prejudice just a few months
00:23:32
ago a colleague a man in my office who
00:23:35
collects posters found these rather this
00:23:40
particular rather extraordinary example
00:23:43
of anti-semitism in a stark form about
00:23:46
the rust Charles who have epitomized to
00:23:50
them and others at times are the most
00:23:53
extreme forms of undesirable kept
00:23:56
capitalism as practiced by Jews it was
00:24:01
above all the Rothschild seeming ability
00:24:03
to permit or prohibit Wars that aroused
00:24:06
the most indignation you might have
00:24:12
thought that the Rothschilds actually
00:24:14
needed war after all some of Nathan's
00:24:17
biggest deals had been produced by war
00:24:19
and if it hadn't been for war 19th
00:24:21
century states wouldn't have needed to
00:24:23
issue any bonds for the Rothschilds to
00:24:25
buy and sell but the trouble with war
00:24:28
and even more so with revolution was
00:24:30
that it increased the risk that a debt
00:24:32
estate might fail to meet its
00:24:34
commitments and that hid the price of
00:24:36
existing bonds but the mid 19th century
00:24:39
the Rothschilds were no longer mere
00:24:41
traders they were fund managers
00:24:43
carefully tending to a vast portfolio of
00:24:46
their own government bonds now they
00:24:49
stood to lose much more than to gain
00:24:51
from conflict
00:24:53
the Rothschilds had helped decide the
00:24:55
outcome of the Napoleonic Wars by
00:24:56
putting their financial weight behind
00:24:58
Britain now they would help decide the
00:25:00
outcome of the American Civil War by
00:25:04
choosing to sit on the sidelines once
00:25:09
again it was the Masters of the bond
00:25:11
market who would be the arbiters of war
00:25:15
[Music]
00:25:27
[Applause]
00:25:31
fifty years after the Battle of Waterloo
00:25:33
and on the other side of the world
00:25:35
another great war would be decided by
00:25:38
the power of the bond market but this
00:25:43
time it would be the vanquished who made
00:25:45
the big bet and lost
00:25:49
[Applause]
00:25:59
the traditional view is that the key
00:26:01
turning point in the American Civil War
00:26:04
came in June 1863 two years into the
00:26:07
conflicts that was the month when Union
00:26:10
forces captured Jackson the Mississippi
00:26:12
State Capitol and forced a Confederate
00:26:14
Army to retreat westward to Vicksburg
00:26:16
their backs to the Mississippi River
00:26:21
surrounded with Union gunboats
00:26:23
bombarding their positions from behind
00:26:25
the southerners held out for a month
00:26:27
before finally laying down their arms
00:26:33
after Vicksburg the Mississippi was
00:26:35
firmly in the hands of the north the
00:26:38
South was literally split in two yet
00:26:46
this military setback wasn't the
00:26:48
decisive factor in the South's
00:26:50
ultimate defeat the real turning point
00:26:52
came earlier and it was financial
00:27:00
200 miles downstream from Vicksburg
00:27:02
where the Mississippi joins the Gulf of
00:27:04
Mexico lies the Port of New Orleans
00:27:12
this is fort pike built after 1812 to
00:27:17
protect New Orleans from a future
00:27:19
British attack but 50 years later it
00:27:22
wasn't able to protect the south from a
00:27:24
northern attack when captain David
00:27:26
Farragut seized New Orleans on April the
00:27:29
28th 1862 it was a crucial moment in the
00:27:33
Civil War because New Orleans was the
00:27:35
principal outlet for the South's most
00:27:37
important export cotton without control
00:27:45
over the cotton trade the South's cause
00:27:47
was doomed because cotton had become the
00:27:51
essential ingredient in an ambitious
00:27:53
scheme to bring the bond market into the
00:27:56
war
00:27:59
[Music]
00:28:00
like the Italian city-states 500 years
00:28:03
before the Confederate Treasury had
00:28:05
initially raised money for the war by
00:28:07
selling bonds to its own citizens but
00:28:13
there was a finite amount of capital
00:28:14
available in the south to survive the
00:28:18
Confederacy looked to Europe in the hope
00:28:21
that the world's greatest financial
00:28:22
dynasty might help them beat the north
00:28:25
as they had helped Wellington beat
00:28:27
Napoleon
00:28:32
initially the confederacy had grounds
00:28:35
for optimism in new york the rothschilds
00:28:38
agent was sympathetic having opposed the
00:28:40
north leader Abraham Lincoln in the
00:28:42
presidential election of 1860 but still
00:28:52
the Rothschilds hesitated lending to the
00:28:56
British government to help defeat
00:28:57
Napoleon had been one thing but buying
00:29:00
bonds from a bunch of breakaway southern
00:29:02
slave states seemed a risk too far the
00:29:07
Rothschilds decided to stay out
00:29:15
yet despite this setback the Confederate
00:29:19
government had an ingenious trick up
00:29:20
their sleeves the trick like the sleeves
00:29:23
themselves was made of cotton the
00:29:31
South's idea was to use cotton as
00:29:33
collateral to back its bonds investors
00:29:36
would be comforted to know that even if
00:29:38
the interest payments dried up they
00:29:40
could still demand their cotton instead
00:29:45
the South's agents went to work selling
00:29:47
the bonds in the financial centers of
00:29:49
Europe
00:29:54
when the Confederacy tried to market
00:29:56
conventional bonds in European financial
00:29:59
centres like Amsterdam's investors
00:30:01
wouldn't touch them with a bargepole but
00:30:03
when an obscure French firm named Emil
00:30:06
airliner and company offered cotton
00:30:08
backed bonds it was a completely
00:30:10
different story the key to the success
00:30:12
of the airliner bonds was that they
00:30:14
could be converted into cotton at the
00:30:17
pre-war price of six pence a pound these
00:30:22
cotton bonds formed the basis of the
00:30:24
South's new financial strategy if they
00:30:27
could restrict the supply of cotton its
00:30:30
value and the value of the bonds would
00:30:32
increase at the same time the
00:30:35
Confederates set out to use cotton to
00:30:37
blackmail the most powerful country in
00:30:39
the world Britain
00:30:45
[Music]
00:30:55
in 1816 the Port of Liverpool was the
00:30:58
principal gateway for imports of cotton
00:31:01
to the British textile industry then the
00:31:03
mainstay of the Victorian industrial
00:31:05
economy more than 80 percent of the
00:31:07
cotton came from the southern United
00:31:09
States
00:31:10
now that gave the Confederate leadership
00:31:12
hope that they had the leverage to bring
00:31:14
in Britain on their side in the Civil
00:31:17
War to ratchet up the pressure they
00:31:19
decided to impose an embargo on all
00:31:21
shipments of cotton to Liverpool for a
00:31:28
while the South's strategy worked
00:31:29
brilliantly cotton prices soared so did
00:31:33
the value of the Confederates cotton
00:31:35
backed bonds and the cotton embargo
00:31:39
devastated the British economy mills
00:31:42
were forced to lay off workers
00:31:44
eventually in late 1862 production
00:31:48
orbits east
00:31:55
this cotton mill and style south of
00:31:58
Manchester employed around 400 workers
00:32:00
but that was just a fraction of the
00:32:02
500,000 people employed by king cotton
00:32:05
across Lancashire obviously with no
00:32:07
cotton there was nothing for people to
00:32:09
do by the end of 1862 half the entire
00:32:13
workforce of Lancashire had been laid
00:32:15
off a quarter of the population was on
00:32:17
poor relief they called it the cotton
00:32:20
famine but this really was a man-made
00:32:22
famine Britain was in the doldrums and
00:32:29
the South's cotton bombs were riding
00:32:31
high yet the South's ability to
00:32:34
manipulate the bond market depended on
00:32:37
one overriding condition that investors
00:32:40
could be sure of taking physical
00:32:42
possession of the cotton which
00:32:43
underpinned the bonds if the south
00:32:45
failed to make its interest payments
00:32:52
and that's why the fall of New Orleans
00:32:55
on April the 28th 1862 was the real
00:32:58
turning point in the American Civil War
00:33:01
now that the South's main port was in
00:33:03
Union hands any investor who wanted to
00:33:06
lay his hands on Southern cotton had to
00:33:08
run the union's formidable naval
00:33:11
blockade
00:33:14
[Music]
00:33:22
[Applause]
00:33:26
the Confederates had overplayed their
00:33:28
hand they had turned off the cotton tap
00:33:31
but then lost the ability to turn it
00:33:34
back on by 1863 the mills of Lancashire
00:33:38
had found new sources of cotton in China
00:33:40
Egypt and India and investors were
00:33:43
rapidly losing faith in the South's
00:33:45
cotton backbones the consequences for
00:33:48
the Confederate economy were disastrous
00:33:51
with its domestic bond market exhausted
00:33:54
and only to poultry foreign loans the
00:33:57
Confederacy really had no alternative
00:33:59
but to print paper dollars like these
00:34:02
ones here in the Louisiana State Museum
00:34:03
to pay for the war in all 1.7 billion
00:34:08
dollars worth now it's true that the
00:34:11
north also printed paper money but by
00:34:13
the end of the war its greenbacks was
00:34:15
still worth around fifty pre-war cents
00:34:17
whereas a southern gray back was down to
00:34:20
just one cent what's more with more and
00:34:22
more of this cash chasing fewer and
00:34:24
fewer goods inflation in the South
00:34:27
simply exploded by January 1865 the
00:34:30
price of some goods was up by a factor
00:34:33
of 90
00:34:36
the south had bet everything on
00:34:38
manipulating the bond market and had
00:34:40
lost it would not be the last time in
00:34:43
history that an attempt to do so would
00:34:45
end in ruinous inflation today the
00:34:59
global market for bonds is still bigger
00:35:01
than all the world stock markets put
00:35:04
together it's still a market that can
00:35:07
make or break governments does it
00:35:14
surprise you that its key player began
00:35:16
his money-making career in the casinos
00:35:19
of Las Vegas I was a blackjack player
00:35:23
I'm one of the first professional
00:35:25
blackjack players not to brag but in the
00:35:28
late 60s I went to Vegas and applied a
00:35:32
card counting system to to try and beat
00:35:35
Vegas
00:35:39
now this master of understatement is the
00:35:42
king of the bond market controller of
00:35:44
the biggest bond fund in the world so
00:35:47
what is this got to do with you and me
00:35:49
well when gross buyers or sells bonds it
00:35:53
doesn't just affect financial markets
00:35:54
and government policy it affects the
00:35:57
value of our pension funds and the
00:36:00
interest rates we pay on our mortgages
00:36:02
[Music]
00:36:04
there's only one thing that mr. bond is
00:36:07
afraid of and it's not Goldfinger rather
00:36:10
it's inflation the lethal danger that
00:36:15
inflation poses is that it undermines
00:36:17
the value of being paid a fixed rate of
00:36:20
interest in a bond if inflation goes up
00:36:24
to ten percent and the value of a fixed
00:36:28
rate interest is only five then that
00:36:30
basically means that the bond holder is
00:36:32
falling behind inflation by five
00:36:34
percents that's why at the first whiff
00:36:38
of higher inflation bond prices fall and
00:36:41
in some cases keep falling to see just
00:36:50
how bad things can get when the
00:36:52
inflation rate genie escapes from the
00:36:54
bottle you just have to look at the
00:36:56
example of Argentina
00:37:04
many Argentines date the steady decline
00:37:07
of their economic fortunes to a day in
00:37:09
February 1946 when the newly elected
00:37:12
President General Juan Domingo perón
00:37:14
came here to the central bank in Buenos
00:37:17
Aires
00:37:18
[Music]
00:37:22
he was astonished at what he saw there
00:37:25
is so much gold he marveled you could
00:37:28
hardly walk through the corridors
00:37:31
the very name Argentina suggests wealth
00:37:34
plenty it means
00:37:36
the land of silver the river flowing
00:37:38
past the capital is the Rio de la Plata
00:37:40
the silver River
00:37:46
[Music]
00:37:48
once upon a time there used to be two
00:37:50
Harrods in the world one in London
00:37:52
Knightsbridge and the other here avenida
00:37:54
florida in the heart of Buenos Aires
00:37:56
founded in 1912 this other Harrods is a
00:38:00
reminder that Argentina used to be a
00:38:02
rich country indeed at one time its per
00:38:05
capita income was just 18% less than
00:38:07
that of the United States investors who
00:38:10
flocked to buy Argentine bonds hope that
00:38:12
our gen Tina would become the United
00:38:15
States of South America while
00:38:19
Argentina's history since then is a
00:38:20
classic illustration that all the
00:38:22
resources and talent in the world can be
00:38:25
set at naught by chronic financial
00:38:27
mismanagement
00:38:29
[Music]
00:38:38
there have been many financial crises in
00:38:40
Argentine history but the crisis that
00:38:43
hit the country in 1989 was unparalleled
00:38:57
[Music]
00:39:01
at the beginning of February the country
00:39:03
was suffering one of the hottest summers
00:39:05
on record in Buenos Aires the
00:39:09
electricity system just couldn't cope
00:39:11
five-hour par cuts were commonplace
00:39:16
but these as it turned out were the
00:39:19
least of Argentina's problems as is
00:39:23
almost always the case there were
00:39:25
several well trodden steps to monetary
00:39:27
health it's that one the government
00:39:31
spends more much more than it can raise
00:39:33
in taxation usually but not always it's
00:39:36
because of a war in Argentina's case
00:39:39
there were two one a civil war between
00:39:41
generals on the left in the 1970s the
00:39:44
other a foreign war against Britain over
00:39:46
the Falkland Islands in 1982 by 1989 the
00:39:50
financial system was about ready to blow
00:39:54
by February inflation had already
00:39:57
reached 10 percent per month
00:40:02
banks were ordered to close as the
00:40:04
governor tried to lower interest rates
00:40:06
and prevent the currency's exchange rate
00:40:08
from collapsing
00:40:11
it didn't work in just a month the
00:40:15
Austral fell a hundred and forty percent
00:40:17
against the dollar
00:40:20
at the same time the World Bank froze
00:40:23
lending to Argentina saying that the
00:40:25
government had failed to tackle the root
00:40:27
cause of inflation a bloated public
00:40:29
sector deficit with no cheap loans
00:40:32
forthcoming from the World Bank the
00:40:34
government tried to finance its deficit
00:40:36
by selling bonds to the public but
00:40:39
investors were hardly likely to buy
00:40:40
bonds with the prospect that their real
00:40:42
value would be wiped out by inflation in
00:40:44
just a matter of days nobody was buying
00:40:47
the government was running out of
00:40:49
options
00:40:52
in April furious customers overturned
00:40:56
shopping trolleys after one supermarket
00:40:58
announced over the loudspeaker that
00:41:00
prices were being raised by 30 percent
00:41:02
immediately shops emptied of goods as
00:41:08
owners weren't making enough money to
00:41:09
buy a new stock
00:41:14
misuk muy Malo muy Malo
00:41:19
porque a la mañana tenía un precio
00:41:21
mediodía tenías Otranto si no podían
00:41:24
vender Corky la gente / dia los buenos
00:41:26
aires / da show Vindhya Lomond Abba lo
00:41:29
vendhya un precio Alicia GABA otro y la
00:41:32
continuo tres cuatro veces en el dia
00:41:34
tambi abba los precios government bond
00:41:38
prices plunged as fears rose dat the
00:41:40
central bank's reserves were running out
00:41:43
with no foreign loans and no one willing
00:41:46
to buy bonds there was only one thing
00:41:48
left for an increasingly desperate
00:41:49
government to do get the central bank
00:41:52
literally to print more money if they
00:41:54
couldn't even get back right
00:41:58
[Music]
00:42:01
on Friday April the 28th Argentina
00:42:04
literally ran out of money it's a
00:42:09
physical problem
00:42:10
the central bank vice president told a
00:42:12
news conference what he meant was that
00:42:16
Argentina's Mint had run out of paper to
00:42:19
print new notes and the printers had
00:42:22
gone on strike
00:42:22
[Music]
00:42:26
I don't know how we're going to do it
00:42:34
but the money has got to be there on
00:42:36
Monday he declared
00:42:42
yet the faster the printing presses
00:42:44
rolled the less the money was worth the
00:42:48
government was forced to print higher
00:42:49
and higher denominations of notes in May
00:42:53
the price of coffee went up by 50% in a
00:42:56
week
00:42:58
farmers stop bringing cattle to market
00:43:00
as the price for one cow was now the
00:43:02
same as for three pairs of shoes
00:43:16
by June 1989 inflation Argentina had
00:43:20
reached a monthly rate of 100 percent an
00:43:23
annual rate of roughly 12,000 percent to
00:43:26
put that into concrete terms if you
00:43:28
wanted to go out for dinner in Buenos
00:43:30
Aires in a Saturday night in May you'd
00:43:32
pay ten thousand Australia's bye dude
00:43:35
you'd have to pay twenty thousand for
00:43:38
the same meal and by the following month
00:43:41
it would take sixty thousand you've
00:43:44
heard of A Fistful of Dollars well you
00:43:45
needed a drawer full of Australia's just
00:43:48
to buy a square meal in June popular
00:43:58
frustration erupted in two days of
00:44:00
intense rioting and looting by hungry
00:44:02
mobs at least 14 people died
00:44:09
in a country were a steak and a bottle
00:44:11
of wine were on practically every table
00:44:13
every day thousands were eating in soup
00:44:16
kitchens or going hungry
00:44:19
[Music]
00:44:20
it's obvious enough who loses from
00:44:23
hyperinflation very rapidly rising
00:44:26
prices are bound to wipeout anybody
00:44:28
who's dependent on an income that's
00:44:29
fixed in cash terms groups like
00:44:32
academics and civil servants on
00:44:34
inflexible monthly salaries old-age
00:44:36
pensioners and particularly bondholders
00:44:39
living off the interest on their
00:44:41
investments when as IRAs is absolutely
00:44:44
full of antique shops like this one
00:44:46
Laden down with jewelry and watches and
00:44:49
cutlery all sold off by middle-class
00:44:51
families who just ran out of cash in the
00:44:56
1920s the great economist John Maynard
00:44:58
Keynes had predicted the euthanasia of
00:45:01
the bondholder anticipating that
00:45:03
inflation would eat up the paper wealth
00:45:05
of financial families like the
00:45:07
Rothschilds
00:45:08
[Music]
00:45:10
as inflation swept through the world in
00:45:13
the 1970s Keynes seemed to be proved
00:45:15
right in our time however we've seen a
00:45:21
miraculous resurrection of the
00:45:22
bondholder a comeback by Mr Bond
00:45:25
even in Argentina
00:45:29
the bond market is back terrifying
00:45:32
American officials as they try to fund a
00:45:35
massive financial bailout by you guessed
00:45:38
it selling billions of dollars of
00:45:40
freshly minted bonds the key to mr.
00:45:44
bonds revival has been a growth in the
00:45:47
number of bondholders which brings us
00:45:54
back to Italy for the bond market was
00:45:58
born 600 years ago
00:46:06
Italy is now a country with one of the
00:46:08
most rapidly ageing populations in
00:46:10
Europe in such a growing Society there's
00:46:15
a growing demand for fixed income
00:46:17
securities like bonds but there's also a
00:46:19
strong fear of inflation eating up the
00:46:22
real value of pensions and savings
00:46:24
central bankers suspected of being soft
00:46:27
on inflation have to answer to the
00:46:29
pensioners friend the bond market and
00:46:33
Treasury is planning to spend billions
00:46:35
to bail out banks that have gone bust in
00:46:37
the current credit crunch have to tread
00:46:39
warily too if they expect to raise the
00:46:42
money by selling yet more bonds in
00:46:47
modern Europe as in Renaissance Italy an
00:46:50
equilibrium has been struck between
00:46:52
political power and financial exposure
00:46:55
today as much as ever it seems it's the
00:46:59
bond market our old friend mr bond that
00:47:02
really rules the world
00:47:05
but what if rather than lending to
00:47:07
government's you prefer to use your
00:47:09
money to buy a share in a company would
00:47:13
that be more or less risky more or less
00:47:16
profitable in the next episode of the
00:47:20
ascent of money we'll discover why we
00:47:21
find it so hard to learn from financial
00:47:24
history despite nearly 300 years of
00:47:28
stock market bubbles and busts
00:47:31
[Music]
00:47:36
the next episode is next Monday from 8
00:47:39
here on channel 4 now next tonight a
00:47:42
brand new series and how lucky are we
00:47:44
our existence our very own human
00:47:46
survival all stems from catastrophes
00:47:49
that happened billions of years ago Tony
00:47:52
Robinson has the evidence
00:47:54
[Music]