CHAPTER 2
Blue Skies, Pipe Dreams, and the Lure of Easy Money
Our Financial Legacy and Its Unintended Consequences
It wasn’t always this way. From the country’s earliest days, businesses were built by marshalling a region’s surplus savings into local ventures run by people known to the community. Often the funds came from wealthy merchants and wholesalers, as well as farmers, mechanics (the geniuses of the Industrial Age), and ordinary citizens. Together, they helped create entire new industries, whether mechanical clocks in Connecticut or machined-powered textiles in Massachusetts, that built on the region’s strengths, expertise, and social connections, much like Silicon Valley today.1 Cities established regional stock exchanges to facilitate the flow of capital to area businesses. The problems, for the most part, came when people began investing in more speculative ventures farther afield.
To explore the roots of our modern financial failures, we must travel back to the early 1900s, when my grandfather Ralph was just making his way to America and our modern system of financial regulations was about to be created. In those days, the country’s freewheeling markets were the financial equivalent of the Wild West, with snake oil swindlers roaming the land peddling all manner of speculative investments and get-rich schemes, from exotic oil fields and silver mines to lucrative land development. These can’t-miss investments were typically in distant locales, making them conveniently ...
