EP 68: A Fabulous Debt (with Robin Wigglesworth)

SPEAKER_1 (0:09)

Welcome to The Library of Mistakes, changing the world one mistake at a time.

Russell Napier (0:14)

Welcome everybody to The Library of Mistakes podcast. I am delighted today to welcome Robin Wigglesworth, author of other books, but this book we're going to talk about is called A Fabulous Debt, The Epic Story of How Bonds Built the Modern World. That's a positive thing. Usually when we refer to bonds and debt, we read it's a negative, so it's a good positive title. Let me tell you how many bonds there are in the world, at least when the book was written. According to the Bank for International Settlements, the total value of global bonds is $188 trillion US. It may be the biggest market you've never heard of or never thought about, and if you want to think about it, then you should read Robin's book. But where does the phrase A Fabulous Debt come from? So I wanted to read the Macaulay, let me just read the Macaulay quote out where it comes from. And then we can discuss the upside of bonds, because they have a lot of detractors. And this refers to the debt that Britain, sort of England, I should say, assumed in 1688 and after the Glorious Revolution to fight a war.

Such was the origin of that debt, which has since become the greatest prodigy that ever perplexed the sagacity and confounded the pride of statesmen and philosophers. At every stage in the growth of that debt, the nation has set up the same cry of anguish and despair. At every stage in the growth of that debt, it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still, the debt went on growing and still, bankruptcy and ruin were as remote as ever. It was in truth, a gigantic, a fabulous debt.

So a fabulous debt. Tell us on the upside for bonds and why we need to know more about them, and the good that they do before. At some stage, I think we'll discuss, because your book discusses some of the risks associated with that. So what is a bond? Then we'll take it from there.

Robin Wigglesworth (2:04)

Thanks for having me on. I've been looking forward to this. It's a tradable loan, really. A bond is just a tradable loan. You can buy and sell like a stock on the stock market. In fact, quite a lot of the stock market started off as bond trading venues.

It was invented in Renaissance Italy. It was an emergency war loan, really, but to soften the blow, they allowed the Venetians to trade the receipts of this war loan. That's how fixed income was born, a tradable fixed income instrument. It's like all debt, it can be used for for wise and factless purposes. We've seen quite often the bond market take these big leaps of growth, whenever there's been war. Generally speaking, it's a superior technology, if you want to borrow vast sums of money, because it means you can tap up not just one or two or 10 banks or rich men back in history, but hundreds, if not thousands of citizens. So it allows you to mobilize the savings of an entire country, maybe even the entire world in some cases.

The working title was The Greatest Show on Earth, because I think the bond market is the biggest and most important and certainly the most fascinating corner of the financial system. But when I came across that Babington Macaulay quote, I knew that had to be the title. Because I think, like you say, so many people associate debt with something bad and the bond market with something either boring or something that sort of twists the arm of democratic governments around the world. But in reality, the bond market has been one of the main, if not the single most important financial engine that has kind of lifted us up from almost indentured servitude and subsistence farming and to what we see around us today. And I wanted to rescue it from its ill-gotten and undeserved reputation for boringness and badness.

Russell Napier (4:07)

So it's a tradable loan. We're starting the birth of it with the government, which is the government of Venice.

And then you date 1624 You've actually got a day for the birth of the corporate bond market in 1624 So from a very early stage in the history of this, it's also used by private sector institutions. And once again, the important thing is why this is not a bank loan, is it is tradable. It trades in the market. Let's start with the government bond. The Phoenicians didn't have a choice about buying government bonds, did they?