In hopes of upping my historical knowledge of all things economic, I placed William Bernstein’s new book The Birth of Plenty on my reading list. (Personal finance gurus will recognize this name from the best selling book The Four Pillars of Investing).

While reading last night, one particular passage sent a shiver down my spine around midnight that has me doubling my normal coffee intake this morning.

The Dutch, unfortunately, marched in the vanguard of another trend in modern finance: the shearing of small investors by investment banks. The late eighteenth century war bonds of foreign nations, many of which would default no matter which side won the conflict, were priced to yield slightly more than the secure 4% domestic issues — profitable for the underwriters but a rotten deal for credulous small investors because of the risk of default that was involved. The touting of hyped up Internet stocks in the last 1990s to a gullible public by mendacious investment bankers would not have surprised the average Dutch investor of 1800.

– William Bernstein
The Birth of Plenty: How the Prosperity of the Modern World was Created
Copyright 2004

This book was published in 2004, but unless my misanthropic mind leads me astray, doesn’t this sound almost exactly like the now dead and dying mortgage backed securities (MBS) market?

Many variables contributed to the reason why a vast majority of the world is not speaking Dutch (versus English) these days, but if you believe Bernstein’s all encompassing thesis that a country’s gross domestic product is highly correlated with it’s ability to project power and global influence, then this quote is a reasonably troubling correlation for modern America in a post credit bubble economy.

I’m definitely speculating here, but correlations like these, I suspect, is why the many shot callers in the U.S. are doing all it can to re-inflate the real estate bubble, monetize U.S. National Debt, and keep the shadow inventory of foreclosed/REO homes as quiet as possible, while keeping the rest of us (e.g. consumers) confident, spending money, and as in the dark as possible (e.g. Bloomberg suing the Federal Reserve for true cost of TARP bailout).