value and opportunity

The subtitle of this book says “How the middle class joined the money class”, which describes exactly what this book is about.

The book covers the period between the early sixties and late eighties, a time were many financial products for “ordinary” citizens were invented and today are used by almost anyone.

The book focuses mostly on:

• Credit cards (Bank of America, Visa)
• retail brokerage (Merril Lynch)
• mutual funds (Fidelity, Magellan, Peter Lynch)
• discount brokerage (Charles Schwab)

Especially the different chapter of how Credit cards were “dropped” on US cities, how Visa came into existence and how credit cards at first looked like absolut failures were very interesting.

The Visa company as we know it know was actually a last effort attempt to save the failing “BankameriCard” franchise system. When BankameriCard was rolled out across the country, no one really thought about how to govern the relationship between issuing banks, especially when customers used cards outside the reach of the issuing bank. Back then, banks started to cheat each other and the system was close to failure when a guy called Dee Hook suggested to create a governing body which at some point evolved into the Visa company we know today.

The book also explains why debit cards never got a lot of traction in the US: The big banks blocked them every time because the knew that the big money was made not by payments but from credit cards loans (and those incredibly high interest rates).

In parallel, the book also covers financial markets, for instance the “go go” years, the “big inflation” and the 1987 crash.

The chapter on inflation for instance clearly shows that when people today complain about zero or negative rates on deposits, back then the problems were significantly bigger. When inflation is 15% or higher and there is a fixed rate (by the government) of 5 1/4% on ANY bank deposit, the stock market is down for 10 or 15 years, then you have a real problem despite the high nominal rate. That lead to the “invention” of money market funds and then to the general boom in mutual funds.

So let’s wait and see if and what kind of innovation negative nominal rates will create.

Overall I found the book very interesting. I would say it is a “must read” for anyone interested in financial history and in credit card history specifically. It is always good to have some historical perspective on financial markets, in my opinion especially in times like now.

The only quibble I have is that some chapters are maybe too detailed about things that maybe were important back then but less so now, for instance how exactly certain parts of legislations were passed or not passed in different states of the US.

In a direct comparison, I would actually prefer “A piece of the action” to the much hyped “Go Go years” from John Brooks.

Joe Nocera is by the way a very good business / financial markets writer. I have read “All the Devils are here” some time ago and it was also pretty good.