Episode summary
The Investment Lessons Learned from 1873 | Bloomberg Businessweek
Bloomberg Businessweek Daily
· · Hosts: Carol Massar, Tim Stenovec · Guests: Liaquat Ahamed
Summary
Liaquat Ahamed argues that the 1873 railroad and bond-market boom is a useful template for understanding today’s AI infrastructure frenzy. He says the scale, debt financing, and competitive scramble for capital look familiar: in the 1870s, railroad construction consumed about 5% of U.S. GDP, and roughly 80% of the money flowed through the bond market. The host presses him on whether today’s AI buildout is another bubble, and Ahamed says it likely is, though the timing of the unwind is impossible to pin down.
Ahamed links major booms to a recognizable sequence: profitability erodes, leverage piles up, interest rates rise, and broader inflationary pressure crowds out other borrowers. He says the same pattern showed up in 1873, the 1880s, 1929, 1999-2000, and 2008. He also distinguishes between off-balance-sheet financing and outright corruption, arguing that the danger today is more hidden borrowing and leverage than illegal conduct.
He closes by stressing that financial crises become socially explosive when policy mistakes magnify the bust. In his telling, bailouts that protect banks while leaving ordinary people exposed feed resentment, conspiracy theories, and populism. His core investing lesson is simple: don’t get swept up in the moment, and think independently before the cycle turns.
Key takeaways
- Ahamed says the AI infrastructure boom rhymes with the railroad boom because both require huge capital, are heavily debt-financed, and can run far ahead of profits.
- He expects major infrastructure booms to end badly, but says the key challenge is timing, not identification of a bubble.
- Ahamed argues that rising rates and inflation are common late-stage signs because booming capital demand crowds out other borrowers and workers.
- He says the real crisis-maker is often monetary-policy error, not the boom itself, pointing to 1873, 1929, and 2008 as examples.
- Ahamed warns that bailouts that favor bankers over homeowners can fuel populism and political backlash across both right and left.
Notable quotes
“I was looking for another financial crisis and this was readily at hand. Uh it was it was actually the first global financial crisis”
“there's a new technology the railroads gets people very excited. It's a technology that requires a gigantic amount of capital”
“So the in in the US 5% of GDP was devoted to the railroad to railroad construction which to in today's terms would be $1.5 trillion”
“it does not actually take enormous preions to spot when a market has entered bubble territory. What is difficult is predicting when exactly it will burst”
“the lesson sort of reveals itself which is you know don't get caught up in the in the heat of the moment”
How the episode opens
Bloomberg Audio Studios podcasts, radio news.
You're listening to Bloomberg Business Week with Carol Masser and Tim Stenc on Bloomberg Radio. He's the Pulitzer Prizewinning author of Lords of Finance, the bankers who broke the world about what led to the Great Depression. His latest book out earlier this year, 1873.
I got it in my hand right here. Rothschild's the first great depression and the making of the modern world. We got the author, he's a former investment manager, Bqued Akmed with us right now.
He joins us here in the Bloomberg Interactive Broker Studio. Welcome. Welcome.
We're we're kind of rushing cuz we're going to be quite honest. We have been talking about your book in the newsroom um with different colleagues. We've been kind of thinking about we do a three-hour show and we just couldn't wait to get to this 4:00 hour because we feel like so much in the book is relatable to kind of where we are. But um I guess we kind of want to start with your first book. Congratulations.
Thank you. — Um a pullet surprise. It was about the 1929 depression and the events leading up to it. And this book is about 1873 and the events leading up to another time where we went from a boom to bust. Why why choose this moment in time as your second book?
Well, I was looking for another financial crisis and this was readily at hand. Uh it was it was actually the first global financial crisis um and uh covered both Europe, the US um and AC in fact across the world um and it um um I started it five years ago. So I had no idea
Oh, funny — That we were going to be talking about AI and the um and the boom in AI infrastructure.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai infrastructure
- railroad speculation
- financial bubbles
- monetary-policy mistakes
- financial resilience
Companies and tickers mentioned
- Rothschilds
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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