Niall Ferguson is the Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor at the Harvard Business School.  He is also a resident faculty member of the Minda de Gundzburg Center for European Studies, and a Senior Research Fellow at Oxford and Stanford Universities.  He has authored numerous books on war and on economic history, the most recent title, The Ascent of Money.  He has produced documentaries for the BBC and PBS, writes for various periodicals and newspapers in the UK and the US, and is a contributing editor to the Financial Times.  In 2004, Time magazine named Ferguson one of the world’s hundred most influential people.  Click here for additional information.

Massive de-leveraging, a full year or more of recession followed by years of slow growth, high unemployment, and war-time like federal deficits certainly doesn’t bode well for most investments over the near term.  And that’s Niall Ferguson’s best-case scenario.

What element of the crisis has most surprised you?

The scale of leverage and underpriced risk on banks’ balance sheets.  I was more conscious of household and government debt in thinking about possible problems, and not aware how vulnerable the banks were.  Simply put, the world got lazy about balance sheets and more attention was being paid two years ago to hedge funds and private equity. There was an assumption that banks and investment banks must know what they were doing.  I don’t think I was aware how their leverage was creeping up … did I say creeping?… racing up, and I don’t think I was aware how they were juicing their returns through leverage.

Describe what will most likely happen to the US economy over the next five years.

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