I've come across two articles on the credit crisis I found worth printing and reading slowly – twice.

The first is by Donald MacKenzie: "End-of-the-World Trade," London Review of Books, May 8, 2008.

A number of articles I've seen have called attention to the origins of our word "credit." It comes from the Latin for to entrust or believe.

Financial transactions depend, much of the time, on the ready availability of trustworthy facts: credible data on market prices, interest rates, the counter party's creditworthiness, and the like.

MacKenzie, a professor of sociology at Edinburgh University, asks a question with a very disturbing answer: On what "facts" was the trust expressed in collateralized debt obligations based? To a large extent, MacKenzie says, the "facts" – ratings, indexes, models – were purpose-built to support the instruments and make them liquid.

That doesn't mean they were lies. But it does explain why the credit crisis – the destruction of faith and belief among those in financial services – dwarfs in importance the market meltdown:

"Modern central banking, backed ultimately by the tax payer, can almost certainly prevent financial catastrophe on the scale of 1929. Restoring normality, which requires repairing the cognitive state of modern finance, is quite a different matter. ...[M]arket liquidity depends on facts. However, today's financial facts depend on liquidity. The credit markets remain stuck in a vicious circle."

MacKenzie concludes, "That's the problem with facts. Once they fall apart, they are very difficult to put back together again." And so they are proving.

(MacKenzie's An Engine, Not a Camera: How Financial Models Shape Markets (Cambridge, MA: MIT Press, 2006) has just come out in paperback. Of it, more anon. For now, I'll only say, "Read this book!")

The second article is by Niall Ferguson: "Wall Street Lays Another Egg", Vanity Fair, December 2008.

An historian with current posts ranging from Oxford to Harvard to the Hoover Institute, Ferguson attempts to put the financial crisis in a proper historical context.

Ferguson begins with a very annoying metaphor, "Planet Finance" and Planet Earth, which he then drops for the next 9000 words. When he returns to it in the context of mathematical finance, it proves illuminating. So, don't let it put you off.

The article rambles across 600 years and dozens of bubbles, crises and cataclysms. His topics range from the psychology of panics to finance economics.

His knack for putting the familiar in a new light leads to gems like this one on the intersection between the American belief in real property's ever-increasing value, and the easy credit that characterized the last four decades:

"Once upon a time, people saved a portion of their earnings for the proverbial rainy day, stowing the cash in a mattress or a bank safe. The Age of Leverage ... brought a growing reliance on borrowing to buy assets in the expectation of their future appreciation in value. For a majority of families, this meant a leveraged investment in a house. That strategy had one very obvious flaw. It represented a one-way, totally unhedged bet on a single asset."

Compared to stocks, homes were a lousy investment, Ferguson argues, and using leverage to buy them made them lethal – both to the buyers and the system.

Ferguson's one paragraph, 150-word summary of the evolution since the Renaissance of the modern financial system is not to be missed.

But it is for his analysis of the context, the deeper origins of our present dilemma, that Ferguson's piece is worth reading. There will be much more detail to come, as MacKenzie shows. Nonetheless, Ferguson's conclusion will prove right:

"On Planet Finance it may have made sense to borrow billions of dollars to finance a massive speculation on the future prices of American houses, and then to erect on the back of this trade a vast inverted pyramid of incomprehensible securities and derivatives. But back here on Planet Earth it suddenly seems like an extraordinary popular delusion."

[Note: Thanks go to Prof. Daniel Beunza of Columbia Business School, who called my attention to Donald MacKenzie and supplied me the cite for the LRB article.]