Investors who have lost their shirts recently in WorldCom, Global Crossing and Enron can, if they want to look for fundamental causes, blame the unhappy decision taken by the Founding Fathers 226 years on Thursday.

The British model of capitalism (largely now superseded even in London) differed from the American one in a number of respects. One was its lesser susceptibility to speculative excess and bubble creation. In 1996-2000, this would have made a difference.

Of course, the London market has not been entirely free from bubbles. After all, the first and in relation to Gross World Product biggest bubble of all, the South Sea Bubble, gave the phenomenon its name in 1719-20, and inspired the 1720 Bubble Act, that shut down much British corporate finance activity for the next century (and maybe delayed the Industrial Revolution by 50 years.) The South Sea Bubble, however, was the result of a poisonous cocktail of a private securities market and a state sanctioned monopoly — that on the “Asiento” trade with the Spanish colonies of Latin America — together with an inventive but, as it proved, unsound plan to convert Britain’s government debt into South Sea Company shares. The combination was to appear again — for example, in the first and second Bank of the United States — but it was to prove rare, and not a portent for the future.

The Founding Fathers were much less “sound” in their financial ideas than the British landowners and merchants of the 1770’s, although admittedly the latter were in a very unadventurous phase — still, 50 years later, suffering from the delayed after-effects of the South Sea fiasco. Most of the Virginia gentry were deeply in debt to London merchants, and had mortgaged their free cash flows in unwise land speculation — both George Washington and Thomas Jefferson had a strong financial motivation for throwing off the British yoke, which would allow them to repudiate their London debts. The Boston merchants, meanwhile, appear to have made most of their money by smuggling, and thus naturally regarded British tax collectors as their No. 1 enemy.

Later, Alexander Hamilton’s creation of the Bank of the United States, and its successor, and his repayment of “Continental” debts at par, maintained some semblance of monetary order among the chaos that was American banking. However, liquidity in the new country was always extremely tight, and the typical Yankee merchant’s investment reach greatly exceeded his financial grasp, since investment opportunities were so plentiful.

In the nineteenth century, U.S. economic development, particularly in the infrastructure area, was financed largely by London bondholders, with a relatively high default rate, both in the public sector — from states such as Pennsylvania — and in the private sector, notably railroad bonds. British and European investors, buying through London, received a relatively poor return on their invested money, little better than they could have got from contemporary investments in — for example — Argentina. Equally, the process of railroad construction itself was both quicker and less sound than the equivalent process in Europe — one of the reasons why Amtrak has such a poor record today is the appalling quality of much of its roadbed.

In general, compared to the U.S. market, the process of raising finance in the London market relied to a greater extent on the track record and social connections of the businessman being financed, and to a lesser extent on financial statements or sheer speculative joie de vivre. There were of course exceptions to this. George Hudson, the “Railway King” leader of Britain’s 1845-46 speculative railroad construction bubble, began as a draper’s apprentice. Conversely, New York’s J. Pierpont Morgan famously opined that it was “character” that led him to lend money or arrange finance — this implied a measure of social selectivity more or less akin to that of the London merchant banks of the same era.

Nevertheless, the availability of finance to the socially unconnected — and indeed to out and out shysters — was greater in the U.S. than in Britain. The entrepreneurs who used bond and stock finance extensively — Vanderbilt, Fisk, Gould — generally provided poor returns to their outside investors. From at least the Civil War on, the U.S. markets were far more likely to be seduced by a complete unknown with an apparently stellar track record than were the London bankers. This may have led to a more open society than in Britain, in which from time to time people from the very poorest backgrounds rose right to the top, but it also led to excessive reliance on legalism, and to an inability to assess business risks beyond what was disclosed in financial statements. In Britain, the poor could rise to the upper middle ranks of business, but rose higher only if they largely financed themselves.

This raises an important point. Both in the U.S. and in Britain, most of the greatest fortunes were made more or less without recourse to outside finance — in the U.S. nineteenth century John D. Rockefeller and Andrew Carnegie, for example, in the British twentieth century, William Morris, Lord Nuffield, and the Marks family (Marks and Spencer) who used outside equity finance very sparingly and long term debt finance not at all.

In Britain, after the Second World War, the U.S. pattern, notably including the bureaucracy imposed by the 1930’s securities legislation, has been largely copied. Today the London merchant banks, even those few that still exist, are no longer significant sources of risk capital, and finance is provided on very much the same basis as in the U.S. The Saatchi brothers, for example, built the largest advertising agency in the world, to become a famous 1988 collapse, without significant pre-existing British social connections, while the swindler Robert Maxwell was only able to succeed for as long as he did because social connections were no longer necessary to raise big money.

If the mistakes of 1776, on both sides, had been avoided, and Britain and the U.S. had remained part of the same polity, presumably with its financial center in London, the business world, as well as the political world, would look very different. Of course, the economic development of the U.S. West would have happened more slowly, but on the other hand, Native Americans would equally have been pushed back by the advancing frontier more slowly, and thus would today occupy a more secure financial and political position.

Entrepreneurship would be more difficult to get financed, and technological development might be somewhat slower, but the differences here would not be overwhelming. In a financial system run by London merchant banks, Bill Gates, son of a prominent Seattle lawyer, and Warren Buffett, son of a Nebraska Congressman, would both have had ample access to financial opportunity — in any case, like the best entrepreneurs of the nineteenth century, neither of them has needed much outside finance beyond that available from friends and family.

Conversely, investors in WorldCom, Global Crossing, and Enron might like to think what those companies’ growth opportunities would have been in a British-style financial system.

WorldCom would not exist as such. One can be fairly sure about this. Bernard J. Ebbers, from Alberta, Canada, and operating out of rural Mississippi, without significant access to elite education or high finance, would not have been able to buy company after company using his own equity as consideration. He would thus not have had the opportunity to declare $3.9 billion of expenses as capital investment, thus propping up his sinking ship. Investors who have bought WorldCom at any price above its current 6 cents per share would thus be better off.

Gary Winnick, founder of Global Crossing, was a former aide to junk bond king Michel Milken at bankrupt investment bank Drexel Burnham Lambert, and was the son of a bankrupt New York food services entrepreneur. Serial involvement in bankruptcy was a pretty secure barrier to raising major finance from London merchant banks.

Enron is a more difficult case. Kenneth Lay and Gary Skilling were, after all, both graduates of Harvard Business School, which I take to be the modern U.S. equivalent of being an Old Etonian. However Enron’s bankruptcy, as is now clear, involved only relatively minor fraud and was precipitated by the company’s instability, caused by running a huge derivatives operation in a company with a BBB credit rating. Not doing derivatives on the back of a credit rating lower than AA, because of the possibility of an Enron-style collapse of confidence among counterparties, has been a “rule of thumb” in the derivatives market since I was actively involved, in the early 1980’s. Following rules of thumb that have worked in the past, and not ignoring them in bull markets, was a central operating principle of the London merchant banks. Enron would have got financing for its domestic mergers, and for its unfortunate international expansion, but would have faced draconian curbs from its bankers on the expansion of its trading desks.

For investors in WorldCom, Global Crossing and Enron, and in general in the 1996-2000 speculative bubble, the fireworks Thursday should be mixed with at least a tinge of regret. Had events in 1776 gone differently, their money might still be here today.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.