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Lords of Finance: 1929, The Great…

Lords of Finance: 1929, The Great Depression, and the Bankers who Broke… (original 2008; edition 2010)

by Liaquat Ahamed

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8613010,366 (4.12)43
Title:Lords of Finance: 1929, The Great Depression, and the Bankers who Broke the World
Authors:Liaquat Ahamed
Info:Windmill Books (2010), Paperback, 576 pages
Collections:Your library
Tags:Financial history

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Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed (2008)

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This book has won several awards, including the 2010 Pulitzer for history; it is well-deserving. This is the third book on the Great Depression era that I have read this year and I would recommend reading this book and Amity Schlaes' The Forgotten Man (my review) back-to-back. You can't understand how we got to the Great Depression without this book.

In my Money & Banking courses, I would always play the "Anatomy of a Crisis" episode of Milton Friedman's Free to Choose series. In it, Friedman laments that Benjamin Strong died in 1928, believing that Strong would have pushed the Federal Reserve to take the steps necessary to inject liquidity into the American system. It was Friedman and Schwartz's work that showed the U.S. needlessly hoarded gold, keeping monetary policy tight and forcing a chokehold on the U.S. economy. This book tells that part of the story well, including the insights of why France did the same thing. I see nothing to contradict Friedman's assertion that the Great Depression was a monetary phenomenon.

But one cannot understand that period without understanding the role that German reparations had on the entire system. That becomes the snowball that starts the avalanche. Ahamed gives a biography of the central bankers who propped up the gold standard after World War I, their context, psychology, and their interpersonal relationships. He details the decisions in monetary policy made throughout the twenties and early thirties. The life and writings of J.M. Keynes during this period is also chronicled and other prominent economists, such as Irving Fisher, are mentioned as well. Presidents and Prime Ministers are viewed through the lens of monetary policy and international finance. The book is not boring at all, the narrative is quite riveting.

I give this book 5 of 5 stars, it is a must-read for anyone interested in economics of the 1920s and 1930s. I learned a great deal. ( )
  justindtapp | Jun 3, 2015 |
Well written, great storytelling of a very very relevant topic today. Great read with terrific portraits of the central bankers involved. ( )
  lincolnpan | Dec 31, 2014 |
Given the subject matter of monetary policy, which as I suspected, I find deadly dull no matter how good the writing is, I'm pleased with myself for having stuck it out and gotten through this.

But I did learn some things:

That the Great Depression was caused by several factors: the insistence on reparations from Germany after WWI, coupled with the U.S. not backing down on the issue of war debt. The fact that the U.S. and Europe tried to get back on the gold standard. The intransigence of France in the early thirties. The untimely death of Benjamin Strong, who seemed the only guy who understood what was going on and had the social skills to convince the other financial world leaders of what needed to be done. ( )
  EricKibler | Apr 6, 2013 |
someday when I have time for the tome which basically says that the financial heads of the US, England, France and Germany were responsible for the Great Depression and WWII
  lindap69 | Apr 5, 2013 |
A truly remarkable book. Essential for understanding what has happened to our money in the first third of this century. The photographs of the four protagonists are wonderful. I would say this is essential to an understand of American banking. It is also interesting the way the author includes the physical ailments of these central bankers. Stong's battle with tb is a story in itself
1 vote carterchristian1 | Dec 13, 2012 |
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A grand, sweeping narrative of immense scope and power, the book describes a world that long ago receded from memory: the West after World War I, a time of economic fragility, of bubbles followed by busts and of a cascading series of events that led to the Great Depression.

added by mikeg2 | editNew York Times, Joe Nocera (Feb 13, 2009)
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Amazon.com Amazon.com Review (ISBN 0143116800, Paperback)

Amazon Exclusive: Liaquat Ahamed on the Economic Climate

In December 1930, the great economist Maynard Keynes published an article in which he described the world as living in “the shadows of one of the greatest economic catastrophes in modern history.” The world was then 18 months into what would become the Great Depression. The stock market was down about 60%, profits had fallen in half and unemployed had climbed from 4% to about 10%.

If you take our present situation, 16 months into the current recession, we're about at the same place. The stock market is down 50 to 60 percent, profits are down 50 percent, unemployment is up from 4.5% to over 8%.

Over the next 18 months between January 1930 and July 1932 the bottom fell out of the world economy. It did so because the authorities applied the wrong medicine to what was a very sick economy. They let the banking system go under, they tried to cut the budget deficit by curbing government expenditure and raising taxes, they refused to assist the European banking system, and they even raised interest rates. It was no wonder the global economy crumbled.

Luckily with the benefit of those lessons, we now know what not to do. This time the authorities are applying the right medicine: they have cut interest rates to zero and are keeping them there, they have saved the banking system from collapse and they have introduced the largest stimulus package in history.

And yet I cannot help worrying that the world economy may yet spiral downwards. There are two areas in particular that keep me up at night.

The first is the U.S. banking system. Back in the fall, the authorities managed to prevent a financial meltdown. People are not pulling money out of banks anymore—in fact, they are putting money in. The problem is that as a consequence of past bad loans, the banking system has lost a good part of its capital. There is no way that the economy can recover unless the banking system is recapitalized. While there are many technical issues about the best way to do this, most experts agree that it will not be done without a massive injection of public money, possibly as much as $1 trillion from you and me, the taxpayer.

At the moment tax payers are so furious at the irresponsibility of the bankers who got us into this mess that they are in no mood to support yet more money to bail out banks. It is going to take an extraordinary act of political leadership to persuade the American public that unfortunately more money is necessary to solve this crisis.

The second area that keeps me up at night is Europe. During the real estate bubble years, the 13 countries of Eastern Europe that were once part of the Soviet empire had their own bubble. They now owe a gigantic $1.3 trillion dollars, much of which they won’t be able to pay. The burden will have to fall on the tax payers of Western Europe, especially Germany and France.

In the U.S. we at least have the national cohesion and the political machinery to get New Yorkers and Midwesterners to pay for the mistakes of Californian and Floridian homeowners or to bail out a bank based in North Carolina. There is no such mechanism in Europe. It is going to require political leadership of the highest order from the leaders of Germany and France to persuade their thrifty and prudent taxpayers to bail out foolhardy Austrian banks or Hungarian homeowners.

The Great Depression was largely caused by a failure of intellectual will—the men in charge simply did not understand how the economy worked. The risk this time round is that a failure of political will leads us into an economic cataclysm.

(retrieved from Amazon Thu, 12 Mar 2015 18:15:05 -0400)

(see all 5 descriptions)

With penetrating insights for today, this vital history of the world economic collapse of the late 1920s offers portraits of four men--Montagu Norman, Amile Hilaire Emile Moreau, Hjalmar Horace Greeley Schacht, and Benjamin Strong--whose personal and professional actions as heads of their respective central banks changed the course of the twentieth century.… (more)

(summary from another edition)

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