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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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983318,734 (4.09)52
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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Showing 1-5 of 29 (next | show all)
This is a good book, but likely not for all. You don't have to understand a great deal of finance, but it helps to grasp the ideas of the gold standard, inflation, and deflation because the important events between the bankers of the world evolve around these concepts. What works in this book is how well the four central bankers (characters almost) interact with one another. Each man is so much a reflection of his country and to, almost a lesser degree, himself. The key German banker is incredibly self-assured, prideful, and not particularly interested in human interactions. The French banker is also a proud individual with a high degree of sensitivity to how other countries views his. This is a good way to understand world history on the whole...follow the money. What impressed me is how -despite the terrible attacks of the Germans- there was an understanding that it wouldn't be in the best interest of the world to completely crush the country after WWI. There's also the U.S.'s self-serving behavior where rather than support Britain and France directly with money in WWI, we held back and then offered loans. Worth reading if you're remotely interested in world banking affairs. It's not really that far removed from today's practices either. ( )
  RalphLagana | Jan 23, 2016 |
Even given his opening epigraph claiming that biography was the only way to understand history, Ahamed spends surprisingly little time describing each of the bankers as people. Sure, there are the vivid descriptions of their personalities and the expected personal details that helps to explain some of their behavior, but more important to the story is the unique situations each of them faced in their respective home countries: Moreau in France, Schacht in Germany, Norman in England, and Strong in the United States.

Those three European countries ended World War I financially devastated—not just in terms of direct casualties from the war, but also from the loans needed to finance it. The United States, on the other hand, was on the other side of those loans; removed from most of the financial and human effects of the war, after cessation of hostilities the US found itself newly-elevated in the world order.

But beyond the mere balance-book debts and deficits was a deeper issue: their common reliance on the gold standard. All four had suspended matching their currency to the gold available during the war, but afterwards, desperately wanted to get back on the system for perceived stability.

But then they encountered the first crisis: what should they peg their currencies to now? The money supply had grown in all countries as the government pumped out bills to finance their militaries, and on top of that, their gold reserves had drastically changed as well. While the United States' gold reserves had newly-swelled due to their loans, all three European countries found their reserves drastically diminished.

It's fair to say that the gold standard—in all its allure and limitations—forms the central driver of the book. Each struggled to decide when to go back on the system, and stubborn domestic politics complicated acceptance of a devalued currency for most of the European nations. Their ties to gold sharply limited their available actions during the tumultous decade that followed, and sealed their fate with the catastrophic crash. It continues to be astonishing that there exists a faction of Americans—national politicians, even—who advocate for a return to the gold standard and ignore all history that says otherwise.

And then there were the reparations. Under threat of resuming hostilities, the Allies pried a stiff price out of defeated Germany. Not only was land ceded to France and others, and not just there army largely stood-down, but Germany found itself owing billions to France, the US, and the UK. Again, internal politics played a strong role here; the US argued for lower reparations in the interests of the world economy (and because they wanted to disengage with Europe at the time), while the UK and France wanted to squeeze Germany dry, extracting as many kilograms of flesh as they could.

All these tensions recur throughout the book, and it adds a shocking level of detail to what I previously knew about the crash. Again, while Ahamed claims his project is a four-fold biography of these lead bankers, his actual aims are far more grand: a well-written, accessible look at how and why the financial system failed. Unlike his presumptive thesis that hubris and personal factors led to the crash (as his title and other paratext would have you believe), the book's verdict is far more nuanced and damning. Given the financial systems at play and the political situations at the time, it's hard to imagine how any combination of personalities could navigated the troubles.

But that's not to say the book is entirely fatalist; there is one lone speck of light in the darkness, and his name was John Maynard Keynes. While he doesn't get as much attention as the four main characters, he acts as a hectoring marginalia to most of the decisions of the time. Keynes was utterly prescient, and has rightfully seen a resurrection after the crash of 2008. But he is the Cassandra of his tale, predicting the coming crash, and unable to do much more than step out of the way. ( )
  gregorybrown | Oct 18, 2015 |
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 |
Showing 1-5 of 29 (next | show all)
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)

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