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Lords of Finance: The Bankers Who Broke the World
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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.



With penetrating insights for today, this vital history of the world economic collapse of the late 1920s offers unforgettable portraits of the four men whose personal and professional actions as heads of their respective central banks changed the course of the twentieth century

It is commonly believed that the Great Depression that began in 1929 resulted from a confluence of events beyond any one person?s or government?s control. In fact, as Liaquat Ahamed reveals, it was the decisions taken by a small number of central bankers that were the primary cause of the economic meltdown, the effects of which set the stage for World War II and reverberated for decades.

In Lords of Finance, we meet the neurotic and enigmatic Montagu Norman of the Bank of England, the xenophobic and suspicious ¨¦mile Moreau of the Banque de France, the arrogant yet brilliant Hjalmar Schacht of the Reichsbank, and Benjamin Strong of the Federal Reserve Bank of New York, whose fa?ade of energy and drive masked a deeply wounded and overburdened man. After the First World War, these central bankers attempted to reconstruct the world of international finance. Despite their differences, they were united by a common fear?that the greatest threat to capitalism was inflation? and by a common vision that the solution was to turn back the clock and return the world to the gold standard.

For a brief period in the mid-1920s they appeared to have succeeded. The world?s currencies were stabilized and capital began flowing freely across the globe. But beneath the veneer of boom-town prosperity, cracks started to appear in the financial system. The gold standard that all had believed would provide an umbrella of stability proved to be a straitjacket, and the world economy began that terrible downward spiral known as the Great Depression.

As yet another period of economic turmoil makes headlines today, the Great Depression and the year 1929 remain the benchmark for true financial mayhem. Offering a new understanding of the global nature of financial crises, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, of their fallibility, and of the terrible human consequences that can result when they are wrong.

Customer Reviews:

  • A real education in international finances.
    International banking has always been a mystery to me. I never quite got what "central" banks were all about and how they function on the world stage. This book has educated me to dozens of unanswered questions. It is a bit of a tough read because it jumps from country to country and era to era, but all in all, I highly recommend it to anyone who wants to know the history of the world of finance....more info
  • Important Work with Many Pluses -- But also Many Minuses
    This book is billed as the story of four bankers from four countries who supposedly sent the world into the Great Depression due to their policies -- most specifically their adherence to the gold standard. They were Montagu Norman of the Bank of England, Hjalmar Schacht of the Reichsbank (Germany -- also remembered as the financial wizard who financed Hitler's rearmament of Germany), Emile Moreau of the Bank of France and Benjamin Strong of the New York Federal Reserve Bank. The author also features Lord Keynes as the Eminence Grise in the background whose economic ideas the author seems to hold as always correct and the standard against everything else should be measured. One can argue against the author's theme that the four men brought on the depression and one can certainly argue that world economics have suffered greatly through the application of Keynesian economics.

    Nonetheless the work gives a fascinating glimpse into the European and American monetary systems from the turn of the century up to World War II. The origin and operation of the Federal Reserve System -- designed by a small cabal of American moneymen in total secrecy -- is presented and worth the price of the book by itself. Also the American financing of World War One and the subsequent European refusal of their debts should be remembered by every American today who saw many billions of AIG bailout money go to European banks in payment of AIG debts to them rather than AIG taking bankruptcy. That the Europeans felt the US had profiteered in World War One while they had paid the cost in blood has been forgotten by most Americans if it was ever known. Only little Finland paid its debts in full -- the others, most notably France and England, welshed, and their populations took a decidedly anti-American stance when the US attempted to collect its just due. This situation was not alleviated in World War II through Lend-Lease, nor even the Marshall Plan when the US ultimately donated the huge sums represented by these initiatives to their recipients. Those who would recognize a European leadership role in the world today would do well to read this book and understand that in the 20th and 21st centuries Europe has collected every debt owed by the US while refusing to pay theirs. And yet they blame America for everything -- but that's what happens when socialist societies depend on a capitalist country for their security and economic well-being. Our strength makes no friends -- only grudging allies attempting to use us for their benefit.

    The author is correct in pointing out that remaining on the gold standard limited the options that could be taken by government and banks to head off and deal with the financial crises of 1929 and later. But we have been off the gold standard ever since Roosevelt took office in 1932, so obviously there are many roads to depression in an economy. Clearly from this book most government actions were counter-productive although they have been mythologized so the public believes those actions were successful. Roosevelt, a second class intellect who never grasped the fundamentals of the American economy thought that price-fixing (through the NRA) was the solution, then the prohibition of private ownership of gold (everyone had to turn their gold in to the Federal Government -- investors in gold should remember this since it wasn't repealed until 1972), then increasing the power of labor unions, then raising taxes (Roosevelt was for a 99.5% income tax on all income above $100,000.) Actually Roosevelt did his best to stifle private investment.

    In short, this book is extremely timely today and offers an excellent discourse on how feckless management and government action can be toxic to an economy.

    Unfortunately there are many flaws in this work. The story line meanders unbelievably and the many side excursions detract greatly from the general theme. One learns many details of banking and bankers, but coherence is sacrificed. In addition the historiography is flawed as if written by someone who lacks understanding of Western thought, attitudes and heritage, especially of Common Law, capitalism and self-determination. William Jennings Bryan would never have made the assumptions about Western character or mistakes in the political process (at least in the US) that are made in this work. The reader is cautioned that the coverage of the European side can be taken pretty well at face value, but not the American. American distrust of Europe and its wars was strong throughout the era covered by this work and very deservedly so. The US was criticized by Europeans for lending money to the warring European nations with interest attached, then becoming involved in World War One much too late (except to tip the scales for an Allied victory), then wanting its money repaid, then leaving Europe in the lurch by not joining the League of Nations, and then for not taking an active part in the suppression of Hitler and the resurgence of Germany. Gee, is it too late to get out of NATO and bring back all our troops and eliminate all foreign aid to Europe? I seem to recollect that George Washington warned us about getting envolved in entangling alliances.

    At any rate, with the US making the same mistakes today that it made in this book (except for the Smoot-Hawley Act), this book is timely beyond belief. And with the current President wanting to control the salaries paid to executives of all US banks, not just those who took TARP money, the lessons contained herein are important beyond description. Please read past the evinced lack of understanding of Americans and American institutions and attitudes. There is much to learn here. With better organization, more focused writing and a better grasp of American values and attitudes this book would have deserved five stars.

    I recommend this book to all. ...more info
  • Misleading subtitle; Inadequate explanations
    As a biography of four of the government bankers instrumental in the economic affairs of world finance in the post-World War I era and the 1920s, 'Lords of Finance' contributes to our understanding of events leading to the world's Great Depression of the 1930s.
    As an explanation of how these flawed men 'broke the world' this book doesn't provide clear answers. This story is a reminder that open-mindedness, ego-control, and big-picture vision of the individuals conducting the affairs of nations throughout history is critical to the success or failure of nations (and the too often unseen individuals inhabiting these nations).
    The effects of one nation's actions upon its own economy, on the economies of other nations, and the practicalities of the gold standard, the operating monetary system of this era, are inadequate.
    Such a book requires considerably more explanations (and even repeatedly so) about the gold standard--what it is, how it effects a nation's economics and international economic policy and practices, and how when one nation's economy changes how that effects one nation's economic practices and that nation's economic relationships with other nations.
    I learned something of the problems, crises, politics and economics of the inter-war period of western Europe and the U.S., but the story failed to cohere until the Epilogue, beginning on page 497 of the 508 page story. The bulk of the book was made up of many parts that just didn't coalesce.
    I would recommend this book more to someone knowledgeable about economics, and international monetary policy and practices, but not to someone with little or no knowledge of such matters....more info
  • timely read
    When I saw this book in the store I thought it was about current events. Turned out to be about the Great Depression, but it definitely speaks to our own times.

    The author does a great job of making sense of a huge amount of information about the mistakes that led up to the depression. There's a lot of material here, but it's presented in a way that makes total sense.

    Sometimes I think that some of the complexities get lost a little bit. Maybe he makes too much of the impact of the gold standard, for instance.

    Still, it's amazing to realize how just a small number of decisions and people had such a big impact on everyone. I recommend the book for anyone interested in financial disasters and how they happen....more info
  • Imbecile Institutions
    This is a very well written book. The author held my interest throughout the book. The narrative greatly increased my knowledge of the economic facts of that era. The book is somewhat long (500+ pages) and the author does get into the intricacies of who said and did what. But since the story is such an interesting and compelling one, I was not particularly put off by the abundance of detail attached to the storyline.

    The main thing that I came away with from the book was confirmation of what the early 20th century American economist, Thorstein Veblen, described as the history of economic crises being largely defined by the inability of nations and peoples to reconcile their "imbecile institutions" to the facts of the matter. That is, human institutions are conservative in nature and slow to change. Changing realities and circumstances run headlong into the non-adaptable institutions leading to socio-economic disaster.

    For the purposes of this book, the "imbecile institution" is the gold standard. By the author's lights, the gold standard was as J.M. Keynes put it, "a barbarous relic" and "fetish" from an earlier era. Keynes made the observation that digging gold out of the ground from a deep hole only to store it away virtually forever in another deep hole in the ground (the central bank vault) was a practice that did not bear a great deal of critical scrutiny. The gold standard provided a very brittle, inflexible measure from which to practice international trade and currency stabilization. The whole economic history of Western Europe and the US. between the two world wars provides testimonial to that fact. Take a look at the author's graph on pg. 479 that shows the timing of England, France, Germany, and the US effectively going off the gold standard. If you do not find the author's text convincing, come up with an argument to refute the graphical facts. Economic recovery began concurrently with the abandonment of the gold standard.

    Additionally, the author gives an amusing description of the old "gold standard" international gold exchange. Gold is heavy, valuable, and consequently difficult to transport. Consequently, the central banks of Europe and the US didn't move the stuff around too much. When a certain amount of gold was transferred from one nation's account to another, that bullion was loaded onto pallets and shifted, for example, from the Banque de France's vault corner into the "US corner" or the "Bank of England's corner" in the same vault. There is something very comic opera about this symbolic practice of shuffling gold around in the various nation's central bank vaults and having the world's financiers taking this process very, very seriously.

    I enjoyed the author's comments on the Smoot-Hawley Act of June 1930 found on pg. 375-6. Despite the popular canard amongst "free trade" enthusiasts that Smoot-Hawley caused the Depression and Crash, this doesn't square with the fact that the protectionist tariff was introduced in June 1930--after the October 1929 crash. The tariff was an effect of deteriorating economic conditions, not a major cause of it. Since exports in 1930 in the US were less than 4% of US GDP, it is irrational to claim that Smoot-Hawley significantly contributed to the economic depression in the US. If anything, the tariff was very mildly stimulative for US domestic industry. It would be appreciated if the "free trade" spokespeople and politicians actually bothered to check the historical facts before endlessly parroting this overripe canard.

    It is books like this that makes economic history more accessible and palatable to the educated general public. There's no question that the public desperately needs to be better informed on these issues. A very worthwhile book to increase your knowledge of international financial affairs and historical events....more info
  • A key title for our times
    The Depression is largely attributed to a series of events beyond anyone's control when in fact, Liaquat Ahamed maintains, it was decisions made by a small number of central bankers that resulted in the Depression events. LORDS OF FINANCE examines this inner circle, providing biographies of participants and analyzing their financial choices and reasoning. A key title for our times, for both business, economics, and general-interest collections.
    ...more info
  • An alternate view of the great depression
    I bought this book because I was interested in learning more about the Great Depression and what similarities there may be to our current economic crisis. I was amazed at several points in the book where the author was describing events of the 1920's that almost mirror those of today. Particularly the sections on the stock market bubble of 1929, the fears of government spending, interest rate manipulations, etc. In many ways history does repeat itself.

    The debate about the gold standard will continue beyond my lifetime and the author gives credit to its successful use before WWI. However, the world was forever changed after WWI. War debt, reparations, stock market bubbles, the desire of the "Lords" to return to the gold standard, and the impact of financial and political decisions on the world economy is the central theme. The book is well written and researched and the author does an excellent job of presenting a generally dry and complicated topic in a fresh and understandable style.

    Highly recommended....more info