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Lords of Finance
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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 centuryIt 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:

  • Twentieth Century Nightmare
    I bought this book expecting (and dreading) a boring technical tome on banking (a subject that I find intriguing but difficult). To my delight it was not boring. On the contrary it is an exciting and riveting book, from cover to cover. It goes very far to explain the twentieth century. I am afraid that the title will turn people away. It should have a title more like "The Twentieth Century Nightmare."...more info
  • Timely. Are you ready for our depression?
    Very well written. A lot of lessons to learn. If you lost your home or job or fear you will, perhaps a reading of this book will help you prepare for the worst, should history repeat itself.
    Our President Obama seems to have read this book as he is doing the right things to head off a depression. Unfortunately, a lot of negative people blocking his efforts. It was fascinating to see similar fools in the 20s and 30s doing similar things that are being done today.
    Buy this.
    ...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
  • 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
  • Spellbinding tale of world finance leading to the Great Depression
    This book tells the story of Western European and American international finance between the First World War War and the Great Depression. Ahamed focuses upon the most important central bankers of Britain, America, France and Germany, as well as on John Maynard Keynes. The book is a collective biography of the five individuals, a history of Western finance in the 1920s and an argument about the causes of the Great Depression.

    The book reads well. Ahamed gives detailed stories about very important events, about which I knew very little. He describes the people involved and their motivations. He makes the whole bygone era come alive again.

    But it is not just a good read; it is an important, and unjustly neglected, subject. If you ask, what caused the Great Depression, you tend to get dropped immediately into a vast and contentious literature that mostly focuses on economic theory. Economic theory, of almost all perspectives, tends to approach its subject, as if is unrelated to time or to place. We are discussing "the economy", not the particular economy of Germany in the early 1920s or whatever it might be.

    This ahistorical approach tends to lump situations together, which do not belong together, and to neglect facts which are of obvious importance, once you think about them. In the case of the Great Depression, there is a critical historical context, which Ahamed stresses. Before World War One, Great Britain was the dominant financial power of the world. It maintained its system through the old-fashioned gold standard. The gold standard created monetary discipline and restraint by tying the amount of currency which any nation could issue to the amount of gold which it had. Those with gold could issue more currency and enjoy a rising standard of living; those without gold had to issue little currency and were forced to work hard to make do with less. The system, in theory, was self-adjusting. As a nation got a lot of gold, its currency increased, which drove up its prices. As its prices went higher, that nation attracted imports but had trouble exporting, which caused it to lose gold.

    It all sounded good, and there are those, even today, who wish we would go back onto the gold standard. But, as Ahamed makes clear, the gold standard died in 1914, when the Great War started. The war was so absurdly expensive that it forced every European power off of gold. It also forced every European power to borrow massively, and to print so much currency that there were greater or lesser amounts of inflation all over Europe.

    European leaders mostly believed that, once the war was over, they could restore the pre-1914 world. They tried to do so for many years, but they were never successful. The war resulted in a decisive shift in financial and economic power from Britain to America. Britain and France borrowed huge sums from America, to finance the war. They tried to get these debts repaid, by imposing on Germany the obligation to pay equally vast sums in reparations.

    In retrospect, it is obvious that the war-torn nations of Europe could neither pay their debts to America nor reparations from Germany to the Western allies. The obvious solution was that America forgive the debts to the Western allies, on condition that they forgive the reparations from Germany.

    America did not do that. It insisted on payment by France and Britain, which, in turn, insisted on payment by Germany. All of these nations were gravely weakened by an impossible debt load.

    And, on top of that, America had most of the world's gold. This made it impossible for the world to go back on the gold standard, since no one had gold except America. America said that it was going back on the gold standard, except that it did not, at least not in the old way. With so much gold, under the old rules, America should have issued a vast amount of currency, which would have driven up American prices, encouraged imports from Europe and thus allowed Europe to get back on its feet.

    Except we didn't follow the old rules. Faced with a vast amount of gold, the Federal Reserve "sterilized" most of it. In other words, we got the gold, but we issued no currency backed by it. Fearing inflation, we simply took the gold and buried it. While we used the old name of the gold standard, the old rules were torn up and replaced with illogic. Europe had little gold, so its currency could not expand. America had lots and lots of gold, but we refused to use either it to expand our currency or to help European recovery.

    This made the global system of finance hopelessly unstable. Germany made things worse by running the printing press to solve its problems, and bringing on hyperinflation. Britain made things worse, by going back on the gold standard, at the old rate and acting as if it were still an economic super-power, when it simply did not have the money to sustain the role any more. France was consumed by hatred and fear of Germany, which lead it to play a very irresponsble role in the whole drama. Ultimately, it all blew up, lead to the Second World War, after which the US got it right, with the Marshall Plan and the Bretton Woods agreement.

    Ahamed tells this whole story very well. Anyone interested in the Great Depression should know this story. The best way to get to know this story is to read this book....more info
  • Gripping account of Depression-era economics
    Who knew that a study of central bankers could be a page-turner? Investment manager Liaquat Ahamed spins a fast-moving yarn about central bankers' disastrous monetary policy decisions in the 1920s and early 1930s. The story itself yields little suspense - you already know how it ends, but Ahamed uses thorough research and gripping detail to paint a complete picture of how the world economy collapsed. The Great Depression preceded today's credit default swaps, collateralized mortgage obligations and arcane derivatives, so the book's lessons for the modern crisis are mostly as referential cautions. getAbstract recommends this absorbing book to readers who want a deeper understanding of the gold standard, and the events that led to - and out of - the biggest economic crisis of the 20th century....more info
  • Wonderful Read
    The subject would seem to be dry but the author's excellent writing and research makes it not only interesting but a very good read. ...more info
  • Making learning interesting
    This book is so well written. It reads like a good novel, and then you realize you've
    learned things you never knew. You think of history in a whole new way. I find myself looking and understanding politics differently than I used to.
    I love this book!!...more info
  • Lords of Finance
    "The Lords of Finance" Covers the monetary and fiscal history of the period from the end of WWI through the thirties with the emphasis on roughly 1920 - 1933. It is extremely lucidly written for what is frequently an opaque subject. It elucidates the misjudgements that lead to the Great Depression, and makes completely understandable the rise of Hitler in Germany. Further, it makes one especially anxious about our current precarious economic situation. It should be required reading for all those elected and appointed officials responsible for setting present economic policy in the United States.
    ...more info
  • Lacks focus and is dry
    This is an uneven book. There were parts in this book that were very interesting to read and other parts that were quite dull. It lacked focus. The book was marketed as a how the four lords of finance were responsible for the terrible global economy in the 30's, but most of the book is not really about this. One could argue that the author was trying to build up to his point but I did not find a nice flow to the book. Each chapter, while at times interesting, did not lead to to a central point. Perhaps the author was trying to accomplish too much in one book....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
  • Lords of Finance
    Unbelievable history of this period. The author tied the politicial history to the financial history. Could not put it down. Conclusions were open to debate, but the history was great reading. ...more info
  • Great book
    I am in the middle of this book, but even now I can say this is a great book. It approaches the Depression by looking to the central bankers for England, US, Germany and France. It's a great vantage, giving a very human face to the financial history. Very well researched, very well written, hard to put down. ...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
  • Good Book but a little dry
    Lords of Finance is a good read, however I found it to ba a little dry at times. It goes into too much detail about the history of each of the four bankers, the meetings they attended (way to much detail), and other somewhat irrelevant facts.

    It does however, leave the reader with a detailed understanding of what really caused the Great Depression and how that pertaints to our current economic conundrum.

    I believe this book was part of the authors doctorical thesis.

    Overall I recommend this one.

    Bob ...more info
  • Borrow this one, don't buy it
    The book is worth reading just to get one perspective of times in that era but DO NOT use it as a source of factual information. The author writes as someone who is either blinded by his life in the same world as his subjects, i.e., high finance and basically making money not by really doing anything constructive but by playing with the hard work of the masses or someone unwilling to mention the pink elephant in the room. Many statements in the book identify either a lack of research beyond a few general sources from that time or a lack of interest in actually telling the reader how manipulative the central bankers were and have remained since 1913.

    Classic examples include:

    pg 15 "These bubbles and crises seem to be deep-rooted in human nature and inherent to the capitalist system." - with approriate research every bubble can be attributed to manipulation by one or a small group of greedy, self-serving individuals.

    pg. 42 "The collapse of stock values in the last week of July put several banks in Germany in difficulties -- the Norddeutsche Handelsbank, one of the largest banks in Hanover, had to close its doors-- and was accompanied by the usual litany of suicides by overextended financiers." - I find it interesting that the loss of money results in a de facto response of suicide among "so many" in the financial/banking community whereas bankruptcy among the masses is so common place that we should be seeing way more suicides than we do. Might I toss out a theory that those bankers who commit suicide are actually fearful of their shame and the wrath of those they swindled, more than just the loss of their banks money?

    pg 48 (regarding america's entry into WW I) "Although no one saw even a remote liklihood that the United States would become involved, it was widely feared that as the biggest importer of capital in the world, it would be badly hurt by a shutdown of international credit" - Oh yeah, J.P. Morgan and Benjamin Strong were totally oblivious to what was happening and what was going to happen regarding the war. This statement shows either an incredible naivete on the authors part or a purposeful deceit on the unknowing reader (I'd pick the latter).

    If you want a much better read on the history of the time and how we got here read Ellen Brown's Web of Debt!

    ...more info
  • Not the easiest read, but worth it
    I saw the author on a Sunday news show, and was intrigued about this book. I thought that reading about the years leading up to the Great Depression would be very interesting given today's economic environment. This book exceeded my expectations in that regard, but it gets very slow at times. However, the juicy parts are very juicy indeed.

    As we get further and further removed from the early 20th century, what took place during WWI and the years after become less and less common knowledge. Unlike WWII, which has many movies and documentaries still shown and on cable TV, this period is still a mystery to most people, myself included. I learned a lot from this book in that regard.

    There were two things that really stood out. First, the book is completely non-partisan. I find most books dealing with the current state of the economy or the country in general are nothing more than advertisements for a certain political agenda. This was nothing of the sort, and lays blame with individual decisions, not individuals or political parties. Second, I saw so many parallels to what is happening today, it was uncanny.

    Read this book, then come to your own conclusions about where we go from here....more info