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Lords of Finance: The Bankers Who Broke the World [Kindle Edition]

Liaquat Ahamed
4.5 out of 5 stars  See all reviews (260 customer reviews)

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Book Description

Winner of the 2010 Pulitzer Prize

"A magisterial work...You can't help thinking about the economic crisis we're living through now." --The New York Times Book Review

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 made by a small number of central bankers that were the primary cause of that economic meltdown, the effects of which set the stage for World War II and reverberated for decades. As yet another period of economic turmoil makes headlines today, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, their fallibility, and the terrible human consequences that can result when they are wrong.

Editorial Reviews Review

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.

From Bookmarks Magazine

Almost all critics praised Lords of Finance for its command of economic history and engaging, lucid prose. Ahamed, noted the New York Times, illuminates wise parallels between the misplaced confidence that spawned the global depression in the 1930s and the illusory calculations of risk that led to the current financial crisis. His compelling biographies also personalize economic history. While critics disagreed about whether lay readers will, in a century's time, care about Norman, Moreau, and Schact, the only negative words came from the Wall Street Journal, which criticized Lords of Finance for an imprecise understanding of the gold standard: "Harrumphing about the ‘gold standard,' Mr. Ahamed reminds me of the fellow who condemned ‘painting' because he had no use for Andy Warhol."
Copyright 2009 Bookmarks Publishing LLC

Product Details

  • File Size: 1719 KB
  • Print Length: 588 pages
  • Publisher: Penguin Books (January 22, 2009)
  • Sold by: Penguin Group (USA) LLC
  • Language: English
  • Text-to-Speech: Enabled
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  • Lending: Not Enabled
  • Amazon Best Sellers Rank: #48,517 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Most Helpful Customer Reviews
192 of 205 people found the following review helpful
5.0 out of 5 stars Central Banks in the First 40 years of the 20th Century February 7, 2009
First, let me say that this is an extremely well written book. I was expecting to have to plow through the usual dreadful writing that finance and economics seems to generate. To my surprise I found a book that was crisp, clear, and interesting. Fun, in fact. Second, the author covers a period and a topic that is sadly neglected in most histories - the inter-war period, and especially the financial events that played a major role in the rise of Hitler and the origins of the Second World War.

The book is primarily the story of 4 Central Banks - those of the US, England, France, and Germany, and of the heads of those banks. The book actually covers a longer span than the inter-war period, it includes important information about the banks just prior to the First World War, their activities during the war, and extends into the Second World War. The lead-in is especially important, because it explains so much of what happened during the inter-war period.

The events are too complicated to review in detail, but the author explains them well and shows how the personalities of the Bankers as well as the politics of the times influenced events. Let us just say, mistakes were made.

My one quibble with the book is that the author is rather unsparing in his criticism of the bankers. Although this is somewhat justified, I ended up feeling sympathetic to at least the heads of the US Federal Reserve and the Governor of the Bank of England. Their primary fault was an inability to see beyond the conventional economic wisdom of the times. In point of fact, the only person who seemed to get it right during this time was Maynard Keynes.
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302 of 326 people found the following review helpful
5.0 out of 5 stars The Four Bankers of Apocalypse January 25, 2009
Liaquat Ahamed, a former World Bank economist and investment fund manager, began research on this book long before the current financial crisis, having no idea of the relevance it would have upon its publication. It is a history of the financial and economic turmoil that began in 1914 and didn't really end until after World War II. He traces the development of this crisis through the lives and actions of four central bankers: Benjamin Strong of the Federal Reserve of New York, Montagu Norman of the Bank of England, Emile Morceau of the Banque de France, and Hjalmer Schacht of the Reichsbank of Germany. The liquidity crisis of 1914 has suddenly become a subject of interest as it bears relevance to today's problems.

Ahamed's central thesis is that the critical decisions made by these four bankers not only caused the Great Depression but also created the conditions for World War II. The most fateful event of all was the decision to adhere to the gold standard. In retrospect, tying the amount of currency a country has in circulation to the amount of gold it has in its vaults appears arbitrary and nonsensical. However, it seemed like a good idea at the time, it provided a universal standard against which countries could stablize their currencies. Unfortunately it became a straight jacket which gave them little room to maneuver.

When the big four bankers came into power in the mid-1920s, the use of the gold standard actually seemed to be working, currencies were stabalized and capital was once again flowing. The problem however was that there was not enough gold in existence to proide enough capital to finance world trade. According to Ahamed, this was the central flaw in the financial system that led to the Crash of 1929 and the subsequent Great Depression.
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149 of 169 people found the following review helpful
3.0 out of 5 stars Could it happen again? May 2, 2009
"I have yet to see any problem, however complicated, which, when looked at in the right way did not become still more complicated."

The author begins the epilogue with this insightful quote but ignores the wisdom of it for most of the preceding chapters.

He acknowledges that Roosevelt "did not even pretend to grasp fully the subtleties of international finance" and that few elements of his New Deal policies "were well thought out, some were contradictory and large parts were ineffectual." He then concludes that the temporary abandonment of the gold standard and the devaluation of the dollar "succeeded beyond anyone's wildest expectations". The conclusion left for the reader seems to be that Roosevelt advocated many foolish polices and, when it came to economics at least, was extremely naive but that since he devalued the dollar he was ultimately vindicated.

The author should have subtitled the book 'How The Gold Standard Broke The World'. Virtually every chapter implies that the gold standard is the explanation behind all the world's economic disruptions. There is no discussion of what the world might have looked like after Roosevelt's policies if there had been no World War, or worse, if the Allies had lost. Without the benefits of supplying and financing the War and subsequent rebuilding of Europe after the War what would have become of the United States economy? Well, I guess we'll never know...or will we?

Given that Keynesian economics is being recycled to address the current economic crisis perhaps we will finally discover whether deficit spending and currency manipulation are truly panaceas or whether this complicated crisis, when looked at in the right way does not become still more complicated.
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Most Recent Customer Reviews
5.0 out of 5 stars ultimately failing to stop or even slow the great depression thereby...
Astounding read.Unvarnished narrative of "the most exclusive club in the world" a tiny group of central bankers, meeting in private, setting currency and credit rules... Read more
Published 11 hours ago by John Feesey
4.0 out of 5 stars Sure makes you think about parallels with today.
Sure makes you think about parallels with today. We think our experts are
experts but they don't change with the times
Published 4 days ago by MGB
5.0 out of 5 stars Five Stars
Well written and insightful
Published 6 days ago by Robert
2.0 out of 5 stars Two Stars
I just found these stories as not relevant to our present system.
Published 8 days ago by Spiderman
5.0 out of 5 stars fantastic book and warning to governments as they try to avoid other...
What seems clear is that investor and consumer psychology will determine the chaos or tranquility of our future economies. How to control that psychology remains a mystery.
Published 9 days ago by H. Miller
4.0 out of 5 stars A very good, very accessible history
Looking at the interwar economic crises though the lens of four individually interesting but now largely forgotten central bankers is a good literary device. Read more
Published 19 days ago by Richard Falkenrath
5.0 out of 5 stars The Banker Who Broke The World
An interesting book. The thing I really liked about it is the fact how it explains that there were 4 people responsible for The Great Depression. 4 Bankers. Read more
Published 20 days ago by Hina Tabassum
5.0 out of 5 stars A must read
It was a great book! It.was very informative and read more like a novel rather than just reviewing g historical facts. Read more
Published 24 days ago by #1Tinkfan
3.0 out of 5 stars Three Stars
Received timely but got two copies while I only ordered one.
Published 26 days ago by Michael Laffan
5.0 out of 5 stars No better history of the big four in central banking in ...
The Pulitizer prize winner in history. No better history of the big four in central banking in the 1920s and 1930s.
Published 1 month ago by Pete Sanders
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More About the Author

Liaquat Ahamed has been a professional investment manager for twenty-five years. He has worked at the World Bank in Washington, D.C., and the New York-based partnership of Fischer Francis Trees and Watts, where he served as chief executive. He is currently an adviser to several hedge fund groups, including the Rock Creek Group and the Rohatyn Group, is a director of Aspen Insurance Co., and is on the board of trustees of the Brookings Institution. He has degrees in economics from Harvard and Cambridge universities.

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Lords of Finance was Highly Reviewed by New York Times
The New Yorker also had a wonderful review by John Lanchester. It is less a summary and more a mini-seminar--an engaging and even imaginative seminar about central bankers. It surprised me and fascinated me and it made me aware of how little I understand about currency. I do understand how... Read More
Jan 28, 2009 by J. B. Dunn |  See all 4 posts
Bills of Exchange Doctrine
The RBD isn't well-covered these days due to the absence of history of economic thought courses in economics departments around the globe. Nevertheless, I thank you for making the effort to spread awareness of the RBD.
Jan 28, 2013 by Black-Helicopter |  See all 2 posts
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