January 15, 2009
Books of The Times
A Monetary Horror Story That Looks Like Today's
By JANET MASLIN
LORDS OF FINANCE
The Bankers Who Broke the World
By Liaquat Ahamed
Illustrated. 564 pages. The Penguin Press. $32.95.
Liaquat Ahamed's "Lords of Finance" is supposed to be a history book about the economics of World War I and the Great Depression. But there is terrific prescience to be found in its portrait of times past. Mr. Ahamed, an investment manager who proves to be a writer of great verve and erudition, easily connects the dots between the economic crises that rocked the world during the years his book covers and the fiscal emergencies that beset us today. He does this winningly enough to make his book about an international monetary horror story seem like a labor of love.
In 1999, looking at a Time magazine cover photograph of Alan Greenspan (then chairman of the Federal Reserve Board), Robert Rubin (Treasury secretary) and Lawrence Summers (deputy secretary), Mr. Ahamed pondered the article's headline: "The Committee to Save the World." He knew, because he obviously knows a great deal of things about a dazzling range of subjects, that the fiscal team of superheroes concept was not new.
In the 1920s the press had been infatuated with an international foursome of elite bankers who took on the challenge of restoring global economic balance after the wreckage created by World War I. They had been called the "Most Exclusive Club in the World."
Somehow Mr. Ahamed has been able to peg a many-faceted international economic story to the outsize personalities - one each from the United States, France, Britain and Germany - who made up that rescue team. And he succeeds so well that the potential opacity of his material is easily penetrated.
The reader who might not expect to be enthralled by the dangerous mutability of the gold standard, for example, will find it a subject of real fascination. And Mr. Ahamed does a superlative job of explaining the ever-germane way the problems of one shyster, one bank, one treasury or one economy can set off repercussions all around the globe.
Although "Lords of Finance" is much more than a personality-driven book, it has personalities to spare. The four men and their distinctive strategies are wonderfully drawn. If only by virtue of the velvet-collared cape and fan-backed oriental chair he used as accoutrements at a top-secret 1927 meeting on Long Island, Montagu Norman of the Bank of England emerges as this book's most exotic figure. The meeting led the Federal Reserve System of the United States to cut interest rates by half a percentage point to prop up the British pound. That it might have been "the pivotal moment, the turning point that set in train the fateful sequence of events that would eventually lead the world into depression," is in no way trivialized by Mr. Ahamed's emphasis on Norman's peculiar personal style.
With the angrily Prussian-mannered Hjalmar Schacht of the Reichsbank, the conniving Émile Moreau of the Banque de France and Benjamin Strong of the Federal Reserve Bank of New York as its other principals, and with Winston Churchill, John Maynard Keynes and Franklin D. Roosevelt among its secondary players, "Lords of Finance" tracks the shifting balance of economic power that reflected each country's self-interested agenda. But one of the book's most important points is that self-interest, in the world of global economic fluctuations, can be self-defeating.
For an explanation of how a surplus of gold bullion could be as dangerous as a dearth of it, Mr. Ahamed breaks the issue down maneuver by maneuver. He blames each banker for not anticipating how much damage each maneuver could do.
Mr. Ahamed's opinions are made very clear (the Paris Peace Conference's plan for Germany to pay war reparations is presented as a great blunder), but his overriding idea is that blame cannot be easily assigned: not even the most sophisticated economists of the era could accurately predict disaster, let alone guard against it. The effects of a public herd mentality at the time of the 1929 stock market crash are depicted, all too recognizably, as unstoppable.
"One is led to the inescapable but unsatisfying conclusion," Mr. Ahamed writes, in anything but unsatisfying fashion, "that the bull market of 1929 was so violent and intense and driven by passions so strong that the Fed could do nothing about it."
As for politicians trying to calm a frightened citizenry, Mr. Ahamed sees a version of the Heisenberg uncertainty principle bedeviling them. "What they have to say about the economy affects its outcome," he notes. "As a consequence, they have little choice but to restrict themselves to making fatuously positive statements which should never be taken seriously as forecasts." "Lords of Finance" has the flair and wisdom to find a wide readership on the strength of its main ideas. Even better, the book has added assets. It is written by a man so conversant with his material that he appreciates all its nuances, large and small. Among the minor highlights of this eminently readable story are some of the shadier scam artists whom history has all but forgotten (like Marthe Hanau, a spendthrift French divorcee who in the 1920s swindled hundreds of thousands of thrifty, small-town French investors by promoting flimsy stocks, and who always traveled with two limousines, in case one broke down). Then there are the aristocrats: when Mr. Ahamed has the chance to drop a name as memorable as Vere Brabazon Ponsonby, ninth Earl of Bessborough, he most assuredly will.
This book's culture clashes are every bit as memorable as its eerie prefigurings of the present financial meltdowns. It is in a spirit of true affection, rather than in an effort to leaven the mysteries of global economic synergy, that Mr. Ahamed cites one American politician particularly ill suited for a visit to Windsor Castle.
"King, I'm glad to meet you," declared Senator Key Pittman of Nevada, who was nominally in England to discuss the remonetization of silver. As if this were not reason enough for him to have stayed home, "one night he was discovered by floor waiters at Claridges sitting stark naked in the sink of the hotel pantry, pretending to be a statue in a fountain."
This article has been revised to reflect the following correction:
Correction: January 16, 2009
The Books of The Times review on Thursday, about "Lords of Finance" by Liaquat Ahamed, a history of the economics of World War I and the Depression, misspelled the surname of a German bank official in the 1920s. He was Hjalmar Schacht, not Schact. The review, using information from the book, also misstated the size of an interest-rate cut the Federal Reserve made in 1927. It was half a percentage point, not 0.5 percent.