Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed (PDF)

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Winner of the Pulitzer Prize“Erudite, entertaining macroeconomic history of the lead-up to the Great Depression as seen through the careers of the West’s principal bankers . . . Spellbinding, insightful and, perhaps most important, timely.” —Kirkus Reviews (starred)“There is terrific prescience to be found in [Lords of Finance’s] portrait of times past . . . [A] writer of great verve and erudition, [Ahamed] 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.” —The New York TimesIt 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 we continue to grapple with economic turmoil, 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.

User’s Reviews

Reviews from Amazon users which were colected at the time this book was published on the website:

⭐Lords Of Finance is an excellent book for the average person who wants to understand monetary history from about 1900-1945, the Gold Standard’s effect on world economies, and how economic disruption caused by political polarization and mismanagement helped pave the way for Hitler, the Japanese military junta and thereby World War II. (The Japanese history is not mentioned in the Lords of finance, but is covered by the book “Golden Fetters”.) Lords of Finance makes the story interesting by detailing the careers and influence of the persons most involved with managing the world’s economy at that time: Montagu Norman – Bank of England, Winston Churchill British Minster of the Exchequer (US=Treasury Secretary); Benjamin Strong, President of the New York Federal Reserve; Hjalmar Schacht of the Reichsbank (later indicted war criminal – found not guilty); Emil Moreau of the Banque de France and John Maynard Keynes the “greatest economist of his generation”. These, along with some other colorful characters are the Lords of Finance.Lords of Finance covers International finances with starting with some overview of pre 1900 Central bank dealings and goes up to the Bretton-Woods agrement that fixed the dollar to gold and other curriences to the dollar. Especially interesting is the German hyper-inflation after WW I which was partially, if not wholly, self-inflicted by Germany in an attempt to forestall onerous reparations payment. But during this same period Germany also borrowed money from the U.S. to build municipal swimming pools. It would seem that Germany inflicted sever damage on its own economy to avoid reparations payment. This failure to pay by Germany led, in 1923, to the French invasion and military takeover of the Ruhr valley: Germany’s industrial heartland.Lords of Finance also covers the tabloid side of finance. Joseph Caillaux, was a radical who had suggested an income tax be adopted in France. Le Figaro, a conservative newspaper, then published the love letters that Joseph Caillaux had written to a former mistress. Madame Caillaux, his wife, was upset and purchased a gun. She went to the offices of Le Figaro and waited two hours for the editor to come out. She said to him, “You know why I’m here”, and shot him dead. She was put on trial, but an all-male jury found her not-guilty as it was a crime of passion. Monsieur Caillaux had his own problems and was convicted of financial irregularities. When he returned to the Ministry of Finance, “an American newsmagazine reported that it was as if Benedict Arnold, instead of being executed, had been barred from Philadelphia, exiled to the country, then pardoned, and appointed secretary or war. “I had first started reading “Golden Fetters: the Gold Standard and the Great Depression” which covers roughly the same ground as Lords of Finance. But Golden Fetters is more technical and a bit over my head (I have no formal economics training) but very informative. It has incisive analyses of parliamentary vs. US style two party democracy, and looks at the political polarization that occurred in Germany and Japan over who should pay taxes (sound familiar?). This gridlock helped destroy those economies (think Tea Party blocking the repayment of national debt). That led to death squads and right wing takeovers. The military put people back to work: building armaments. In Germany they made lots of guns but butter and domestic needs were hard to come by. About a third of the way through I started reading “Lords of Finance”.Lords of Finance covers pretty much the same ground as Golden Fetters but in less technical terms and less depth. Golden Fetters gives detailed accounts of Gold reserves, balance of payments, foreign currency reserves etc. buttressed by pages of charts graphs and tables of same for every major country in Europe and North and South America. I just skipped the tables. Lords of Finance gives a clear picture of the economic forces at work and the theories behind them plus details about the people who controlled the world’s economies.Both books agree that the Gold Standard is a strait-jacket that is fine in normal times, but when things get dicey (WW I, WW II, Great Depression, recession of 2008) it proves fatal. That is why the world’s economies were forced off the gold standard over and over again. When countries tried to return they paid a high price in fewer exports and rising unemployment. The Gold Standard constrains the money supply and hence economic growth. Bankers love it as it discourages inflation and encourages deflation. Think, do you want to pay back your mortgage in dollars worth more or less than the ones you borrowed. Inflation: good for debtors, bad for bankers; deflation good for bankers and savers, bad for debtors. Deflation: prices go down (good for savers), exports are hurt, and unemployment goes up. Winston Churchill called returning to the gold standard, “the biggest blunder in his life.” He blamed it on the bad advice that he had received from the Governor of the bank of England (Norman) and by the experts of the Treasury who called the gold standard “knave-proof. It could not be rigged for political reasons.” It would prevent Britain from “Living in a fool’s paradise of false prosperity.” Learning from this Churchill, during WW II, would trust his gut and let the military “experts” be dammed.History repeats itself, Oh boy does it. In 1931 the US government could have stopped the first of a string of bank failures by injecting thirty-two million dollars into the Bank of the United States (no government affiliation). In 2008 thirty billion dollars in guarantees would have saved Lehman Bros. For want of a nail a shoe was lost…Good books: The End of Wall Street (highly recommended) – a footnoted blow-by-blow of the crises of 2008; Thirteen Bankers (also highly recommended)- history of U.S. banking from roughly 1900 to 2009. Golden Fetters: the Gold Standard and the Great Depression 1919-1939 (rather technical): A monetary History of the United States by Milton Friedman (very technical and way over my head); and of course, Lords of Finance (a must).

⭐With almost 470 Amazon reviews (as of the time of this writing), what’s left to add? Presumably by this point the reader of this review knows what this book is about – i.e., how the actions of leaders of the central banks of the U.S., Britain, Germany and France ostensibly brought about the Great Depression of the 1930’s. (But that actually sells the narrative short – read more below.)This book reads like a fascinating novel – but with real-life biographies, and real history, as the background. Ahamed writes for the masses – he does not assume a financial or economic background on the part of the reader. This book is so exceptionally well written that it becomes a page-turner – you just can’t wait to see what happens next! Commendably, the author does not suggest a conspiracy theory among, or incompetence on the part of, the main actors. As indicated below, they were merely further casualties of WWI. Each of the central banks (U.S. Britain, Germany and France) pursued different paths to recovery following the war, and none of them found the right answer. This is probably the result of three main problems: (i) the lack of coordination by the Central Banks in developing a global policy for economic recovery following the war; (ii) a failure on the part of Britain to acknowledge that the global economic landscape had been fundamentally altered by the war; and (iii) a failure on the part of the central actors to understand what was going on. As Maynard Keynes said in 1930 (pg. 374), “We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.”While not a course book on international finance, the author does provide enough details to educate the reader about some of the basics (e.g., the gold standard, international lending, devaluation of currency, and international transfers of capital).As for my 4-star rating, and the title of this review (about the narrative being incomplete), I recommend reading the following in order to gain a broader perspective: “Hidden History” (Docherty and Macgregor), which suggests (with considerable convincing evidence) that the British manipulated France and Russia into war with Germany in 1914 in order to remove Germany as an economic competitor to Britain. My guess is that the architects behind this scheme (Lord Alfred Milner, in particular) had no clue as to what the economic consequences of war would be – they just had a narrow-focused goal of removing a commercial competitor. Thus, the central characters of “Lords of Finance” were probably just historical casualties of those with deeper, and darker, long term motives. Britain sowed the wind leading up to WWI, and the world reaped the whirlwind afterwards (with Britain refusing to acknowledge that there was, in fact, a whirlwind, trying vainly to reestablish their place of prominence in world finance by going back to an unrealistic pre-war gold-based exchange rate). All of the financial machinations (on the part of all parties) to rebuild the world economy after WWI failed to appreciate one fundamental concept – i.e., at some point creditors stop providing credit when they suspect that they might not be able to get repaid. Once credit stops, the economy flops. This holds true unless the creditors have a source they can tap to continue their bad lending practices – see next paragraph.I also gave this book a 4-star review because the author never asks – or answers- the fundamental question, “who eventually pays when central banks bail out other banks and nations who have made poor decisions?” The answer is “individual investors and savers.” Case in point: in 2007 an IRA or 401K worth $1 million likely took a 40% hit – i.e., a $400,000 “tax”. Multiply that by say three million such accounts, and suddenly you have $1.2 trillion gone from people’s retirement accounts. Where did all of that wealth go? Answer: to pay for loans by the Fed to bail out Greece, Spain, and bad real estate loans in the U.S. It was basically just a redistribution of wealth – socialism conducted under the guise of “central banking”. Read “The Creature from Jekyll Island” (regarding the establishment, and workings, of the U.S. Federal Reserve system) and you will have any eye-opening education on the truth behind “central banking”.

⭐This did not turn out to be the book I thought I had ordered, but it proved a compelling read nonetheless. I thought I would get a book the explained the “springs and levers” that connected the Wall Street crash to bank failures to the depression. This was not made clear, and in hindsight it Is clear this book is aimed at a reader more knowledgeable in macroeconomic matters than I am.Nevertheless, it is a fascinating book, extremely well written ( if not extremely well proofed) and very approachable even if you don’t understand clearly some of the cause/effect relationships it talks about. Essentially it is a history of central banking and the growth of the effects of the Gold Standard during the inter war years, told through the roles played by the 4 chief protagonists, the Governors of the central banks of U.K., Germany, France and the New York Fed. Maynard Keynes features prominently and is shown as a key player in the increasing awareness of the limitations of the gold standard. The story focuses on the struggles of these four Governors in trying to deal with the fallout of the post-war reparations imposed on Germany, and the near-bankruptcy of both the UK and French governments during the depression. The US suffered enormously from the post-crash depression, but I never realised just how much it profited from the Allies from its war loans, to the extent that I can’t help suspecting that the US took deliberTe action to accelerate the demise of the British Empire to impose its own hegemony. The French national stereotypes are played out again, both in its negotiations of the Reparations and its refusal to countenance meaningful reductions in the face of evidence that Germany would be unable to pay (consider that in today’s terms relative to the size of the German Economy, reparations amounted to $2.4 trillion dollars !). The French position on Brexit negotiations (no discussion on Trade without settlement of the “divorce bill”) came to mind several times as I read this book.Anyone looking for a history of the growth of the role and expertise of Central Banks will find this a very useful read. Equally, it presents a very readable history of the main characters, especially the governor of the Central Banks and New York Fed, but also of the roles of FDR, Herbert Hoover and Winston Churchill, as well as John Maynard Keynes in this seminal period in Western economic history. A great read.

⭐Eat your hearts out Irving Fisher, John Kenneth Galbraith, Charles Kindelberger, Milton Friedman, Richard Koo and Ben Bernanke. An amateur has written the definitive narrative of the Great Depression.I have no idea if the author is right about everything he says here. I looked in vain for Smoot-Hawley and could not find any mention. But I don’t care. If this book was fiction it would still be a strong candidate for the best book I’ve ever read. The fact that it takes you through the history of the Great Depression through the lives of arguably four of its biggest protagonists (the heads of the four most important central banks) is a nice bonus.I went through this doorstop of a tome in less than three days. As an added bonus I found out what happened in the Great Depression in the view of an author who may not be a celebrated economist but is clearly totally engrossed by his subject. I was so excited about it, I sat down my poor dad to tell him the story. That bit did not go so well, he stopped me an hour into my trance.But I digress. This book is AWESOME.Makes you want to ask for a sixth star.

⭐I read this book November 2010. It was hilarious and very informative about the financial challenges Germany faced after the WWI, though this should never be allowed to be an accuse to start a war that had ended the lives over fifty two million people and the creation of the horrifying consideration camps.As Greece is now facing shocking financial challenges and everyone is asking how at the beginning the EU allowed Greece to fund its social agendas with borrowed money; I thought about revisiting this book and rereading the part where the then German Kaiser and his parliament decided to fund the war with borrowed money, which contributed to the financial challenges and hyperinflation that Germany faced after the war. Hence, i bought this book again in kindle format! What happened to the paper copy that i bought few years ago? I kept sneezing when I try to read it!The other issue is what will be the end game for Greece and the EUR club, who allowed Greece to borrow more than it could handle? Do we need to punish the ill-fated borrow or do we need to allow them go insolvent for short period of time?How the remnants of African dictators now feel about the idea of silly borrowing and the doubting fact of repaying both the principle and the interest of what they had borrowed? Is Greece in the same situation than they and the Germans of post WWI were?Should we come up with a new concept where, when a nation faces what the Germans of WWI , most of 1990s African nations and now Greece is facing, the borrowing politicisations and the lending bank managers are sent to the International Criminal Court; Instead of punishing the an entire nation?

⭐This book is a masterpiece of quality research and highly readable writing. It very clearly explains the political, economic and personal influences over the financial health of the inter-war world in a way which a non-economist can understand and even start to empathise with. The book builds up detailed portraits of not only the main central bankers of the period, but also other key characters, as they contribute to an overall narrative which of course involves financial turmoil and ultimately another world war. It is one of the most gripping non-fiction titles I have read in a long time, and I recommend it highly.

⭐A good read, full of facts and lessons for the present. History, biography and economics in one.

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