Lords of Finance: The Bankers Who Broke the World

Lords of Finance: The Bankers Who Broke the World

by Liaquat Ahamed


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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. As yet another period of economic turmoil makes headlines today, Lords of Finance offers a new understanding of the global nature of financial crisis. It 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.

Product Details

ISBN-13: 9780143116806
Publisher: Penguin Publishing Group
Publication date: 12/29/2009
Pages: 576
Sales rank: 124,739
Product dimensions: 5.50(w) x 8.30(h) x 1.30(d)
Age Range: 18 Years

About the Author

Liaquat Ahamed has been a professional investment manager for 25 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.

Table of Contents

Introduction 1

Part 1 The Unexpected Storm August 1914

1 Prologue 19

2 A Strange and Lonely Man 23

3 The Young Wizard 35

4 A Safe Pair of Hands 45

5 L'Inspecteur Des Finances 61

6 Money Generals 73

Part 2 After The Deluge 1919-23

7 Demented Inspirations 99

8 Uncle Shylock 130

9 A Barbarous Relic 155

Part 3 Sowing A New Wind 1923-28

10 A Bridge between Chaos and Hope 179

11 The Dawes Opening 193

12 The Golden Chancellor 217

13 La Bataille 241

14 The First Squalls 270

15 Un Petit Coup De Whisky 291

Part 4 Reaping Another Whirlwind 1928-33

16 Into the Vortex 107

17 Purging the Rottenness 347

18 Magneto Trouble 374

19 A Loose Cannon on The Deck of The World 393

20 Gold Fetters 422

Part 5 Aftermath 1933-44

21 Gold Standard on the Booze 451

22 The Caravans Move on 477

23 Epilogue 497

Acknowledgments 506

Notes 509

Bibliography 533

Index 545

What People are Saying About This

From the Publisher

"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 Times

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Lords of Finance 3.7 out of 5 based on 0 ratings. 79 reviews.
RolfDobelli More than 1 year ago
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.
Anonymous More than 1 year ago
An interesting and intrigiung account of the great depression of 1929-1933 based upon the actions of the four central bankers who tried to stop it. It is particularly relevant considering the current world wide financial chaos over the last year and the failure of world bankers and political leaders to deal with it. it is especially interesting if one is already somewhat familiar with the leading actors such as Churchill; Norman; Hoover; FDR; and Hitler
luv55 More than 1 year ago
This is a good book; and concentrates on the leading banker in the US, UK, France, and Germany in early 20th centruy times. It details both the economic and social history of these bankers and their countries. The period covered is before WWI through about 1934. The historical events of WWI, the gold standard, inflation, trade and trade barriers, politics, badly leveraged nations' debt, and the great financial collapse are all interlaced. The book has a few dry spells, but it is very readable. At times you will wonder if you are reading fiction or non-fiction. If you like financial history, this book is for you. It also offers parallels to our present world wide financial crisis; and this time we are one of the countries with too much debt everywhere.
AdvRider More than 1 year ago
The book presents what was to me a surprising story of the coming of the Great Depression. Told through the lives of the four central bankers--U.S., England, France and Germany--this story shows how monetary policy at least contributed if not caused the depression. I found the book surprising in that "commonly understood" causes are not portrayed as the central. I come away with an understanding that the depression was not an outcome of a failure of capitalism requiring regulation but the result of poor monetary policy caused in part by the political failure of the countries' leaders.
Arminius1967 More than 1 year ago
Lords of Finance is a very informative book of finance by telling the story of the economic difficulties of Europe following World War I. The book centers on the three main victors (England, France, and America) and the main loser (Germany) of WWI. All of whom happened to be economic powerhouses before the war but only America would remain so afterwards. The harsh reparations placed on Germany during the Treaty of Versailles are detailed. They lost major production centers of their country annexed to France and Poland. They were forced to pay reparations eight times their Gross Domestic Product. The unfair mismanagement of this Treaty is extremely well detailed in the book "Paris 1919" as well as this book. The European countries economies were tied to the gold standard. As the result of the War gold was moved out of Europe and into the safety of America. When the War ended America wound up with an abundance and Europe with too little gold to back up its currency. The cost of the war caused a much harder burden on the victors. Both England and France borrowed heavily from America to cover war costs. This severely weakened England and France's economy. Germany however spun into disarray. France solution to its economic problems was to collect their due reparations from Germany. But Germany could not afford to pay. Germany did all they could to try to negotiate a new payment schedule, only to fail. Germany's finance minister had larger problems than paying England and France. With a lack of gold and currency their Finance minister Rudolph Havenstein decides to print money, lots of money. This caused hyperinflation which made the German mark virtually worthless. As a result, the cost of everything skyrocketed. The solution to inflation is to raise interest rates in order to pull money out of the system. However, Havenstein would not do this because it would cause employment loss and he believed this would result in uncontrollable chaos in the country. Due to the bad conditions Havenstein is forced into retirement. His replacement is Hjalmar Schacht. Schacht develops a brilliant plan to solve Germany's economic problems. What he does is create a new currency called the renti-mark. He then pegs it to the dollar. This stabilizes Germany's currency and the inflated mark ceases its existence. The German economy revives although it still feels the negative effects of reparations. So Germany continues to fight for reformation. It has a lot of sympathetic ears including Mantuga Norman, England's Finance minister, and Benjamin Strong the head of New York's Federal Reserve. At the same time America was demanding that England and France pay back their war loans to American banks. England and France claimed that they could not repay their loan without being paid by Germany first. As a result the French decide to occupy the Ruhr of Germany in retaliation for Germany's default. This causes tensions rise in Europe. So, a plan is developed which would be later called the Dawes Plan. The Dawes plan lessened reparation payments and brought foreign investment into Germany. Although Gold was being shipped to America during World War I somehow France had managed to capture a large gold reserve. Since all major economies at the time were backed by Gold the lack of gold held by other countries hurt their economies. The American economy however grew due to Europe's need of American goods and its stable currency. England's economy declin
praymont on LibraryThing More than 1 year ago
According to the author, the Depression resulted from a 'perfect storm'. Several crises occurred within a short time (approx. 2 years). Even the best bankers were hampered by their blinkered dogmatism, which led them to endorse the gold standard. By the time the crises started to happen in the late 20's, the best three bankers had been sidelined. The head of the NY Fed, Benjamin Strong, died in 1928. The heads of the Bank of England and the Reichsbank (respectively Montagu Norman and Hjalmar Schacht) presided over institutions that had lost the wherewithal to effect the emergency measures that were (as they recognized) called for. The two central banking systems that could have effected these measures, those of France and the USA, were poorly led and failed to act. Keynes is the hero of Mr. Ahamed's narrative, since Keynes opposed the gold standard as well as reparations and the re-payment of war debts.
Schmerguls on LibraryThing More than 1 year ago
This is an awesomely good book, which is easy to read and tells an absorbingly interesting story. It traces the financial history of the world from 1914 to the 1930's. The bankers mentioned in the title are Montagu Norman of the Bank of England, Moreau of the Bamque de France, Schacht of Germany, and Ben Strong of the Federal Reserve Bank of N.Y. Their world crashed in 1929 and the years thereafter, and the events of those years are related, with verve and clarity. One shudders to think what would have happened in 2008-2009 if the urgings of the Neanderthals who said the governments of the world should do nothing had been listened to. And the book shows that the Great Depression of the Hoover years was effectually ended (except as to jobs) by the New Deal. This is one of the best books I have ever read on financial history.
walbat on LibraryThing More than 1 year ago
Political economy is not a subject of interest to most popular historians. David McCullough, for instance, or even Ron Chernow are unlikely ever to tackle the challenge of making something as complex as the Great Depression intelligible to everyday readers. Liaquat Ahamed, however, has stepped up to the plate and, though he misses a couple of pitches before connecting, hits a home run with this book.The literature on the economic problems of the 1920s and the Great Depression of the 1930s is enormous, but most of it was written by economists and is unintelligible to the average reader. Ben Bernanke's "Essays on the Great Depression" is perhaps the most authoritative analysis, but requires a fairly deep understanding of macroeconomic theory. The writings of Barry Eichengreen, including his book "Golden Fetters" on the critical role played by the gold-based exchange rate system, are more accessible but still highly technical and a challenging read.By focusing on the central bankers (from Britain, Germany, France, and the United States) who were at the center of economic policymaking in the 1920s and 1930s, Ahamed has found a vehicle that permits a non-technical telling of this extremely important story, one that most people have absolutely no knowledge of, though it was of central importance in shaping the global economic system we have today. He has read the economic literature and in this book proceeds to explain it in human terms.Moreover, focusing on the personalities and politics behind the policy mistakes of the time highlights an important point: the Great Depression was a man-made event, an avoidable confluence of events and decisions that had catastrophic consequences. True, even the most expert of the decision-makers of the time did not really understand all the consequences of their actions - we benefit from that famously golden hindsight. But as Ahamed's story makes clear, they understood enough to know that many of their actions put the global economy at risk, but they went ahead anyway, often because of the short-term benefits to national, as opposed to international, economic growth and stability. One can argue, in fact, that the Great Depression (the worldwide catastrophe, not the cyclical downturn in the United States sparked by the 1929 Wall Street crash) was the result of a massive failure of economic diplomacy. As an already unstable system of international finance began collapsing in 1931, central bankers, constrained by national biases, domestic priorities, and an unquestioning allegiance to the gold standard, failed to act and the global economy collapsed. This failure was recognized at the time, and it's the reason why the post-World War II economic system, created at the Bretton Woods conference in 1944, was not placed in the hands of central bankers. Economic diplomacy has, ever since, been the province of finance and foreign ministries as much, or more, than central banks.My only quibble with Ahamed's book (the reason I don't see it as a clean, first-swing home run) is his compulsion to find "colorful" stories to attract readers who might otherwise be put off by economic history. He never fails to profile (mercifully, usually in a brief paragraph) any interesting character he comes across. For instance, discussing key individuals who influenced Benjamin Strong (the New York Fed chief who is one of his main characters) at the time of the 1919 Versailles Peace Conference, Ahamed describes the colorful life of Willard Straight (pp. 133-134). Straight was an adventurous, controversial character who spent years in China as a US diplomat and as a sometime agent of E.H. Harriman, who was interested in Manchurian railway developments. The problem is, he died suddenly in December 1918, before the Versailles conference got underway, and then it turns out that Strong himself fell ill and did not reach the conference until the final days in the summer of 1919. Just what role Straight may, or could, ha
madamepince on LibraryThing More than 1 year ago
Scary stuff. Describes the culture of international bankers and the system that developed between WWI and WWII and details how we are living with the effects today.
KeithAkers on LibraryThing More than 1 year ago
This is a good historical book. I like the approach of describing the actual lives of the bankers in question, who actually come across as sympathetic figures. Actually, they led pretty interesting lives, and this woven in with all the economic stuff is the main strength of the book. You get the sense that he is talking about people, not economics theory. I don't think that the book quite supports the conclusion on the dust jacket, that the "decisions taken by a small number of central bankers . . . were the primary cause of the economic meltdown." In fact the book itself gives a rather different conclusion, p. 501, pinning the primary blame on the Versailles treaty and reparations, and only secondly on the bankers. I would have appreciated a bit more attention to why the gold standard brought (or helped bring) the system down -- perhaps with an overview of different theories as to what actually caused the crash. The book got off to a good start, but by the middle of the book it became harder to follow the argument. You start to hear about other bankers and characters besides our main four, and the characters and plot becomes harder to follow. As you are reading the book, if you know nothing in particular about economics, you have to ask yourself, "so what exactly is so bad about the gold standard?" Might it not have prevented Germany's hyper-inflationary period, for example? And the subsequent recoveries of Germany and the U. S. in the 1930's don't exactly support this conclusion, either. Germany afterward experienced a recovery of sorts during the 1930's, despite remaining on the gold standard. The U. S., which effectively devalued its currency and ceased reliance on the gold standard, had perhaps a "better" recovery, but still had very high levels of unemployment -- higher, evidently, than Germany. So how does the gold standard tie into this? After reading the book, let's put it this way -- I'm not advocating a return to the gold standard! The book actually seems to support the thesis that the dust jacket blurb purports that the book refutes: that in fact the Great Depression was the result of "events beyond any one person's or government's control." If they were due to one person or one government, the author needed to point out a particular person or government, and say -- "Here! If only Strong, or Schacht, or Norman, or Moreau, had just done X instead of Y -- everything would have been different." But such a point never emerges.
spounds on LibraryThing More than 1 year ago
I was looking for a book that described how the Great Depression started and saw this one at the book store. It was exactly what I wanted. Ahamed does a admirable job of making the economics easy to understand while keeping the story lively with the profiles of the four central bankers. Nice job! Recommended!
06nwingert on LibraryThing More than 1 year ago
If you want to know why we're in the economic situation that we're in, I suggest reading Lords of Finance. This book gives about 30 years of history and economics-- 1900-1930-- and shows how the four most powerful bankers at that time caused the Great Depression. The author shows the parallels between then and now.
Miro on LibraryThing More than 1 year ago
Another recent and excellent book on finance, this time the central banker's view from the 1920's and 30's.Liaquat firmly puts the blame for the Great Depression on central bankers refusal to abandon the gold standard. Liquidity was restrained when it needed to be released, with the central bank heads in Great Britain, France, the United States and Germany fearing the loss of the stable gold "anchor". They didn't trust politicians to act responsibly when printing money, which may be a fair judgement in normal times, but 1) gold was not distributed evenly and was highly restrictive 2) 1929+ was an emergency and the world economy needed a large and quick injection of liquidity.An alternative view was given by Treasury Secretary Andrew Mellon with regard to the Great Crash, "..... It will purge the rottenness out of the system.... People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people." The author gives the quotation but doesn't share the opinion although it could equally have some validity.A further complication arose from the war reparations that Germany couldn't pay, and which Great Britain and France needed to settle war debts to the United States. He shows how this issue poisoned international relations at a time when positive and constructive attitudes were needed.Altogether an great book.
enoerew on LibraryThing More than 1 year ago
Most interesting economic history I've read, thoroughly detailed and readable coverage of economic events surrounding the First World War and leading to the Second.
pnorman4345 on LibraryThing More than 1 year ago
A history of central banking from just before world war I to 1933 and the beginning of the recovery from the depression. It tries to focus on the gold standard and the pernicious efforts to uphold this 'commandment'. There are lessons: Simple minded principles are just that: simple minded. We are all in this together. it is important to be educated and understand how banking works. We do know a bit about how the economy works and woe to those who violate that knowledge. And unfortunately humans are emotional and can make a logical solution ineffective ( We have nothing to fear but fear itself.) I wish I understood more of how banking works than tis book gives.
cushlareads on LibraryThing More than 1 year ago
This is the best non-fiction book I've read, or am likely to read, this year. I bought this in 2010 while I was reading several books about the financial crisis. It had lots of good reviews and won several prizes, including the Pulitzer Prize for history in 2010 and the FT/Goldman Sachs Business Book of the Year for 2009. It's Liaquat Ahamed's first book, and he was interviewed on the Guardian Books podcast and sounded like a genuinely nice guy, which always makes me more likely to read something. It's 500 pages, so it sat there for ages till I was in the mood for a solid non-fiction read again. I will be forcing it on my real life friends who like economics, history, or politics, work for central banks, or are interested in the causes of WW2. You don't need to have an economics background to read it, but it will definitely make it an easier read.Ahamed starts his book at the end of World War 1 and tells the story of how the western world ended up in a series of financial disasters that lasted through the 1920s and well into the 1930s. He does this by focusing on four central bankers: Montagu Norman, Governor of the Bank of England, Hjalmar Schacht, at the Reichsbank, Emile Moreau at the Banque de France, and Benjamin Strong, Governor at the New York Fed. All four were interesting guys with plenty of eccentricities to liven up the book. Norman and Strong became very good friends. Their decisions, and indecision at critical times, contributed to an imbalanced global economy tipping over into chaos again and again. It has huge parallels to what's going on today in the US and in the Eurozone.The book has a great blend of economics and anecdote - I have dogeared so many pages. Some other reviewers have found the anecdotes offputting, but I loved them.The story goes something like this (and without Ahamed's eloquence): Before World War 1, most world economies operated fixed exchange rates under a system called the gold standard. Money was backed by gold - you could rock up to the central bank, present your francs or dollar notes, and ask for a gold ingot. This worked well enough, and was treated as the holy grail of macroeconomics by central bankers and politicians. Trying to stick to the gold standard after World War 1 made already serious economic problems insurmountable.The Allies were enormously in debt to the US, which had entered the war much later, and Germany was even more enormously in debt to the Allies because of the level of reparations payments assigned at Versailles. The US already had much more gold than it needed, and it kept getting more. Ahamed covers the endless negotiations about Germany's reparations really well, and goes through everything that followed - Germany's hyperinflation, France's surprising economic bounce-back until the 1930s by fixing their exchange rate lower than sustainable (making its exports recover quickly), the UK getting back onto the gold standard at too high a rate, Germany's financial crisis in 1929, the US stock market crash, then a series of banking crises from 1931-33.In the end, but too late to avoid the massive hardship of the depression, the US abandoned the gold standard and let the value of the US dollar fall. The central bankers come out of the book looking fairly useless (albeit when faced with extremely difficult problems - hindsight is a wonderful thing), and so do most of the politicians. FDR and Keynes look pretty good overall.
Chris469 on LibraryThing More than 1 year ago
This is an excellent international economic/finance history focusing principally on the period from the end of World War I up through the early phases of the Great Depression, but also taking the story on through the Bretton Woods Conference of June 1944. It focuses on the activities of the central banks of Britain, the US, France and Germany. It shows how decisions that were made by the heads of these banks helped lead to the calamity of the stock bubble, the October '29 crash, and the severity of the depression that followed. Two big problems he identifies were the massive reparations assessed on Germany and the attempt of the four nations to adhere to the Gold Standard even though a great bulk of the world's gold was in American after WWI. Then, too, there was a confluence of a lot of "bad" economic problems occuring all at once. Well written, a bit of humor now and then. My only minor quibble is the subtitle: "The Bankers who Broke the World." I found it hard to blame the particular four gentlemen on the book's cover as they did the best they could given the limitations of understanding they were working with, and the fact that the Gold Standard is all they knew. Actually two of them: the American Strong and the German Schacht seem to get rather favorable reviews, Shacht's perhaps a bit grudgingly. John Maynard Keynes is the far-sighted hero of the book; and the author gives due credit to the FDR New Deal for getting the US economy back on track. This book is a wonderful tonic after having just suffered through the God-awful Amity Shlaes book "The Forgotten Man."
NewsieQ on LibraryThing More than 1 year ago
Lords of Finance illuminates the world of banking from 1914 to 1933 -- by focusing on four men who ran central banks (or rough equivalent) in the US, England, France and Germany and how they interacted. Since I'm reading my way through Pulitzer-Prize winners in history, it was inevitable that I would be reading a book about economics. That's actually pretty ironic for someone who received a "gentleman's C" in economics back in community college. I was an office worker in said community college at that time, and struck a deal with an economics instructor who was facing low enrollment in and possible cancellation of a particular Macroeconomics class. He said that if I signed up and attended every class he'd guarantee me a "C." I'm ashamed to admit it now, but if undergraduate grades were given out for under-achievement, I would easily have earned straight As. So, I was happy to take the deal as I needed one more social science course to finished my degree. I attended every class; but did not read the textbook, take notes or try in the least to understand the material. I turned in the exams with only my name filled in. I'm sure the instructor thought I would at least TRY to earn something above a C but, alas, I didn't.I tell this story on myself to demonstrate my lack of understanding of and antipathy toward anything economic. That's why I was surprised to so enjoy Lords of Finance. Without talking down to readers, the author was able to explain some pretty arcane concepts and make the story of what happened in the world during the Great Depression understandable. Reading Lords of Finance doesn't make me want to sign up for another economics class but it did help me understand what I missed.Lords of Finance helped me understand why the Great Depression went on for so long (ineptness of the central bankers and their unreasoning love affair with the gold standard); and why Germany was so eager to support Adolf Hitler (the terms of the peace treaty ending World War I crippled Germany's economy to the point that most people saw now way out of it without a strong leader, even a nutty one). The Epilogue provided a Reader's Digest version of the book, but wouldn't have made much sense without reading the entire book.My hats go off to Liaquat Ahamed for writing a book understandable (with some bit of work on my part) to even an economics-averse reader!
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