- Taschenbuch: 576 Seiten
- Verlag: Windmill (23. Februar 2010)
- Sprache: Englisch
- ISBN-10: 009949308X
- ISBN-13: 978-0099493082
- Größe und/oder Gewicht: 12,7 x 3,7 x 19,7 cm
- Durchschnittliche Kundenbewertung: 15 Kundenrezensionen
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Lords of Finance: 1929, The Great Depression, and the Bankers who Broke the World (Englisch) Taschenbuch – 23. Februar 2010
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"Highly readable... [Ahamed] cannot have foreseen how timely his book would be."
— Niall Ferguson
"A great read."
— George Soros
From the Hardcover edition.
Samuel Johnson shortlisted & FT/Goldman Sachs WINNER: a vivid, dramatic account of the four men whose personal and professional actions led to the world economic collapse of the late 1920s.
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“The crippled financial system was making the recession worse, while the deepening recession was making the financial system worse. Wall Street and Main Street were going down together. I had recently started reading Liaquat Ahamed’s Lords of Finance, a history of the policymakers whose mistakes helped create and prolong the Great Depression, but I had put it down after a few chapters. It was too scary.” (Page 3)
This raised my interest in Lords of Finance, edition 2010. My experience and conclusion: it is an outstanding analysis and report of “1929, The Great Depression, And The Bankers Who Broke The World”. However, it is also a very important complement to books about the financial crisis 2007/2008 allowing the reader to make comparisons between the two crises, to put them into perspective and to identify communalities as well as the different approaches to tackle the two crises.
Below you find some excerpts which may induce you to read the whole book:
“Unlike today, however, when central banks are required by law to promote price stability and full employment, in 1914 the single most important, indeed overriding, objective of these institutions was to preserve the value of the currency. (Page 11)
As I write this in October 2008, the world is in the middle of one such panic – the most severe for seventy-five years, since the bank runs of 1931-1933 that feature so prominently in the last few chapters of this book. (15)
The United States spent in total some $30 billion on the war [World War I], a little over $20 billion on its own actual expenditures and another $10 billion in the form of loans to keep other countries going.
By comparison, Britain, with an economy about a third that of the United States, spent a total of $50 billion over a period of four years. (94)
The most pernicious and insidious economic legacy of the war was the mountain of debt in Europe. In four years of constant and obsessive battle, the governments of Europe had spent some $200 billion, consuming almost half of their nations’ GDP in mutual destruction. (100)
On June 24, 1922, the architect of fulfillment, Foreign Minister Walter Rathenau, one of the most attractive political figures in Germany – cultured, rich, scion of a great industrial family – was gunned down in his car by yet another group of crazed reactionaries. Panic set in. Price rose fortyfold during 1922 and the mark correspondingly fell from 190 to 7,600 to the dollar. (120)
Over the next few months, Germany experienced the single greatest destruction of monetary value in human history. By August 1923, a dollar was worth 620,000 marks and by early November 1923, 630 billion. Basic necessities were now priced in the billion – a kilo of butter cost 250 billion.
It was not simply the extraordinary numbers involved; it was the dizzying speed at which prices were now soaring. In the last three weeks of October, they rose ten thousandfold, doubling every couple of days. (121)
During the early 1920s, Montagu Norman, Governor of the Bank of England, would often talk of creating a league of central bankers to take responsibility for stabilizing European finances and promoting world economic recovery.
At this stage, though, he was the one building castles in the air. His notion that the world’s central bankers would not be subject to the same nationalistic pressures to which politicians were also responding was curiously naïve. His vision of a league of the lords of world finance was at this stage largely a pipe dream. (149)
After the war, there was a universal consensus among bankers that the world must return to the gold standard as quickly as possible. Leading that quest were Montagu Norman and Benjamin Strong, Governor of the Federal Reserve Bank of New York. (155)
Before the war, the four largest economies – the United States, Britain, Germany, and France – had operated their monetary systems with about $5 billion worth of gold among then. The amount of new gold mined during the war was small. and by 1923, monetary gold had increased only to $6 billion. (162)
By 1923, the United States had accumulated close to $4.5 billion of the $6 billion in gold reserves of the four major economic powers, far in excess of what it needed to sustain its economy. About $400 million circulated in the form of coins; the remainder consisted of ingots, stored in the vaults of the Federal Reserve Banks and the Treasury. (163)
It was Strong more than anyone else who invented the modern central banker. When we watch Ben Bernanke or, before him, Alan Greenspan or Jean-Claude Trichet or Mervyn King describe how they are seeking to strike the right balance between economic growth and price stability, it is the ghost of Benjamin Strong who hovers above him. It all sounds quite prosaically obvious now, but in 1922 it was a radical departure from more than two hundred years of central banking history. (171)
By the end of 1926, this quartet of central bankers (Strong, USA; Montague Norman, UK; Moreau Emile, France; Hjalmar Schacht, Germany) had already begun to worry about three of the factors – the U.S. stock market bubble, excessive foreign borrowing by Germany, and an increasingly dysfunctional gold standard – that would eventually lead to the economic upheaval at the end of the decade. None of them, however, yet anticipated the scale of the coming storm. (291)
When Strong flippantly spoke to Rist of giving the stock market that petit coup de whisky, in his wildest imagination he could not have foreseen the extent of the drunken ride that was to come. In 1925, he had kept money easy to help sterling, betting successfully that the stock market would remain under control. He was now trying the same gamble a second time. This time he was badly wrong. In August, following the Fed cut in rates, the market immediately took off. By the end of the year, the Dow had risen over 20 percent, breaking 200. (299)
In February 1928, Strong, recognizing that the cut might have been a mistake, bowed to pressure and agreed to reverse the course. Over the next three months, the Fed raised its rates from 3.5 percent to 5 percent.
In 1931, Adolph Miller would testify before the Congress that the easing of credit in the middle of 1927 was ‘the greatest and boldest operation ever undertaken by the Federal Reserve System, … [resulting] in one of the most costly errors committed by it or any other banking system in the last years.’ Some historians, echoing the views of Hoover and Miller, see the meeting on Long Island as the pivotal moment, the turning point that set in train the fateful sequence of events that would eventually lead the world into depression. They argue that by artificially depressing interest rates in the United States to prop up the pound, die Fed helped fuel the stock bubble that subsequently led to the crash two years later. It is hard to dismiss this view. (300)
Strong’s death (October 16, 1928) had left a political vacuum within the system as a whole. (319)
On September 3, 1929, after Labor Day on Tuesday, the Dow traded up a single point to close at a record high of 381. For the next day and a half, it clung to that peak. (348)
Prefacing his remarks with the concession that ‘none of us are infallible,’ Irving Fisher (professor of economics at Yale, and the most prominent economist of the time, a wealthy man, having invented a machine for storing index cards – a precursor of the Rolodex -, by 1929 he was worth some $10 million, all of it invested in the stock market) declared, ‘Stock prices are not too high, and Wall Street will not experience anything in the nature of a crash.’ (350)
On Friday, September 19, the empire of the British financier Clarence Hatry suddenly collapsed, leaving investors with close to $70 million in losses. (351)
On Tuesday, October 15, economist and market pundit Irving Fisher, in a speech that would go down in history for its spectacularly bad timing, threw his normal caution to the winds, with the declaration, ‘Stocks have reached what looks like a permanently high plateau.’ (353)
On Wednesday, October 23, quite out of the blue, a sudden avalanche of sell orders, the origin of which was a complete mystery, knocked the market down by 20 points in the last two hours of trading. The next day soon to be known as Black Thursday, saw the first true panic. The market opened steady with little change in prices; but at about 11:00 a.m., it was blindsided by a flood of large sell orders from all around the country.
During the next hour, the major indices fell 20 percent, while the bellwether of speculation, RCA, plunged more than 35 percent. Adding further to the panic, communication across the country were disrupted by storms, and telephone lines were so clogged that many thousands of investors could not get through to their brokers. (354)
The ‘second hurricane of liquidation’ roared in on Monday, October 28 – Black Monday. It came from every direction.
By the end of the day, 9 million shares had changed hands and the Down was down 40 points, roughly 14 percent, the largest percentage fall in a single day in the market’s history - $14 billion wiped off the value of U.S. stocks. (356)
Toward the end of the next day, christened Black Tuesday, after over 16 million shares had changed hands and the Dow had fallen more than 80 points – it had now lost 180 points, or close to 50 percent of its value in less than six weeks-it seemed as if the selling had begun to burn itself out. In the last fifteen minutes of trading, the market made a vigorous rally of 40 points. (359)
The bubble that had begun in early 1928 had lasted little more than a year and a half. (360)
Despite the magnitude of the losses - $50 billion wiped off the value of stocks, equivalent to about 50 percent of GNP – and the ferocity of the decline, many papers were surprisingly sanguine, calling it the ‘prosperity panic.’ (361)
In December 1930, Maynard Keynes published an article titled ‘The Great Slump of 1930,’ in which he described the world as living in ‘the shadow of one of the greatest economic catastrophes of modern history.’ (375)
In the spring of 1931, the one major country most weighed down by a sense of collective despair and individual hopelessness was Germany. The official figures indicated that 4.7 million people, close to 25% of the workforce, double that of the United States, were without jobs. And this did not include another 2 million forced into part-time work. (393)
On Friday, May 8, 1931, the Credit Anstalt, based in Vienna and founded in 1855 by the Rothschilds, with total assets of $250 million and 50 percent of the Austrian bank deposits, informed the government that it had been forced to book a loss of $20 million in its 1930 accounts, wiping out most of its equity. Not only was it Austria’s biggest bank, it was the most reputable – its board, presided over by Baron Louis de Rothschild of the Vienna branch of the family, included representatives of the Bank of England, the Guaranty Trust Company of New York, and M. M. Warburg and Co. of Hamburg. After a frantic weekend of secret meetings, the government made the problem public on Monday, May 11, at the same time announcing a rescue package of $15 million, which it would borrow through the BIS.
Nevertheless, the news burst like a bombshell upon the City of London and the Bank of England.
Harry Siepman, one of the governor’s principal senior advisers – Bank of England – announced, ‘This, I think, is it, and it may well bring down the whole house of cards in which we have been living.’ (404)
Over the next four days a run developed, not only on the Credit Anstalt but on all Austrian banks, which lost some $50 million in deposits, about 10 percent of the total. (405)
It was on that journey [July 9, 1931], as Luther [successor of Schacht as president of the Reichsbank] described the deteriorating situation in Germany, that it finally dawned on Norman that the game was up. (415)
As the world financial system ground to a halt, the City of London, with tentacles that stretched into every corner of the globe, found itself especially vulnerable. (423)
39 banks in the city with over $100 million in deposits were forced to close down. In one month alone after the British departure from gold, 522 American banks went under – by the end of the year, a total of 2,294, one out of every ten in the country, with a total of $1.7 billion in deposits, would suspend operations. (435)
‘If there is one moment in the 1930s that haunts economic historians,’ writes the economist J. Bradford DeLong, ‘it is the spring and summer of 1931 – for that is when the severe depression in Europe and North America that had started in the summer of 1929 in the United States, and in the fall of 1928 in Germany, turned into the Great Depression.’
Every economic indicator seemed to fall off a cliff – 1932 was the deepest year of depression in the United States. Between September 1931 and June 1932, production fell 25 percent, investment dived a stunning 50 percent; and prices dropped another 10 percent, reaching 75 percent of their 1929 level. Unemployment shot up beyond ten million – more than 20 percent of the workforce was now without jobs.
On July 8, 1932, the Dow, which had stood at 381 on September 3, 1929, and was trading around 150 before the European currency crisis, hit a low of 41, a drop of almost 90 percent over the two and half years since the bubble first broke. (438)
Part Five – Aftermath – 1933-44 (449)
The rescue of the banks had been brought about by one of the oddest partnerships in the history of economic policy making – between a Democratic treasury secretary and his Republican predecessor. (457)
Roosevelt’s decision to take the dollar off gold rocked the financial world. (462)
Maynard Keynes was among the few economists to applaud Roosevelt’s decision. (471)
In some respects the current crisis is even more virulent than the banking panics of 1931-33. In the 1930s most depositors had to line up physically outside their bank to get their money. Now massive amounts of money are being siphoned off with the click of a mouse. Moreover, the world’s financial system has become both larger compared to GDP and more complex and interconnected. There is much greater leverage, and many more banks rely on short-term wholesale sources of funding that can evaporate overnight. The world’s banks are therefore much more vulnerable than they were then. As a result panic has swept through the system faster and more destructively. (499)
In this book I maintain that the Great Depression was not some act of God or the result of some deep-rooted contradictions of capitalism but the direct result of a series of misjudgments by economic policy makers, some made back in the 1920s, others after the first crises set in – by any measure the most dramatic sequence of collective blunders ever made by financial officials.
Who then was to blame? The first culprits were the politicians who presided over the Paris Peace Conference.
The second group to blame were the leading central bankers of the era, in particular the four principal
characters of this book, Montagu Norman, Benjamin Strong, Hjalmar Schacht, and Emile Moreau.” (501)
If you are interested in how financial theories and policies, the personalities of national bankers, the economic development of the United Kingdom, Germany, France and the United States of America from 1914 to 1935 fit together, what is the back ground to the theories of John Meinard Keynes, the value of gold or the question if politics governs money or money governs politics, read this book.
If you want to know what were the actual economic factors which led to the rise of Adolf Hitler, read this book.
If you want to know, if the same could happen again, read this book.
Ahamed's Beschreibung der Vorgänge im Innersten der damaligen Finanzwelt samt der Biographien der vier Protagonisten ist außerordentlich gut recherchiert und liest sich dabei spannend wie ein Roman.
Durch die Parallelen zur aktuellen Krise im Euroraum und dem Zusammenbruch der Finanzmärkte 2008 besticht das Buch darüber hinaus durch seine Aktualität, das es zu einem absolut lesenswerten Werk macht für jeden, der informiert die aktuelle Debatte mitverfolgen und prägen will.
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