Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

But if we map not annual flows but cross-border banking claims, this gives further proof of how one-sided the Sino-American view of the buildup to the crisis was. The central axis of world finance was not Asian-American but Euro-American. Indeed, of the six most significant pairwise linkages in the network of cross-border bank claims, five involved Europe. European banking claims on the United States were the largest link in the system, followed by Asian claims on Europe and American claims on Europe. European claims on Asia exceeded the much commented upon Asian-American connections. Indeed, West European claims on emerging Eastern Europe alone were more than three times the size of American claims on Asia. It was also noticeable that oil- and gas-rich Middle Eastern investors preferred to channel their funds through Europe rather than directly to the United States. This was a pattern already established in the 1970s and only reinforced by the aggressive politics of Bush’s “War on Terror.” The European financial centers offered a safe channel through which funds from Asia and the Middle East were then sluiced into more speculative investments in the United States. It was not for nothing that China preferred to channel many of its claims on the United States through Belgium. In the process, the European financial system came to function, in the words of Fed analysts, as a “global hedge fund,” borrowing short and lending long.