Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

By October 2008 the Fed’s swap line facilities defined a relationship of dependence and interdependence between the US central bank and an exclusive club of privileged central bank counterparties. But that posed a question. Who was in and who was out? What were the criteria of membership in the swap line club?1 On October 28, 2008, Nathan Sheets, the director of the Division of International Finance at the Fed, set out a short list of three criteria.2 The recipients of swap lines must be: Of significant economic and financial mass so that there can be spillover to the US. Well-managed with ‘prudent’ policies so that the problems they have encountered are clearly the result of contagion from US and ‘other advanced economies’ and therefore warrant US assistance. The problem faced by local banks should be one of dollar funding stress so that swap lines would actually make a difference.” Ultimately, the Fed had to justify its measures in terms of benefits to the US economy. There were economies that were too small to warrant action. There were countries that were experiencing stress as a result of a collapse of trade or commodity prices that could not be helped by swap lines. But it was point 2, with its stress on “prudent policy,” that offered the scope for political discrimination. What was a prudent policy was very much in the eye of the beholder.