Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

In the autumn of 2008 the stark truth could no longer be escaped. As Tim Geithner of the New York Fed told the FOMC, the Europeans “ran a banking system that was allowed to get very, very big relative to GDP with huge currency mismatches and with no plans to meet the liquidity needs of their banks in dollars in the event that we face a storm like this.”9 As Bernanke remarked with typical understatement, the dollar funding needs of Europe’s banking system were “a novel aspect of the current situation.”10 It was a novel aspect with potentially drastic implications for the United States. If the Fed did not act, what threatened was a transatlantic balance sheet avalanche, with the Europeans running down their lending in the United States and selling off their dollar portfolios in a dangerous fire sale. It was to hold those portfolios of dollar-denominated assets in place that from the end of 2007 the Fed began to provide dollar liquidity in unprecedented abundance not only to the American but to the entire global financial system, and above all to Europe. In 2008 that flow of dollars grew to such proportions that it rendered any effort to write a separate history of the American and European crises anachronistic and profoundly misleading.

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