KOMET's Reviews > Lords of Finance: The Bankers Who Broke the World

Lords of Finance by Liaquat Ahamed
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Aug 26, 2010

it was amazing
bookshelves: economics
Read from August 26, 2010 to July 11, 2015

Economics plays a decisive role in shaping and guiding our lives. For most of us, it is not an easy subject to understand. I am the holder of an Economics degree (cum laude) from my college days. Even so, there are still many things about economics and finance that either elude my grasp or I partially understand, for both disciplines are fluid and dynamic, ever evolving, ever changing.

For that reason, I sought out this book, "Lords of Finance: The Bankers Who Broke the World", to help me to begin to understand the various historical and economic factors that led to and touched off the Great Depression and any parallels between events of yesteryear and today. Certainly, I've learned a lot about the 4 principal personalities in the world banking system during the 1920s who sought to promote and build a solid world economic system in the post-World War I era pegged to the gold standard. The foursome were "the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Emile Moreau of the Banque de France; the arrogant yet brilliant Hjalmar Schacht of the Reichsbank; and Benjamin Strong of the Federal Reserve Bank of New York, whose facade of energy and drive masked a deeply wounded and overburdened man."

Reading this book taught me that the collapse in the world economic system in 1929 was not inevitable. The author identifies 3 culprits that he deems culpable of contributing to events that caused the Great Depression:

(1) "... the politicians who presided over the Paris Peace Conference [of 1919]. They burdened a world economy still trying to recover from the effects of war with a gigantic overhang of international debts. Germany began the 1920s owing some $12 billion in reparations to France and Britain; France owed the United States and Britain $7 billion in war debts, while Britain in turn owed $4 billion to the United States." Expressed in today's money, that would be the equivalent of Germany owing $2.4 trillion, France owing $1.4 trillion, and Britain $800 billion. Grappling with such heavy debt during the 1920s made it a onerous challenge for the financial statesmen of the day to take on. The debt issue also poisoned international relations and created a fissure in the world financial system that gave rise to pressures that would cause it to collapse in October 1929.

(2) "[t]he second group to blame were the leading central bankers of the era" --- i.e. Montagu Norman, Emile Moreau, Hjalmar Schacht, and Benjamin Strong. "Even though they, especially Schacht and Norman, spent much of the decade struggling to mitigate some of the worst political blunders behind reparations and war debts, more than anyone else they were responsible for the second fundamental error of economic policy in the 1920s: the decision to take the world back onto the gold standard."

(3) "... the Great Depression was caused by a failure of intellectual will, a lack of understanding about how the economy operated. No one struggled harder in the lead-up to the Great Depression and during it to make sense of the forces at work than Maynard Keynes [the distinguished British economist]." He believed that if what he regarded as "muddled thinking" could be eliminated in economic matters, "then society could allow the management of its material welfare to take a backseat to what he thought were the central questions of existence, to the 'problems of life and of human relations, of creation, behavior and religion.' "


This is a magisterial work that, I believe, anyone should read with care and patience (given the weightiness of the subject) to gain a better understanding on a fundamental level of how economies work and function. You'll be glad that you did.
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Reading Progress

08/29/2010 page 245
43.0%
05/31/2013 page 307
53.0% ""...Some historians ..., see the meeting on Long Island [among the heads of the Fed, the Bank of England, the German Reichsbank, and the representative for the Banque de France] as the pivotal moment, the turning point that set in train the fateful sequence of events that would eventually lead the world into depression." - p. 300"
09/15/2013 page 332
57.0% ""Paul Warburg, one of the wise men of American banking, the intellectual father of the Federal Reserve System, kept predicting that it would all end in disaster, issuing his most powerful jeremiad on March 8, 1929: ' History, which has a painful way of repeating itself, has taught us that speculative overexpansion invariably ends in over-contraction and distress.' --- p. 312."
03/16/2014 page 347
60.0% ""Of all the various flashpoints ready to detonate in the world economy that fateful spring and summer [1929] - Germany teetering on the brink of default, the shortage of gold, falling commodity prices, the madness on the U.S. exchanges, a chronically weak sterling held hostage by the Banque de France - he [i.e., Montagu Norman, head of the Bank of England] found it hard to tell which was the most combustible." p. 339"
05/23/2014 page 360
62.0% ""The market traded up for the last couple of days of October [1929]. It then fell back again, revisiting the lows of Black Tuesday on November 13. By the last weeks of November, the Dow had settled at around 240 - a 40 percent retreat over the eight weeks since late September. The bubble that had begun in early 1928 had lasted little more than a year and a half.""
05/24/2014 page 374
64.0% ""The Census Bureau and the Labor Department...found themselves under pressure to fudge their numbers. One expert quit in disgust over attempts by the [Hoover] administration to fix the figures. Finally, even the chief of the Bureau of Labor Statistics was forced into retirement when he publicly disagreed with the administration's official statements on unemployment.""
03/22/2015 page 396
68.0% ""In the spring of 1931, the one major country most weighed down by a sense of collective despair and hopelessness was Germany. The official figures indicated that 4.7 million people, close to 25 percent of the workforce, double that in the United States, were without jobs. And this did not include another 2 million forced into part-time work." -- p. 393."
05/25/2015 page 431
74.0% ""On Saturday, September 19 [1931], the British government made a last desperate plea to the Hoover administration for help. An emotional Stimson [the Secretary of State]... called the British ambassador to the White House, to explain that every ... avenue for helping Britain had been explored... but that the [US] was helpless. That weekend, the prime minister, ... took the decision to suspend gold payments." - p.430"
07/06/2015 page 451
78.0% ""---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." -- p. 438."
07/07/2015 page 479
83.0% ""Breaking with the dead head of the gold standard was the key to economic revival. Britain did so in 1931 and began its recovery that year. The United States followed in March 1933 and that proved to be the low point in its depression. France hung on to its link with gold for the longest. ...Only in ...[1936] did France finally abandon the gold standard." -- p. 477."
07/11/2015 page 497
86.0% ""...the legacy of [John Maynard Keynes and Harry Dexter White], ... the Bretton Woods System, fruitfully endured for another thirty years. It provided the foundations for the reconstruction of Europe and Japan after the war, it allowed the global economy to boom through much of the 1950s and 1960s ..., and it set the stage for one of the longest periods of sustained economic growth the world has ever seen."pp.495-96"
07/11/2015 marked as: read

Comments (showing 1-1 of 1) (1 new)

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message 1: by Ellie (new)

Ellie Your book choices are always fascinating, KOMET, and your reviews enlightening. Did this book throw any light on today's crises for you?


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