Lords of Finance
Encyclopedia
Lords of Finance: The Bankers Who Broke the World is a 2009 nonfiction book about events leading up to and culminating in the Great Depression
as told through the personal histories of the heads of the Central Bank
s of the world's four major economies at the time: Benjamin Strong Jr. of the New York Federal Reserve, Montagu Norman
of the Bank of England
, Émile Moreau
of the Banque de France
, and Hjalmar Schacht
of the Reichsbank
. The book was generally well received by critics, and won the 2010 Pulitzer Prize for History
. Because the book was published during the midst of the financial crisis of 2007–2010, the book subject matter was seen as very relevant to current financial events.
, Great Britain
, France
, and Germany
and their efforts to steer the world economy from the period during the First World War until the Great Depression
. The book also discusses at length the career of the British economist John Maynard Keynes
who criticized many of the policies of the heads of the Central Banks during this time.
"even in the face of total catastrophe." As Joe Nocera, a book reviewer at the New York Times, stated, "the central bankers were prisoners of the economic orthodoxy of their time: the powerful belief that sound monetary policy had to revolve around the gold standard...Again and again, this straitjacket caused the central bankers — especially Norman, gold’s most fervent advocate — to make moves, like raising interest rates, that would allow their countries to hold on to their dwindling gold supplies, even though the larger economy desperately needed help in the form of lower interest rates."
Another theme that runs through the book is how difficult it was to forecast the financial future and how the events would influence world events. "Mr. Ahamed’s opinions are made very clear (the Paris Peace Conference’s
plan for Germany to pay war reparations is presented as a great blunder), but his overriding idea is that blame cannot be easily assigned: not even the most sophisticated economists of the era could accurately predict disaster, let alone guard against it. The effects of a public herd mentality at the time of the 1929 stock market crash are depicted, all too recognizably, as unstoppable."
trustee, first got the idea to write the book when he read the 1999 Time story “The Committee to Save the World,” which discussed Alan Greenspan
(then the Federal Reserve chairman
), Robert Rubin
(Bill Clinton’s
Treasury Secretary) and Lawrence Summers
(Rubin’s No. 2). Ahamed realized that a similar story could be told in the 1920s about the heads of the four central banks, who had acquired a similar mystique and fame regarding their economic acumen.
, the 2010 Spear's Book Award (Financial History Book of the Year), the 2010 Arthur Ross Book Award
Gold Medal, the 2009 Financial Times and Goldman Sachs Business Book of the Year Award
. For 2009 it was recognized as one of Time magazine's
"Best Books of the Year", New York Times "Best Books of the Year" and Amazon.com's
"Best Books of the Year". It was shortlisted for the Samuel Johnson Prize
.
Joe Nocera at the New York Times called the book "[a] grand, sweeping narrative of immense scope and power, the book describes a world that long ago receded from memory." He also stated that "[b]ecause much of the book concerns decisions...to raise or lower interest rates, you need great characters to pull the story along, and Ahamed not only has them but also knows how to make them come alive."
Robert Preston at the Sunday Times stated that Liaquat Ahamed "provides a compelling and convincing narrative of bungling, tortured bankers vainly trying to reconcile their conflicting duties to their countries and to the global economy. The strength of his book is in humanising the world’s descent into economic chaos. The quartet were dealt an unwinnable hand, in the unsustainable burden of debt heaped on Germany after the first world war in the form of reparations, and the corresponding amounts owed to the US by Britain and France. But these central bankers made serious mistakes."
On September 2, 2010, Chairman of the Federal Reserve
Ben Bernanke
was asked by the Financial Crisis Inquiry Commission
what books or academic papers he would recommend to understand the financial crisis of 2007–2010. The only book that Bernanke recommended was Lords of Finance.
From the left, though conceding that Lords of Finance was 'undoubtedly the most engaging narrative of the run-up to the 1929 Crash to have appeared in recent years', the book was characterized as 'apologia' for latter day 'lords' by the New Left Review
: 'damning the 1920s quartet of central bankers, the better to highlight the wisdom of the 1990s trio, and now of their successors: Bernanke, Mervyn King and other saviours since 2008'..
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
as told through the personal histories of the heads of the Central Bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s of the world's four major economies at the time: Benjamin Strong Jr. of the New York Federal Reserve, Montagu Norman
Montagu Norman
Montagu Collet Norman, 1st Baron Norman DSO PC was an English banker, best known for his role as the Governor of the Bank of England from 1920 to 1944...
of the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
, Émile Moreau
Émile Moreau (banker)
Émile Moreau was Governor of the Bank de France from 1926 to 1930 and chairman of Paribas from 1931 to 1940. After retiring from his role as governor he took a job in a private bank...
of the Banque de France
Banque de France
The Banque de France is the central bank of France; it is linked to the European Central Bank . Its main charge is to implement the interest rate policy of the European System of Central Banks...
, and Hjalmar Schacht
Hjalmar Schacht
Dr. Hjalmar Horace Greeley Schacht was a German economist, banker, liberal politician, and co-founder of the German Democratic Party. He served as the Currency Commissioner and President of the Reichsbank under the Weimar Republic...
of the Reichsbank
Reichsbank
The Reichsbank was the central bank of Germany from 1876 until 1945. It was founded on 1 January 1876 . The Reichsbank was a privately owned central bank of Prussia, under close control by the Reich government. Its first president was Hermann von Dechend...
. The book was generally well received by critics, and won the 2010 Pulitzer Prize for History
Pulitzer Prize for History
The Pulitzer Prize for History has been awarded since 1917 for a distinguished book upon the history of the United States. Many history books have also been awarded the Pulitzer Prize for General Non-Fiction and Pulitzer Prize for Biography or Autobiography...
. Because the book was published during the midst of the financial crisis of 2007–2010, the book subject matter was seen as very relevant to current financial events.
Plot summary
The book discusses the personal histories of the four heads of the Central Banks of the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, Great Britain
Great Britain
Great Britain or Britain is an island situated to the northwest of Continental Europe. It is the ninth largest island in the world, and the largest European island, as well as the largest of the British Isles...
, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
and their efforts to steer the world economy from the period during the First World War until the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. The book also discusses at length the career of the British economist John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
who criticized many of the policies of the heads of the Central Banks during this time.
Themes
One of the main themes of the book is the role played by the central bankers' insistence to adhere to the gold standardGold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
"even in the face of total catastrophe." As Joe Nocera, a book reviewer at the New York Times, stated, "the central bankers were prisoners of the economic orthodoxy of their time: the powerful belief that sound monetary policy had to revolve around the gold standard...Again and again, this straitjacket caused the central bankers — especially Norman, gold’s most fervent advocate — to make moves, like raising interest rates, that would allow their countries to hold on to their dwindling gold supplies, even though the larger economy desperately needed help in the form of lower interest rates."
Another theme that runs through the book is how difficult it was to forecast the financial future and how the events would influence world events. "Mr. Ahamed’s opinions are made very clear (the Paris Peace Conference’s
Paris Peace Conference, 1919
The Paris Peace Conference was the meeting of the Allied victors following the end of World War I to set the peace terms for the defeated Central Powers following the armistices of 1918. It took place in Paris in 1919 and involved diplomats from more than 32 countries and nationalities...
plan for Germany to pay war reparations is presented as a great blunder), but his overriding idea is that blame cannot be easily assigned: not even the most sophisticated economists of the era could accurately predict disaster, let alone guard against it. The effects of a public herd mentality at the time of the 1929 stock market crash are depicted, all too recognizably, as unstoppable."
Production
Liaquat Ahamed, a hedge fund manager and Brookings InstitutionBrookings Institution
The Brookings Institution is a nonprofit public policy organization based in Washington, D.C., in the United States. One of Washington's oldest think tanks, Brookings conducts research and education in the social sciences, primarily in economics, metropolitan policy, governance, foreign policy, and...
trustee, first got the idea to write the book when he read the 1999 Time story “The Committee to Save the World,” which discussed Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
(then the Federal Reserve chairman
Chairman of the Federal Reserve
The Chairman of the Board of Governors of the Federal Reserve System is the head of the central banking system of the United States. Known colloquially as "Chairman of the Fed," or in market circles "Fed Chairman" or "Fed Chief"...
), Robert Rubin
Robert Rubin
Robert Edward Rubin served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs eventually serving as a member of the Board, and Co-Chairman from 1990-1992...
(Bill Clinton’s
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
Treasury Secretary) and Lawrence Summers
Lawrence Summers
Lawrence Henry Summers is an American economist. He served as the 71st United States Secretary of the Treasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United States National Economic Council for President Barack Obama until November 2010.Summers is the...
(Rubin’s No. 2). Ahamed realized that a similar story could be told in the 1920s about the heads of the four central banks, who had acquired a similar mystique and fame regarding their economic acumen.
Reception
The book was awarded the 2010 Pulitzer Prize for HistoryPulitzer Prize for History
The Pulitzer Prize for History has been awarded since 1917 for a distinguished book upon the history of the United States. Many history books have also been awarded the Pulitzer Prize for General Non-Fiction and Pulitzer Prize for Biography or Autobiography...
, the 2010 Spear's Book Award (Financial History Book of the Year), the 2010 Arthur Ross Book Award
Arthur Ross Book Award
The Arthur Ross Book Award was endowed in 2001 by Arthur Ross for the purpose of recognizing books that make an outstanding contribution to the understanding of foreign policy or international relations. The prize is for nonfiction works from the past two years, in English or translation, and is...
Gold Medal, the 2009 Financial Times and Goldman Sachs Business Book of the Year Award
Financial Times and Goldman Sachs Business Book of the Year Award
Financial Times and Goldman Sachs Business Book of the Year Award is an annual award given to the best business book of the year as determined by the Financial Times and Goldman Sachs. It aims to find the book that has ‘the most compelling and enjoyable insight into modern business issues.’ The...
. For 2009 it was recognized as one of Time magazine's
Time (magazine)
Time is an American news magazine. A European edition is published from London. Time Europe covers the Middle East, Africa and, since 2003, Latin America. An Asian edition is based in Hong Kong...
"Best Books of the Year", New York Times "Best Books of the Year" and Amazon.com's
Amazon.com
Amazon.com, Inc. is a multinational electronic commerce company headquartered in Seattle, Washington, United States. It is the world's largest online retailer. Amazon has separate websites for the following countries: United States, Canada, United Kingdom, Germany, France, Italy, Spain, Japan, and...
"Best Books of the Year". It was shortlisted for the Samuel Johnson Prize
Samuel Johnson Prize
The Samuel Johnson Prize for Non-Fiction is one of the most prestigious prizes for non-fiction writing. It was founded in 1999 following the demise of the NCR Book Award and based on an anonymous donation. The prize is named after Samuel Johnson...
.
Joe Nocera at the New York Times called the book "[a] grand, sweeping narrative of immense scope and power, the book describes a world that long ago receded from memory." He also stated that "[b]ecause much of the book concerns decisions...to raise or lower interest rates, you need great characters to pull the story along, and Ahamed not only has them but also knows how to make them come alive."
Robert Preston at the Sunday Times stated that Liaquat Ahamed "provides a compelling and convincing narrative of bungling, tortured bankers vainly trying to reconcile their conflicting duties to their countries and to the global economy. The strength of his book is in humanising the world’s descent into economic chaos. The quartet were dealt an unwinnable hand, in the unsustainable burden of debt heaped on Germany after the first world war in the form of reparations, and the corresponding amounts owed to the US by Britain and France. But these central bankers made serious mistakes."
On September 2, 2010, Chairman of the Federal Reserve
Chairman of the Federal Reserve
The Chairman of the Board of Governors of the Federal Reserve System is the head of the central banking system of the United States. Known colloquially as "Chairman of the Fed," or in market circles "Fed Chairman" or "Fed Chief"...
Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....
was asked by the Financial Crisis Inquiry Commission
Financial Crisis Inquiry Commission
The Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the...
what books or academic papers he would recommend to understand the financial crisis of 2007–2010. The only book that Bernanke recommended was Lords of Finance.
From the left, though conceding that Lords of Finance was 'undoubtedly the most engaging narrative of the run-up to the 1929 Crash to have appeared in recent years', the book was characterized as 'apologia' for latter day 'lords' by the New Left Review
New Left Review
New Left Review is a 160-page journal, published every two months from London, devoted to world politics, economy and culture. Often compared to the French-language Les Temps modernes, it is associated with Verso Books , and regularly features the essays of authorities on contemporary social...
: 'damning the 1920s quartet of central bankers, the better to highlight the wisdom of the 1990s trio, and now of their successors: Bernanke, Mervyn King and other saviours since 2008'..
External links
- Lords of Finance, video interview with Liaquat Ahamed at BookTV via C-SpanC-SPANC-SPAN , an acronym for Cable-Satellite Public Affairs Network, is an American cable television network that offers coverage of federal government proceedings and other public affairs programming via its three television channels , one radio station and a group of websites that provide streaming...
, 59 minutes