Lords of Finance: The Bankers Who Broke the World (Pulitzer Prize Winner)

"Lords of Finance - The Bankers Who Broke the World" by Liaquat Ahamed is an intimate look at the lives of four central bankers and the friendships forged between them. The thesis of the book seems to be that the Great Depression of the 1930's was not caused by a series of converging events but instead was brought about by the decisions made by the "Lords of Finance". Who are these "Lords" you may ask? Germany's Hjalmar Schacht - Head of the Reichbank Benjamin Strong - Governor of the Federal Reserve Bank of New York Montagu Norman - Head of the Bank of England Emile Moreau - Head of the Banque de France I have to give kudos to Mr. Ahamed for authoring such an entertaining and interesting look into a subject that some would consider to be dry monetary history or should I say biography seasoned with economic and monetary history. The later description being the secret to the book's entertaining quality. Mr. Ahamed delves into the personal lives of his Lords and focus not only on the economics and policy but also the friendships and animosities. Some people dismiss the book as Keynesian propaganda, since the book doesn't address the financial machinations and manipulation that was going on at the time behind the scenes. Although I sympathize with their criticism, I still believe that the "Lords of Finance - The Bankers who Broke the World" is relevant and insightful, for one should always read opposing views and keep an open mind. For those readers who would like to learn more about the so called "Conspiratorial" point of view, I will recommend some other works following the review. Note: I use the term "Conspiratorial" loosely without the intent of marginalizing that school of thought. I found it revealing that Mr. Ahamed's chose Benjamin Strong "Governor of the Federal Reserve Bank of New York" as the main American Protagonist not any or all of the four individuals who served as "Chairman of the Federal Reserve Board of Governors" during the period. The four individuals I refer to are Charles S. Hamlin, William P. G. Harding, Daniel R. Crissinger, and Roy A. Young. I believe Mr. Ahamed's choice of focusing on the private corporation that is Federal Reserve Bank of N.Y. instead of the governmental body called the Federal Reserve Board of Governors was the correct choice. It screams out, true power lies in New York not Washington. The main criticism I've already mentioned above and labeled the "Conspiratorial Point of View" which Mr. Ahamed doesn't address in any significant manner in the book. To give you an example of information ignored by Mr. Ahamed was Congressman Louis McFadden's speech on the floor of the House of Representatives charging the Federal Reserve Board of Governors, the Comptroller of the Currency, and the Secretary of the Treasury with Treason, Unlawful Conversion, Conspiracy, and Fraud. McFadden mentions the funding of Hitler and the Bolsheviks rise to power by the Federal Reserve Banks. The information is out there if you take the time to do the research. To summarize, The "Lords of Finance" is an interesting read the way the story ebbs and flows between the main characters makes for masterwork in writing. I wish most books were this well written. My only issue is with the thesis that a group of bankers mishandled the power of their offices and that lead to the Great Depression, but they didn't intend to cause a depression. I contend that Mr. Ahamed is correct except with respect to intention. To me the evidence shows that at least Montagu Norman and Benjamin Strong and probably Hjalmar Schacht knew that the plan was to cause a depression and they actively worked towards that end in secret. Now for the list of Books: Wall Street and the Rise of Hitler Wall Street and the Bolshevik Revolution: The Remarkable True Story of the American Capitalists Who Financed the Russian Communists Wall Street and FDR Conjuring Hitler The Creature from Jekyll Island: A Second Look at the Federal Reserve Super Imperialism - New Edition: The Origin and Fundamentals of U.S. World Dominanc Trading with the Enemy: the Nazi-American Money Plot 1933-1949 Tragedy & Hope: A History of the World in Our Time The Memoirs of Cordell Hull (2 Volume Set) The Great Contraction, 1929-1933: (New Edition) (Princeton Classic Editions) Money Creators

With almost 470 Amazon reviews (as of the time of this writing), what’s left to add? Presumably by this point the reader of this review knows what this book is about – i.e., how the actions of leaders of the central banks of the U.S., Britain, Germany and France ostensibly brought about the Great Depression of the 1930’s. (But that actually sells the narrative short – read more below.) This book reads like a fascinating novel – but with real-life biographies, and real history, as the background. Ahamed writes for the masses – he does not assume a financial or economic background on the part of the reader. This book is so exceptionally well written that it becomes a page-turner – you just can’t wait to see what happens next! Commendably, the author does not suggest a conspiracy theory among, or incompetence on the part of, the main actors. As indicated below, they were merely further casualties of WWI. Each of the central banks (U.S. Britain, Germany and France) pursued different paths to recovery following the war, and none of them found the right answer. This is probably the result of three main problems: (i) the lack of coordination by the Central Banks in developing a global policy for economic recovery following the war; (ii) a failure on the part of Britain to acknowledge that the global economic landscape had been fundamentally altered by the war; and (iii) a failure on the part of the central actors to understand what was going on. As Maynard Keynes said in 1930 (pg. 374), “We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.” While not a course book on international finance, the author does provide enough details to educate the reader about some of the basics (e.g., the gold standard, international lending, devaluation of currency, and international transfers of capital). As for my 4-star rating, and the title of this review (about the narrative being incomplete), I recommend reading the following in order to gain a broader perspective: “Hidden History” (Docherty and Macgregor), which suggests (with considerable convincing evidence) that the British manipulated France and Russia into war with Germany in 1914 in order to remove Germany as an economic competitor to Britain. My guess is that the architects behind this scheme (Lord Alfred Milner, in particular) had no clue as to what the economic consequences of war would be – they just had a narrow-focused goal of removing a commercial competitor. Thus, the central characters of “Lords of Finance” were probably just historical casualties of those with deeper, and darker, long term motives. Britain sowed the wind leading up to WWI, and the world reaped the whirlwind afterwards (with Britain refusing to acknowledge that there was, in fact, a whirlwind, trying vainly to reestablish their place of prominence in world finance by going back to an unrealistic pre-war gold-based exchange rate). All of the financial machinations (on the part of all parties) to rebuild the world economy after WWI failed to appreciate one fundamental concept – i.e., at some point creditors stop providing credit when they suspect that they might not be able to get repaid. Once credit stops, the economy flops. This holds true unless the creditors have a source they can tap to continue their bad lending practices – see next paragraph. I also gave this book a 4-star review because the author never asks – or answers- the fundamental question, “who eventually pays when central banks bail out other banks and nations who have made poor decisions?” The answer is “individual investors and savers.” Case in point: in 2007 an IRA or 401K worth $1 million likely took a 40% hit – i.e., a $400,000 “tax”. Multiply that by say three million such accounts, and suddenly you have $1.2 trillion gone from people’s retirement accounts. Where did all of that wealth go? Answer: to pay for loans by the Fed to bail out Greece, Spain, and bad real estate loans in the U.S. It was basically just a redistribution of wealth – socialism conducted under the guise of “central banking”. Read “The Creature from Jekyll Island” (regarding the establishment, and workings, of the U.S. Federal Reserve system) and you will have any eye-opening education on the truth behind “central banking”.

Lords Of Finance is an excellent book for the average person who wants to understand monetary history from about 1900-1945, the Gold Standard's effect on world economies, and how economic disruption caused by political polarization and mismanagement helped pave the way for Hitler, the Japanese military junta and thereby World War II. (The Japanese history is not mentioned in the Lords of finance, but is covered by the book "Golden Fetters".) Lords of Finance makes the story interesting by detailing the careers and influence of the persons most involved with managing the world's economy at that time: Montagu Norman - Bank of England, Winston Churchill British Minster of the Exchequer (US=Treasury Secretary); Benjamin Strong, President of the New York Federal Reserve; Hjalmar Schacht of the Reichsbank (later indicted war criminal - found not guilty); Emil Moreau of the Banque de France and John Maynard Keynes the "greatest economist of his generation". These, along with some other colorful characters are the Lords of Finance. Lords of Finance covers International finances with starting with some overview of pre 1900 Central bank dealings and goes up to the Bretton-Woods agrement that fixed the dollar to gold and other curriences to the dollar. Especially interesting is the German hyper-inflation after WW I which was partially, if not wholly, self-inflicted by Germany in an attempt to forestall onerous reparations payment. But during this same period Germany also borrowed money from the U.S. to build municipal swimming pools. It would seem that Germany inflicted sever damage on its own economy to avoid reparations payment. This failure to pay by Germany led, in 1923, to the French invasion and military takeover of the Ruhr valley: Germany's industrial heartland. Lords of Finance also covers the tabloid side of finance. Joseph Caillaux, was a radical who had suggested an income tax be adopted in France. Le Figaro, a conservative newspaper, then published the love letters that Joseph Caillaux had written to a former mistress. Madame Caillaux, his wife, was upset and purchased a gun. She went to the offices of Le Figaro and waited two hours for the editor to come out. She said to him, "You know why I'm here", and shot him dead. She was put on trial, but an all-male jury found her not-guilty as it was a crime of passion. Monsieur Caillaux had his own problems and was convicted of financial irregularities. When he returned to the Ministry of Finance, "an American newsmagazine reported that it was as if Benedict Arnold, instead of being executed, had been barred from Philadelphia, exiled to the country, then pardoned, and appointed secretary or war. " I had first started reading "Golden Fetters: the Gold Standard and the Great Depression" which covers roughly the same ground as Lords of Finance. But Golden Fetters is more technical and a bit over my head (I have no formal economics training) but very informative. It has incisive analyses of parliamentary vs. US style two party democracy, and looks at the political polarization that occurred in Germany and Japan over who should pay taxes (sound familiar?). This gridlock helped destroy those economies (think Tea Party blocking the repayment of national debt). That led to death squads and right wing takeovers. The military put people back to work: building armaments. In Germany they made lots of guns but butter and domestic needs were hard to come by. About a third of the way through I started reading "Lords of Finance". Lords of Finance covers pretty much the same ground as Golden Fetters but in less technical terms and less depth. Golden Fetters gives detailed accounts of Gold reserves, balance of payments, foreign currency reserves etc. buttressed by pages of charts graphs and tables of same for every major country in Europe and North and South America. I just skipped the tables. Lords of Finance gives a clear picture of the economic forces at work and the theories behind them plus details about the people who controlled the world's economies. Both books agree that the Gold Standard is a strait-jacket that is fine in normal times, but when things get dicey (WW I, WW II, Great Depression, recession of 2008) it proves fatal. That is why the world's economies were forced off the gold standard over and over again. When countries tried to return they paid a high price in fewer exports and rising unemployment. The Gold Standard constrains the money supply and hence economic growth. Bankers love it as it discourages inflation and encourages deflation. Think, do you want to pay back your mortgage in dollars worth more or less than the ones you borrowed. Inflation: good for debtors, bad for bankers; deflation good for bankers and savers, bad for debtors. Deflation: prices go down (good for savers), exports are hurt, and unemployment goes up. Winston Churchill called returning to the gold standard, "the biggest blunder in his life." He blamed it on the bad advice that he had received from the Governor of the bank of England (Norman) and by the experts of the Treasury who called the gold standard "knave-proof. It could not be rigged for political reasons." It would prevent Britain from "Living in a fool's paradise of false prosperity." Learning from this Churchill, during WW II, would trust his gut and let the military "experts" be dammed. History repeats itself, Oh boy does it. In 1931 the US government could have stopped the first of a string of bank failures by injecting thirty-two million dollars into the Bank of the United States (no government affiliation). In 2008 thirty billion dollars in guarantees would have saved Lehman Bros. For want of a nail a shoe was lost... Good books: The End of Wall Street (highly recommended) - a footnoted blow-by-blow of the crises of 2008; Thirteen Bankers (also highly recommended)- history of U.S. banking from roughly 1900 to 2009. Golden Fetters: the Gold Standard and the Great Depression 1919-1939 (rather technical): A monetary History of the United States by Milton Friedman (very technical and way over my head); and of course, Lords of Finance (a must).

Interesting and thorough. Learned about geopolitics coming out of WWI and the role of central banks in subsequent economic turmoil. Would recommend for anyone who enjoys financial history.

I am a 20th-century history buff with some interest in financial matters, so this book really kept my attention. The author gets into only a little bit of financial theory, and does a good job of explaining it well enough for the layman like me to follow along and appreciate the ramifications of the decisions that were made by the heads of the major national banks in the time from World War I to the depression and the days of FDR. Really helps the reader understand more about the reasons the Nazis were able to make such headway in German elections in the 1930's. Also reveals what a quandary President Hoover was in during most of his term, receiving contradictory advice from different sources and always under pressure to do something, but being mostly paralyzed by indecision. The author moves on to the early days of FDR's first term, with all the new programs he introduced (and points out that most of them didn't work). I like the inclusion of personal details for the various characters, even those only peripherally involved, which makes them seem all the more human as they struggled to understand and control the various ups and downs of the between-the-wars economies for four highly-influential nations. The primary focus is on the four heads of the various national banks, and those characters are of course given the most attention. Another major player, although not the head of a national bank, is John Maynard Keynes, presenting his maverick views (later proven correct) of the negative aspects of the gold standard and why nations should (well before any of them actually did) abandon it. Woven into the story are characters as diverse as Winston Churchill, Charlie Chaplin (who turns out apparently to have understood economics better than Sir Winston), various rogues, murderers, heads of state, con men, and the rich along with the not-so-rich. My only (slightly) negative comment is that the book could have stood a good proofreading. There are some grammatical errors and non-standard usages that really should have been weeded out before publication, but the reader can step past them with little trouble. Overall a recommended read for anyone interested in why the world was turned upside down in the 1930's, and novices (like me) will find it a good primer on why the Federal Reserve does the things it does in modern times.

The parallels between our current economic conditions and those that arose after World War 1 are numerous. These parallels, the economic policies pursued by the different countries and the social and economic effect of the policies make the book worthwhile. The author quotes Herodotus for "Circumstances rule men, men do not rule circumstances." The economic and social devastation wrought on Europe by World War 1 and its aftermath provides the circumstances that ruled the financiers (Norman of Great Britain, Strong of the US, Schacht of Germany and Moreau of France) who attempted to rebuild the international financial order. Their failing, described in detail, arose from the commitment to the gold standard. Norman of Great Britain in particular was trapped by his adherence to gold. The gold standard had been economic orthodoxy prior to 1914 and had served Great Britain and international trade well. As generals tend to fight the last war, so the financiers seemed constrained by gold orthodoxy. However, in the financiers' defense, the issue of war reparations to be paid by Germany to Great Britain and France, and the United States' insistence on being repaid its loans to Great Britain and France frustrated rebuilding efforts. If the book has a hero, it is John Maynard Keynes, who refused to adhere to the gold orthodoxy. His arguments for expansive government action acted as counterpoints to the policies adopted by the four main protagonists. Even if you believe that Keynes's arguments are flawed, it is still instructive to see their advocacy in the history of the time. The book is well worth reading for parallels with current economic developments. As has been said, history may not repeat itself, but it does rhyme. The financiers did not pursue exactly the same policies and the policies produced different social and economic results, which may be helpful to know as we live through our own economic turmoil. As a part of the backdrop of the times, the book explores the U.S. Federal Reserve System's formation and practical operation. The importance of the New York Federal Bank has apparently been a feature of the System from its beginning. The use of the New York Fed by private bankers to influence, if not outright determine, U.S. banking policy arose very early in the development of the Fed. The book is enlightening on this point as well. The book provides an interesting interplay of the policy initiatives and personal lives of major figures in international finance during and after WWI. This was an unexpected element of the book, which made the protagonists more human.

How did the world plunge into the financial crisis of 1929-1933 and are we likely to follow that dismal path today? To probe this question, Liaquat Ahmaed, a professional investment manager, has written an absolutely absorbing economic history. He focuses on the principal players ("The Lords of Finance") in the financial world of the 1920's and 1930's, the central bankers of the United States, Britain, France and Germany. They were regarded at the time as members of the world's most exclusive club. Forgotten men today (and all were men,) Montagu Norman (the U.K.), Benjamin Strong (the U.S.), Hjalmar Schacht (Germany) and Emile Moreau (France) struggled with how to deal with the enormous reparation payments due from Germany under The Versailles Treaty, the likewise huge war debts owned by the victorious powers to the United States, and when to return to the gold standard, which had been abandoned during the war. These financial titans were "the best and the brightest" of their times and they made error after error in dealing with these problems. As Ahmaed writes, they were a "group of men who understood none of this [the Crash of 1929], whose ideas about the economy were at best outmoded and at worst plain wrong." Germany could never realistically repay its reparations debt. Similarly, Britain and France could never pay back the U.S. for money borrowed during the war. (Of all the allied powers, only Finland finally paid of its World War One debt.) Returning to the gold standard was a huge mistake. Among economists, only Britain's Maynard Keynes realized that the gold standard would hamstring economic growth. (Of course Keynes also realized the futility of reparation payments in his famous book, The Economic Consequences of the Peace.) When the financial crisis struck, none of the central banks adequately played the role of "lender of last resort." While under Roosevelt the Federal Reserve was reformed and the U.S. government took an activist role in the economy, it was a case of too little, too late. By focusing on the lives of these key bankers, each of who was idiosyncratic, Mr. Ahmaed has produced a fascinating volume, full of interesting personalities (Bernard Barauch, Winston Churchill, Herbert Hoover and Dean Acheson, to name a few). Ahmaed speculates that had Benjamin Strong (head of the New York Fed) not died in 1928, there might have been a figure strong enough to pull together the central bankers for a concerted attack on the financial crisis. (It is also scary to consider that our central bankers today are "the best and the brightest" and may also be making terrible but different mistakes, blinded as they are by the orthodoxy of today's economic thinking.) Ahmaed writes with grace and style. It is a wonderful achievement for a man who apparently is new to the writing of history. He also explains the mysteries of international finance, gold reserves and currency fluctuations in terms anybody can grasp. For an understanding of the financial climate that led to The Great Depression, and for pure entertainment, The Lords of Finance is highly recommended.

I've read through the other reviews and, for the most part, agree with those who rate this book highly. I won't reiterate those good comments. I would like to bring the book, yes primarily about the period 1914 to 1944, into relevance today. First, it is a great historical read essential to consider and understand today for those clamoring to go back to some currency standard pegged to a natural resource, i.e., gold or silver. What is instructive is that nobody could agree on what the rules of that standard were, primarily because each country had its own set of issues to deal with. Solutions to a problem in one country often lead to another problem somewhere else. Second, recalling a general recognition of a bubble in modern times through the term irrational exuberance coined by Fed Chairman Greenspan, page 321 sums up 1928, "There was now general agreement that the United States was faced with a stock market bubble. But the system was greatly divided on how to respond." In modern times, the debate also was about prematurely pricking economic growth for the sake of containing market valuations. Third, pages 323-324 discusses how the control of amount of credit was outside of the banking system. Interesting to read that back before 1929, much like the 1990's and 2000's, "It was these players {US Corporations, British stockholders, European bankers flush with liquidity, even some Oriental potentates}, all of them outside the Fed's control, who were by far the most important factor supporting leveraged positions in the stock market." Today, think Credit Default Swaps and Mortgage Backed Securities instead of brokers loans back then. Indeed history seems to teach us that most bubbles are financed by some sort of excessive credit. Finally, Ahamed's epilogue also brings yester year to the fore. 1929 - 1933 was not just one crisis, but a series of four sequential crisis's that rolled across the world each feeding off the previous crisis. He then shows how similar crisis's occurred starting with Mexico borrowing too heavily in 1994 (Germany 1920's), the emerging markets crisis 1997-98 (European financial crisis 1931), the bubble leading to the tech crash in 2000 (US 1929), and the global financial crisis in 2007 (bank panics 1931 - 1933). He admits the analogy may not be exact, however this time around there was a decent interval between crisis that did not exist back then as well as a series of misjudgments back then that seemed to not exist more recently. Overall, an informative read. Two other related works that provide a broader background for a deeper understanding of the era, so one may learn more about today and more importantly how we got here, include: The Forgotten Man: A New History of the Great Depression by Amity Shlaes The Great Inflation and Its Aftermath: The Past and Future of American Affluence by Robert J. Samuelson A very good work for a deeper appreciation of the development of money: The Ascent of Money: A Financial History of the World by Niall Ferguson For a read about perhaps why crisis may be okay after all ... Pop! Why Bubbles Are Great For The Economy by Daniel Gross Wealth Odyssey: The Essential Road Map For Your Financial Journey Where Is It You Are Really Trying To Go With Money?