Lords of Finance

Lords of Finance: The Bankers who Broke the World by Liaquat Ahamed. New York: Penguin Press, 2009. 564 p., $32.95.

Ahamed has good timing. His book, "Lord of Finance" was being researched as the first shock waves of 2007 hit our contemporary economy, and was published before we know the full impact of the financial crisis. Yet, perhaps even without intending, the author provides a fascinating illumination of the current financial difficulties by examining the past.

The investment banker turned historian examines the Great Depression as seen through the eyes of central bankers in the US, UK, Germany, and France. Five men play the lead narrative role: Benjamin Strong, the head of the New York Fed, Montagu Norman, Governor of the Bank of England, Hjalmar Schact of the German Reichtbank, Emile Moreau of the French Central Bank, and John Maynard Keynes, the upstart British economist constantly on the sidelines. As the title implies, these men had significant powers granted them as the world struggled through the ups and downs of the early 1900s. Unfortunately, they failed to even bring a semblance of order and instead presided over the greatest economic catastrophe of modern history.

Consider this incredibly poignant thought from Montagu Norman in 1948: "As I look back, it now seems that, with all the thought and work and good intentions, which we provided, we achieved absolutely nothing...nothing that I did, and very little that old Ben did, internationally produced any good effect-or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds (p. 489)."

Why the incredible failure? Ahamed starts the narrative in the early 1900s, charting the panic of 1907 and the disruptive economic impact of World War I. In the post-war world further, key figures failed to recognize the changed economic landscape. A dogmatic adherence to the gold standard, insistence on war reparations,  debt obligations, and the lack of true leadership in the financial world ultimately led to a lack of faith in capitalism itself. Although Strong, Norman, Schact, and Moreau were brilliant men, they did not yet have the institutions or vision necessary to act as true lenders of last resort. The author in fact shows how the very concept of the modern central bank has only evolved and developed largely as a consequence of the failures in the early 1900s.

This comprehensive description of the Great Depression coupled with the lives of these financial powerbrokers is a captivating read. More importantly, it provides valuable lessons for overcoming the current economic malaise. Faith in financial markets is a fragile thing; cooperation and collaboration help, political grandstanding and ambiguity harm. And if the past is any guidance, now is not the time to declare victory and stop the aggressive intervention by the government and Federal Reserve.

My only complaint is that this book is about 300 pages too short. It is painfully clear that Ahamed had completed the narrative up to about 1933 when contemporary events caught up with him. The final years of the Great Depression therefore receive only a glancing discussion and the significant downturn in 1937 is barely mentioned at all. Although I understand that the book is focused on the major central bankers who in large part lost the levers of power during that time, I still sincerely hope for a sequel. There is more to be said on this subject and Ahamed has the narrative capacity to do so.