Structured Credit Products: Credit Derivatives and Synthetic Securitisation (Wiley Finance) Book

Like many former American school students, I studied the Great Depression from a social standpoint in depth across many American history courses. The classes focused on Black Tuesday and the country plunging into a depression, yet not relaying to students what a financial depression actually was. We studied President Roosevelt's programs for recovery as well as how the hard times effected average American people. Yet, lacking in the courses I took in school were the financial causes for this worldwide economic depression and what a depression actually. When the nonfiction Pulitzer group here on goodreads selected Lords of Finance as a group read for early next year, I had my curiosity piqued; so piqued, in fact, that I made it a point of finishing this Pulitzer winner before the end of this calendar year. In reading Lords of Finance as my last nonfiction book of 2017, I thoroughly enjoyed the week I spent immersing myself in the history of worldwide economics and banking.

Liaquat Ahamed has been an investment banker for over twenty five years. After the 1997 through 1998 Asian depression that was thankfully averted before it reached worldwide proportions, Ahamed thought hard about the worldwide depression between the years of 1929-33. What had caused the depression and could it happen again. It nearly did with the bursting of the United States housing bubble in 2007 but was thwarted in time before it reached 1930 levels. This lead to Ahamed taking a leave of absence from his position at respected money lending firms in order to research the history that lead to this book. He used as his focal points the heads of the banks of the four major players on the world stage during the 1920s: Germany, France, England, and the United States; and their personal roles in the causes leading up to the depression and their plans for leading the world out of it. Over the course of the book, Ahamed wove in each character's personal history in order to frame his unique role in the actions that would lead to this international economic downturn.

Following the 1919 Versailles Peace Accords, Germany was ordered to pay war reparations to the allied nations of France, England, and the United States. Likewise, France and England owed money to the United States for lending them money to aid the allied cause. The money owed by these nations to the United States translates into billions if not trillions of dollars in today's economy. As early as the early 1920s, Germany was already headed on the path toward depression. The leader of the Reich bank Hjalmer Schacht believed that for Germany to avert depression was two fold: to go back on the international gold standard that had been prevalent prior to the war and to have the other countries relieve her of reparations. France took a tough position and refused to excuse the reparations, demanding millions of dollars in payments over the course of the next fifty years, which Germany had no means of paying. In this scenario, Germany would be subservient to France for the next three generations.

The United States and England lead by bank heads Benjamin Strong and Montague Norman respectively saw both the dangers of relieving Germany of reparations and putting their countries back on the gold standard. The Bank of England did not possess much in the way of gold, as most gold at the time was concentrated in both France and the United States. Should the leaders of the western world go back on the gold standard, most worldwide money would filter back to the United States, sucking money from the European continent, and throwing her countries into a tailspin. Strong and Norman communication by weekly letter, face to face meetings two to three times a year, and later by transatlantic cable and telephone. While Norman favored the return to the gold standard, Strong promoted the Dawes Plan that would lessen German reparations and hopefully return the nation to prewar standards. The French balked at Strong's ideas and its banking leader Emile Moreau was staunchly opposed to Strong at many of the summits of international banking heads held throughout the interwar years. Strong may have been a visionary; however, he was sickly, and he died prior to the outbreak of the depression. His successor George Harrison did not measure up and did not enjoy as much of a personal relationship with Norman as did Strong. It is difficult for Ahamed to state if Strong had not died young that the depression would have been averted, but he does point out that when Strong died, his ideas and visionary plans died with him.

Both President Roosevelt and Adolf Hitler make an appearance in this book, but not until the fifth part focusing on the depression itself and steps to lead the world out of it. Hjalmer Schact foresaw the Nazi party as not being able to economically manage Germany and became the country's treasury head following the Nazi overthrow of the Reichstag in 1933. Yet, Schacht distanced himself from the Nazis, stating that his position was to manage the country's money and he did not ascribe to the party's fanatical ideals. He even appealed to foreign Jews to sponsor German Jews prior to the onset of the Holocaust as a means of saving their lives, but this plan was thwarted and Schact was removed from his position. He did note that liquidating Germany of her Jewish bankers could potentially ruin the country's economy but to no avail. As a result, Germany focused on wartime industries to boost her economy whereas her day to day living situation did not improve much until after the second war and the introduction of the Marshall Plan. Although not an official member of the Nazis, Schacht was tried at Nuremburg and later acquitted in 1950. Aligned with Norman of England, his plans plunged the world into depression rather than boost it out of it.

As in the history books I learned from, Roosevelt's role here is that of a motivator. His fireside chats meant to boost his country's morale did little to curb the depression overtaking his country. Harrison alongside members of Roosevelt's cabinet were little equipped to deal with the economic ruins facing their country, and, unfortunately, it was not until the United States entered the second war that her economy, with the influx of war time industries, took a turn for the better. The bulk of the depression, however, ended in 1933, after Roosevelt's inauguration. Ironically, President Hoover called for many of the same policies as did Roosevelt but the latter president would not sign off on them until he took office. Immediately, Roosevelt stepped in to take the United States off of the gold standard. This measure inevitably lead to a suspension of banking and fireside morale boosting chats, but it also temporarily removed the United States as being dependent on European nations to set its economic policies, setting a slow course toward economic growth and recovery.

Being someone who enjoys history but finds economics challenging, I found Ahamed's research to be fascinating. I knew little of the world banking heads during the 1920s who did their best to avert worldwide depression yet inevitably were the four key players who depended on the gold standard as well as war reparations that plunged the world into economic panic. It would take another war and less reparations to finally lead the world back to economic prosperity. Banking heads Schacht, Moreau, Norman, and Strong are all fascinating characters who usually take a back seat when discussing history to the well known heads of state. Yet, it is these bankers who set worldwide economic policy that played as large a role as any in setting the interwar year policy toward gold dependency and eventually depression. Ahamed ends with a brief mention of could another depression happen, citing 1997-8 and 2007 and contrasting these years with 1929-33. Hopefully, today's world leaders have studied his book, so that they know what steps to take to avert a worldwide economic crisis. A fascinating read, Lords of Finance was a worthy book to end my nonfiction reading year with.

5 stars