When financiers fail

Liaquat Ahamed, author of The Lords of Finance: The Bankers Who Broke the World, writes from within the "great men" school of historical narrative. He chronicles the work and foibles of the central bankers who set the course for finance in Great Britain (Montagu Norman), Germany (Hjalmar Schacht), France (Emile Moreau) and the United States (Benjamin Strong) in the period between the end of World War I and the great Depression of the 1930s.

For those of us who seldom imagine that powerful financiers are also just people, this gossipy history is amusing and slightly disconcerting. Yes -- these guys apparently were just as myopic and unimaginative as my more censorious assumptions would have predicted. And Schacht did end up a Nazi. But by telling his story through personalities, Ahamed does make developments in the decade that set the stage for the Great Depression accessible to an ordinary, marginally economically literate, general reader.

And yes, the only major economic thinker who comes out of this narrative looking pretty well is John Maynard Keynes.

I was particularly struck by Ahamed's description of the process when the Bank of England went over the brink, ending all pretense of being the financial center of the world:

As the world financial system ground to a halt [in the summer of 1931] the City of London, with tentacles that stretched into every corner of the globe, found itself especially vulnerable. ...

During London's heyday as a financial center, British industry and British banking had complemented each other. The large export surpluses generated by what was then "the workshop of the world" had provided the funds to finance Britain's long term global investments and underpinned London's status as banker to the world. After the war and the return to the the gold standard, Britain's manufacturing capacity had stagnated. Throughout the 1920s, however, London, determined to maintain its primacy in global finance, continued to lend [billions in current dollars] to foreign governments and companies. But because Britain was unable to generate the same export surpluses as before the war, the City had to finance its long-term loans by relying more and more on short term deposits.

That is, Britain was borrowing money expensively in order to be able to continue to loan money, often cheaply, in order to continue a pretense to a world empire that had been undermined by the costs of World War I and subsequent international blundering.

I have to wonder, will someone someday write the same sort of story about Messrs. Geithner, Bernanke and Summers? Is the contemporary financial bailout just a last gasp attempt to defend and pretend to a U.S. financial primacy, rapidly being undermined by rising resource costs and new national productive giants? I can't say I know the answer to that question, but I think it is the right one to be asking.***

Until July 18, I'll be working my butt off at the General Convention of the Episcopal Church, trying to move us closer to full inclusion of all baptized people, including LGBT people, in all the life of the Church. This time is what we political junkies call "campaign mode" -- the crazy, exhausting 18 hour days of frenetic activity that sometimes win changes we seek and sometimes lead only to deep disappointment. I'm hopeful about how this project will work out. If you are curious about how we're doing, you can follow all the General Convention news at the LGBT advocacy group Integrity's GC portal. I don't expect to blog during this time except perhaps a few photos, but I've got at least a rudimentary post set up for every day, many of them more reflective than the time-sensitive political commentary I often write here. Enjoy.