Liaquat Ahamed's "Lords of Finance"

"Those who cannot remember the past are condemned to repeat it." Georges Santayana.
Liaquat Ahamed's book Lords of Finance: The Bankers who Broke the World is a real education. It is a very readable history of how we got into the Great Depression, and as I read it I keep hearing echoes of today. Not a duplicate. As Mark Twain famously said: “History doesn't repeat itself - at best it sometimes rhymes”. This book will get you humming along in hauntingly similar history to what is being written today: mistakes, personalities, unseen market forces, politics. It is all there.

I'm a big fan of John Maynard Keynes. But I got a good chuckle out of the section that points out that a great theoretician -- and a financial player of great skill -- had his share of mistakes:

The Fed, while hiding behind a smoke screen of adhering to the gold standard, had managed very successfully to stabilise U.S. prices, and Keynes believed that with Strong at the helm, it could and would continue to do so.

But as 1928 progressed, his portfolio began to unravel. He sustained losses in April when rubber prices collapsed by 50 precent as the world cartel broke down, forcing him to liquidate large holdings at a loss to meet margin requirements. The Fed's tightening of early 1928 to cap the stock market took Keynes by surprise. After all, he argued, the U.S. prices were stable and there was "nothing which can be called inflation yet in sight." In September 1928, with the Dow at 240, he circulated a short note among friends titled "Is there Inflation in the U.S.?" which predicted that "stocs would not slump severely [that is,]... unless the market was discounting a business depression," which the Fed "would do all in its power to avoid."

His big error was a failure to take into account the deflationary forces that had begun to sweep the world.

The book is written in a style that carries you along and helps you to see all the pieces in play in the complex confluence of events that created the Great Depression. It is so hauntingly familiar to what we are experiencing today. There is no evil genius behind the scenes pulling strings. There are many players and lots of good intentions and political maneuvering, and they stumble into a situation where their options are limited and the ground moves under their feet and all are swept away in a Great Depression.

Is there a moral to this tale? Nothing utterly obvious. Maybe some that are grand generalities such as:

• A lesson in humility: we as humans are caught in the web of society and history and the drama is larger than our single life.
• Even smart people make mistakes.
• Bureaucracies and politics can create forces that undermine the larger goal.
• Nobody knows what the future truly holds.
• Even minor decisions and commitments can lead to major disasters.