LORDS OF FINANCE THEN AND NOW: ANALAGOUS BLINDERS?

March 2, 2009 at 11:06 am | Posted in Economics, Film, Financial, Globalization, History, United Kingdom, USA, World-system | Leave a comment

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Lords of Finance: Then And Now

Rubin, Greenspan & Summers

” Time” magazine, Feb. 15, 1999

versus:

Montagu Norman, 1st Baron Norman

(6 September 18714 February 1950)

Governor of the Bank of England from 1920 to 1944

Montagu Collet Norman, 1st Baron Norman, DSO (6 September 18714 February 1950), was an English banker, best known for his role as the Governor of the Bank of England from 1920 to 1944.

Sir Montagu Norman was the elder son of Frederick Henry Norman and Lina Susan Penelope Collet, a daughter of Sir Mark Wilks Collet, 1st Baronet, himself a Bank of England Governor. He was educated at Eton and King’s College, Cambridge. He was created as the 1st Baron Norman on 13 October 1944. The barony became extinct upon his death in 1950. The Norman family were well-known in banking.

Under Norman’s Governorship, the bank underwent significant change. In 1931 the United Kingdom permanently abandoned the gold standard, at which point the bank’s foreign exchange and gold reserves were transferred to the British Treasury.

He was a close friend of the German Central Bank president Hjalmar Schacht and the godfather to one of Schacht’s grandchildren[1]. Both were members of the Anglo-German Fellowship and the Bank for International Settlements.

Norman’s exact role and responsibility as director of the BIS during the time when ₤6,000,000 of Czechoslovak gold held in the Bank of England was transferred to the German Reichsbank in 1939, is yet to be determined.[2]

On 2 November 1933, Norman married Priscilla Reyntiens, London councillor, and granddaughter of the 7th Earl of Abingdon. His stepson from this marriage was Sir Peregrine Worsthorne.

His brother Ronald Collet Norman and his nephew Mark Norman became leading bankers. His great-nephew David Norman has also led a successful city career and is a noted benefactor of the arts.

References

  1. Forbes, Neil (2000), “Doing Business with the Nazis”

  2. Blaazer, David (2005). “Finance and the End of Appeasement: The Bank of England, the National Government and the Czech Gold”. Journal of Contemporary History 40 (1): 25–39. doi:10.1177/0022009405049264

Comment: Montagu Norman is mentioned in the classic British film “Passport to Pimlico” from 1949.

He is also discussed in some of the essays of the late MIT economist, Ruediger Dornbusch.

See:

CENTRAL BANKERS AND THE GREAT

DEPRESSION: “LORDS OF FINANCE” BOOK

BY LIAQUAT AHAMED

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“DOMESTIC MARKET DEALING ARRANGEMENTS”: AUSTRALIA RBA

March 2, 2009 at 5:32 am | Posted in Economics, Financial, Globalization, Research | Leave a comment

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Reserve Bank of Australia (RBA)

RBA News: Media Release –

Domestic Market Dealing Arrangments

WEBInfo (Webinfo@RBA.GOV.AU)

Mon 3/02/09

The Reserve Bank of Australia this afternoon issued a media release, which can be viewed at:

http://www.rba.gov.au/MediaReleases/2009/mr_09_04.html

Media Office
Reserve Bank of Australia
2 March 2009

Past media releases: http://www.rba.gov.au/MediaReleases/

RBA News: Media Release – Domestic Market Dealing Arrangments

http://www.rba.gov.au/MediaReleases/2009/mr_09_04.html

WEBInfo (Webinfo@RBA.GOV.AU)

Reserve Bank of Australia

Mon 3/02/09

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CENTRAL BANKERS AND THE GREAT DEPRESSION: “LORDS OF FINANCE” BOOK BY LIAQUAT AHAMED

March 2, 2009 at 4:02 am | Posted in Books, Economics, Financial, Globalization, History, Research, USA, World-system | Leave a comment

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Lords of Finance: The Bankers Who Broke the World

by Liaquat Ahamed (Author)

Editorial Reviews

From The Washington Post

From the 1870s to 1914, the world’s developed nations basked in a shimmering age of commerce. The European powers were at peace. Goods flowed home from colonies. The newly reunited United States was growing into muscular adolescence. And all of the world’s major economies rested on a seemingly solid base: the gold standard. But it proved to be a system in a snow globe, easily shattered. World War I broke the idyll and unhooked country after country from dependence on gold. They resorted to printing money to fund the war, leading to massive inflation, unemployment, political instability and general suffering across the Continent. It’s no wonder, then, that after the signing of the armistice in 1918 the world’s four most powerful bankers — a fraternity described in newspapers of the time as “the world’s most exclusive club” — did everything they could to force nations back to the discipline of the gold standard. It was a ruinous decision. as Liaquat Ahamed notes in Lords of Finance, all the gold mined in history up to 1914 “was barely enough to fill a modest two-story town house.” There simply was not enough of it to fund a global conflict or to allow economic recovery afterward.

Ahamed’s illuminating and enjoyable book focuses on the four men whose arrogance and obstinacy, he contends, caused the worst depression in modern times: Benjamin Strong Jr., the morphine-using, consumptive governor of the New York Federal Reserve; Montagu Norman, the spiritual seeker at the helm of the Bank of England; Emile Moreau, the xenophobic governor of the Banc de France; and Hjalmer Schacht, the president of Germany’s Reichsbank, a Prussian by temperament, if not by birth, whose sensibilities led to a flirtation with the Nazis. They were the most important central bankers in their respective nations when those four countries controlled most of the world’s wealth and one — England — was its unrivaled lender. It was a time, almost unrecognizable to us, when the central banks that printed each nation’s currency were privately owned, and regulation was unheard of. As a consequence, this handful of men — who knew each other intimately enough that one was godfather to another’s son — could wield a coordinated, long-lasting and terrible impact on the global economy.

The gold standard’s role in the worldwide depression of the 1930s has been probed before, notably in Barry J. Eichengreen’s scholarly Golden Fetters (1992). But Ahamed — a hedge fund adviser, a World Bank veteran and a supple writer — personalizes the story, exploring how insular relationships led to bad choices. Strong and Norman, for instance, became friends and gained each other’s trust through lengthy correspondence. Strong used his influence to secure a loan for England, then prodded Norman to put England back on the gold standard. Norman, in turn, persuaded Strong to push down U.S. interest rates, helping to create the stock bubble that eventually burst in October 1929. When Strong died in 1928, his replacement became Norman’s thrall and fell in lock-step with the emphasis on gold, extending the economic agony. Meanwhile, the unchecked concentration of power in one banker’s hands was also roiling Germany. In 1924, Schacht went bizarrely off the farm and attacked his government, releasing public statements accusing the state of losing control of its finances and saying that Germany was too broke to pay additional war reparations. While Schacht partly spoke the truth, his freelancing undermined already shaky public confidence. Later, he sabotaged a loan his nation tried to secure in New York, nearly bringing down the government. Ahmed damns the dead, placing blame at the feet of men largely lost to history. The risk in writing about forgotten men, however, is that they might not have been interesting enough to be remembered. Lords Of Finance unearths some gossipy details: Norman, for example, was a salad-bar spiritualist who tried a little of this, a little of that (including Theosophy and autosuggestion) and once told colleagues he could walk through walls. But quirky does not equal memorable. These four bankers are about as compelling to us as, say, Treasury Secretary Henry Paulson may be to readers a century from now. My guess is that readers in 2109 will instead remember Warren Buffett and Bill Gates, just as we still know J.P. Morgan and John D. Rockefeller. Rather than splendid personalities, this book’s real advantage is timeliness. Parallels to today’s global financial collapse come with regularity throughout, sometimes causing spit-take laughs, sometimes shudders. Heading into the Paris Peace Conference of 1919, one pugnacious English banker proposed forcing Germany to pay reparations of $100 billion, eight times its pre-war gross domestic product. He said he came up with the figure “between a Saturday and a Monday” — which sounds a lot like the three-page request for $700 billion Paulson whipped up one weekend in September and sprang on Congress. Until last year, few believed anything would stop U.S. homes from going up in value 10 percent every year. That is, until the sub-prime mortgage crisis exploded. Likewise, in the prosperous and interdependent Europe of 100 years ago, war was considered unthinkable because it would destroy all. By 1917, an entire generation of young male university graduates was dead. And, frankly, the brainpower needed for forward-thinking was lacking. European bankers of the time carried a cavalier ignorance of economics, and that goes double for America’s first Federal Reserve directors. The science of monetary policy was still in its infancy, and no one could have expected four dreary bankers to turn suddenly into brilliant, ahead-of-their-time economists. That role should have fallen to John Maynard Keynes, one of the few heroes of Ahamed’s book. Keynes called the gold standard a “barbarous relic” and clearly explained its limits; in 1925, he accused the British banking elite of “attacking the problems of the post-war world with unmodified pre-war views and ideas.” But despite being a well-known Cambridge don, Keynes was an outsider, not a member of the world’s most exclusive club, and those in power largely ignored his warnings. Looking at the events of the 1920s and 1930s, one wonders: Could a modern confluence of catastrophes cause another global depression? No major power is likely to return to the gold standard, so that risk is off the table. But is there a comparable systemic problem today, something we refuse to see? Ahamed thinks we’re plain lucky that recent financial crises — in Mexico in 1994, Asia and Russia in 1997-98, the United States beginning in 2007 — “have conveniently struck one by one, with decent intervals in between.” After reading his bracing book, one can only hope that our economy is in the hands of decision makers who are more numerous, less powerful or much wiser than in the past.

Review
“Ahamed cannot have foreseen how timely his book would be. Unlike most works on the origins of the Great Depression, Lords of Finance is highly readable – enlivened by vivid biographical detail but soundly based on the literature. That it should appear now, as history threatens to repeat itself, compounds its appeal.”
— Niall Ferguson, Financial Times

“Erudite, entertaining macroeconomic history of the lead-up to the Great Depression as seen through the careers of the West’s principal bankers…Spellbinding, insightful and, perhaps most important, timely.”
Kirkus Reviews

Product Details:

  • Hardcover: 576 pages

  • Publisher: Penguin Press HC, The

  • January 22, 2009

  • Language: English

  • ISBN-10: 159420182X

  • ISBN-13: 978-1594201820

Liaquat Ahamed, a former World Bank economist and investment fund manager, began research on this book long before the current financial crisis, having no idea of the relevance it would have upon its publication.

It is a history of the financial and economic turmoil that began in 1914 and didn’t really end until after World War II. He traces the development of this crisis through the lives and actions of four central bankers: Benjamin Strong of the Federal Reserve of New York, Montagu Norman of the Bank of England, Emile Morceau of the Banque de France, and Hjalmer Schacht of the Reichsbank of Germany. The liquidity crisis of 1914 has suddenly become a subject of interest as it bears relevance to today’s problems.

Ahamed’s central thesis is that the critical decisions made by these four bankers not only caused the Great Depression but also created the conditions for World War II. The most fateful event of all was the decision to adhere to the gold standard.

In retrospect, tying the amount of currency a country has in circulation to the amount of gold it has in its vaults appears arbitrary and nonsensical. However, it seemed like a good idea at the time, it provided a universal standard against which countries could stabilize their currencies. Unfortunately it became a straightjacket which gave them little room to maneuver.

When the big four bankers came into power in the mid-1920s, the use of the gold standard actually seemed to be working, currencies were stabilized and capital was once again flowing. The problem however was that there was not enough gold in existence to provide enough capital to finance world trade. According to Ahamed, this was the central flaw in the financial system that led to the Crash of 1929 and the subsequent Great Depression. Of course, the chain of events was more complicated than that and Ahamed recognizes the complexity. Each of the four bankers and their respective countries were pursuing their own agendas as opposed to trying to save the system as a whole, the gold standard was the proverbial straw that broke the camel’s back.

Ahamed has written an interesting history of what otherwise would be a fairly dull story. It makes one think about flaws in the system – like sub-prime mortgages, derivatives and the excessive use of credit – and how things could have been different if they had been recognized earlier.

The author of this book has done an excellent job in analyzing what the main cause of the Great Depression was. The crucial pages in the book that provide the answer are pp. 295-302.

It is here that we find Benjamin Strong, in August of 1927, who knew full well that the United States was in the midst of not one ,but two raging, speculative bubbles, one in stocks and the other in real estate, forced through a one half of one percent rate cut that simply fueled the speculative bubbles even further.

We find Herbert Hoover, blamed for the Great Depression in the United States, calling the future outcome one hundred percent correctly when he stated that the speculation of the late 1920’s would lead to a Depression unless the banker financed speculative build up was stopped. Hoover’s attempt to stop the insane rate cut failed.

President Coolidge simply pointed out that there was nothing he could do because the Federal Reserve System was independent of the Federal Government. He stated that he had no authority to attempt to get the FRS to reverse the rate cut, which they eventually did in February, 1928.

Unfortunately, by that time that action was too little and too late.

The author covers a period and a topic that is sadly neglected in most histories – the inter-war period, and especially the financial events that played a major role in the rise of Hitler and the origins of the Second World War.

The book is primarily the story of 4 Central Banks – those of the US, England, France, and Germany, and of the heads of those banks. The book actually covers a longer span than the inter-war period, it includes important information about the banks just prior to the First World War, their activities during the war, and extends into the Second World War. The lead-in is especially important, because it explains so much of what happened during the inter-war period.

The events are too complicated to review in detail, but the author explains them well and shows how the personalities of the Bankers as well as the politics of the times influenced events. Let us just say, mistakes were made.

My one quibble with the book is that the author is rather unsparing in his criticism of the bankers. Although this is somewhat justified, I ended up feeling sympathetic to at least the heads of the US Federal Reserve and the Governor of the Bank of England. Their primary fault was an inability to see beyond the conventional economic wisdom of the times. In point of fact, the only person who seemed to get it right during this time was Maynard Keynes. If we are to judge everyone against the standard of the most brilliant mind in their field, very very few of us are going to come out well.

The most important point the book makes is how factors other than purely economic issues play a role in making economic decisions, but how the consequences of those economic decisions then rebound onto the wider political history of the times. While the book deals with a different time and political landscape, the parallels to our own times are VERY frightening. The author does not emphasize the parallels, and the book was actually completed before many parallel events occurred. To my mind that just makes them more compelling.

Only a policy of credit restriction applied against speculators might have mitigated the eventual depression.

The book puts to rest once and for all the canards, repeatedly told by Murray Rothbard and Milton Friedman, that the FRS was part of the Federal Government and was controlled by government bureaucrats who told the bankers what to do. It is just the reverse. The bankers were so powerful that they could tell an American president what to do. It is interesting to realize that the bankers have again brought the United States to the edge of financial catastrophe with their highly speculative loan policies.

Some of the complexities of monetary economics:

How money is created and managed is poorly understood, even by such luminaries as Alan Greenspan. Little is done on the subject today. You have to go back to early 19th century economists like Thornton An Inquiry Into The Nature And Effects Of The Paper Credit Of Great Britain (1807) to get a firm idea.

Interestingly, Marx, of all people, devoted an entire book, the much forgotten Grundrisse: Foundations of the Critique of Political Economy (Penguin Classics), to the subject that oddly foreshadows Keynes’ A Tract on Monetary Reform which Ahamed uses as such a great counterpoint to Montagu Norman and Ben Strong.

Ahamed reminds us that a large part of our current failure comes from the lack of modern understanding of what money is. Had someone explained a credit default swap and its volumes to Thornton, he would have fainted.

The French Franc support situation under the final administration of Raymond Poincaré in 1926, is a set of events Ahamed describes in great detail.

Lords of Finance: The Bankers Who Broke the World

by Liaquat Ahamed (Author)

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KUWAIT STOCK EXCHANGE EARNINGS ANNOUNCEMENT

March 2, 2009 at 3:27 am | Posted in Economics, Financial, Globalization, Middle East, Research | Leave a comment

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KSE Latest Earnings Announcement‏

KAMCO Research (research@kamconline.com)

KIPCO Asset Management Co (KAMCO)

Sun 3/01/09

We are pleased to attach the latest corporate earnings announcements of the companies listed on Kuwait Stock Exchange:

United Gulf Bank reported a net profit of KD 55,563,462 for FY-08, 7.86% lower than the net profit of KD 60,300,110‏ reported during FY-07. (More Details)

Ithmaar Bank reported a net profit of KD 5,885,604 for FY-08, 78.43% lower than the net profit of KD 27,281,453‏ reported during FY-07. (More Details)

Gulf Cable & Electrical Industries Co. reported a net profit of KD 3,236,779 for FY-08, after reporting a net profit of KD 26,911,812 during FY-07. (More Details)

Gulf Rocks Co. reported a net profit of KD 3,033,818 for FY-08, 48.17% higher than the net profit of KD 2,047,581 reported during FY-07. (More Details)

Kind regards,
Investment Research Department

Investment Advisory & Research Division

KIPCO Asset Management Co (KAMCO)
Tel: +965 1 805 885 Ext.1146, 1153
Fax:+965 2 2492395
Kamconline.com

KSE Latest Earnings Announcement‏

KAMCO Research (research@kamconline.com)

KIPCO Asset Management Co (KAMCO)
Tel: +965 1 805 885 Ext.1146, 1153
Fax:+965 2 2492395
Kamconline.com

Sun 3/01/09

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