Crashed by Adam Tooze review – a masterful account of the financial crisis / Crashed’ Connects the Dots From 2008 Crisis to Trump, Brexit and More

 

Crashed by Adam Tooze review – a masterful account of the financial crisis

 

The Republican Party in the US and Angela Merkel are among those singled out for blame in an analysis that makes clear the depth of the disaster

 

Oliver Bullough

@oliverbullough

Wed 26 Sep 2018 09.00 BST

https://www.theguardian.com/books/2018/sep/26/crashed-adam-tooze-masterful-account-financial-crisis

 

Donald Trump in the White House, Ukraine in tatters, Russia ascendant, Greece in ruins, fascists in the parliaments of Europe. The world is in spasm, and has been for years; so long, in fact, that it appears to have been going on for ever. That’s why you need to read Crashed.

 

It’s hard to think back to before the financial crisis began in 2007, to the time we used to call the Great Moderation, when employment was high, inflation low and progress was certain. That was a time of relative plenty: European governments could afford generous social spending, and America could immerse itself in wars (and we, in the UK, could do both). But the prosperity was illusory. With hindsight, that era might have been better termed the Great Complacency; the Great Smugness; or, perhaps, the Great Debt.

 

We are already aware of the story of how the world economy was destroyed by the collision of bankers’ urge to lend money with home-owners’ desire to borrow it, but Tooze’s account is masterful. He takes us inside the fear and disbelief that accompanied the great freezing of the credit on which the banks depended. Washington had been preparing for a showdown with Beijing, and was totally blindsided by Wall Street imploding instead.

 

His narrative then swoops off around the world, focusing on the three great power blocs in the global economy: the US, the EU and China. It was the pre-crisis Chinese desire for Treasury bonds that drove down yields, and sent other money looking for more profitable investments like mortgage bonds. It was European banks, lacking a huge hinterland of their own, that most overextended themselves in satisfying that appetite. And it was the Federal Reserve that took the steps necessary to prevent the crisis from turning into a catastrophe. Into this tapestry Tooze also weaves the Ukrainian crisis of 2014, the ongoing Greek tragedy, the great Brexit blunder, the rise of nationalism, the Chinese infrastructure splurge, and of course the election of Trump.

 

The world’s politicians – with the possible exception of Gordon Brown, who comes out of this story quite well – spectacularly failed to rise to the challenge they were faced with. Tooze reserves particularly severe treatment for the Republican party, which put its own incoherent ideology and wealthy donors ahead of any desire to take responsibility for the US or the world, and Angela Merkel, who refused to put anything ahead of the prosperity of the burghers of Middle Germany.

 

European politicians initially responded to the sub-prime crisis by gloating. They realised too late that not only were their banks far more exposed to it than the Americans were, but their institutions lacked the mandate to do anything about it. Tooze forensically shows how the eurozone crisis grew out of the initial US crash and demonstrates how austerity failed, as well as how the maths on which it was based was flawed. When bailouts were finally wrung out of Berlin, they benefited the banks that made the loans, not the people forced to pay them.

 

Merkel’s rigidity doomed any attempt to transform the European Central Bank into an effective crisis-fighting machine, and she was only bumped into action when the damage had been done, and a generation of young people had had their prospects destroyed. If nothing else, this book will cure you of any hope that Merkel may ride to Britain’s rescue over Brexit: she simply doesn’t have it in her to take the initiative in that way.

 

Tooze’s history is a description, not a prescription: he doesn’t give us suggestions for how the world could be better managed, he just lays out the depth of the disaster. He does, however, regularly refer back to the postwar Bretton Woods settlement, which underpinned global prosperity and stability until the 1970s with its regime of capital controls and fixed exchange rates. Instead of a coherent, well-understood system for international cooperation such as that one, Crashed describes an ad hoc mishmash. Key institutions – such as the ECB, or the US House of Representatives – are unable or unwilling to do the right thing in a crisis.

 

It has been our failure to replace Bretton Woods with anything similarly coherent that has exposed us to the risk of ever greater flows of hot money, which are capable of swamping smaller countries, and rendering the democratic decisions of their people utterly meaningless.

 

As the new leftwing Greek government was told in 2015: “Elections cannot be allowed to change economic policy.” It was a message resisted by multiple countries on the eurozone periphery, but they all gave in eventually and implemented the cuts their bond-holders demanded. Since austerity was crushing their economies, the cuts were likely to persist for the foreseeable future, as the debts came no closer to being paid off. It is hardly surprising that their citizens have taken to electing parties that refuse to accept this dismal discipline – however awful many of those parties are.

 

And now there is someone in the White House who might be worse than them all. Trump’s rise to the presidency shows how we missed the chance to address the root causes of the crisis before it was too late. In fact, with China now far more embedded in the international financial system than it was a decade ago, the volume of money flowing around the world has increased enormously, and the risks have grown with it.

 

With luck, a new generation of politicians will emerge that is able to grasp the urgent need for both a fair settlement at home and a new structure internationally. They will have to reject the erroneous economics of the previous generation, and create theories as bold as those that underpinned Bretton Woods. This book provides the raw material for those theories; it is indispensable reading for anyone who wants to understand the past, in order to build a better future.

 

Crashed’ Connects the Dots From 2008 Crisis to Trump, Brexit and More

By Jennifer Szalai

Aug. 8, 2018

https://www.nytimes.com/2018/08/08/books/review-crashed-financial-crisis-adam-tooze.html

 

The Columbia professor Adam Tooze might be expected to have precious little in common with Stephen K. Bannon, the shambolic former chief strategist to President Donald J. Trump. Tooze is a self-described “left‑liberal historian whose personal loyalties are divided among England, Germany, the ‘Island of Manhattan’ and the E.U.”; Bannon is a brawling, right-wing connoisseur of nationalist resentment. In “Crashed: How a Decade of Financial Crises Changed the World,” Tooze, with his Oxbridge-trained ear for a withering epithet, calls Bannon “the sulfurous impresario of Breitbart.”

 

There is, however, a significant point on which they both agree: The financial crisis of 2008, along with the bailouts that followed, exposed the seamy underbelly of a global economic system that was supposed to be so finely calibrated that political wrangling (unseemly, inefficient) was beside the point. As Alan Greenspan, the former chairman of the Federal Reserve, told a Swiss newspaper just a year before the crisis, the world of 2007 was a central bankers’ paradise: “We are fortunate that, thanks to globalization, policy decisions in the U.S. have been largely replaced by global market forces.”

 

Needless to say, the nonagenarian Greenspan has spent the last decade like a wide-eyed ingénue, declaring himself flabbergasted by events, while Bannon has ridden a populist-nationalist wave to the White House and beyond.

 

In “Crashed,” Tooze shows how the upheaval of 2008 radiated outward, shaping not only the new economic order but the political free-for-all that stumped conventional pundits and scrambled traditional allegiances. He connects the mortgage crisis to the American banking crisis to the European debt crisis to the crisis of liberalism. Brexit, Trump, Russia’s annexation of Crimea in 2014 and China’s ever-escalating role in the financial system: Tooze covers them all and much more, in a volume that’s as lively as it is long — which is to say very, on both counts.

 

Having published previous books on the turbulent post-World War I era and the economic policies of Nazi Germany, Tooze has made a specialty of financial collapse and historical disaster. He also understands the language of corporate balance sheets and sovereign debt deeply enough to know that he ought to use it sparingly, translating some of the most byzantine gibberish into elegant English.

 

“The sort of thing that you could do in London but not in New York is exemplified by ‘collateral rehypothecation,’” he writes, rather menacingly, before nimbly breaking down what that means and why it matters. Several lucid sentences later, you’ll have learned, perhaps despite yourself, how the financial wizards of New York competed with the financial wizards of London, and how a worldwide daisy chain of banks turned into a ticking bomb.

 

Of course, the story of “Crashed” isn’t just a panoply of transactions and statistics. Tooze regales us with character sketches while recounting the “freak show of outsize personalities” at the G-20 summit in London in 2009 — a pageant of the world’s leaders pledging to boost cratering trade and quell panicking markets.

 

There’s Angela Merkel of Germany, a moralizing pillar of unyielding rectitude, and a jittery, grandstanding Nicolas Sarkozy of France. A restless Silvio Berlusconi of Italy was “noisily desperate” for attention, while England’s Gordon Brown glowered over the proceedings.

 

Brown, a Labour Party leader who was doing his delicate best not to antagonize the trillion-dollar interests of the City of London, might have lost touch with the “humdrum reality” of a Britain gripped by recession, but as Tooze wryly puts it, the prime minister “proved that he was perfectly suited to the role of Treasury secretary to the world.”

 

Yes, the compliment is as backhanded as it sounds, but it’s a measure of Tooze’s nuanced and often counterintuitive narrative that the line retains a measure of praise, however faint. Part of Tooze’s argument in “Crashed” is that the technical know-how of an able treasury secretary can be useful in a crisis. He depicts Timothy Geithner, the treasury secretary during President Barack Obama’s first, hairy term in office, as a technocrat ne plus ultra, a public servant committed to upholding the financial system, which he ultimately did do.

 

What Geithner didn’t do was nationalize or break up the “too big to fail” banks, or pay much heed to struggling homeowners whose mortgages were underwater. Instead, he invested the regulatory bureaucracy he knew so well with greater powers of oversight. It was a solution fit for a manager — and for someone who in Tooze’s estimation revered the system as much as Geithner did.

 

This approach apparently satisfied Obama, whose administration is described as an embodiment of “American corporate liberalism.” Again, the characterization is doubled-edged. Obama was “by inclination a bipartisan centrist” forced to fend off “the sheer violence of the conservative hostility toward him.” He shepherded the banks through calamity with a firm but gentle hand. They got their bailout, so that even the gargantuan Citigroup, whose sheer survival was entirely dependent on government action, was able to splurge for $5 billion in bonuses a year later.

 

Any non-bankers who lost their jobs or homes weren’t so lucky. On the apparent Democratic distaste for conflict, Tooze is quietly scathing. “Rather than seeking to mobilize the indignation simmering in American society,” the Obama administration sought to tamp it down, offering “one technocratic fix after another.” Putting it another way, Democratic centrism won the (financial) war but lost the (political) peace. To judge from Trump’s ascendancy, along with the historical evidence so scrupulously marshaled in “Crash,” Tooze is right.

 

But at least Obama took seriously his responsibility to govern, whereas the same can’t be said for Republicans, portrayed here as gifted obstructionists “incapable of legislating or cooperating effectively.” “Crashed” details how Republican administrations had abandoned fiscal responsibility long ago, bloating the deficit with pumped-up military spending and protracted, expensive wars, while leaving it to their Democratic successors to clean up the mess.

 

One of the great virtues of this bravura work of economic history is how much attention it devotes to issues of power. “Who was being hurt?” Tooze writes of the 2008 crisis. “Who was included in the circle of those who needed to be protected? And who was not?” He reckons that in their bid to paper over such fundamental political questions with technical solutions, neoliberal centrists inadvertently answered them. Incremental tweaking did little to address the grief and suffering caused by the crisis, making political power more visible. By laying bare who would be sacrificed when the tide went out, they left a ragged hole for the likes of Trump and Bannon to walk through.