Book 588: Crashed – How a Decade of Financial Crises Changed the World – Adam Tooze

What a tome. I requested a copy of this from the publisher back in August 2018 after reading this review from the NYTimes.* It took me three months to get to it and another month-and-a-half to actually read it! And it was worth the read, now I just need to read the “Framing Crashed” posts on his website to see what else I missed!

There are some mixed reviews on Goodreads, some people think it’s boring (uh duh – hello finance, politics and history), some think they’ve written better books or articles (get out of here self-promoters, nobody wants you), and others, like myself, appreciated the staggering amount of ground covered by Tooze in this work.

I’m not even sure I can summarize the book, but I found a great paragraph toward the end where Tooze pretty much summarizes it.

“This book has examined the struggle to contain the crisis in three interlocking zones of deep private financial integration: the transatlantic dollar-based financial system, the eurozone and the post-Soviet sphere of Eastern Europe. The challenges were immense. The implosion entangled both public and private finances in a doom loop. Bank failures forced scandalous government intervention to rescue private oligopolists. The Fed acted across borders to provide liquidity to banks in other countries. The crisis spilled over into a question of international relations: Germany and Greece, the UK and the eurozone, the United States and the EU. And those questions were not posed in a power-political vacuum but in a geopolitical force field, graphically illustrated by the clashes with Russia over the destiny of Georgia and Ukraine. The challenges were mind-bogglingly technical and complex. They were vast in scale. They were fast moving.” (609)

But really this quote barely scratches the surface. The depth and breadth of Tooze’s research was crazy. He answered so many questions I was vaguely aware intrigued me about the last decade and provided a framework for everything that has happened over the last 18-24 months since this books completion.

“What threatened in 2008 wasn’t 1929. What threatened was something even bigger and quite possibly even worse.”

What’s interesting is I graduated college and began my graduate studies and career during all of this, but weirdly enough I missed the hardest moments in both Europe and the US. I spent late-2007 through mid-2009 in England—I do distinctly recall the Northern Rock collapse—missing the bulk of the drama in the US. And then I moved back to the states in mid-2009 having missed the collapse of Lehman and the banking restructures, but coming back just in time for Occupy Wall Street.

The other things I noted, because Tooze covered so much were:

• The Fed did a hell of a lot more than bail out the banks and has forever created the current state of intricate geo-finances where we’re all affected by everything.
• Finance/economcis has some weird/funny words: haircuts, taper tantrums, and qualitative easing stood out to me.
• Germany is kind of a dick when it comes to the eurozone – and you thought it was the UK. I mean the UK is too, but Germany seriously hindered the growth and unification of the consolidated European union. Also I forgot Grexit was a thing before Brexit, and apparently Nexit (Netherlands) too.
• China may or may not be the future economically speaking – their tight control of their money and markets may have drastic affects for good or bad, but no one really knows yet.
• 95% of the undeveloped world was unaffected/barely even mentioned in this book.
• Russia has been meddling for a lot longer than the 2016 election.

I mean just look at the quotes I pulled from the 600+ pages I read – and you can imagine the detail he goes into.

Even more interesting/astounding (but not really because I think it’s just being an adult and finally making the connections) was Tooze’s tying every damn thing that stays in the news about geopolitics and economy/finance is inextricably tied together: the unrest in Syria, Brexit, the global geopolitical shift to the right with leaders like Trump and Bolsonaro being elected, the further political divisiveness, China and Russia, and the opioid crisis it’s all connected.

“The GOP commands an impressive vote-winning organization, a take-no-prisoners media machine, deep fund-raising resources. But to judge by the record of the last ten years, it is incapable of legislating or cooperating effectively in government.” (614)

If there is one major critique I have of the book, it’s that I felt Tooze’s personal politics influenced how he wrote about specific instances. I don’t know what his politics are, especially as he is British, but the way he treated and wrote about the Republicans didn’t feel professional to me. Don’t get me wrong – they were (and continue to be) total pains in the ass, but there were a couple of passages that just really came across as “here’s my liberal agenda” and you can’t do anything about it.

The other cool thing that happened to coincide with my reading this book is my starting a new job. When I was touring the campus I found this:

The newest Baker Library exhibition, Lehman Brothers: A History, 1850–2008, and examine one of the longest-running #investment #banks, its reach into nearly every sector of the American #economy, and the impact of the firm’s collapse: https://t.co/3CqFwTfPWt pic.twitter.com/TWz3ZM7r5G

— Harvard Business (@HarvardHBS) January 7, 2019

I haven’t had a chance to actually explore the exhibit, but I’m going to make an effort before it closes to get over there.

Recommendation: It is not an easy read, I mean come on it is a HISTORY BOOK basically about ECONOMICS – it’s not exactly a light beach read. However, if you can get over that, it is 100% worth the read. There were a lot of things I thought I knew about the last decade, but was wrong or only kind of knew about it. Tooze did a great job of tying any major talking point from 2007 to 2018 together, and I’m sure could keep going with everything that’s happened since publication.

*I received a copy of Crashed: How a Decade of Financial Crises Changed the World from the publisher in return for my honest opinion. No other goods or money were exchanged.

Opening Line: “Tuesday, September 16, 2008, was the ‘day after Lehman.’ It was the day global money markets seized up.”

Closing Line: “These are the questions that we have asked about 1914 for the last one hundred years. It is not by accident that their analogues are also the questions we ask about 2008 and its aftermath. They are the questions that haunt the great crises of modernity.” (Not whited out, as this is a work of nonfiction.)

Additional Quotes from Crashed
“The technical and administrative complexities of the Fed’s actions no doubt contribute to their obscurity. But the politics go beyond that. The bank bailouts of 2008 provoked long-running and bitter recrimination and for good reason. Hundreds of billions of taxpayer funds were put in play to rescue greedy banks. Some interventions yielded a return. Others did not. Many of the choices made in the course of the bailouts were highly contentious. In the United States they would exacerbate deep rifts within the Republican Party, with dramatic consequence eight years later.” (12)

“Europeans may wish to opt out of the global battle for corporate domination. They may even hope that they may thus achieve a greater degree of freedom for democratic politics. But the risk is that their growing reliance on other people’s technology, the relative stagnation of the eurozone and the consequent dependence of Europe’s growth model on exports to other people’s markets will render those pretensions to autonomy quite empty.” (17)

“By the mid-1990s Washington had abandoned any frontal challenge to the Chinese Communist regime over human rights, the rule of law or democracy.  Instead, globalists of both the Democratic and Republican parties wagered that the powerful and impersonal force of commercial integration would in due time make China into a biddable and congenial ‘stakeholder’ in the world order.” (31)

“China had no intention of becoming either the victim of a sudden stop or the needy recipient of US assistance. To reverse the balance of risk, when Beijing pegged its exchange rate it chose one that was not too high, but not too low. This was what Japan and Germany had done in the 1950s and 1960s.” (33)

“The crisis that will forever be associated with 2008 was not an American sovereign debt crisis driven by a Chinese sell-off but a crisis fully native to Western capitalism—a meltdown on Wall Street driven by toxic securitized subprime mortgages that threatened to take Europe down with it.” (41)

“By one estimate, the share of American real estate in global wealth is as much as 20 percent. American homes account for 9 percent of the total. At the time of the crisis 70 percent of American households owned their own home—more than 80 million in total.” (43)

“Real estate is not only the largest single form of wealth, it is also the most important form of collateral for borrowing. It is mortgage debt that both amplifies the broader economic cycle and links the house price cycle to the financial crisis.” (43)

“Whereas a local lender that held a mortgage for its entire thirty-year duration had every reason to monitor its customer very carefully, by the 1990s American mortgages were passing through at least five different institutions—originators, wholesalers of packages of mortgages, underwriters who assessed risk, government-sponsored enterprises and servicers who managed the flow of interest income—before being sold to an investor.” (50)

“The subprime mortgage boom of the early 2000s led to a financial crisis because, contrary to the professed logic of securitization, hundreds of billions of private label MBS [mortgage-backed securities] were not spread outside the banking system, but were stockpiled on the balance sheets of the mortgage originators and securitizers themselves.” (59)

“The backdrop to the eurozone crisis was, indeed, a gigantic surge in debt, but it was in the private, not the public, sector. The eurozone played host to the same runaway, market-driven process of credit creation that European banks were contributing to so actively in the North Atlantic economy.” (101)

“It was not by accident, therefore, that it would be Russia’s president Vladimir Putin, the cold war KGB operative, who would pose the question that China and America preferred not to speak out loud. What, Putin demanded to know, were the implications of a rebalanced and reintegrated world economy for the geopolitical order? Putin not only posed the question. In so doing he exposed a deep lack of agreement within the West—inside Europe and between Europe and the United States—over what kind of international architecture should frame economic and financial development, not just in the world at large but in particular on Europe’s very doorstep, in Eastern Europe, the showcase for capitalist transition in the post–cold war world.” (118)

“Quite how bad things were soon going to get was suggested three weeks later, when on September 14, Northern Rock, one of Britain’s largest mortgage lenders, failed. On TV screens, the Northern Rock panic looked like a classic bank run. Anxious depositors queued up outside beleaguered bank branches to retrieve their funds. News photographers and camera crews had a field day. But off camera something even worse was happening. The trillion-dollar global funding market was shutting down.” (145)

“One day the investment banks, dealers and those they borrowed from and lent securities to all functioned as a gigantic trillion-dollar machine based on confidence and widely acceptable collateral. The next day even a very large player in the system could be shut out.” (150)

“From their peak in 2006, by 2009 US house prices had fallen by a third. At the worst point in the crisis, 10 percent of home loans across the United States would be seriously in arrears and 4.5 percent of all mortgages crashed into foreclosure. More than 9 million families would lose their homes. Millions more suffered years of anxiety as they struggled to make payments on homes that were no longer worth the mortgages secured on them. At the worst point in the crisis more than a quarter of US homes had negative equity.” (156)

“To mobilize trillions of dollars on the credit of the taxpayer to save banks from the consequences of their own folly and greed violated maxims of fairness and good government.” (166)

“The Dow Jones index plummeted by 778 points, wiping $1.2 trillion off the value of American businesses in a matter of hours. It was the biggest loss on record, worse than on 9/11, when the index had plunged by 684 points. The shock to global confidence was devastating. It produced a terrifying synchronization of the crisis on both sides of the Atlantic.” (184)

“Indeed, even to talk in terms of a transition from the Bush administration to Obama is to exaggerate the break. Well before November 4, the baton had already passed. The political party that had demonstrated its willingness to mobilize the full resources of the US government to fight the financial crisis was the Democratic Party. The Republicans weren’t so much a partner in managing the crisis as a symptom of it. In the course of the crisis the GOP had shown itself to be less a party of government than a political vehicle through which conservative, white Americans expressed their alarm at the earthquakes shaking their world.” (201)

“The emergency liquidity provision to the international economy by the Fed between 2007 and 2009 was shrouded in as much obscurity as possible.” (215)

“In Britain, the most egregious case was RBS, a now majority state-owned bank that announced in February 2009 that it intended to honor £1 billion in bonus contracts. In the United States the figures were far larger. In the 2008 bonus season, after suffering tens of billions in losses, Wall Street paid out $18.4 billion to its top staff.” (292)

“The contrast in fortunes between Wall Street and Main Street was increasingly intolerable. The big banks had been bailed out. Some of the most unscrupulous bosses might face legal action, but they were not facing personal ruin. They retired to lifestyles of wealth and comfort.46 None had gone to jail. And those at the top of the tree on Wall Street were bouncing back apparently without shame or second thought.” (306)

“Given the scale of the social media storm it unleashed, it is important to put Occupy Wall Street in perspective. It was tiny compared with the gigantic antiausterity mobilizations in Europe. The global Occupy demonstrations that took place on October 15, 2011, attracted perhaps as many as a million demonstrators in Spain, 200,000 to 400,000 in Rome, tens of thousands in Portugal. In New York between 35,000 and 50,000 protesters marched. But the New York occupation had a symbolic significance far in excess of its modest scale.” (394)

“Already in 2007 deaths from drug overdose had overtaken road accidents as a major cause of death in the United States. Among white Americans, deaths from overdose increased by 297 percent between 2010 and 2014 alone.” (457)

“Though a disaster was avoided, it is important not to normalize what had happened. The radical right wing of the Republican Party, xenophobic nationalists, many of them evangelical zealots, motivated by a worldview fashioned by the alt-right, or Pat Buchanan’s extreme America-first nationalism, a group whose hard core accounted for 10 percent of the House of Representatives, had threatened to paralyze the most important nation-state in the global system.” (468)

“The speaker was inarticulate. He was not well informed. He did not seem to appreciate that his Scottish audience had voted overwhelmingly to remain. The day after the shock result, the EU certainly had other things to worry about. But what demanded attention, what made the sound bites newsworthy, was the fact that the man in question was the presumptive nominee of the Republican Party to replace Barack Obama as president of the United States.” (563)

“As it turned out, 2012 had been misleading. Obama ran as a moderately popular incumbent, and his Republican opponent, Mitt Romney, a Mormon governor of Massachusetts with a much-trumpeted track record in venture capital, could hardly have been less well suited to harnessing popular discontent. Four years later Obama was out of the picture and the Republican field was wide open. As a result, the presidential race of 2016 turned out to be more about the financial crisis of 2008 than 2012 had been. The upshot was explosive and unpredictable.” (566)

“On election night, even as the results swung Trump’s way the mainstream media could barely hide their disbelief and dismay.38 Within hours the recrimination and finger pointing began. It was the white working class and the racists who had rallied to Trump. Women and minorities had failed to turn out for Clinton. Or, it was down to Russian meddling. There was a global alignment of forces against liberalism. President Obama himself weighed in to declare that Trump, like Brexit, was an expression of protest against globalization.” (576)

“Was ‘America first’ an adequate answer, even for America? Whatever the answer to that question, the reality that the rest of the world had to deal with was that the American electorate had put in office an erratic, narcissistic nationalist who no longer offered any commitment to upholding an international order unless it directly and immediately connected to American national interests, however those were defined. Given the size and reach of the American nation-state and its economy, this had profound global consequences.” (598)

“In 2015–2016 the world economy dodged a third installment of the global crisis. The emerging market recessions remained confined to individual economies—Russia, Brazil, South Africa—and particular commodities—notably oil.” (608)