'Lords' And Lessons From The Great Depression Liaquat Ahamed's new book, Lords of Finance, is a history of the Great Depression that centers on the era's four most important central bankers — those in Britain, France, Germany and the United States.
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'Lords' And Lessons From The Great Depression

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'Lords' And Lessons From The Great Depression

'Lords' And Lessons From The Great Depression

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LIANE HANSEN, Host:

Liaquat Ahamed's book is called "Lords of Finance," but the author calls the bankers the men who broke the world.

M: They all subscribed to the idea which - and they weren't unusual in this, everyone did - that currencies all had to be tied to gold, that the only way to prevent a recurrence of inflation, of the sort that we'd had during World War I, was to tie currencies rigidly to gold.

HANSEN: Explain how that works. I mean, if you can, briefly explain how the gold standard works.

M: Gold production collapsed during World War I, the economy is expanded, prices went up. And so it was like trying to put the world back into a sort of monetary straightjacket.

HANSEN: Are there comparable lords of finance today?

M: I do think the pendulum swung too far in favor of putting so much authority in the hands of a small number of men. We're in a comparable era.

HANSEN: Is it fair to compare the current economic crisis to the Great Depression?

M: This time, it was what has come to be known as the shadow banking system - things like money market funds, special-purpose investment vehicles. And it was a digital run for people - pull their money out with the click of a mouse. I think there, the similarities stop because the great advantage of the Great Depression, from our point of view, is we now know what not to do.

HANSEN: So, what are the lessons that should be heeded?

M: The lessons that we've learned are, one, you do not let your banking system collapse. Secondly, you do not crucify your economy on a cross of gold - or put in modern terms, you don't try and protect your currency. Thirdly, you let the budget deficit expand. Even Roosevelt was sort of obsessed by controlling the budget deficit, whereas this last fiscal stimulus package represents 6 percent of GDP.

T: And the danger is that Congress or this administration balks at asking the American public to sign that check.

HANSEN: How does one, then, encourage the political will of a people who feel as if they have paid for the excesses of the financial system over the past 10 years?

M: Roosevelt did it very well by being completely honest with the American people, not glossing over the situation, and it was remarkable how, by actually telling the truth, he inspired confidence. President Obama is trying to do that, and I hope he continues.

HANSEN: You think he'll succeed?

M: Yes.

HANSEN: Liaquat Ahamed is the author of "Lords of Finance: The Bankers Who Broke the World," published by the Penguin Press. He joined us in our Washington studio. Thanks for coming in. It's been a pleasure to talk to you.

M: Thank you, Liane.

HANSEN: And you can read an excerpt of Liaquat Ahamed's "Lords of Finance" on our Web site, NPR.org.

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