This book review was written by Eugene Kernes
“The main mechanisms for intervention were fourfold: (1) loans to banks; (2) recapitalization; (3) asset purchases; and (4) state guarantees for bank deposits, bank debts or even for the entire balance sheet. Everywhere the crisis struck, states were forced to take some combination of these measures. The agencies involved were central banks, finance ministries and banking regulators. What summary statistics cast as cool enumerations were, in fact, frantic, improvised solutions that emerged from barely coordinated sessions of all-day, all-night problem solving. As the crisis intensified it put the financial and political resilience of states to the test. Broadly speaking, this produced four types of outcomes, which reflected the degree of immersion in global finance, the resources of the states at risk, the shape of the governing elite and the balance of power within the financial sector itself.” – Adam Tooze, Chapter 7: Bailouts, Page 167
“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. 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. The bonus season in 2009 was better than ever.” – Adam Tooze, Chapter 13: Fixing Finance, Page 306
“The IMF’s headline was stark. The “overarching risk” to the world economy was of an intensified global “paradox of thrift.” As households, firms and governments around the world all tried to cut their deficits at once, there was an acute risk of global recession.” – Adam Tooze, Chapter 18: Whatever It Takes, Page 423
Is This An Overview?
Finance is internationally integrated. Banking activity, regulations, and political policies from one state has an international effect. A financial crisis in one state can trigger an international crisis. Each state can respond differently based on their political and economic institutions, based on those who have the power to influence the decisions being made, but the responses effect other states as well. Each state tends to want what is best for their people, even if that is not the best for the international community, which can then hurt the future of the state.
Financial products that were meant to reduce risk, in practice created risk with the consequent of a crisis. To prevent the crisis from escalating, the banks were bailed out. The financial industry got rewarded with bonuses, while the rest of society had to pay the costs of the bailouts. Debt was used to resolve debt, making states more indebted. To pay for the debt, many states tried to reduce their deficits by reducing spending. But reducing spending not only hurt their own societies, but also risked an international economic crisis.
The 2007-2009 financial crisis forms the basis of the book, along with the sequence of events that happened before and after the crisis. Reflecting on historic conditions and international politics that culminated into the crisis, and the policy outcomes of the decisions made during the crisis. The focus is on the sequence of events, not on their explanation or interpretation. Explanation of events is limited, and can sometimes be politically motivated. As such, this is not an introductory book. The reader should understand how finance operates and interacts with politics before reading, or research each sequence of events further while or after reading about them.