Crashed: How a Decade of Financial Crises Changed the World
by Adam Tooze
Readers of historian Adam Tooze, the author of fantastic books like The Deluge and Wages of Destruction, know to expect from him a very rare combination of technical wonkery and narrative skill. This is an author who can steep his books in charts, graphs, and statistical analysis without losing the comprehension or interest of the non-specialist reader, thanks in main part to his sharp, clear prose style. It's a set of skills he's used to explore the complexities of international finance in the wake of the First World War and also to lay out in great detail the workings of the Nazi economy. In his new book, Crashed: How a Decade of Financial Crises Changed the World, he looks at far more recent history: the world-wide financial crisis that erupted into public awareness exactly a decade ago, when the Lehman Brothers investment bank collapsed under the weight of rampant junk-trading and filed for bankruptcy, very nearly taking the entire world's economy with it.
It's a strange – and, it must be admitted, not entirely pleasant – feeling to read a scholar as powerfully insightful as Tooze writing about events through which his readers have all lived; Crashed is a reminder to those readers that the times are epochal and that epochal times are inherently dangerous. In this book as in his earlier books, Tooze combines a sweeping historical breadth with an unfailingly powerful compression of focus. It makes for thrilling reading, not only about the economic crash at the center of the book but also with some of its deep roots in the George W. Bush administration, on whose watch the crisis first exploded. The credibility of that administration was already reeling from the debacle of the Iraq War. The financial crisis, writes Tooze, “clinched” that impression of disaster:
It was a stark historical denouement. In the space of only five years , both the foreign policy and the economic policy elite of the United States, the most powerful state on earth, had suffered humiliating failure. And, as if to compound the process of delegitimization, in August 2008 American democracy made a mockery of itself too. As the world faced a financial crisis of global proportions, the Republicans chose as John McCain's vice presidential running mate the patently unqualified governor of Alaska, Sarah Palin, whose childlike perception of international affairs made her the laughingstock of the world. And the worst of it was that a large part of the American electorate didn't get the joke. They loved Palin.
(The undertone of acute political judgement is clear throughout the book; he refers to Trump as “the heir to Palin”)
The details of the financial meltdown are pursued in these pages with such amazing energy and rigor that readers who lived through the whole crisis news story by news story will very nearly have flashbacks. The tawdry allures of the sub-prime mortgage racket – and the credit default swaps that allowed the big banks to play three-card-monte with their own disastrous over-extension. This was fueled by plain old-fashioned greed, but it morphed into some new variations that, as Tooze points out, had no precise antecedents in American financial history, for good if appalling reasons:
Prior to 2008 the market for US Treasury CDS [credit default swaps] had not existed. What would have been the point of insuring the risk-free asset class on which the entire global financial system rested? In the wildly improbable event of a US default, the general destabilization would be unclear whether any private financial entity would still be in a position to act as a reliable counterparty. Who would be left standing to pay out on insurance against the end of the world?
“With Trump as president and the Republicans dominating Congress,” Tooze writes when indulging in the inevitable speculation about the future of his subject, “it is an open question whether the American political system will support even basic institutions of globalization, let alone any adventurous crisis fighting at a national or global level.” The Trump government has been charging as hard as legislatively possible in the direction of bringing Wall Street and the investment world back to precisely the overconfident and under-regulated position they occupied immediately prior to the great crash of a decade ago. The sequel isn't hard to predict, but that's for future books.
Steve Donoghue was a founding editor of Open Letters Monthly. His book criticism has appeared in the Boston Globe, the Wall Street Journal, and the American Conservative. He writes regularly for the National, the Washington Post, the Vineyard Gazette, and the Christian Science Monitor. His website is http://www.stevedonoghue.com.