Lords of Finance

In the fall of 2008 I was having a drink after work with an old college friend who was working for a large consulting company in their healthcare strategy division. The healthcare industry was one of those thought to be immune to overall economic conditions, like food and utilities, considered a necessity, even if the economy collapses people still need to goto doctors. He told me quite seriously he was afraid of losing his job and asked me point blank how bad is it? This was about 2 years into my financial experience where I knew just enough to be dangerous but not enough to really know what I was saying. I told him, the system might collapse and the best thing was for the banking system to ‘reset’ in order to avoid a Japanese like “zombie” bank situation.


After reading this book however my view has completely changed. It’s amazing how history has that tendency not to repeat exactly, but to rhyme. After WWI, the major economies of the world were faced with a massive debt burden by a creditor unable to pay. Change war debts to mortgage debts and underwater homeowners to Germany and the correlations are amazing. This is even more shocking when remembering that the major economies were on or going back on the gold standard! The situation in England, Germany, France and the United States is shown through the eyes of the nations respective Central Bankers. Similar to our time, where the Central Bankers are known as the Lords of Finance, they played a pivotal role in the cause and prolongation of the Great Depression.

When faced with the question, should we ‘take our medicine’ and reduce our Balance Sheet, accept austerity, reduce government spending, only England chose that path. With disastrous results. Surprisingly, the nation that chose to print more money (but keep the maximum exchange rate pegged to stem inflation) came out the best after World War II.

I find this book extremely important reading for anyone interested in financial history. I only wish I had read this a few years prior as it may have helped focus my investments according to the roadmap from history.

Here are some excerpts from the book I found particularly interesting and in no particular order, copied directly from my notes:

1914 1 USD = 4.2 Mark

1920 1 USD = 65 Marks (printing to pay for the war effort)

1920-1921 Foreign speculators moved 2B USD into the country betting worst was over and faith in German discipline, orderliness, and organization despite 50% increase in currency outstanding (Flows & Sentiment > Fundamentals)

1922 1 USD = 190 to 7,600; 1 Trillion Marks printed

1923 17 Trillion Marks printed

August 1923 1 USD = 620,000 Marks

November 1923 1 USD = 630 Billion Marks; 1 Kg Bacon = 180B; Berlin Street car 1 Mark before war, 15B

October 1923 prices rose 10,000x; Money received on Monday lost 9/10th of buying power by end of week. Workers paid daily. Middle class housewives became FX traders; FX quotes on blackboards on street corners (Mrs Wantabe?)

Foreigners lived grotesquely well. Apartments that once sold for 10,000 now 500. For a salary of $100 in Berlin, could have a duplex apartment, 2 maids, riding lessons for the wife, dinners in most expensive restaurants, and trips to orchestra. $100 a Texan hired the Berlin Philharmonic Orchestra for the evening.

Rich industrialists did well, real estate, factories, land, stocks of goods soared and debts became worthless. Speculators in commodities and currency did exceptionally well. Pgs 120-122

November 12 1 USD = 630B Marks; November 14 1 USD = 1.3 Trillion Marks, Nov 15 1 USD = 2.5 Trillion, Nov 20 1 USD = 4.2 Trillion; Nov 26 1 USD = 11 Trillion

Currency collapse was finally stemmed by introduction of new currency backed by land named Rentenmarks are convertible Reichsmark

1922 Audit of the French Treasury revealed $150MM of National Defense Bonds issued in bearer bond format, hence untraceable, disappeared. That would be equivalent to $30 Billion dollars today. Pg. 203

July 14, 1931, Lazard bank asks for a bailout from Bank of England. In midtwenties a trader in Brussels made a bet against the Franc and lost $30MM, 2x bank capital and hid it for years with IOU’s. The Czech trader, when confronted took out a gun in the office and shot himself. Pg. 422

March 1933, Ferdinand Pecora, chief counsel Senate Banking & Currency Committee hearing. President of Chase, sold his stock short at height of bubble, made 4MM. National  City Bank loaned $ to bank officers with no collateral to carry stock, received 5% back and paid no income tax. JP Morgan paid no income tax from 1929-1931 pg. 440

Monday March 13, 1933, combination bank holiday, rescue plan, and fireside chat changed the mood of the nation overnight. The Dow rocketed 15% in one day! P. 456

“Effect became cause and cause became effect.” In re: to prices Roosevelt. Pg. 459

Wholesale Prices for 213 years: 1720-1932 by George Warren, Professor of farm management at Cornell. Commodity Prices were linked to the supply of gold (credit) pg. 460

April 18th, 1933. Roosevelt devalues the dollar (goes off gold standard). Thomas Amendment to the Agricultural Adjustment Act devalued the dollar against gold by up to 50%. “Well, this is the end of western civilization” Bernard Baruch “can’t be defended except as mob rule.” Stock market soared 15% over few days. Pg 461

October 22nd, 1933(?) Roosevelt decided US government should buy gold and randomly assigned the price. One day up 0.21 because 21 is a lucky number. Pg 471

January 1934 dollar lost 40% of its value. Pg 474

Allies demanded 32B, settled for 14B, received 4B in reparations form Germany. Pg 479


~ by largecaptrader on December 28, 2013.

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