Liaquat Ahamed earned degrees in economics from Cambridge University and Harvard; he worked for a time at the World Bank and then, for twenty-five years, in the investment-management business. He is the author of a forthcoming book about how the mistakes of central bankers caused the Great Depression. The book is titled “Lords of Finance: The Bankers Who Broke the World,” and it will be published by Penguin Press in January. When I first got to know Liaquat, about a year ago, I thought his book project sounded interesting, if specialized; now I try his patience with relentless questions about the current mess. Given the unfortunate timeliness of his topic, he’d better get used to it. I caught up with him this weekend; he was in London, and generously agreed to answer some more questions by e-mail:
Interview at the source: New Yorker.
How Obama Can Fix the Economy
by Liaquat Ahamed
Injecting money into the banking system won’t be enough to turn things around.
Ever since the banking panics of the 19th century, the formula for dealing with bank runs has been well known: inject so much money into banks that depositors, reassured they could get their money whenever they wanted to, will keep their money in the banks. That is in effect what governments around the world did in the first two week of October.
They guaranteed deposits and then the vast pool of money market funds. They unveiled unprecedented measures to infuse public money into the largest banks in the world, becoming share holders and active deal-makers in the process. With somewhat less fanfare, central banks injected vast amounts of liquidity—as of October 23, the Federal Reserve alone was providing almost $2 trillion in loans to the banking system.
Liaquat Ahamed is the author of Lords of Finance: The Bankers Who Broke the World, a book about the causes of the Great Depression to be published by Penguin Press in January 2009. After working as an economist at the World Bank, he spent twenty-five years as a professional investment manager in London and New York.