8 September 2010

Lord of Finance

One of the more chilling aspects of Ahmad’s Lords of Finance is the way that cental bankers suddenly lost control of a situation that escalated beyond their ability to contain it.

‘The [ German] cabinet meeting finished at 2:00 a.m. Later that morning Luther boarded yet another plane, this time for Basel, to make one last desperate plea to the central bankers gathered at the BIS. After being closeted in conference for twelve hours, they emerged to announce that no new credits would be forthcoming. At 11.20 p.m. Basel time, Harrison got through to Norman. The Englishman sounded "tired, disgruntled and discouraged." The problem was just "too big for the central banks," he reported. The only solution was for the whole structure of war debts and reparations that had weighed down the world for the last dozen years to be swept away.

On the morning of Monday, July 13, as Luther was setting off for Basel, the Danatbank had failed to open. On the locked doors of all its branches was posted a government decree guaranteeing its deposits. At a press conference, Jacob Goldschmidt revealed that the bank had lost 40 percent, some $240 million, in deposits over the last three months, about half of which were to foreigners. He blamed the run on wild rumors fuel1ed by anti-Semitic agitation in the Nationalist press.

The Reichsbank, hoping that the impact might be contained, kept the rest of the banking system open that day. By lunchtime, branches of every bank in the country were besieged. The leading banks restricted withdrawals to no more than 10 percent of a depositor's balance. In the Berlin suburbs, savings banks were so overwhelmed that that they closed under heavy police guard. In Hamburg, sporadic riots were blamed on Communist agitators.

The speed of capitulation from calm one day to utter collapse the next should never be forgotten – procrastinate and the last opportunity can be lost forever.