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Book review

October 2018


Title: Crashed: How a Decade of Financial Crises Changed the World

Author: Adam Tooze

Publisher: Allen Lane



The Global Financial Crisis (GFC) that, depending on your perspective, began around 2008, seemed like a failure of capitalism and a market error on a giant scale. But for many financial professionals, it was a crash that was preceded by any number of ominous bumps and grinds in the preceding decade or so. Mexico’s devaluation in 1994, the Asian financial crisis that began in 1998, Russia’s financial chaos, the dotcom bust, and the Arthur Andersen collapse had all been signs that all was not structurally sound with the system.

For Adam Tooze, a British historian based in the United States, the GFC was as much a political as an economic failure. “There is a striking similarity between the questions we ask about 1914 and 2008,” he writes ominously of the year World War I began, presaging a global catastrophe that would last three decades.

“Did we sleepwalk into crisis, or were there dark forces pushing? Who is to blame for the ensuing human-induced, man-made disaster? Is the uneven and combined development of global capitalism the driver of all instability? How do the passions of popular politics shape elite decision-making? How do politicians exploit those passions? Is there any route to international and domestic order?”

Unfortunately, Tooze has no answers to these grand questions, but they neatly encapsulate the arc of the crisis, from the U.S. subprime mortgages to the stressed banks to the imploding economy, including the great backlash against the financial and political establishment that began with Europe’s anti-austerity protests and Occupy Wall Street and morphed, most recently, into the Brexit vote in the United Kingdom and the election of Donald Trump as U.S. President.

Crashed is a meticulously researched, far-reaching 700-page analysis of the GFC, exploring its causes and documenting the international response. Tooze devotes much research to China, which, as the crisis began, celebrated the 2008 Olympic Games in Beijing as a kind of coming-of-age party as a great power. Tooze notes that the Chinese desire for U.S. Treasury bonds had driven down yields, prompting investors to seek out more profitable investments such as those subprime mortgage bonds.

While the GFC has largely been told in financial terms, Tooze – as an eminent economic historian – points out its impact on geopolitics, poisoning relations between Germany and Greece, the U.K. and the European Union, and widening trans- Atlantic divisions. The GFC was also a preview of the partisanship and localism to come, Tooze argues. “To view the crisis of 2008 as basically an American event was tempting because that is where it had begun,” he writes. “It also pleased people around the world to imagine that the hyperpower was getting its comeuppance.”

But while the crisis began in the U.S. – “It revolved around America’s budget deficit and its trade deficit,” Tooze writes – the response to the burgeoning national crisis was adroitly coordinated by the U.S. Treasury and Federal Reserve Board and was remarkably successful. “Its aim was to restore the viability of the banks. It not only did that but also provided massive liquidity and monetary stimulus to the entire dollar-based financial system, to Europe and the emerging markets beyond.”

Yet the economic measures came at a political cost. “Bailout” became a dirty word, Tooze notes. The U.S. Troubled Asset Relief Program (TARP), designed to stabilize the financial system and restore growth, became a symbol of crony capitalism. Although launched by the outgoing Republican administration of George W. Bush, TARP came to represent his successor, the Democratic Party’s Barack Obama, and would figure in the 2016 election that brought Trump to power.

“With Trump as President,” Tooze writes, “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,” Tooze writes.


Author interview: Adam Tooze

Despite the detail in which Adam Tooze describes the unfolding of the Global Financial Crisis (GFC), the historian is no better off at predicting the outcome of the next economic downturn.

And the much-lauded financial technology that has been developed in recent years could be of little help. “I am not sure that technical means were really what was lacking in 2008 to handle things better,” he tells A Plus. “But it does involve solving truly difficult political questions.”

To Tooze – the Kathryn and Shelby Cullom Davis Professor of History at Columbia University in New York – finding a way out of the GFC was a question of “resolving interest group conflicts and understanding a timely way the basic dynamic of the crisis.”

Tooze said the global economic balance was already shifting eastward by 2008. “Today the shift is an accomplished fact,” he says. “As far as global growth is concerned, China contributes more than the U.S., Europe and India put together.”

Systematic interconnections, he adds, continue to render events in Wall Street and the City of London important and there are still a lot of systemically important banks in the west. “But the drama of economic growth is now centred on Asia. Whatever happens, in short, China is pivotal.”

Tooze is concerned by the debt build-up in China over the past decade, describing it as unprecedented for an economy of its modest income level. “Its financial institutions are still new and in many respects untested,” he says. “There is reason, therefore, to fear a financial crisis in China.”

However, he adds that if Chinese authorities exhibit the same “remarkable skill” at macroeconomic management they achieved during the GFC, “they may develop the same proficiency in the new discipline of macroprudential regulation.”

He notes that Beijing is not overly constrained by free-market dogmatism and does not face the same political checks and balances that “limit economic policymaking in the West.”

Despite his interest in China, Tooze acknowledges that he views history from the vantage point of New York. “And because of my background I am caught up in the history of a continent, Europe, whose vantage point seems ever more provincial.”

Tooze, whose previous books include The Wages of Destruction: The Making and Breaking of the Nazi Economy (2006) and The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931 (2014) says the global interest in Crashed took him by surprise.

The historian hasn’t settled on his next publishing project, but believes there is a need for “more efforts to describe historically how we entered the radically new global condition that we inhabit today.”