Ten years after the collapse of Lehman Brothers, it’s a matter of controversy whether the global economic crisis it helped to precipitate is over.
An important new book, Crashed, from liberal economic historian Adam Tooze looks at this question. It points out that, a few years ago, it was assumed that state bailouts of banks and quantitative easing—pumping new money into the financial system—had resolved the crisis.
But, as Tooze correctly argues, “The crisis was not over. The financial and economic crisis of 2007–2012 morphed between 2013 and 2017 into a comprehensive political and geopolitical crisis of the post Cold War order.”
Crashed is a mammoth history of the origins and course of this multiple crisis.
Tooze’s last book, Deluge, was about the First World War and its aftermath. Unusually for the work of a mainstream historian, it took a respectful interest in the revolutionary Vladimir Lenin as a strategic thinker.
In Crashed Tooze shows some sympathy with the work of Marxists such as Peter Gowan and Leo Panitch. They have argued that the contemporary financial system is critical to maintaining the global hegemony of the US.
For Tooze, the crisis that broke out in 2007-8 was that of the “transatlantic dollar-based financial system”. He says this system has two “nodes”, Wall Street and the City of London. This leads him to argue that this was a European as much as a US crisis.
Banks on both sides of the Atlantic sought to fund profitable investments by borrowing dollars cheaply either on Wall Street or in offshore markets orchestrated from London.
This was fine so long as the dollars kept flowing.
But what if this “financial circulatory system” seizes up? This is what happened in 2007-8, as the flimsy superstructure of speculative investment centred on the US property boom collapsed.
As panic spread new dollar loans dried up, threatening the transatlantic economy—industrial and commercial firms as well as banks—with collapse.
A great strength of Tooze’s account is that he shows how comprehensively the US state came to the rescue. This involved initial bank bailouts and a series of currency swap lines through which the US Federal Reserve Board made dollars available to other leading central banks.
Tooze thus contradicts conventional accounts of the crisis as simply weakening US hegemony. “Prior to the crisis, the transatlantic offshore dollar system had lacked a manifest centre of leadership,” he said.
“Indeed, it had developed ‘offshore’ so as to avoid national regulation and control. After 2008 it was openly organised around the Fed and its liquidity provision.”
Tooze offers a very state-centred account of the crisis. One downside is that the book—particularly in the latter part dominated by the eurozone crisis—becomes a blow-by-blow history of recent “high” politics in the US and Europe.
The deeper weakness, as Marxist blogger Michael Roberts has argued, is that Crashed is about “more the how than the why”. In other words, Tooze doesn’t explain why financial flows within the “transatlantic dollar system” came to dominate Western capitalism.
Production is at the margins of his story. Whereas Gowan highlighted the competitive struggle between the major industrial centres and Roberts traces what he calls the “long depression” to the low profitability of productive investment.
Tooze is clear that the political challenges to the neoliberal order—Brexit, Trump, the rise of the racist right—can be traced back to the economic crisis. But he is much less clear about how to respond.
In a recent article he wrote that “there are good reasons to defend technocratic government against the unreasoning passions of mass democracy”. But isn’t this exactly what got us into this mess?
State intervention saved the banks but, thanks to austerity, ordinary people had to pick up the bill, and so many turned to the likes of Trump. Even the most intelligent liberals seem unable to offer more than a repeat of the mistakes of the past.