Today I’m happy to bring you a rare guest post in the form of a review of historian Adam Tooze’s magnum opus, Crashed penned by Michelle Galimba, rancher and valued commenter here at Small Farm Future. Tooze’s book has been sitting in my in-tray for some time, but thanks to Michelle I can now let it linger there a while longer. Meanwhile, there may be another service interruption on this blog while I toil over my own opus, but I’m hoping to present some further ruminations on property and commons emerging out of my last post and my current book draft, perhaps in a couple of weeks’ time. For now, it’s over to Michelle – my thanks to her for letting me publish her review.

Adam Tooze. 2018. Crashed: How a Decade of Financial Crises Changed the World. Allen Lane.

I have a friend who, in the fall of 2008, was working on a real estate development project that was funded through Lehman Brothers.  One day he was jubilant at having made some money off what turned out to be Lehman’s “dead cat bounce,” and another day not long after, on September 15, he was deeply depressed when his project went up in flames, along with so much of Wall Street. Lehman’s bankruptcy ended the stream of easy credit for such marginal real estate projects. “Well”, I said to him that day, as he lamented his ill fortune, “you still have all your limbs and youʻre in no danger of starving to death, so it’s not so bad!” In the ranch business, neither personal safety nor making payroll are things I take for granted. My friend scorned such peasant consolations; heʻd been living high in the glow of success that hot money bestows.  He tried, for a couple of years, to put another funding deal together with increasingly sketchy potential partners, but in the end the property was foreclosed upon and sold at auction to another real estate investment company. I strongly disapproved of my friend’s development plans – converting agricultural land into residential agricultural “estates” – so the Great Recession had the silver lining of throwing some sand in the gears of the growth machine, at least for my corner of the world.

I’ve never really understood what happened in 2008, and I suppose that is what motivated me to take up Adam Toozeʻs Crashed: How a Decade of Financial Crises Changed the World. Iʻm not predisposed to thinking about economics, except as it relates to the practical matter of running the ranch.  I never took an economics course in college and what books I’ve read have been along the lines of Economics for Dummies.  I regretted my ignorance in reading Crashed – although Tooze explains each piece of financial machinery that plays a role in the train-wreck, the book nevertheless made heavy demands on whatever shreds of economic lore I’ve picked up along the way.  Expect to wade through many a sentence as this: “Because the collateral that was preferred by the triparty repo markets was Treasurys, in the spring of 2008 the Fed instituted another program, the Term Securities Lending Facility, under which it lent out top-rated US Treasurys on twenty-eight day terms in exchange for a variety of mortgage-backed securities, including private label.”

Although Crashed  primarily traces the financial crisis in the US and Europe during the period 2006-2018, Tooze brackets his tale of Euro-American financial implosions by sketching the “financial balance of terror” between China and the US and delineating how dangerous this ‘balance’ is.  The Great Recession and the Euro-zone sovereign debt showdowns that followed, for all their drama, were the “wrong crisis” – merely a preliminary sideshow set off by bad acting investment banks, rather than the potential Crash which still lies waiting in the financial and trade imbalances between China and other “emerging markets” on the one hand, and the “advanced economies” of Europe and the US on the other.

It is within the brackets of this larger problem that the Great Recession happened. It is a sobering thought.

I’ve read Crashed through once, and I may very well do so again.  Despite its weighty subject and imposing heft, it is an engrossing page-turner, and just about any of those nearly 700 pages is food for much pondering.  Tooze is a master narrator who can engage the reader in  “the grand sweep of global economic imbalances” and the dramatic moments of high-stakes decision-making, as well as deploy the quote juste and the well-deserved smack-down: “In the course of the crisis, the GOP had shown itself to be less a party of government than a political vehicle through which conservative, white Americans expressed their alarm at the earthquakes shaking their world.”  If anything Tooze’s narrative skills hurry one along too quickly (though I’m not complaining) in a dramatic rush of money, power, and political calculation as these morph and metastasize between North America to Europe and back again.

I could go on for quite a bit about Crashed, if my own local dramas about small animal slaughter capacity and agricultural water rights weren’t eating into my writing time, but to be very brief, (one of) Tooze’s overarching theses is that politics creates economics, which, though verging on the obvious, cannot be said often enough, especially among Americans. We don’t have to acquiesce to the neoliberal economic ideology that passes for common sense and hard-headed realism even as its inadequacy for organizing a functional, healthy society is crystal clear. The financial foolishness that led to the crises of the last ten years was enabled by a political-economic worldview whose orthodoxy could use some hard questioning. Tooze’s book, by getting into “the black box” of the Crash and showing how “ the economics of the financial system” worked clarifies how profoundly self-serving and short-sighted the “innovations” of the financial elite are, and how little they deserve the deference and even adulation they still too often receive.

Another key argument is that, contrary to a perception much encouraged by the financial industry and governments on both sides of the Atlantic, the banks that binged most irresponsibly on the American sub-prime mortgage market and who were therefore most desperately in need of American dollar liquidity from the various American bailout facilities (TARP, TAF, currency swap lines, etc.) had their headquarters in Europe.  Tooze argues that it was the American’s “bazooka” response, rather than the European “austerity” approach to the sovereign debt crises in Greece, Ireland, and Spain that was most effective in terms of quick recovery.   But whether the American approach will truly be ‘effective’ in the long term and big picture is an open question. The cost in political capital for Obama and the Democrats was considerable, spawning the Tea Party backlash, and leading to our current political nightmare.  Yes, the financial system got back on its feet, but did we corrupt our political institutions in the process and spawn a debilitating and vicious culture war to boot?

Crashed perhaps focuses a bit too much on the political personalities tasked with responding to the Euro-zone crises (although this is one of its strengths as well), and never mentions the part that depleting resources/environmental constraints played in these crises – as we run out of natural resources to devour, generating the returns to which we have grown accustomed requires the thin-air financial ‘innovations’ that led to the Crash.  Also, the book could use another run through by a diligent proof-reader, but I’m almost literally nit-picking there.  It is a great read – insightful, thought-provoking, challenging, entertaining even – and I’ll not look at the business section of the newspaper the same again.

The ironic thing is that what saved my friend after his Lehman-funded real estate deal went belly-up were the very small farmers that would have been displaced by his “estates.”  He eventually re-invented himself as a specialty coffee broker, and now makes his money consolidating and marketing the product of those same small coffee farmers, generally Filipino or Hispanic immigrants, highly capable people but with limited command of business English, to the high-end coffee market.  This global market access creates the niche product pricing (several times what a Columbian or Guatemalan farmer gets) that supports a modest first-world lifestyle for the farmers: it keeps them in trucks and fertilizer and they have some money left over to bet on the illegal cock-fights that happen nearly every weekend in a remote corner of someoneʻs orchard.

I have to wonder if the high-flyers of Wall Street and the City of London may all someday have to re-invent themselves as my friend did.  Will the gigantic bubble of speculative finance that was not dealt with but rather enabled by years of QE lead to the Mother of all Crashes in the near future? Will the Mother of all Crashes lead to a more grounded, less leveraged way of living for more people?  Hard to say.