31 October,2010 10:26 AM IST | | Kasmin Fernandes
Liaquat Ahamed, Pulitzer-winning author of the bestseller Lords of Finance: The Bankers Who Broke the World, gave Sunday MiD DAY a foretaste of his upcoming Mumbai lecture in an exclusive email interview
His first book not only became a bestseller and garnered critical acclaim, it also won him the 2010 Pulitzer Prize and the Financial Times and Goldman Sachs Best Business Book of the Year Award, among other honours. Critics praised Liaquat Ahamed's Lords of Finance: The Bankers Who Broke the World for its command of economic history and engaging, lucid prose.
Ahamed, noted the New York Times, illuminates wise parallels between the misplaced confidence that spawned the Great Depression in the 1930s and the illusory calculations of risk that led to the current financial crisis.
A seasoned professional investment manager, Ahamed is coming to Mumbai in January 2011 for the thirteenth memorial lecture of the Vasant J. Sheth Memorial Foundation. The lecture is an annual event to honour the memory of Vasant J. Sheth, a pioneer of the shipping industry in independent India, who established The Great Eastern Shipping Company in 1947.
What is the lecture in Mumbai about?
In my lecture, I ask the questions: Why do we have these crises? How do they develop? What is to be done about them? I draw on a combination of history, economics and psychology to try to find answers to those questions.u00a0
What mistakes from the Great Depression were repeated in the recent global economic crisis?
As in the Great Depression, central bankers mismanaged the economy in the decade leading up to the current crisis. In both cases, we had a bubble, which was caused by a mistake in Fed policy, excessively easy credit. In both cases, the bubble burst, leading to a banking crisis. In the 1930s, it was a run on retail deposits of commercial banks. In 2008, it was a digital run on the wholesale funding of banks and financial institutions.
What lessons can India learn from the Great Depression?
The first lesson is that asset bubblesu00a0-- whether in the stock market or in real estateu00a0-- are very dangerous,u00a0 particularly when they are financed by credit. No one is quite sure how to prevent bubbles from emerging, though.
The second lesson -- which we have learned, and I think have figured outu00a0-- is that allowing large parts of the banking system to fail in succession has damaging consequences for the economy. It has a cascading effect on confidence and creates massive instability.
While the risk of bubbles in a fast-growing economy such as India, is high, the financial system is well capitalised and regulated and the risks of bank runs are small.
What are you currently writing?
I am working on a book about the conflict between politicians in Washington DC and the bankers, set in 1830. It turns out that populist resentment against bankers has a long history in the US, going back almost to the Founding Fathers.
Liaquat Ahamed will deliver the lecture Financial Crises: Lessons of History on January 19 at Rangaswar Hall, Fourth Floor, Yashwantrao Chavan Auditorium, Gen. Jagannath Bhosale Marg, near Mantralaya, Nariman Point, Churchgate, at 7 pm. For details, email vjsmf@greatship.com
Fast Fact
Liaquat Ahamed has been a professional investment manager for 25 years. He has also worked at the World Bank
Debuts on: January 19, 2011
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