If you were engrossed by today's NYT saga about Timothy Geithner as head of the NY Fed -- and even if you skipped past the story or didn't hear of it at all -- please make haste to read the saga of a previous incumbent of the job. Lords of Finance: The Bankers who Broke the World, by Liaquat Ahamed, tells the story of Benjamin Strong, head of the NY Fed through the 1920s, and of his central-banker counterparts in England, France, and Germany who, together and unwittingly, helped bring on the Great Depression.
Lords of Finance as it appeared to me on the trusty Kindle1 here in Beijing; physical copy not easy to get locally.
Economic theory has its place (and for me its place was grad-school classes). Well-done economic history is often far more illuminating. This is extremely well done history, and is worth mentioning now because of the obvious resonance between this tale of cleaning up after a bubble and today's predicament. Sample passage, about the 1920s but somehow sounds familiar:
Watching other people become rich is not much fun, especially if they do it overnight and without any effort. It was therefore inevitable that all this frenetic activity -- the thriving stock market, the new issues, the ballyhoo about a new era, the buying and selling of Florida real estate -- provoked a chorus of voices demanding that the Fed do something to stop the "orgy of speculation," a phrase that would become so commonplace over the next few years as to lose all meaning.
As it happens, Liaquat Ahamed and his wife Meena are friends of mine and my wife's, but I would recommend this book even if we'd never met.