On this episode (recorded spring 2026), Mark Blyth talks with Aditi Sahasrabuddhe, an assistant professor of political science at Brown University, about her book, “Bankers’ Trust: How Social Relations Avert Global Financial Collapse.” They discuss how interpersonal relationships among central bankers have played a role in stabilizing our global financial system from the 1920s to 2008, and how this challenges long-held beliefs about how central banks and global finance work.

Learn more about and purchase “Bankers’ Trust: How Social Relations Avert Global Financial Collapse”

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MARK BLYTH: From the Rhodes Center for International Economics and Finance at Brown University, this is the Rhodes Center Podcast. I'm Mark Blyth.

A few months back, you might remember that Aditi Sahasrabuddhe, an Assistant Professor of Political Science here at Brown University, guest hosted an episode of this very podcast with economist Eswar Prasad. On this episode, the tables are turned and I interviewed Aditi about her recent book, Bankers' Trust-- How Social Relations Avert Global Financial Collapse. It's a fascinating book, and we had a great conversation. So without further ado, here is me and Aditi.

Aditi, welcome to the podcast.

ADITI SAHASRABUDDHE: Thank you for having me.

MARK BLYTH: Oh, it's lovely to have a chat. So for everyone who's listening, if you're into central banks-- I know, it's a weird fetish. But if you're into this sort of stuff there are, in my opinion, maybe about half a dozen great books written on central banks. And the three that I would really hold up-- and this is one of them-- are as follows.

There's Liaquat Ahamed's book with the Lords of Finance, which came out just around the time of the financial crisis, talks about the Nineteen Twenties, in particular in the characters that are involved in it. So there's a lot of resonance with what Aditi's doing in her book.

The second one is James Morrison's book England's Cross of Gold, also about the Bank of England, the decision to go back on gold in Nineteen Twenty-Five to Twenty-Six and the politics around that. And now we have Aditi Sahasrabuddhe's Bankers' Trust-- How Social Relations Avert Global Financial Collapse.

And why does this one fit into that? Because it also deals with the '20s. But then it goes forward, and it traces how the mechanism that she's really interested in, interpersonal trust, really explains a lot of what's going on in the world in terms of central banking and finance, and I will then tell you why I find that kind of scary.

So with that in mind, let's get started. You're interested in trust, interpersonal trust. Why?

ADITI SAHASRABUDDHE: That's a great question. I think I'm interested in interpersonal trust because what I realized from everything I read, not just in central banking, is that so many decisions are made by certain people in specific contexts, and they don't easily make big decisions of such consequence with just anyone, that trust can at times also be used for nefarious activities. It doesn't always lead to the best outcomes.

But it's really hard to take away the policymaker from the policy decisions that we care about, whether it's in central banking or outside. And so for me, that was why I wanted to dig into, who's doing all the financial magic in the background and keeping this world together?

MARK BLYTH: Right. I was thinking about it in a slightly different way, and tell me if this is a useful way of thinking about it's because not what you do in the book. But it made me think this way.

When we talk about money, at the end of the day, it always comes down to a conversation about trust. I love Herman Schwartz's line on this one, 'anyone can issue money. The trick is to get it accepted'. I'm sure he got that from someone else.

But that's ultimately a question of trust. Why would you trust this piece of paper or whatever it is to be worth something in the future? So with bankers, what they say is, it's my word. So it's all about trust.

And then when it comes to central bankers, we think of these as agents of the state. But it's really still about-- in fact, it's even more so about the interpersonal links of trust between these folks. So let's try and put some flesh onto that. Let's jump into my favorite bit of horror, the Nineteen Twenties. And tell us about who are the main characters here and what's the background for them coming together.

ADITI SAHASRABUDDHE: So the main characters of the Nineteen Twenties are a fun, lively, and pretty weird crew of gentlemen. There's Montagu Norman, who's the governor of the Bank of England. There's Benjamin Strong, who is Governor of the Federal Reserve Bank in New York. And then we also meet a few folks like Rudolf Havenstein, who was at the Reichsbank during hyperinflation, which gets taken over by Hjalmar Schacht, and Émile Moreau, who was the governor of the Bank of France, oh, and Junnosuke Inoue at the Bank of Japan, who also is the architect of bringing the Bank of Japan into this world of Western finance and financial dominance.

So these are the main characters of the book, and they get to know each other in their early travels. Benjamin Strong traveled to the UK very early on after the creation of the Fed. At this time, Norman was not governor. He was deputy.

But they hit it off in a very unusually interpersonal way, and they realized that they had a much easier time speaking to one another about what is the right kind of policy to be enacting at the time. And this is during the war, before there's massive new crises to be dealt with. And they also collectively learned that they hate the French. And so we see a lot of how unsurprisingly, perhaps, the British central bankers are feeding Strong's brain with ideas of how we cannot trust the French central bankers at this time because they're all very political and they have their own politicized way of doing their jobs.

MARK BLYTH: But the Brits like the Germans, though, right?

ADITI SAHASRABUDDHE: The Brits like the Germans with one specific man. So that's what I found was really interesting about the question of interpersonal trust. They had no feelings for Havenstein one way or another. They certainly felt that he lacked the prestige of being a central banker, which is a big aspect of this profession then and now. But once we have someone like Schacht, who's a very forceful man and thinker, this changes Germany's fortunes in the post-war period.

MARK BLYTH: So let's just, for the listeners, recap on this. We've just had World War I. There's an absolute ton of debt everywhere.

The French have just forced a massive indemnity on the Germans in the form of the Treaty of Versailles. The Germans lost. They were the bad guys. The French and the English were allies.

And a few years later, the people who were trying to out all this mess basically don't trust one of their major allies and are more friendly with the old enemy. Where does it go from there?

ADITI SAHASRABUDDHE: It goes into the most unexpected places. So I think this story is especially interesting, which helps me make the case that it's not just interstate politics that sort of makes the world hang together all the time. And if you think about the close alliance between the French and the British in the post-war period, you would think that they would be able to facilitate the return to the gold standard very quickly, that Britain would be on board with all the reparations imposed on Germany.

But we can see from Keynes and Norman and all of their speaking about these big decisions at Versailles, that they really weren't on board with this. And specifically, there's efforts to meet one another privately to discuss what they could be doing to deal with the post-war debt. Havenstein, much less successful in the early days. So he was seen as not just the cause or one of the big problems of hyperinflation in Germany but that he was completely under the thumb of the Weimar Republic. And then you get Schacht coming along, who speaks to Norman's disdain for the French and highlights how they don't like how the French do everything so politically.

MARK BLYTH: So does Schacht come in before or after the Dawes Plan? The Dawes Plan, for those who are not deep in the weeds on this, was basically the Americans figured out they were never going to get their money back from all the money that they'd lent everyone in the run up to World War I, unless the continent started growing again. And they figured out by about Nineteen Twenty-Two, after the German hyperinflation, that basically you have to allow the Germans to grow again, and therefore, you need to give them some debt relief.

ADITI SAHASRABUDDHE: So Schacht comes in before the Dawes Plan, and he comes in at around the time that it was being finalized. And he comes in a surprising way because Havenstein died quite unexpectedly at the end of Nineteen Twenty-Three. So this is not necessarily something we could anticipate at that point.

MARK BLYTH: Done in by the Rentenmark, no doubt.

ADITI SAHASRABUDDHE: Seems like it. And then it's at this point where Norman basically gets Strong and Schacht in his own private conversations to iron out the final parts of the Dawes Plan to facilitate huge loans to Germany, having already discussed the creation of the Gold Discount Bank, which they were able to put together on their very first meeting, when Schacht just shows up in London, saying, I hope we'll be good friends. I don't like the French. Can you give me 25 pounds million Sterling?

MARK BLYTH: Of course. I'll just do this without any parliamentary oversight, discussion, or anything like that. Exactly. This was a completely autonomous action.

ADITI SAHASRABUDDHE: This was a completely autonomous action. And the Dawes Plan was moving forward through the government route. But at the same time, the final ironing out of the details was done through what Norman created as an international committee and essentially done very quietly by a few central bankers to make sure that all the deals were seen as favorable by the Germans and the Americans and he could get them all on the same page.

So he plays a huge role also in getting Strong's favor for Schacht, which is writing to him, saying he speaks English. He understands the A to Z of banking in a way that Havenstein never did. And so he even makes this case of this person is different, and I trust him in a way that I didn't with the last guy. And that really helps get that deal through.

MARK BLYTH: Now, this speaks to the very heart of your book because what they're doing, if you just don't think about parliament, democracy, representation, or anything like that, is good stuff. The world's in a mess, and these three blokes managed to get it together to stabilize Germany such that between '24 and '28, '29 basically, Germany, I think, was the fastest-growing economy in Europe.

This was like Babylon, Berlin time. This is when things were getting good, the recovery after the initial mass of Weimar before it all goes wrong in '29. And we'll get to that. So in a way, these are agents for good, but at the same time it's completely undemocratic.

ADITI SAHASRABUDDHE: Completely undemocratic. And that's why at the opening I said, this can lead to a lot of good and difficult decisions that need to be made, but it can also be abused in all kinds of ways, which we can absolutely talk about.

MARK BLYTH: But it's making me think of behind every constitutional order lies an extraconstitutional order that makes it possible. I can't remember the guy's name now. But it is this kind of like, they're almost like the state behind the state.

ADITI SAHASRABUDDHE: Yes, and the bank behind the state as well.

MARK BLYTH: And they've got the money as well.

ADITI SAHASRABUDDHE: And they have the money, and they have no oversight in the way that the Treasury would. So they have a lot of power as the sort of issuers of the currency, of the ones managing the gold standard and the movement of gold across borders.

MARK BLYTH: How autonomous are these folks in terms of the decisions they can make? I mean, who does any of them report to?

ADITI SAHASRABUDDHE: Their main respondents at the time or their stakeholders. So these were big private banks in all of their countries. Those were the ones that they really answered to.

Specifically in a legal way, obviously, the Treasury and the government had some say and some interest. But when it came to who they answered to in terms of the performance of the Bank and the decisions and whose money was being used, very much in the US, it was largely JPMorgan. And then we see Grenfell, et cetera, in the UK. So there's a huge backing behind the central bankers of private institutions, even more than things like treasuries and government.

MARK BLYTH: You mean the Marxists have a point?

ADITI SAHASRABUDDHE: The Marxists might have a point.

MARK BLYTH: Goodness me. All right, before we go down that dark road, would it be horribly incorrect of me to say the following? The standard story on why the Nineteen Thirties got so bad was a combination of the French hoarding gold and devaluing their currency and the Americans getting it wrong with liquidity domestically and then basically the Brits didn't know what to do. Or was it just the fact that one of your protagonists died?

ADITI SAHASRABUDDHE: Well, I hope that the death of one person isn't that consequential, but it certainly didn't help.

MARK BLYTH: Unless it's my death, of course. That would be very consequential, but nonetheless.

ADITI SAHASRABUDDHE: But it had a huge effect on how banking was conducted.

MARK BLYTH: So who was it? Tell me.

ADITI SAHASRABUDDHE: It was Benjamin Strong, and he died, again, fairly suddenly. I mean, he was sick a lot, and he had TB. But it was not expected when he died in October of Nineteen Twenty-Eight.

And with his death, Norman loses massive conduits of favorable relations and goodwill in Europe. So Norman was seen as a sort of bully. He was seen as the one exercising Britain's empire across Europe. And so while he and Schacht got along like a house on fire, many other Europeans didn't have the same of affinity for him.

MARK BLYTH: So you mean maybe the French weren't being difficult. They were just realizing they were dealing with a bully who was having it smoothed over by the Americans, who you happen to owe a lot of money to.

ADITI SAHASRABUDDHE: Oftentimes exactly that. And on top of that, they could also be quite parochial and petty about their own preferences. And so that was a way of dealing with the bully.

And now Norman loses so much of his sway over the banking world because a lot of that sort of goodwill that he'd been able to foster was with Strong. And he has to deal with someone at the Fed who he did know. He was the deputy governor, George Harrison, who takes over.

But he certainly had not the same relationship. So they would write in their letters, saying, I cannot meet you more than halfway in the way that I would with Strong. And interestingly, Norman and Strong both used to dread this possibility.

So in the extensive personal correspondence, they write about how they dreaded the day that they'd be dealing with someone else who they knew not as well, they didn't trust, they didn't have the same personal relation, always emphasizing how so much of their job was ultimately relational. And to be able to do things like, reinstate the gold standard and pre-war parity in their economies and across Europe, this was not going to be something very feasible with someone else.

And then we bring in what comes after, which is 100x the return to gold of the Nineteen Twenties. So it makes a tough job even tougher.

MARK BLYTH: And once it really started to get bad, around '31-32, I mean, did Schacht have any levers to pull? What happened in that period?

ADITI SAHASRABUDDHE: There was a lot that they could do to some extent, the main issue being-- the first issue, not the main one, in the US was Harrison's preference to tighten up the monetary base rather than ease it, which is the completely pro-cyclical approach to crisis management.

And then that crisis gets exported to Europe with gusto. And at this point, as we know, again, with the benefit of hindsight, that in those situations we need to provide more liquidity to keep credit markets going. And instead, all of them essentially rolled back the kind of lending that they could do.

So we see extensive ad hoc loans being sent to central banks across the world through the Nineteen Twenties. And they did try and succeed with a few smaller loans to Austria, Germany. But they were never enough.

And by this point, Schacht also leaves the Reichsbank for a little while. So Norman was dealing with Hans Luther, who he had no relationship with one way or another. Hans Luther didn't do himself too many favors by often going to Basel without a plan. So even when there may have been some way of indicating credibility as a person and as a bank, he failed to do that.

And then he sent markets the worst possible signal anyone could have done in the Nineteen Thirties, which is board a plane to Amsterdam to try and get money from the Dutch and then move on to the French, which at a time where flying across the world wasn't a common thing to do because you're so pressed for time, that didn't help at all. So the goal of let's get liquidity into the markets so that they're not crunched and there's money and credit flowing through is what they could have done and probably should have done. Instead, we see a lot of the opposite.

MARK BLYTH: So let's put this back in the frame of your book then. And to be provocative, I would say, well, if he hadn't died and all of that had come to pass, the interpersonal relationships with these blokes would have meant that none of that would have happened and they would have actually kept money and credit for them, which would have been a good thing, albeit thoroughly anti-democratic, yes?

ADITI SAHASRABUDDHE: Maybe.

MARK BLYTH: Maybe.

ADITI SAHASRABUDDHE: Thoroughly anti-democratic, absolutely. Could it have resolved the crisis? I'm not so sure. But perhaps it could have slowed it down or maybe avoided something as big as the Depression or sped up the recovery.

But my take on this would be taking the Kindleberger argument, which is the US was unwilling, that Britain was unable to lead. The reason why is because the US Central Bank governor was unwilling, and the United Kingdom governor was unable because, at this point, they don't have either the relations nor the power, prestige, or money to do so.

MARK BLYTH: Fair enough. So let's skip over the next 15 years of awfulness, and we get to the Bretton Woods period. And we don't hear a lot about central bankers in that period because, as I like to describe it in class, they became the check-cashing agency of the government. That's essentially what they did.

They did monetary operations in support of government activities. In most places, they were not independent by any means or measure. The Fed was a bit of an exception then.

But the Bank of England was nationalized, and the Bank of France was also--

ADITI SAHASRABUDDHE: Yes.

MARK BLYTH: --nationalized. And Germany split in two parts, so it's a completely different world. But at the same time you have a whole chapter on the Nineteen Sixties. So what were these folks up to in the '60s? Because we don't hear about this very much.

ADITI SAHASRABUDDHE: So my take on the '60s is that they use that to their benefit to quietly do their jobs the way they prefer to while no one's watching.

MARK BLYTH: So to get out of the box they'd been put in after World War II.

ADITI SAHASRABUDDHE: Exactly. So they'd been relegated to, like you said, being agents of the government of the Treasury to be the ones cashing checks, et cetera. Of course, and perhaps naturally, part of this was because they were blamed for the Great Depression. It was sort of their fault that it took so long to resolve what had happened in the first place.

And so, in some sense, it was clear that maybe they did not have the capacity to do this. They even had attempts to take away Basel and close down the institution, which is the central banks did nothing. They had this forum to cooperate, and it didn't help in the '30s.

But really, what they could do is take advantage of the fact that what they did is esoteric and difficult to understand. And so they had these foreign operations desks at the Fed and equivalent of those at the Bank of England, Bundesbank, et cetera. So even if they were-- many central banks at this point were nationalized. They had an area through which they could exercise some discretion because nobody else understood what was going on.

And we're at this point, by the late '50s and '60s, where capital markets are starting to grow, many people don't know what is happening and why. This is a new development for everyone. And perhaps the closest understanding was in the central banks being increasingly an economist-staffed room.

But then they too were not sure of what was going on. They would talk about this a gamble and a card game that they didn't know which way it was going to go. But what was very clear, as we see, from the fiscal side, all kinds of budgetary issues coming up with the Vietnam War and the US's own interests in maintaining its European alliances.

And then we see emerging currency crises with financial repression. And so in order to give countries enough liquidity to manage their foreign exchange position without over-inflating their economies, they brought back these ad hoc credits, which they call swap lines or reciprocal currency arrangements, from the Fed to their counterpart to provide them the liquidity without having these additional market.

MARK BLYTH: And this is where these foreign desks became important--

ADITI SAHASRABUDDHE: Exactly.

MARK BLYTH: --because that's the conduit. You're able to do this. Now, just unpack this a little bit right.

So the British balance of payments problem, absolutely perennial in the '50s ' '60s, goes like this. You're committed to full employment. Unemployment's going up. Bugger.

I'm going to have to do something about this. I'll crudely spend some money. I spend some money. The elasticity on imports is such that basically people take in more imports than invest. And that means you get a balance of payments problem.

And then that basically makes people go, oh, I'm a bit worried about the currency. The currency goes down. So to protect the currency and all of the assets that are tied to this currency, you then have to raise interest rates, which then basically leads to a rise in unemployment. And you just cycle through this time and time again. How does a central bank shoving money around foreign conduits do anything about those sorts of problems?

ADITI SAHASRABUDDHE: So the way they do it is essentially just inflate their own balance sheets to provide liquidity that they need.

MARK BLYTH: Why can't they just use their own currency? Why do they need somebody else's currency?

ADITI SAHASRABUDDHE: That's a decision that they made in Nineteen Forty-Five to peg their currencies to the dollar at the rate of the US of $35 to an ounce of gold. So we were at this time where we were in the gold dollar standard, where the gold standard hadn't been taken away at all. It was just sort of limited to one country, and the rest of the world pegged themselves to that.

So to maintain their currency values that they had all agreed to, they needed liquidity to do so. But any other domestic monetary policy would have all kinds of different effects of either inflating the economy too much or creating recessions and increasing unemployment. And so the easiest way to do it would be to say, here's the Fed giving me a bunch of dollars, which don't actually exist and are not moving anywhere.

But on my balance sheet, I can say, I have access to this, which means I can say, I can manage the value of my currency that way. And until the exchange is actually used and repaid, it's like no money was ever exchanged at all. But somehow you both have a few million in the bank to manage those problems.

MARK BLYTH: So these guys have popped up as global macroeconomic managers without anybody asking.

ADITI SAHASRABUDDHE: Pretty much.

MARK BLYTH: And this, as you say, sets the stage for where they go next. So where do they go next?

ADITI SAHASRABUDDHE: This sets them up for essentially continuing to pursue a very unstable balance of payments system and currency values that were really not actually, as the market would determine, for as long as they were willing to go, until the pressures became too big. But even more interestingly, we see these swaps being extended extensively throughout the early Nineteen Sixties.

And then when a few folks leave the Bank of England and other leadership changes in France and elsewhere, we see less and less of their use and increasing Sterling and dollar crises towards the end of the decade. And so Nixon steps in with his massive spoiler to take away the gold standard.

MARK BLYTH: So everyone floats. Everyone sinks. Everyone bounces around for a while.

And there's the inflation crisis of the period. We don't hear too much about central bankers and that, but they're obviously concerned because the number one concern, well, Treasury in particular, the bond market is that inflation reduces the value of bonds.

ADITI SAHASRABUDDHE: Yes.

MARK BLYTH: So why would anyone buy them? So you need to pay more interest, et cetera, et cetera, all of which gives them a sense more purpose. We get to the '80s, we get into the '90s, the rise of global central bank independence.

If you will, when you think about Bernanke and you think about particularly Greenspan, this is back to the Nineteen Twenties model of the giant figure that controls things. How did we get from the seconds to there?

ADITI SAHASRABUDDHE: Greenspan, I think, was an unusually large figure in the profession at the time. Like you said, we had a bunch of almost bureaucrats and technocrats of the Nineteen Sixties just quietly doing their jobs, not too much attention. Of course, Volcker, similarly.

MARK BLYTH: Yeah, big personality.

ADITI SAHASRABUDDHE: Big personality, took some big decisions to deal with the problems of the '70s and 80s. But then we see Greenspan, who was, for lack of a better word, and I don't mean to say this in any kind of normative way, but a bit of ideologically driven in his idea of how finance and banking should be conducted. And he was also inordinately respected by his peers across the world.

But he also was one of those people who, because he didn't like too much intervention, decided, well, we've had these swaps in place since the Nineteen Sixties. We don't want to commit too much of our money. And they're not used as much by the late Nineteen Nineties.

And so he decides to do away with them to some objection from the FOMC at the time, the Federal Open Market Committee, because many others saw them as the symbol of international cooperation by the US. And this is our way of keeping goodwill. We don't just go to Basel because we like the Hilton. We go to Basel because these relationships are important and our support for these economies are important. But he had a lot of power.

MARK BLYTH: But this is where democracy comes back in an interesting way because, I mean, you don't have to read the Federal Reserve Act. But if you do, they're quite clear about the fact that this is America's Central Bank, and it's meant to be America first.

And swap lines are a bunch of people helping each other out. And you can say the words global financial stability all you like, but there's nothing in the Act that says you're meant to do this. So was Greenspan at all driven by that? Or what was driving the decision to pull these things in?

ADITI SAHASRABUDDHE: In terms of the America first aspect, I'm not so sure about that exactly. But I could say that, at the time that he was in office, they were not doing the same kind of job for the US interest as they did in the Nineteen Sixties. So the US is also just not in that similar currency pressure environment. We're also reaching the great moderation, where things do look very sanguine on the monetary level globally.

And so he just saw almost no need for more intervention at the time. But it certainly put in place the idea that this is a US Central Bank, and we should be doing what's in our interest. And a lot of the time, I think rightly so as well, is that these swaps have always been portrayed as being something that protects the US financial system, while also doing so global stability.

MARK BLYTH: Yeah. I mean, if you're going to have lots of foreigners issuing dollar loans that are completely unbacked and are actually more dollar loans outside the US than inside the US, that's a bit of a liability that somebody's going to have to manage at some point, you'd think. Why did the Fed never really want to grasp the nettle on that? Was it because it's beyond the mandate?

ADITI SAHASRABUDDHE: I think it's because it's beyond the mandate. And I think, since then, there's been a little bit more of realization-- although obviously they knew it, but they didn't need to think about it in the same ways, that the US financial system is not limited to the US border. And so at some point, when you have a bunch of branches and subsidiaries who are opening you up to risk in Europe or Japan, you have to be very wise to what's going on and step in when needed.

MARK BLYTH: So Greenspan back pedals on these support mechanisms on the ground. Everything's fine. And when the VIX, the Volatility Index, hits its absolute lowest in Two Thousand and Seven, there's a giant financial crisis. Greenspan doesn't last too much longer after that. And then we get Bernanke, and we actually get the swaps back big time. But what happened?

ADITI SAHASRABUDDHE: Big time. So by this point, Bernanke was already chairing the Fed. And he had witnessed how very briefly, after 9/11, the swaps were deployed to Europe and the UK. I don't think they were used extensively, but they were on standby for markets to know that the US dollar system was being protected across the world.

And then we have a crisis that is an American crisis starting in Europe and is fundamentally global. And it is a crisis of the dollar. It's a crisis of the US financial system.

And Bernanke is expert on the history of the Great Depression. So what he's learned from his own PhD research at this point is that one of the biggest drivers of why the Depression happened and why it went on so long was that there was a collapse in the supply of money and credit. And with that knowledge, he was able to actually step in and make sure that that wasn't done again.

And incidentally, it was on Friedman's, Milton Friedman's, 90th birthday that he gave a speech where he says, speaking on behalf of his many, many decades prior predecessors about the Great Depression, saying, we did it. It was our fault, being central bankers in the Great Depression. And we will not do it again. And so he certainly was driven by his expertise on the fact that central bankers had a lot to do with the Great Depression.

MARK BLYTH: There is, however, a kind of self-regarding arrogance about that point of view, which is, yes, absolutely, the collapse of money and credit, as pointed out by Friedman and Schwartz, who is pulling off of-- in '63, was definitely helped the American financial system collapse. But that really didn't have that much to do with why the Great Depression was global or the general collapse in demand, which had been going on for 15 years. So there's a way in which I wonder if the Central Bank focus on things like the importance of liquidity for stability, et cetera kind of leaves the system a bit more fragile than we think because it encourages us not to look at other things.

ADITI SAHASRABUDDHE: I think that's right. And I think the Depression being a crisis of both the financial system and the real economy, which was starting before the stock market crash, is also one big difference with what's going on here. Of course, everyone expected the crisis of Two Thousand and Eight to be a global imbalances problem and not one of the housing market and banking sector. But I do think that attention to liquidity at least helps in terms of where the US financial system's Achilles heel was most at risk, even if not the global aspects of it.

MARK BLYTH: So Bernanke gets on top of this and identifies where the liquidity needs to go. The swap lines are reactivated. And an interesting part of your book is the people who get it are, yes, some of the usual suspects, but some of the usual suspects don't get it.

And some of the "what are you doing there" actually do get it. So who got swaps? And who didn't? And what's surprising about it?

ADITI SAHASRABUDDHE: So there's about 14 economies included in the Fed swap line. So the ones that were less surprising are the G7 economies. Then there's, of course, the Nordics. There's the Australians and the Kiwis.

And then we have four emerging markets, which, by the Fed's characterization at the time, include Singapore and South Korea and also Mexico and Brazil. And there's also about seven countries that asked for a swap and didn't get one, the largest and most systemically important ones being Iceland, India, and Indonesia.

The Iceland case to me is the most surprising because it is the source of so many banking problems at the time, even though it's a tiny, tiny country. It is not one that's diversified too much beyond banking, fishing, and smelting. And so once one of your massive industries collapses, especially one so global, you are a big source of systemic risk, at least on the continent, which is already dealing with closely connected to the US.

India is more of a boundary case, I would say, but as is Brazil on many counts. And that's where the surprising aspects come in, which is they were discussed by the Fed as this is the next in line. And if we make a case for Brazil, we might need to make a case for India, and here's how we adjudicate around that.

Now, the things that struck me about these countries is that the economics are very ambiguous, the state-level politics maybe a little bit more clear. We see, of course, Mexico is a national security concern for the US. The crisis in Mexico could easily affect all of us here in many, many ways.

Brazil was just discussed as, we have this long historical relationship with the central Bank. And the central bank governor had spent a lot of his time in Boston in the banking system. But he was not a central banker historically. He was not someone trained with an economics PhD, as many people expect to be a big driver of some of these decisions. But he knew the people really well and specifically those dealing with the emerging markets, such as Nathan Sheets and others, who are seen as effectively door-to-door salesmen of swap lines at Basel.

In India, we have a central banker coming in around the time of the crisis who was previously finance secretary. He's in a more political arm of financial policy. And this is not seen as the signal of being a prestigious central banker in those circles.

They speak their own language. And Subbarao, the governor of the Reserve Bank of India at the time, told me, when I talk about this in the book, about how when he got to Basel, he knew he spoke a different language to those who were career central bankers. And he felt a little bit of an outsider in that sort of lack of knowing who you're dealing with and asking the questions in the way people like to be asked.

MARK BLYTH: So here's my question about this one is that it does seem slightly different. It's less about interpersonal trust in the sense that you've got these two behemoths in the '20s that love each other, basically, and everything falls from that. And what you now have is, are you in the club or not?

And there's two aspects to the club. One, as you mentioned, is deeply social. It's about hierarchy. It's about prestige. It's about your footprint in the banking and central banking world.

And the other one, as you also mentioned, is having an econ PhD. And that has changed the dynamics of this. But it's still about, if you will, conduits of trust, in the club with PhD you trust.

ADITI SAHASRABUDDHE: Exactly. And so it's not necessarily always interpersonal in the same Norman-Strong way. But there is a level at which you have to be comfortable drinking that famous wine at the Basel dinners, firstly being invited to them if you're not a G10 economy, which not all emerging markets are always a part of, and then knowing how to have those questions with your counterparts and ask those questions.

But there is this aspect of central bankers can have these very difficult, frank conversations behind closed doors at these big meetings. But in the public, it's kind of like how families always think we don't air our dirty laundry. Outside of that, no matter who you're speaking about, you talk about them well.

And if you're not from that circle, that's not how you've conducted your job before. It's neither a good or a bad thing. And so Subbarao had apparently called-- and this is something I heard from someone else, not him, not Bernanke, I want to emphasize-- that he'd called Bernanke sheepish for not owning the fact that this was a US crisis. He does write about that in his book, as well, and that's, again, not something that central bankers do publicly.

MARK BLYTH: Yeah, you don't point out.

ADITI SAHASRABUDDHE: Yeah, which they might have all talked about behind closed doors, but not in that same way.

MARK BLYTH: So square two things that are going on in my head at the same time. So let's take the story that you've just told about dirty laundry, sociability, hierarchy, professionalism, et cetera, and being in the club and asking the right questions. And the other one is, oh, we're just technocrats.

ADITI SAHASRABUDDHE: Yeah.

MARK BLYTH: I mean, we just execute optimal policy. We're just the guardians, in a sense. How do you put the two of those things together?

ADITI SAHASRABUDDHE: That is a great question. I think they know how to package it is how I would think about that. So they know very well how to speak about the decisions that they make.

Again, the swap lines have been discussed in many ways as not just economic and political, but they know very carefully to present them as this is about US financial stability. We even see this discussion in the Fed meetings, where their communications director will say, we have to be very careful about how we talk about these publicly because otherwise we'll get all kinds of questions from Congress. And so the packaging of these inherently political choices has to be extremely technocratic on the surface.

The other thing is they will also say that, in a crisis, things look different. So the day to day of their jobs they, I think, would still see as very technocratic. But in a crisis, you've got a few minutes or hours to make decisions. You don't have the same amount of information.

MARK BLYTH: And this is the upside to the interpersonal.

ADITI SAHASRABUDDHE: This is the upside--

MARK BLYTH: Yeah, this is the upside--

ADITI SAHASRABUDDHE: --of the interpersonal.

MARK BLYTH: --to it as well. Absolutely. And the two of them hang together this kind of democratic jeopardy, which, when things are going well, you don't care about. You want the efficient action.

ADITI SAHASRABUDDHE: Exactly.

MARK BLYTH: You want that. But at the same time, it violates the thing that makes it possible in the first place.

ADITI SAHASRABUDDHE: It violates the things that makes it possible in the first place, and now the system has become reliant on that. So what I try to emphasize in the book is these huge moments of crises are invariably dealt with in an undemocratic way, and we want them to do that. We want them to make a decision quickly. But at the same time, that means we tend to rely on these very undemocratic systems to pull us out of the worst problems without often fixing the problem that led to it in the first place, which should be the democratic aspect of it.

MARK BLYTH: Doesn't this end up just reinforcing the kind of giant moral hazard problem that is international banking? That we know you're going to come along with swaps. You know you're going to come along and bail us out. So I'm just going to excessively take risk and make more money. And when it blows up, I'll be gone. You'll be carrying the bag.

ADITI SAHASRABUDDHE: I think so. And again, we can see what's going on in across Europe, specifically where these swaps, they continue to be used extensively on almost a weekly basis. So five economies now have standing lines with the Fed.

So this ad hoc emergency program is a bit of a fixture in the financial safety net. And they were created in this undemocratic crisis moment. But we rely on it across the world for these systems to be held together.

MARK BLYTH: Shortly after the book came out, you wrote a piece for The Financial Times saying, you might want to think about the words Trump and swaps in the same sentence because, if MAGA is MAGA, they might not like this stuff. But so far they haven't really paid much attention to it.

ADITI SAHASRABUDDHE: So far not much attention, and I think there's multiple reasons as to why. The first is, in general, they're not front page news most of the time. So there's not a lot of knowledge about what's going on.

At the same time, I will say that after the crisis, when Congress was questioning all of the central bankers and Bernanke, especially, about these programs, is they'd ask questions like, well, why is Mexico and New Zealand getting all this money when Americans can't put food on the table? So there's often a misunderstanding that this is taxpayer money taken out of the Fed's coffers, which, A, Fed makes a lot of money on it.

B, the way swaps are run is that they first deployed in the country that's using them. Then they ask for the swap to make it work. And you mitigate a lot of the counterparty risk by the counterparty taking on any currency risks associated with this. So there is this element of they're just very quietly discussed.

The second is maybe there is, I'm not sure, but perhaps some understanding that this is keeping the US system afloat. And so if there's ever a concern that these things get politicized, it could be the way to emphasize that not being the case is, A, it strengthens the dollar's global position. It strengthens the US financial system. And so this is overall good for us.

MARK BLYTH: You can't have dollar dominance unless you have the Fed--

ADITI SAHASRABUDDHE: Exactly.

MARK BLYTH: --acting as a bailout mechanism.

ADITI SAHASRABUDDHE: Exactly.

MARK BLYTH: It's the dirty little secret. It always has been.

ADITI SAHASRABUDDHE: Always. And then the last thing in the more contemporary current period is there's some speculation about the swap lines becoming politicized, but I'm not as sure about that. I'm not necessarily sure that the next Fed is going to want to take them away.

But there could be ways in which they're used to pursue other kinds of preferences. Like, now, the threat of taking away the swap is a huge piece of leverage that the Fed has and the US has. And of course, to the extent that they maintain their independence, things look quite different. But as we--

MARK BLYTH: But in fact-- yes.

ADITI SAHASRABUDDHE: --see a stacking of a Fed of people who have already written about the weaponization of the dollar, and they remain on the FOMC. That could change how these are conducted.

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MARK BLYTH: Aditi, thanks for coming in. Fabulous book, one of my absolute faves. Great stuff.

ADITI SAHASRABUDDHE: Thank you, Mark. It was great to chat about it with you.

MARK BLYTH: This episode was produced by Dan Richards and Juliana Merullo. I'm Mark Blyth. If you enjoyed this episode of The Rhodes Center Podcast, leave us a rating on Apple, Spotify, or wherever you listen to podcasts. It really helps others find us.

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