The Alchemists: Three Central Bankers and a World on Fire Read Online Free PDF

to preserve—was itself a direct result of that conflict. Born in Lyon in 1942, during the German occupation of his homeland, the ECB president grew up in a country rebuilding after the devastations of occupation and war. Like other postwar leaders, he was so intent on creating a continent where armed conflict might never break out again that he made a unified Europe the mission of his lifetime. The euro was their crown jewel, the physical embodiment of that effort—and an accomplishment that the great global crisis of the twenty-first century would eventually threaten to destroy.
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    T he partnership between Trichet, Bernanke, and King was one between men of different backgrounds, temperaments, and intellectual proclivities—differences that would loom large in the events yet to unfold. Beginning that Thursday, the three men atop the central banks of the major Western powers could only look to each other to find ways to see beyond those differences.
    When they took their respective jobs—in 2003 for Trichet and King, in 2006 for Bernanke—they joined a brotherhood of uncommon intimacy. The world’s top central bankers meet in person frequently—at an economic conference each summer in Jackson Hole, Wyoming, on the sidelines of countless global summits, and, most significantly, six times a year in Basel, where they take brief refuge from the politics, personal attacks, and hard choices that come with doing a job most people don’t quite seem to understand and more than a few regard as sinister.
    They speak the same language, literally and figuratively: All speak good English and are deeply versed in the discourse of economics. Foreign ministers, finance ministers, and defense ministers may have cordial relations with their counterparts from other nations. Some may even become friends. But none of those leaders have the same sustained, intimate exposure as the central bankers to the personalities and thinking, idiosyncrasies and blind spots of their international colleagues. Central bankers understand more deeply than perhaps anyone else where other countries are coming from. They share a closeness unheard of elsewhere in international relations, knowing with great confidence that what is said at the table in Basel will stay there.
    There were some older connections between the leaders of the ECB, the Fed, and the Bank of England, too: King and Bernanke had shared an office suite as young faculty members at MIT; Trichet and King had met when King was a student at Cambridge and Trichet, a young civil servant, had gone abroad to study the British tax system. But the panic that began that August day in 2007 would test their bonds as well as their ability to come together to guide the global economy toward prosperity.
    Mankind had given them incredible power. Now was the time to show that they had learned history’s lessons. As the consequences of a generation of bad lending and rising debt started to unfold, this committee of three knew better than anyone just how high the price of failure could be.
    To understand fully how these three men came to wield such incredible power, one first must know where central banks came from to begin with. That story starts, of all places, in Sweden, a very long time ago.

Part I
    RISE OF THE ALCHEMISTS, 1656–2006

ONE
    Johan Palmstruch and the Birth of Central Banking
    H e was a broken and desperate man, at the end. Johan Palmstruch, a Latvian-born, Dutch-raised, Swedish-residing banker defended himself against a prosecution that likely seemed more like an inquisition. A nation wanted to know where its money had gone, and the best answer Palmstruch could muster was to describe the chaos of those final days of the world’s first central bank, when depositors and government investigators lined up outside the bank’s doors, “ snork, pork,
scolding and swearing .” Who, he asked, “in the midst of such daily tumult, threatening, swearing, scolding and parleying,