In order to build an argument about the aftermath of the 2008 financial crisis, I'm going to make a claim about the First World War that isn't one you tend to hear very frequently:
One of the biggest mistakes made in the First World War was that it was ended too early.
Okay, so how can any right-thinking person justify such a claim? Surely the earlier any war ends, the better? Edwin Starr himself assured us that war was good for absolutely nothing, and was friend only to the undertaker. Every extra day that a war continues is a day in which people can die, and it's probable that many will. So why might the continuation of WWI have been a good thing?
It's always dangerous to deal in counterfactuals, so some of what I am about to claim is bound to be contentious. Some historians will disagree with one or more of my inferences. But I'm reasonably confident that my suppositions are broadly correct.
Many people think that the "Great War" was nothing but a stalemate, a wasteful, static war bogged down in a quagmire with little chance of either side ever making a breakthrough and gaining significant territory. But in fact, one of the reasons that the Germans finally surrendered is that their opponents had demonstrated that such a breakthrough was imminent. The much-improved artillery pieces being used by the remaining Entente powers and their transatlantic allies, the devastating efficacy of the creeping barrage tactics and the ongoing increase in manpower had suddenly rendered the Germans' strategic position virtually untenable. Like a competent chess player realizing that the game is now unwinnable, the king was knocked over. Rather than going through the miserable motions of being forced back into Germany, with protracted losses of soldiers and civilians, the war was brought rapidly to an end, with the agreement of their opponents.
The interesting thing about what happened was that it look place without Germany's territory having ever been violated. Famously, the front line at the time of the armistice was deep inside France and not far from Paris itself. To an uninformed observer looking at the map, it must have seemed as though Germany were "winning the war" at that point. In fact, had the war been allowed to continue, the German lines would have collapsed, and the allies would have surged eastwards into Germany, just as she was invaded and placed under foreign control at the end of World War II.
My suggestion is that it was a tragic shame that this did not in fact happen. It allowed the German people to remain in a psychological state that was completely unlike that experienced in 1945. When Berlin was being policed by allied soldiers after the fall of the Third Reich, there could have been absolutely no doubt in the average German's mind that their leaders had failed the people utterly, had misled them, had brought them to ruin. There was a strong incentive for most Germans to try to dissociate themselves from the shattered Nazi regime, treat it as "other", examine its mistakes, humbly promise to do better and make amends, build a better Germany that would not be so arrogant and pugnacious. It's hard to cling to a sense of proud superiority when your state has been blasted to pieces and is at the mercy of those whom you'd previously considered your enemies and inferiors.
By contrast, very few Germans in 1919 would have taken such a psychological stance, because they had the freedom not to. No troops had marched through their capital. No tanks had driven through their countryside. The surrender when the front line had been inside another country seemed inexplicable. The German nation maintained an angry pride and searched instead for narratives of internal betrayal by a cowardly minority. An attitude of "invictus" remained strong in the public consciousness. And this helped sow the seeds of an even more destructive war two decades later, because the Germans nursed a sense of grievance and injustice, wanted that score settled, and still regarded the victorious allied powers as undeserving and inferior.
Something very similar has happened in the last few years with several of the top banks on Wall St and in the City of London. One has only to listen to Jamie Dimon of J.P Morgan, Lloyd Blankfein of Goldman Sachs and Bob Diamond of Barclays to understand that they regard their banks as "invictus" - unconquered, having required no government assistance and needing to apologize to nobody. Their territory was never violated. Others were to blame; they were not. There is no reason for them to change their ways.
When the central banks bailed out the banking system, they were focussed on ending the war as soon as possible to "save lives". Sadly, they did not seem to give much thought to the knock-on effects that might create an even bigger war in a decade or two. Hank Paulson and Gordon Brown bailed out several banks who were counterparties to Goldman et al. In particular, Paulson gave billions to AIG, who owed it to Goldman, Goldman having deliberately set AIG up as the "mark" in a multi-billion dollar sting using CDSs, as detailed in Michael Lewis's book The Big Short. Goldman received 100 cents on the dollar from AIG. Had AIG not been bailed out by Paulson and the Fed, they would have received next to nothing, and would have been in serious trouble. Indeed, the British and US governments ended up covering the counterparty risks of all the banks, who would have been in tremendous difficulty otherwise. Unfortunately, their actions allowed those banks to make the claim that they had not received a penny in government support. It's the way it looks to the uninformed: it's the equivalent of thinking that the territory map in 1918 tells the whole story. By looking to end the war too early, our governments have allowed the Invictus Myth to survive in the financial community. Their psychological outlook has not altered. They will not change their ways. And we will have another crisis on our hands before long.
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