PDF Summary:Crashed, by Adam Tooze

In the wake of the 2008 financial crisis that rocked the world's economies, Crashed by Adam Tooze provides a comprehensive examination of the crisis' global reverberations—ones that extended well beyond the borders of the United States, its epicenter. The author explores the systemic vulnerabilities that precipitated the crisis, traces the financial and sociopolitical shockwaves that rippled through Europe and other parts of the globe, and dives into the subsequent policy responses on an international scale.

Tooze offers incisive analysis of the crisis' far-reaching ramifications and the rise of instability across economic and political spheres, from widespread social unrest to escalating wealth inequality. As the landscape shifted toward a multipolar world order, the author evaluates the evolving power dynamics with countries like China emerging as potential stabilizing forces in upholding economic globalization and interconnectivity.

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• The reliance of European financial institutions on wholesale markets was not inherently problematic but was made so by the lack of diversification in their funding sources and the quality of assets they held.
• The convergence of bond yields was a sign of market confidence in the Eurozone at the time, and the subsequent crisis was not necessarily foreseeable.
• The failure to create a cohesive banking infrastructure in Europe was a complex issue involving political, economic, and regulatory factors, and not solely a regulatory oversight.

Policies and actions were initiated by central banks, governments, and international bodies to stabilize the situation.

Tooze offers an in-depth examination of the unprecedented measures taken to stabilize the financial upheaval, including political, regulatory, and particularly monetary actions. Authorities swiftly and extensively intervened, which caught many off guard, not just because it was a departure from the prevailing laissez-faire economic principles but also due to the unforeseen decisiveness of the leaders amidst the turmoil. The averting of a catastrophe comparable to the Great Depression was contingent upon the intricate and sometimes strained interactions between different individuals, their objectives, and the balance of power.

In reaction to a scarcity of liquid assets, central banks adopted unprecedented monetary strategies.

Tooze analyzes the pivotal actions taken by the Federal Reserve following the collapse of Lehman Brothers in September 2008. The Federal Reserve, instead of simply adjusting interest rates, infused the financial system with extraordinary emergency funds through a variety of tactics that strengthened the repurchase agreement market, revitalized the dormant market for short-term corporate loans, and guaranteed that European banks could secure dollar financing. Tooze suggests the critical function that the Federal Reserve served. They prevented a catastrophe that might have had dire consequences for financial entities within the United States as well as for the overall economic stability of the European Monetary Union.

The Federal Reserve's position as the foremost global source of financial assistance in times of crisis.

The book depicts the swift and substantial actions of the Federal Reserve, which entailed the distribution of crucial financial support to domestic financial systems, New York's global banks, and an extensive network of central banks around the world linked via swap lines. The Federal Reserve granted permission to several central banks, such as those in Europe, England, Japan, and Switzerland, to allocate the US currency as needed via the unique swap line mechanism. From 2007 to 2010, financial instruments were employed to guarantee and then resolve obligations that exceeded a sum of ten trillion dollars. The measures taken were sufficient to avert a crisis of trust in the worldwide dollar system and to stop an abrupt halt in international corporate finance.

The establishment of trading systems facilitated the procurement of financing in US currency for European banks.

The book details how the Federal Reserve assisted European banks in securing funding in dollars during the turmoil. Adam Tooze explains how the European Central Bank was able to provide significant amounts of dollars without depleting its currency reserves, utilizing the swap line agreement with the Federal Reserve. Europe's evolution into a vital hub within the global financial network can be attributed to its intricate financial disclosures that spanned numerous currencies. Financial institutions employed the strategy of leveraging short-term borrowing to fund long-term financial obligations. In 2008, the Federal Reserve took decisive action to stabilize the situation that had become critical when the constant supply of dollar financing needed for business activities suddenly ceased.

The Federal Reserve acted swiftly, in stark contrast to the European Central Bank's reluctance to intervene.

Tooze highlights the divergent strategies between the Fed and the ECB, pointing out that the Europeans showed reluctance to embrace the assertive monetary expansion pursued by those in Washington, and he ascribes their reluctance to factors beyond mere institutional constraints, including a political aversion to bond-buying. The European currency union encountered several critical moments that almost led to its collapse.

The political challenges faced during the rescue of the financial system were particularly significant in relation to the execution of the Troubled Asset Relief Program.

Tooze emphasizes the intricacies involved in formulating a governmental response plan, highlighting that a confluence of competing interests, varied ideologies, individual character traits, and tactical political components influenced the urgent call for extensive powers to steer through the financial chaos that unfolded during the autumn of 2008. The initiative sought to rejuvenate the banking sector by purchasing troubled assets and injecting capital to fortify financial statements, even though it encountered considerable obstacles on its path to legislative sanction. The method developed into a plan to fortify the financial infrastructure through capital injections.

The unprecedented scale of the economic bailout and the vigorous discussions it incited.

Adam Tooze highlights the substantial taxpayer-backed credit that was earmarked to achieve the TARP's total of $700 billion. Adam Tooze depicted the intense resistance and sense of outrage that greeted Paulson's first plea for economic assistance devoid of supervisory control, reflecting a broad disconnection felt among Republican constituents. The passage of the law came after a prolonged political struggle lasting many weeks and a subsequent change from an initial rejection in the House vote, an occurrence that led to a marked decline in financial markets across the globe.

The administration faced internal conflicts within the fragmented groups of the Republican Party.

The book scrutinizes the complex political terrain faced by the Bush administration, which included dealing with opposition from Republicans within Congress who were part of its own political faction. The pivotal moment came when the Obama campaign endorsed the bailout, given that Paulson's inability to secure backing from his own party for TARP necessitated reliance on Democratic allies. Paulson feared that discord within the Republican ranks might precipitate the collapse of Lehman's. He recommended purchasing assets in distress to circumvent political constraints, even though he agreed with the Federal Reserve and Tim Geithner of the New York Fed that bolstering the equity of financial institutions would have been a superior strategy.

The movement toward strengthening U.S. financial institutions by infusing them with new capital coincided with their comprehensive fiscal assessments.

Tooze describes how the Treasury repurposed the TARP funds to aid banks that were facing financial difficulties. The approach adopted by the Treasury and the Federal Reserve hinged on leveraging market dynamics, utilizing a combination of guarantees, assessments of fiscal stability, and the potential for regulatory actions to motivate significant banks to participate, rather than mandating a broad-based recapitalization. Paulson was apprehensive about the possibility of the government taking over the banking sector. The decision to recapitalize banks marked a pivotal moment, establishing a precedent that would be embraced worldwide.

Despite its shortcomings, the G20 continues to play a vital role in harmonizing global policy efforts.

Tooze highlights how the G20 swiftly evolved from a lesser-known assembly to a crucial forum for overseeing global matters, even though the Bush administration initially showed reluctance to address the 2008 crisis. The G20's main goal was to coordinate a joint rescue effort to prevent a descent into the kind of economic nationalism seen in the 1930s. The dynamics of international influence were transformed as decision-making circles began to incorporate nations such as China, India, and South Korea.

The limited scope of agreement encompassed dialogues on trade rules and strategies for invigorating the economic landscape.

The author emphasizes that despite the grand statements issued at the G20 summit, the actual agreements were fragile, having been formed through compromises that largely favored the interests of key players including the United States, Europe, and China. There was no return to protectionist measures in trade policies, and a unified initiative to boost the economy was also absent. During the 2008 and 2009 G20 summits, there was a significant enhancement of the International Monetary Fund's capabilities along with a redistribution of the voting rights within the organization. When Lagarde assumed leadership of the IMF in 2010, she successfully secured support to oversee the eurozone crisis.

Efforts were made to enhance the financial strength of the International Monetary Fund.

Tooze highlights the robust actions taken by the United States to bolster the financial capabilities of the International Monetary Fund, aimed at assisting developing countries that were hit hard by the global economic crisis. Europe was resistant to the expansionary approach, unlike China, which supported it. The IMF received backing from the United States to implement changes that would boost the voting power of emerging markets, thus securing a greater availability of resources.

The choice to integrate China along with other developing economies into the worldwide economic system.

Tooze underscores the importance of incorporating emerging markets like Brazil and South Korea into the core decision-making assembly of the G20. The gathering of the world's twenty most influential economic players acknowledged the necessity of embracing and incorporating elements of a varied global hierarchy of influence. Any framework for international governance excluding China would evidently lack sustainability.

Other Perspectives

• Central banks' unprecedented monetary strategies may have created long-term risks, such as asset bubbles and increased debt levels, which could lead to future financial instability.
• The Federal Reserve's role as a global financial backstop could create moral hazard, where banks engage in riskier behavior knowing they may be bailed out.
• The establishment of trading systems to facilitate US currency financing for European banks may have disproportionately benefited larger financial institutions, exacerbating inequality within the financial sector.
• The swift action of the Federal Reserve compared to the ECB's reluctance could be seen as a reflection of different economic philosophies and mandates, rather than a clear-cut case of one approach being superior to the other.
• The political challenges during the execution of TARP may have highlighted deeper issues within the political system, such as partisanship and the influence of special interests, which could undermine the effectiveness of such programs.
• The vigorous discussions and internal conflicts surrounding TARP may indicate a healthy democratic process where significant dissent and debate are necessary for the functioning of a representative government.
• Strengthening U.S. financial institutions through capital infusion could be criticized for potentially prioritizing the health of banks over the direct needs of citizens affected by the financial crisis.
• The G20's role in harmonizing global policy efforts might be criticized for being more symbolic than effective, with its decisions often reflecting the interests of the most powerful member countries rather than a true consensus.
• The limited scope of agreement in the G20 could be seen as a failure to address the root causes of global economic imbalances and a missed opportunity for more substantial reform.
• Efforts to enhance the financial strength of the IMF may be criticized for not going far enough to reform the institution's governance and policy prescriptions, which some argue have contributed to economic problems in developing countries.
• The integration of China and other developing economies into the global economic system through the G20 may be viewed as insufficient in addressing the asymmetries of power and wealth distribution between developed and developing nations.

The upheaval resulted in a variety of consequences, including political and social unrest, increased financial instability in the Eurozone, and a transition towards a multipolar global landscape.

Tooze scrutinizes the cascade of political consequences initiated by the financial crisis, which commenced with the eurozone debt crisis, exposing not only the frailty of Europe's financial infrastructure but also casting a spotlight on its significant bureaucratic deficiencies. The endeavor to secure Greece's economy and avert the domino effect on the economic stability of Ireland, Portugal, Spain, Italy, and France was a source of considerable strain. The adoption of stringent austerity measures led to economic contractions in Southern Europe that were akin to the severity experienced during the 1930s. The influence wielded by the eurozone experienced a marked decrease. In response, the political center gravitated towards conservative thought, with parties of diverse political stripes starting to adopt nationalist stances and commencing resistance to the European Union. During this period, the ascent of Donald Trump in the United States' political arena was marked by his apparent disregard for liberal principles, which raised alarms.

The instability within the consortium of European countries using the euro was fueled by a combination of political discord, turmoil within the financial industry, and challenges associated with sovereign debts.

Tooze elucidates the elements that led to the chaos within the eurozone, highlighting how the trio of the European Commission, the European Central Bank, and the International Monetary Fund chose to overlook the financial disintegration of Greece in 2010, leading to the adoption of a strategy that simply delayed an unavoidable clash with the fiscal instability. Further financial obligations were undertaken to address the budgetary circumstances, even though the current commitments were already deemed unmanageable. The result inevitably led to severe repercussions for Greece's societal and economic structures. Both Ireland and Portugal followed a comparable line of reasoning.

The approach of delaying the unavoidable, along with its related societal costs, was first adopted in Greece.

The book's narrative underscores that the trio consisting of the European Commission, the European Central Bank, and the International Monetary Fund prioritized the financial sector's stability, which included protecting banks and bondholders' interests, over the well-being of the populace in the impacted nations. Following the initial bailouts, the financial responsibilities previously borne by banks and investors in nations such as France and Germany became publicly guaranteed liabilities, with the European Commission, the European Central Bank, and the International Monetary Fund emerging as the entities now backed by these obligations. This strategy reduced the immediate need to settle debts while shifting the focus from market confidence to the responsibility of nations to address their outstanding financial commitments. This situation ignited a fervent search for accountability, particularly among German citizens who were unexpectedly tasked with providing the financial backing for rescue efforts that required a substantial monetary pledge, possibly reaching into the billions or trillions of euros.

Germany's unwavering commitment to fiscal restraint intensified political discord.

Tooze emphasizes the transformation of the financial upheaval between 2008-2009 into a fervent discussion about the future of the European Union and its administrative structure, driven by Germany's commitment to budgetary discipline through austerity and the enactment of a debt brake. Though there were voices in Germany who favored a more expansive approach, and though Chancellor Merkel herself was pragmatic in her political calculations, the German government was insistent that any further financial rescue efforts must be accompanied by strict political and, above all, fiscal compliance on the part of Greece and other countries facing a debt crisis.

The decision to adopt quantitative easing was ultimately a critical move made by the European Central Bank.

The author scrutinizes the European central banks' hesitance to participate in bond-buying activities. The bank, under Trichet's leadership, was chiefly driven by the fear that its independence could be at risk if it got involved in the bailout of eurozone nations grappling with their own national debt crises. The turmoil in Ireland between 2010 and 2011 highlighted the ineffectiveness and pointlessness of a strategy that depended solely on the economic tactics of separate eurozone countries. In 2012, when Draghi took the helm of the ECB, the institution's priority transitioned from advocating for market discipline to offering unwavering guarantees of backing. In 2012, during the summer months, the European Central Bank stepped into a role comparable to the Federal Reserve's by launching a program to buy bonds, solidifying its status as the chief guardian of the eurozone's economic steadiness and guaranteeing the security of the euro and financial markets. The expenses incurred were significant. The European Central Bank yielded to the overwhelming pressure from markets and the concerted urging of the United States along with other G20 countries. The event continuously dampened the spheres of economics and governance. Would the political and social structures of Southern Europe, already burdened by prolonged compulsory austerity, be able to endure additional demands for "structural adjustment" imposed by a distant and unaccountable central banking authority?

The shift in power structures coupled with the rise of nationalist sentiment throughout Europe.

Tooze examines how the financial instability in Europe intensified and transformed into a wider disturbance that affected political movements and social frameworks, highlighting the rise of nationalist, xenophobic, and Eurosceptic groups on the right beginning in 2010. Adam Tooze's analysis emphasizes that the reaction to the financial crisis, characterized by strict budgetary measures and a financial strategy reminiscent of Germany's, likewise ignited considerable resistance from progressive groups. Tooze suggests that understanding the aspirations of groups and intellectuals aiming to disrupt the status quo in the European Union and its currency alliance after 2012 requires a thorough analysis of the crisis's enduring effects.

The growing appeal of Eurosceptic and populist political movements attracts factions from across the political divide, including those on the left as well as the right.

In 2014, the political landscape was notably altered with the rise of dissent-driven parties, ranging from the xenophobic and racist beliefs of France's National Front to the intellectually revolutionary Podemos, which surfaced in Spain after a period often characterized as one of "post-democratic" with diminished political involvement. Despite their fundamental differences, all of these movements shared a common expression of discontent with the dominant system that emphasized the safeguarding of financial equilibrium, the rescue of key institutions, and the utilization of specialized expertise in conjunction with international financial commerce networks.

The emergence of Syriza and the indignados movement marked a significant challenge to the imposition of austerity policies.

Tooze describes the shift from local protest and “occupations” in Greece and Spain in the early years of the crisis to the national scale of a political campaign against austerity. The rejuvenated political factions spearheaded the demonstrations, employing tactics and emblems of opposition that drew significant inspiration from the broader political climate that surfaced in the wake of the Occupy Wall Street movement and subsequent developments post-2008.

Germany's significant influence and the accompanying responsibilities inherent in its leadership role.

Tooze highlights the contradictory position of Germany, which was influential during 2011-2012, yet was also portrayed by observers and political figures as the only nation in Europe with the capacity and responsibility to steer the eurozone out of turmoil and guarantee the European Union's survival. But this leadership was always conditional. The item must adhere to the rules set forth by Germany. The result required a profound shift that resulted in technocratic governance taking the helm in nations like Greece, Italy, and Portugal, and also brought about a stringent fiscal structure that greatly limited the capacity of European administrations, including Germany's, to employ fiscal stimulus in response to economic policies.

The Trump leadership illustrated the diminishing international influence of the United States.

Tooze argues that the calamity of the Trump presidency stems not just from the aspirations of an individual, but from the entrenched inclinations of the US political system that were exposed in the aftermath of the economic downturn and the ensuing political responses. The financial upheaval revealed a significant absence of unity among the members of the Republican Party. The Tea Party faction in the United States, which played a key role in creating various international bodies, focused their criticism on these organizations for their significant role in overseeing the financial chaos of 2008. The administration under President Obama further solidified the already robust alliance between Wall Street and the centrist members of the Democratic Party. The significant transformation that the Occupy movement and other progressive organizations advocated for was not embraced by either political party. During his campaign, Trump harnessed the persistent social and economic dissatisfaction and a profound disillusionment with conventional political figures, adeptly using these elements to secure his victory in the contest for the presidency in 2016.

The referendum in 2016 firmly dismissed the significance of worldwide interconnectivity and the value of specialized expertise.

Adam Tooze associates the ascent of Trump with the steady decline of the ideological convictions and the political coalition that backed the broad growth of global interconnectedness starting in the 1980s. Trump challenged the established power structures within their traditional spheres of influence. He remained highly visible in the press as a successful and influential entrepreneur. His triumph, though by a narrow lead, was clinched through his disapproval of the elite's plans. The result brought about a profound alteration to the conventional social structure within the United States. What did security mean if the highest office in the land could be reached by just about anybody? The Republicans chose a path that represented a shift extending beyond a mere reshuffling of priorities, one that involved turning away from the guidance of the Democratic Party and their global partners. They had chosen someone who would cause destruction.

The obstructive behavior and lack of a cohesive strategy within the ranks of the Republican Party.

The book details the financial chaos and the intense involvement of the Tea Party in 2008, shedding light on deep divisions that became even more pronounced during the fiscal clashes of 2011 and 2013. By 2016, entities with political influence had emerged that were capable of winning elections but struggled with effective governance. The matter would subsequently fall under the purview of the Trump administration. Congressional Republicans showed a deep lack of concern for the complexities of modern governance by initiating actions aimed at repealing the healthcare legislation known as the Affordable Care Act, opposing a rise in the country's borrowing ceiling, and advocating for substantial cuts in the government's spending alongside extensive deregulation.

The worldwide financial infrastructure is at risk due to corporate activities as well as the supervision of national economic policies.

Tooze emphasizes the danger posed by the Trump administration's stance to the global governance framework, particularly its confrontational attitude toward international trade pacts like TPP and NAFTA, in addition to its opposition to the World Trade Organization's principles. Proponents of a global liberal order struggled to perceive this as anything other than a shocking regression to the economic nationalism of the 1930s or something that could be ascribed to the fascist rhetoric of that era. The issue at hand was whether the Trump campaign's verbal attacks on trade, despite its internal inconsistencies and absence of a clear agenda, would result in persistent or impactful measures. The imbalances in global trade and financial systems that Trump denounced were certainly real. By 2016, the Doha round of multilateral trade negotiations, begun in 2001, had long since stalled. The administration under Obama, in collaboration with the International Monetary Fund and the OECD, was unable to create a framework to monitor global financial imbalances. The implementation of new regulations, including Basel III and the Dodd-Frank Act, signified a heightened level of global financial regulation in the aftermath of the 2008 crisis; yet, the process of enacting these frameworks was slow, contentious, and characterized by compromises that favored powerful financial institutions. The pace of implementation was dictated by the dominant corporate culture in both Wall Street and the City of London.

During an era characterized by a global landscape with various centers of influence, China emerged as a potential cornerstone for worldwide economic cohesion.

Tooze explores the story of the economic turmoil from 2008 to 2012, starting with the drastic financial downturn in the United States and the fiscal challenges in Europe, and this story was further entangled by a new crisis that emerged in China in 2015, coinciding with the final phase of the administration led by President Obama. He examines the fragility of China's financial structure, emphasizing the instability of its stock market, the excess in industrial production capabilities, and the precarious balance between corporate and governmental financial affairs, all of which collectively raise questions about the endurance of China's swift economic expansion and add a new layer of global uncertainty. The Chinese government's decisive actions and the critical role played by the Federal Reserve were instrumental in the effective management of the crisis, as suggested by Tooze. During the 1998 crisis, financial assistance was extended to countries including Thailand and Indonesia, with the United States also offering aid to South Korea. The Federal Reserve's stabilizing measures a generation later were instrumental in protecting the global economy from a potential collapse that could have been triggered by a financial crisis in China.

Beijing skillfully navigated the yuan's variability in 2015.

The author describes how Beijing transitioned from a period of confusion and standard crisis management to adopting strategies that secured the currency's stability and the strategic deployment of fiscal and economic policies to restore equilibrium. The abrupt interruption called for a stringent recalibration that briefly succeeded in restoring equilibrium. In 2016, as global confidence was on the mend, China's triumphs solidified its status not just as a formidable force in the global economy but also as a possible pillar of support for globalization during a period when the United States' leadership was notably weak.

The Fed's cooperation in stabilizing the Chinese currency

During the summer and autumn of 2015, Tooze analyzes a critical time when the Federal Reserve postponed the expected rise in interest rates. He asserts that the pivotal element was the willingness of the Federal Reserve to work in concert with China to maintain economic stability. Market participants and observers were anxious that if the Federal Reserve and the People's Bank of China did not work together, their contrasting approaches—particularly the Federal Reserve's tendency to hike interest rates contrasted with the People's Bank of China's readiness to lower its key rate and prevent further devaluation of the yuan—could result in a significant increase in the dollar's value, potentially destabilizing the global financial and economic systems.

The possibility of a stratified structure emerging in Eurasia, with China leading the way.

Tooze explores the possibility of a global equilibrium emerging with China and the United States as principal actors. Adam Tooze underscores the intricate challenges that arose as China's economic and financial landscape expanded. The strategy behind China's expansion, which emphasizes the supremacy of a single political party, the robustness of state-controlled enterprises, and the comparatively less stable condition of its financial institutions, unsettles Western investors and policymakers. China's economic advancement, significantly bolstered by its assimilation into the global marketplace, continues to propel global economic progress, despite its distinct divergence from the free-market and "rule-of-law" doctrines that were emphatically advocated by Western countries in the 1990s. The future trajectory will be determined by whether this strain fosters a collaborative alliance or intensifies into a significant clash.

Other Perspectives

• The financial crisis' impact on political and social unrest and the shift towards a multipolar global landscape can be seen as part of a natural ebb and flow in international relations, rather than a direct consequence of the crisis itself.
• Some argue that the eurozone debt crisis was not solely due to Europe's financial infrastructure or bureaucratic deficiencies but also due to global economic imbalances and the inherent flaws in the design of the euro itself.
• Austerity measures, while having immediate negative impacts, are defended by some as necessary evils to ensure long-term fiscal stability and to prevent future crises.
• The decrease in the eurozone's influence and the rise of conservative and nationalist movements may also be attributed to long-standing cultural and social trends, not just economic factors.
• Germany's commitment to fiscal restraint is often seen as a prudent fiscal policy, especially in contrast to other countries' high debt levels, and not necessarily as a cause of political discord.
• The European Central Bank's quantitative easing program has critics who argue that such policies can lead to long-term inflationary pressures and asset bubbles.
• The rise of nationalist sentiment and Eurosceptic movements could be interpreted as a democratic response to perceived overreach by supranational entities like the EU, rather than simply a challenge to the status quo.
• The emergence of movements like Syriza and the indignados could be critiqued for potentially undermining the economic recovery by rejecting necessary reforms.
• Germany's leadership role and its insistence on fiscal discipline can be seen as a stabilizing force within the EU, rather than a source of strain.
• The Trump presidency, while controversial, is defended by some as a response to the perceived failures of the political establishment and not necessarily indicative of a diminishing U.S. influence.
• The 2016 referendum and the election of Trump could be seen as an expression of legitimate democratic choice rather than a dismissal of interconnectivity and expertise.
• The Republican Party's behavior can be viewed as a legitimate exercise of their political mandate to oppose policies they disagree with, rather than obstructionism.
• The risks to the global financial infrastructure from corporate activities and national economic policies are sometimes seen as overstated, with market forces and regulatory frameworks providing checks and balances.
• China's emergence as a global economic power is sometimes viewed with optimism, with its growth contributing positively to global economic diversity and resilience.
• Beijing's management of the yuan's variability is sometimes criticized for being too interventionist and distorting market mechanisms.
• The Federal Reserve's cooperation with China can be critiqued as potentially compromising its independence and mandate to prioritize American economic interests.
• The potential for a stratified structure in Eurasia led by China is viewed by some as an opportunity for a more balanced global power distribution, rather than a challenge to existing structures.