The number of books looking to explain the financial crisis shows no sign of slowing, even financial histories are more likely to find a publisher and readers if they seem to cast light on the present situation - check out the long list for the FT’s Business Book of the year here
and our own reviews here
Some are aimed at a financially-savvy audience, if not bankers, then those with a fair knowledge of the financial market, but John Lanchester set out to do something quite different. As he says in his introduction
“It seems to me that here is a much bigger gap between the world of finance and that of the general public, and that there is a need to narrow that gap, if members of the financial industry are not to be a kind of priesthood, administering its own mysteries, and feared and resented by the rest of us.”
It’s a laudable aim, even if that pretty much describes how the general public views bankers at the moment. Lanchester is undoubtedly right, however, when he says
“Many bright, literate people have no idea about all sorts of economic basics, of a type that financial insiders take as elementary facts about how the world works.”
The book has a number of strengths. Firstly, it explains even the most basic terms that perhaps a reader might have been afraid to ask, or thought they understood, but in fact, did not. GDP is explained in a footnote to the second page of the introduction, and a balance sheet on page 19, using a household’s assets and liabilities as an example. Secondly there is a strong, if broad, historical perspective on the current situation. Put bluntly, Lanchester believes that the end of the Cold War released forces of unbridled capitalism. Previously there was “...the equivalent of an ideological beauty contest between the capitalist west and the communist east, both of them vying to look as if they offered their citizens the better, fairer way of life.” The situation benefitted the citizens of the east in terms of free schooling, universal healthcare, weeks of paid holiday, and a consistent, across-the-board rise in opportunities and rights.” But when the Iron Curtain fell, the West didn’t need to make those efforts, and so inequality of income has sharply risen in the past to decades. “Between 1980 and 2007, the richest 0.1 percent of Americans saw their income rise by 700 per cent.”
Lanchester’s argument – one he links with the new tolerance of torture – waterboarding – by the American regime – was that where before there would have been outrage because it made the west look bad, now there is acceptance. “We may not be perfect, but who is?”
“The financial sector was allowed to run out of control...” in “a series of events which took place not in a vacuum but in a climate.”
For many years, Wall Street and the City made huge profits, of course, which gave them a lot of sway with policymakers. It also bred arrogance. Lanchester quotes from a piece in The Atlantic by Simon Johnson,
“The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.
(You can read the piece here)
Many of us believe we are seeing a similar phenomenon at the moment. What’s worrying is if we are heading for a Great Depression II, how long it will last. The first time it started in 1929 and US industrial capacity didn’t recover until World War II.
A third strength of the book is the way Lanchester personalises it, from making losses on his first flat purchase in London to his childhood in Hong Kong and his banker father. He’s also good at some of the cultural differences between western nations, something we’re becoming very aware of as Germany seems to hold the key to European prosperity, as it reluctantly looks at bailing out Greece and the other PIGS (Portugal, Italy, Greece and Spain). He points out that there are no cheque-guarantee cards in France because to write a cheque for more money than you have in your account is a criminal offence. And lastly, there’s the outrage of the intelligent man who discovers what has been going on. The paperback edition has an epilogue where his anger is palpable.
“The unfortunate fact is becoming unmissably clear: the consequences of the credit crunch and going to fall more heavily on the innocent than the guilty.” He says. “A lot of people who did nothing wrong will lose their jobs.”
As for the moves made by the regulatory authorities....
“It is now two years since the moment when the banks nearly took themselves and the rest of the global economic system over the edge of a cliff. The following paragraph undertakes a survey of all the legislation in the developed world, and summarizes the laws which have been passed to prevent a repetition of the crash.”
And then he leaves a big blank space for that paragraph.
Lanchester deals with the UK Coalition’s government’s efforts in the epilogue and makes clear his position is that “the Tory party... is attempting to create... an “inflection point”. They want to make a fundamental change in direction in British politics” the aim of which is to have a smaller state. He also follows the Keynesian line that to cut government spending at such a time is the same mistakes governments initially made in the Great Depression, and that the government ought to be spending, but then, that debate ranges in the papers every day at the moment, and no on knows who is right.
This book is angrier than the previous two we have reviewed on the subject, but is a great red, and well worth recommending to anyone who looks puzzled the moment conversation turns to the global slowdown. It’s unlikely to cheer them up, however....
Tom Otley
The number of books looking to explain the financial crisis shows no sign of slowing, even financial histories are more likely to find a publisher and readers if they seem to cast light on the present situation - check out the long list for the FT’s Business Book of the year here
and our own reviews here
Some are aimed at a financially-savvy audience, if not bankers, then those with a fair knowledge of the financial market, but John Lanchester set out to do something quite different. As he says in his introduction
“It seems to me that here is a much bigger gap between the world of finance and that of the general public, and that there is a need to narrow that gap, if members of the financial industry are not to be a kind of priesthood, administering its own mysteries, and feared and resented by the rest of us.”
It’s a laudable aim, even if that pretty much describes how the general public views bankers at the moment. Lanchester is undoubtedly right, however, when he says
“Many bright, literate people have no idea about all sorts of economic basics, of a type that financial insiders take as elementary facts about how the world works.”
The book has a number of strengths. Firstly, it explains even the most basic terms that perhaps a reader might have been afraid to ask, or thought they understood, but in fact, did not. GDP is explained in a footnote to the second page of the introduction, and a balance sheet on page 19, using a household’s assets and liabilities as an example. Secondly there is a strong, if broad, historical perspective on the current situation. Put bluntly, Lanchester believes that the end of the Cold War released forces of unbridled capitalism. Previously there was “...the equivalent of an ideological beauty contest between the capitalist west and the communist east, both of them vying to look as if they offered their citizens the better, fairer way of life.” The situation benefitted the citizens of the east in terms of free schooling, universal healthcare, weeks of paid holiday, and a consistent, across-the-board rise in opportunities and rights.” But when the Iron Curtain fell, the West didn’t need to make those efforts, and so inequality of income has sharply risen in the past to decades. “Between 1980 and 2007, the richest 0.1 percent of Americans saw their income rise by 700 per cent.”
Lanchester’s argument – one he links with the new tolerance of torture – waterboarding – by the American regime – was that where before there would have been outrage because it made the west look bad, now there is acceptance. “We may not be perfect, but who is?”
“The financial sector was allowed to run out of control...” in “a series of events which took place not in a vacuum but in a climate.”
For many years, Wall Street and the City made huge profits, of course, which gave them a lot of sway with policymakers. It also bred arrogance. Lanchester quotes from a piece in The Atlantic by Simon Johnson,
“The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.
(You can read the piece here)
Many of us believe we are seeing a similar phenomenon at the moment. What’s worrying is if we are heading for a Great Depression II, how long it will last. The first time it started in 1929 and US industrial capacity didn’t recover until World War II.
A third strength of the book is the way Lanchester personalises it, from making losses on his first flat purchase in London to his childhood in Hong Kong and his banker father. He’s also good at some of the cultural differences between western nations, something we’re becoming very aware of as Germany seems to hold the key to European prosperity, as it reluctantly looks at bailing out Greece and the other PIGS (Portugal, Italy, Greece and Spain). He points out that there are no cheque-guarantee cards in France because to write a cheque for more money than you have in your account is a criminal offence. And lastly, there’s the outrage of the intelligent man who discovers what has been going on. The paperback edition has an epilogue where his anger is palpable.
“The unfortunate fact is becoming unmissably clear: the consequences of the credit crunch and going to fall more heavily on the innocent than the guilty.” He says. “A lot of people who did nothing wrong will lose their jobs.”
As for the moves made by the regulatory authorities....
“It is now two years since the moment when the banks nearly took themselves and the rest of the global economic system over the edge of a cliff. The following paragraph undertakes a survey of all the legislation in the developed world, and summarizes the laws which have been passed to prevent a repetition of the crash.”
And then he leaves a big blank space for that paragraph.
Lanchester deals with the UK Coalition’s government’s efforts in the epilogue and makes clear his position is that “the Tory party... is attempting to create... an “inflection point”. They want to make a fundamental change in direction in British politics” the aim of which is to have a smaller state. He also follows the Keynesian line that to cut government spending at such a time is the same mistakes governments initially made in the Great Depression, and that the government ought to be spending, but then, that debate ranges in the papers every day at the moment, and no on knows who is right.
This book is angrier than the previous two we have reviewed on the subject, but is a great red, and well worth recommending to anyone who looks puzzled the moment conversation turns to the global slowdown. It’s unlikely to cheer them up, however....
Tom Otley 
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