I.O.U.: Why Everyone Owes Everyone and No One Can Pay by John Lanchester

Jul 12, 2012 Buck rated it 4 of 5 stars

Shelves: dismal-science

One of the few times George W. Bush ever rose to quotability came during the 2008 credit crunch, when he was heard to mutter darkly: "This sucker could go down." He wasn’t talking about the US banking system; he was talking about civilization as we know it. That’s how close we were to the abyss. Another few days and you’d have seen armed mobs looting 7-Eleven’s and Viggo Mortensen trudging down the Road.

Some day, decades from now, someone’s going to write the definitive history of the financial...more

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Mar 12, 2010 Manny rated it 5 of 5 stars · review of another edition

Shelves: history-and-biography, well-i-think-its-funny

This brilliant, scary little book is the first account I've seen of the credit crunch which truly made sense. I read it in a day, and, if you're at all interested in politics, economics or current affairs, I can't recommend it too highly. Lanchester is an acclaimed novelist, which shows in the witty and stylish writing; here, he also proves that he's a great investigative journalist.

The credit crunch was a first-magnitude disaster, and at several points I found myself comparing Whoops! to the m ...more

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Jul 01, 2012 Paul marked it as to-read-nonfiction

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This message might meet you in utmost surprise, however, it will be my Urgent need for foreign partner that made me to contact you for this transaction I am banker by profession from Burkina Faso in West Africa and currently holding the post of director Auditing and accounting unit...more

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Jan 10, 2011 Rosie Brocklehurst rated it 5 of 5 stars · review of another edition

I have read four books recently on the credit crunch with the desire to understand better what went wrong, why and who is to blame, and to marshall my own arguments. These books were Gillian Tett's 'Fools' Gold', Ha Joon Chang's '23 things they don't tell you about Capitalism',Michael Lewis's 'The Big Short', and this, John Lanchester's 'Whoops'. Lanchester's is the best of this group. I had been reading Lanchester in the London Review of Books in 2007 and 2008 when he wrote about the early stag...more I have read four books recently on the credit crunch with the desire to understand better what went wrong, why and who is to blame, and to marshall my own arguments. These books were Gillian Tett's 'Fools' Gold', Ha Joon Chang's '23 things they don't tell you about Capitalism',Michael Lewis's 'The Big Short', and this, John Lanchester's 'Whoops'. Lanchester's is the best of this group. I had been reading Lanchester in the London Review of Books in 2007 and 2008 when he wrote about the early stages of the credit crunch, about CDO's and CDS's, securitisation and the Ratings Agencies. He is described by critics as a writer who has studied the subject in order to present a comprehensible overview of the crunch for the financial novice. But, although he is not an economist or mathematician himself and has never worked as a trader (unlike Lewis), Lanchester presents a clear picture and has a grasp that differs from the others. He also, unlike the others, articulates the reasons why we should all be very angry indeed and fight to get redress and stop the bankers paying themselves obscene salaries and bonuses. Tett largely avoids such conclusions probably because such a stance would conflict with her role as an independent financial journalist. So in a way it is Lanchester who speaks for the novice and for 'everyman' but his is more than equal to the other books. It5 is a brilliant achievement and worth re-reading and using as a reference. I note that another reviewer says Lanchester makes some factual errors and would like to know what. So far I have seen no conflict with the facts in other books I ahve read on the subject. As for what is to be done. I despair sometimes that the mass of people in the UK are ignorant of the forces that affect their lives and avoid learning about the causes of what will badly affect their own lives and the lives of their own offspring for years. The writer Will Self in reviewing the book said he found it hilarious. Personally, I did not find the metaphors and analogies Lanchester uses that funny. For me they get in the way. However, I can understand why he peppers the narrative with supposedly amusing phrases and analogies, as the title 'Whoops' itself indicates, he is trying to communicate and popularise a subject to which novices are averse. He wants to make what might otherwise appear to be a complex and impenetrable subject more accessible to the lay person. But he is by no means patronising, so I make allowances for it. All together excellent. He should write more on the subject because this story is far from over. In fact I think there is an insatiable demand among a reasonably large group for well written books on this subject at the moment, and don't think that there has been a glut. Far from it. (less)

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Apr 09, 2010 Clif Hostetler rated it 3 of 5 stars · review of another edition

Shelves: current-events

From time to time I like to read about the recent financial collapse in an effort to try to understand what happened. This book is written by an author who normally writes novels, so he knows how to explain things very simply. In the early part of the book it was so simple that I thought it might insult my intelligence. But my mind got stretched soon enough. He used simple fictional examples to try to illustrate how each new financial instrument worked. I think I almost understand now what deriv...more

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Dec 26, 2010 Paul 'Pezski' Perry rated it 5 of 5 stars · review of another edition

Shelves: economics, politics, society, non-fiction

This is simply one of the most frightening books I have ever read. Lanchester sets out the causes of the current economic recession following the 'credit crunch' with a power and clarity that is superb - he manages to explain the culture of finance, the novel financial products and the relationships between the financial institutions and governments in a way which is understandable and memorable. The dominance of 'city culture', the drive for ever increasing profits, the belief in economic model...more

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Aug 20, 2012 Ben Dutton rated it 5 of 5 stars · review of another edition

In 2012 John Lanchester published his novel, Capital, which in part dealt with the economic crisis of 2008 to (ongoing). The novel had been developed partly through his research into, and writing for newspapers about, the economic crisis. These other works formed a small book about the crash, Whoops!: Why Everyone Owes Everyone and No One Can Pay that came out in 2010. This small volume had great reviews when it appeared, and as time has gone on, many have said it is the best book about what hap...more In 2012 John Lanchester published his novel, Capital, which in part dealt with the economic crisis of 2008 to (ongoing). The novel had been developed partly through his research into, and writing for newspapers about, the economic crisis. These other works formed a small book about the crash, Whoops!: Why Everyone Owes Everyone and No One Can Pay that came out in 2010. This small volume had great reviews when it appeared, and as time has gone on, many have said it is the best book about what happened and why, especially for the lay person.

I’ve had an interest in what went wrong and why or a while now, but all the talk of CDSs and CDOs and hedge-fund and sub-prime mortgages and quantative easing put me off – it seemed the equivalent of learning another language, and I just didn’t have the time for that. I suspect many other people had the same reaction – and it is such a reaction that will see bankers, banks and governments get away with doing the same thing again, and making us pay for their mistakes once more. John Lanchester’s book is the perfect primer to guide us through this maze, and at the end of it I understand the broad picture, some of the more salient points explained in greater detail, and know enough to know something has to change. There will be other books to explain more, but this is where you should start.

Whoops! is a fantastic achievement. Just 200 pages, its language is straight-forward and uncomplicated, laying out the history of the crash, how it happened, why it happened and what needs to change to stop it happening again. It is also depressing reading – as you realise it will happen again, and that, like last time, it will be sheer human stupidity and greed that will cause it. Near the end of the book he quotes the great economist John Maynard Keynes, and his hope that by 2030 we will have overcome greed and the need for money – it is easy to share this dream, but with the banking system the way it is, it will remain utopian and nothing more. But the sad part is that it could be, if tighter regulations were in place and the senior figures who control all this wealth cared for those whose money they represent. As present, they care only about their own bank balances.

The story of the world economic crash in 2008 will be studied historically with great interest, and those future historians will point to the greed of the bankers, and the stupidity of the government in not regulating them. That we know this now, and do nothing about it, marks us out as idiots too. So read this book, learn what happened and why, and if enough of his get the message, and understand it, then perhaps we can face up to our governments and our banks and stop it happening again.(less)

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Aug 11, 2012 Ryan rated it 5 of 5 stars

It is 2012 and the United States will soon be forced to choose whether a Republican or a Democrat should run America. Although many journalists focus on what should be done to fix the financial crisis, after reading John Lanchester's I.O.U.: Why Everyone Owes Everyone and No One Can Pay I would like to see journalists ask the candidates what caused the financial collapse.

Lanchester points to four primary causes: a culture, a problem, a mistake, and a failure.

The problem was the subprime mortgage...more It is 2012 and the United States will soon be forced to choose whether a Republican or a Democrat should run America. Although many journalists focus on what should be done to fix the financial crisis, after reading John Lanchester's I.O.U.: Why Everyone Owes Everyone and No One Can Pay I would like to see journalists ask the candidates what caused the financial collapse.

Lanchester points to four primary causes: a culture, a problem, a mistake, and a failure.

The problem was the subprime mortgages. These subprime mortgages became commonplace at the start of the 21st century. Stocks were paying little after the Dot-Com crash, bonds weren't paying since the fed was keeping interest rates low, so investors turned to the housing market. The government had passed legislation encouraging banks to lend to "underserved" communities -- people with little income and weak credit histories -- and so banks complied. Soon, everyone jumped on the bandwagon, and a national housing market was created, expanded, and burst within ten years.

The mistake was that banks had devised models of assessing risk that were incapable of predicting a crash. Anyone that looked at the system could see the problem. The banks were lending to people that were unlikely to pay back their loans. But the banks' models were not predicting that a crash could happen, so they continued lending money.

An argument could be made, and is made by bankers all the time, that the banks were right to continue lending. After all, they had worked out a way to write risk off their books through credit default swaps and collateralized debt obligations. Basically, the banks would take a bunch of debts, bundle them together, and sell them off. The bank did not carry the risk anymore, so why not lend more money? This allowed the banks to stop analyzing credit history, and so when borrowers lied about their credit history, the banks had no reason to care.

The failure is that no regulating body in America and the U.K. cared to step in.

Lanchester explains that all of this was allowed by the culture of Anglo-American capitalism. He refers to this culture as the "post-Cold War victory party." During the Cold War, the capitalists felt obligated to allow commoners to live at a comfortable standard of living -- one nicer than the standard of living in Communist countries. After, the free market was given free reign. The gap between the rich and poor grew. The average income of the middle class remained stagnant. Depression era regulations -- such as the separation of commercial and investment banking to protect the middle class from the carefree gambling of the rich -- were targeted and undone.

It would be easy to blame the banks or the government exclusively for what happened, but Lanchester points out that there were many people that lined up to take hold of the easy credit during the victory party. Now, the banks are too big to fail, which has led to a situation in which the banks take risks and profits while costs of the crash are socialized.

How perverse is that?

I suppose the only thing that's more perverse is that the banks are acting like the victory party is still happening. Then again, for them, it is. There are fewer banks now, which means that the banks are making more money and are able to give their executives massive bonuses. The banks are still relying on the same models to calculate risk. The only difference is that they are much more reluctant to lend. Unfortunately, banks are an essential part of a growing economy because it is the bank that lends money.

Lanchester's book does a fine job of outlining how the world economy collapsed. He takes a subject that I would have thought boring -- banking -- and explains it in a way that is accessible. My only concern is that this 200+ page book likely leaves readers feeling overconfident about their understanding of finance. Still, it also has generated in me an interest in finance that I think will lead me to read more.

So if I see one of America's presidential candidates explain how the financial collapse happened, you can be sure that I'll be reading it. And that's thanks to John Lanchester's book.(less)

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Jul 23, 2012 Kathleen Hulser rated it 4 of 5 stars

Sharp, to the point, analysis of financial crisis in laymen's terms that takes longer view and has transatlantic perspective. Lanchester writes for the extraordinarily readable and enlighteing London Review of Books, which ought to have a circulation in the millions, but is probably too good to get that kind of audience in today's sub-literate climate. Threadneedle St and Wall St. comparatives, and informed commentary on effects of EU policy and state of borrowing and debt in different countries...more

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Jul 20, 2012 Brian rated it 5 of 5 stars · review of another edition

This review has been hidden because it contains spoilers. To view it, click here. I didn't understand how we had got into the mess we are in until I read this book. Now I do, and the author deserves huge kudos for explaining something so complex in easy-to-understand terms.

Essentially, some 'very clever' bankers found a way of granting mortgages without any risk to themselves. This was done by a form of insurance. If Joe Bloggs paid his mortgage, great. If he didn't the 'insurance' covered it, so the bank still came out on top. Great!

Now of course they didn't let it rest ther...more I didn't understand how we had got into the mess we are in until I read this book. Now I do, and the author deserves huge kudos for explaining something so complex in easy-to-understand terms.

Essentially, some 'very clever' bankers found a way of granting mortgages without any risk to themselves. This was done by a form of insurance. If Joe Bloggs paid his mortgage, great. If he didn't the 'insurance' covered it, so the bank still came out on top. Great!

Now of course they didn't let it rest there. Sorry US friends, it was chiefly your banks that got greedy. They figured that if they couldn't lose, they could make even more money if they created more mortgages. They charged more, of course, when people were bad risks, but that made the deal even more attractive. Higher rate of return and *no risk*. Yummy! Think of all the bonuses!

Eventually it got to the point where they were practically forcing mortgages down people's throats, without proof of ability to pay or anything. Who cared? The bank couldn't lose, remember?

But there was one, teeny, weeny little snag. Their calculations of risk, on which the 'insurance' was based, were way out. Way, way out, by an astronomical degree. They fell victim to the prevailing belief that everything can be reduced to a mathematical formula, which it can't, because life isn't that simple.

So the whole bally shooting-match came tumbling down. And because finance is globalised, and banks right across the planet were providing the 'insurance' the whole world was screwed. You might have thought that the very clever bankers, many of whom have PhDs in mathematics and similar high qualifications, and who are paid ludicrous amounts of money for their so-called 'skills' might have smelt a rat long before this stage, especially given that the rat was roughly the size of a woolly mammoth. But (with some honourable exceptions, who steered well clear) they didn't.

And governments, or rather taxpayers, were forced to pick up the bill to prevent the total collapse of the capitalist system, with all that that implies. So we had the bizarre spectacle of (overwhelmingly) Right-wing governments undertaking nationalisations and semi-nationalisations on a scale that would have beggared the imagination of the 1945 Attlee (socialist) government of the UK.

Here in the UK at least it turns out it was all the fault of the wicked public sector workers, the unemployed, the sick and the disabled. The bankers are all pure saints. The City still maintains a grip over government policy that the most extreme of blood-witted medieval barons would have thought excessive, and the bankers, on the back of their unprecedented taxpayer largesse, are still paying themselves gigantic bonuses. Fancy that!(less)

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May 09, 2012 Jill rated it 3 of 5 stars · review of another edition

Shelves: economics-and-finance

This is the third book I'm reading on the financial crisis of 2007, after Gillian Tett's Fool's Gold, which describes a tale of financial innovation gone very wrong, and Thomas Sowell's The Housing Boom and Bust.

Unlike Tett's and Sowell's works, which focus specifically on the financial and housing markets respectively, Whoops! gives a little bit of background into both. Lanchester also pitches his book at readers without an economics/finance background, explaining basic concepts like how a bal...more This is the third book I'm reading on the financial crisis of 2007, after Gillian Tett's Fool's Gold, which describes a tale of financial innovation gone very wrong, and Thomas Sowell's The Housing Boom and Bust.

Unlike Tett's and Sowell's works, which focus specifically on the financial and housing markets respectively, Whoops! gives a little bit of background into both. Lanchester also pitches his book at readers without an economics/finance background, explaining basic concepts like how a balance sheet works, how banks are able to lend more than they take in deposits, how options and futures work, before plunging into the intricacies of credit swaps, collateralized debt obligations, subprime loans, toxic assets, etc.

Lanchester also tries hard to make his style of writing accessible; indeed, I would argue that he tries too hard at times. Some of the devices he employs are fairly engaging, like when he uses examples drawn from his own life - such as the terms offered to him when he tries to purchase a property during the property bubble in the 1980s - to illustrate certain points. But at other times, his analogies, colloqualisms and deliberately cultivated casual and breezy style of writing grate on the nerves. Like when he speaks of the irresponsibility of bankers who sold CDOs not so much on the basis of "'buyer beware', but more as 'buyer, dude, don't bother bewaring, we've got this covered'"; or when he describes lenders as channelling Bart Simpson and saying "Sayonara, sucker", in their insouciant attitudes towards lending after CDOs allowed them to write risk off their books by selling it to someone else. He's clearly trying to be hip but it doesn't really work.

Still, these are minor quibbles in what is ultimately an accessible and clearly-written reader on the financial crisis. Lanchester's book probably works best as an introductory work for someone trying to wrap their head around the financial crisis, before moving on to other works that go into a bit more depth such as Tett and Sowell's works.(less)

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Feb 07, 2012 Frances Brody rated it 5 of 5 stars · review of another edition

This is the perfect book for anyone who wants to try and understand the state we are in, what tricks the banksters pulled, and what might happen next. It's accessible, informative, laugh out loud funny, and fair: "most bankers are responsible people".

I love the witty cover on this edition, with its splash of champagne, and only half the word showing on the tinfoil of the bottle: pagne!

Lanchester explains why Canada was the only G8 country not to "join the party" and why, since 1923, there have b...more

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Dec 28, 2010 Caren rated it 4 of 5 stars

Shelves: adult-nonfiction

Here is a book that makes clear to even a mathematical dunce , moi, the pickle into which our country has managed to get itself. John Lanchester is a journalist, so he struggled with understanding the financial shenanigans played out over the last several decades and has lucidly laid it all bare for the ordinary reader to understand. He is British, so he covers the Anglo-Saxon world, mostly Britain and the USA, with some references to Canada. (Canada , by the way, is the only western country tha...more Here is a book that makes clear to even a mathematical dunce , moi, the pickle into which our country has managed to get itself. John Lanchester is a journalist, so he struggled with understanding the financial shenanigans played out over the last several decades and has lucidly laid it all bare for the ordinary reader to understand. He is British, so he covers the Anglo-Saxon world, mostly Britain and the USA, with some references to Canada. (Canada , by the way, is the only western country that kept regulation of its banks in place during the wild west deregulation of the 90s, and so avoided the huge government bailouts of the past couple of years.) He says the beginning of the craziness came with the fall of the Soviet Union. Our pure capitalism before that time was tempered by a nod to some socialist government programs to show how our system could 'do it all' and more efficiently. Once communism was proven a failure, capitalism was embraced in its purest, unregulated form. It is, indeed, the strongest engine for economic growth, but also leads to more social inequity, which we continue to observe. After the crash of 1929, the Glass-Steagall Act of 1933 separated investment banking (what Lancheaster calls 'casino' banking) from commercial banking (which he terms 'piggy-bank' banking). Beginning in 1982, it was criticized because banks were competing with many more varied financial institutions that didn't exist in the 30s. Finally, in 1999, it was abolished. Lanchester quotes Timothy Geithner (President Obama's Treasury Secretary) as saying that, by 2007, more than half of America's banking was being handled by a "parallel financial system" (p. 188). Because they are not governed by the same restrictions as banks (such as keeping a certain reserve of capital on hand and having deposit insurance), they really were very risky. Suffice it to say, Lanchester makes some pretty complicated ideas not only accessible, but entertaining (a feat in itself!). Be sure to get the newer paperback edition with an epilogue (which has a different cover from the one shown here). In the epilogue, Lanchester says he was hesitant to comment on specific laws that could well be in place to rein in the craziness by the time his book hit the bookstores. Alas, nothing has changed. We are set up to repeat the whole darned mess. It kind of makes you want to buy gold and emigrate to Canada...(less)

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Dec 26, 2010 Justin Evans rated it 4 of 5 stars

Shelves: history-etc

I read this because of Lanchester's essays in the LRB, which were well written, funny and clear-headed; the book's the same. I think I may actually now know what a collateralized debt obligation is. It's particularly useful for big-picture stuff. He traces and explains the financial instruments, and the mathematical research behind them, that reduced/massively increased the instability of the financial system; he traces the attitudes to home-ownership that increased demand for home loans while s...more

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Dec 19, 2010 Traci rated it 4 of 5 stars

I never thought I'd really want to read a book about the recent financial meltdown that most of the world has recently experienced. Why bother reading about it when I've been living it for the last two years? But this book looked a bit different. It purported to show the "how it all happened" on a fairly grand scale without necessarily pointing fingers at political parties. And some of the bits and pieces I read seemed slanted to the funny side, which would be a welcome relief - a book that didn...more

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Nov 30, 2010 Simon rated it 5 of 5 stars · review of another edition

It’s really important that everybody reads this book. As the author, John Lanchester, says right at the start, it’s because we (society at large, including our political overlords) don’t understand how finance works or financiers operate that they can get away with all the things they get away with. This charming, funny and surprisingly well-balanced book has helped me understand a little bit more. Of course, it’s also made me a lot more angry than I was before. I read the paperback edition that...more

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Jul 10, 2010 Jonny99 rated it 3 of 5 stars

A comprehensive Great Recession review. Communism collapsed as an economic system more or less in 1989 after seventy or so mostly dysfunctional years. Did capitalism outlast it only by another two decades? This intriguing argument is put forward by Lanchester unfortunately only very late in this book. Leading up to it is a fairly yeoman round-up with UK accented authority of what active business readers already know from dozens of Wall Street Journal articles and hours of CNBC.

Lanchester fills

...more A comprehensive Great Recession review. Communism collapsed as an economic system more or less in 1989 after seventy or so mostly dysfunctional years. Did capitalism outlast it only by another two decades? This intriguing argument is put forward by Lanchester unfortunately only very late in this book. Leading up to it is a fairly yeoman round-up with UK accented authority of what active business readers already know from dozens of Wall Street Journal articles and hours of CNBC.

Lanchester fills out the first seven sections with what have become the standard business fables of the 00’s: the bursting of the tech stock bubble, the Enron implosion, the brazen accounting fraud that took out Worldcom and Arthur Anderson, the complete relaxation of bank loan review standards and of the standards of bond rating agencies and the Great Recession that ensured. He trots out the usual suspects for pillory: Skilling (the departed Ken Lay gets a pass), Ebbers, Richard Fuld who earned hundreds of millions and a sizable pension for running Lehman aground, the ironically named Bernie Madoff and the entire ”boys will be boys” Bush 43 administration (Bear Stearns bankrupter Jimmy Cayne and golden toilet buyer John Thain are conspicuously absent). Intensified piling on is reserved for the U.S. SEC which is shown to be slightly less effective a watchdog as a low functioning WWE referee and for AIG’s Joseph Cassano whom Lanchester singles out as the man most singularly responsible for the whole train wreck (Cassano’s Financial Products division’s implosion bankrupted AIG and made it a $180 billion USD ward of the state yet Cassano was retained as a multi-million dollar a month consultant prompting a frustrated U.S. Senator to bark at a hapless AIG executive ”what would he have to have done to get you to fire him?! Lanchester also pours scorn on ”you” by which we assume he means consumers who borrowed and charged more debt they knew they could never pay back. Frugal readers who borrowed sensibly will find his lack of precision on this point insulting.

Readers interested in this type of book likely know all of this background already but Lanchester does organize and present it well. It is the final section where Lanchester finds his outraged voice and drops the Ayn Rand and Nassim Taleb review of literature. Instead of the ranks of the insolvent unable to pay their debts being just a few deadbeats, they are now legion and system-wide. Former world class blue chip business AIG, Citigroup, GM and others are now government operations. Fannie and Freddie are gushing red ink and nearly every EU country owes millions more than they can conceivably pay back to the every other EU country. Does the capitalist system work no longer? Lanchester leaves the argument here and it would have been more interesting to have taken that as the central contention and written from there.

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Jul 09, 2010 Harkinna rated it 4 of 5 stars

Don’t understand the financial meltdown? Can't tell a derivative from a nominative? Want to understand securitization but don’t know where to begin? Looking for an easy to understand explanation of the meaning of life? Ok, well this book can do the first three. Look to another book to figure out the meaning of life.

Mr. Lanchester typically writes novels, but found, while researching the financial meltdown for his next novel that what the world really needed was a primer on what had happened in t...more Don’t understand the financial meltdown? Can't tell a derivative from a nominative? Want to understand securitization but don’t know where to begin? Looking for an easy to understand explanation of the meaning of life? Ok, well this book can do the first three. Look to another book to figure out the meaning of life.

Mr. Lanchester typically writes novels, but found, while researching the financial meltdown for his next novel that what the world really needed was a primer on what had happened in the financial melt down. So he wrote it.

The book contains all kinds of interesting tidbits: How long do you think a million seconds is? How about a billion? Ready for the answer: a million seconds is less than 12 days; a billion seconds is almost 32 YEARS. That’s right. Remember that every time you try to understand the differences in magnitude between a billion and a million.

Another factoid: in 2008 the Royal Bank of Scotland was THE LARGEST COMPANY IN THE WORLD (by asset size). Really? A bank. I find this interesting because a bank does not make anything, instead it moves money around efficiently. (I am reminded of Lloyd Dobbler in Say Anything...)

Another factoid: The Credit Default Swap was invented by J.P. Morgan to fund the clean-up from the Exxon Valdez. This was the only credit default swap J.P. Morgan completed.

A final factoid: As we most know the US credit scoring system is run by FICO. 60 percent of American’s credit score is between 650 and 799. The median score is 723 (half of households fall below and half above this number.)

Mr. Lanchester also makes the somewhat lacking argument that the fall of the Berlin Wall lead to the economic decline in the West because we were no longer competing against anyone. Therefore there was no incentive for the continued increase in living standards for workers. Something did change after the fall of the wall, I am just not sure that his theory holds up because it does not take into consideration other countries with whom we are competing such as China or the whole of the African continent.

The author also explores the varying attitudes toward household debt throughout the world. For example, the French have much lower household debt than do Anglo-Saxon economies. During the credit crunch, British households owed 160 percent of their average income. French households by comparison owed only 60 percent of their average household income.

As a follow-up book I want to read Confessions of a Subprime Lender: An Insider’s Tale of Greed, Fraud, and Ignorance, by Richard Bitner. (less)

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Mar 13, 2010 Gordon rated it 4 of 5 stars

This is yet another of the many books analyzing the Great Recession of 2007-2009. The unique aspects of this book are two-fold, as near as I can tell: first, that the book was written by a novelist; second, that the author is an Englishman who writes about the crisis from the standpoint of both the US and the British perspective. Being a novelist seems to be a mixed blessing: on the one hand, the pages really fly by; on the other hand, a number of times he makes assertions about financial and ec...more This is yet another of the many books analyzing the Great Recession of 2007-2009. The unique aspects of this book are two-fold, as near as I can tell: first, that the book was written by a novelist; second, that the author is an Englishman who writes about the crisis from the standpoint of both the US and the British perspective. Being a novelist seems to be a mixed blessing: on the one hand, the pages really fly by; on the other hand, a number of times he makes assertions about financial and economic matters (although not the most critical ones) that just simply seem to be factually wrong. As for being able to fuse both an American and a British perspective, this is a clearly very big advantage, since most of the accounts of the financial crisis I’ve seen so far seem to be very US-centric.

In general, what I learned from this book is that the financial crisis was not so different on either side of the Atlantic. In both cases, the financial services industry grew to be a ludicrously large part of the economy (40% of corporate earnings in the US by 2005), under ever-weaker regulation, while compensation for the participants grew ever more stratospheric. Bonuses of tens of millions a year were not uncommon for Wall Street and London traders and executives. Meanwhile, financial instruments grew ever more complex and inscrutable – the famous Collateralized Debt Obligations and Credit Default Swaps whose risks were understood by nobody – and the housing market got more and more inflated. It was bound to end badly, and it did.

The question now is: will anything much be done to prevent a recurrence of the financial crisis? On the evidence so far, not likely. The model seems to be this: profits are privatized, losses are socialized. In other words, when the system is humming along nicely, the financial players will be paid exorbitantly well; when the system comes crashing down, taxpayers will come to the rescue. This of course creates a foundation of what’s called “moral hazard” – if you make it clear that there will be no really serious consequences for those who take excessive risks, they will go right on ahead and take those risks. Why not? If they bet right, they win big. If they bet wrong, they lose nothing.

Nobody really comes out of this sorry tale looking very good except for a handful of prescient economists plus the folks who run and regulate the Canadian banking system. Those canny Canadians somehow managed to avoid turning their banks into casinos, and came out of the global crisis looking awfully clever.
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Jan 23, 2010 David rated it 5 of 5 stars

Shelves: read-in-2010, unexpectedly-terrific

I'd been putting off thinking about the economic meltdown. It just seemed like a surefire trigger for righteous indignation. Helpless, righteous indignation. And what good is that - it's the stuff that heart attacks are made of (note: not ulcers - they come from bacteria) - feeling angry about stuff you have no control over just leaves you out there on the heath, shaking your fist at the uncaring deities above.

Well, actually, it turns out that the exercise can be quite cathartic. John Lancheste...more I'd been putting off thinking about the economic meltdown. It just seemed like a surefire trigger for righteous indignation. Helpless, righteous indignation. And what good is that - it's the stuff that heart attacks are made of (note: not ulcers - they come from bacteria) - feeling angry about stuff you have no control over just leaves you out there on the heath, shaking your fist at the uncaring deities above.

Well, actually, it turns out that the exercise can be quite cathartic. John Lanchester's explanation of the economic meltdown of 2008-2009 gets my 5-star rating for a number of reasons:

* it's short, but comprehensive - in just over 200 pages, he tells you not just what happened, but how and why
* it's brilliantly written - Lanchester, a novelist and regular contributor to "The New Yorker" and "London Review of Books", hits the ideal combination of explanation and analysis. When he started his research from the book, he did so as a smart, intelligent outsider, with the curiosity and bullshit-detecting skills of a keen reporter, all of which makes him an ideal guide.
* the author's ability to explain complicated technical material in a way that is succinct, but crystal clear
* even though some of the book's implications are pretty depressing, Lanchester is authoritative, clear-sighted, and extremely funny
* his ability to place events in the relevant historical and cultural perspective is impressive

Before reading "I.O.U.", the only other work by Lanchester that I had read was his debut novel "The Debt to Pleasure" (which won the Whitbread award, among other prizes). That book had a certain appeal, but was also quite disturbing. This latest book is a terrific accomplishment, and I have no reservations about giving it my highest rating.

One of the metaphors that Lanchester concludes with is borrowed from climate scientist James Lovelock, who observed, about 20 years ago, that what the planet needed was the equivalent of a small heart attack. Such an episode, in an individual's life, is often beneficial, because it forces the person to fact unpleasant facts and to adopt a healthier lifestyle. In Lanchester's view, the recent economic crisis, is the equivalent of laissez-faire capitalism's small heart attack. We have the chance to insist that our governments change the rules to make sure that it truly can never happen again, because even if there is only the ghost of a chance that it can, it will; that's the nature of modern markets. Failure to make the needed changes at this point is the equivalent of celebrating our release from hospital with a carton of Rothmans, a bottle of tequila, and a supersized Big Mac with jumbo fries.

In other words, it's time to abandon the hedonic treadmill and hop on a real one.(less)

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Jan 20, 2010 Todd rated it 5 of 5 stars

Shelves: kindle, finance

I really enjoyed this book about the financial crisis by a UK novelist. This isn't a typical journo tick-tock hack jobs that are littering book store windows these days. Mr Lanchester -- a fancy-pants writer who writes for New York Review Of Books and London Review Of Books -- writes with humor and clarity, two traits needed for a subject like this.

The book begins by putting the financial crisis in historical context. (Most financial books take a Battlestar Galactica approach to crashes: All thi...more I really enjoyed this book about the financial crisis by a UK novelist. This isn't a typical journo tick-tock hack jobs that are littering book store windows these days. Mr Lanchester -- a fancy-pants writer who writes for New York Review Of Books and London Review Of Books -- writes with humor and clarity, two traits needed for a subject like this.

The book begins by putting the financial crisis in historical context. (Most financial books take a Battlestar Galactica approach to crashes: All this has happened before, and all this will happen again.) The roots of this crisis are traced back to the fall of the Berlin Wall and collapse of the Soviet Union in which communism is discredited as a viable economic model. Capitalism, now freed from even having to pretend to make concessions to the socialists on the left, begins a 20 year end zone victory dance.

A "culture of douchebaggery," as he calls it, soon runs rampant in the financial sector, systematically bullying governments into repealing laws passed in the wake of the Depression and passing laws forbidding regulation of newly invented financial products. Derivatives are used to amplify gains instead of hedge risks. International borders become legal loopholes for large corporates to do what they want. Risk is put in neat little packages, given ridiculous ratings by agencies, and passed on to third parties.

Mr. Lanchester compares the actions of the financial industry over the past few decades to discovering that cameras used to detect speeders don't work if you drive fast enough and then using that knowledge to drive 70mph through residential streets. Eventually someone bad is going to happen.

There are some sections about Baltimore and Detroit and how a bunch of people lost their houses. I'm probably a jerk for saying this, but I find this to be the least interesting part of the book because I've already heard this story a bunch of times in the NYT and in Michael Moore movies.

The book ends with a prediction of decades of unrest and even violence once society starts to absorb the cost of this crisis. The author reminds us that the bill for all these bailouts won't be presented until we are safely out of the recession. When the bill does come due there will be inflation and fewer jobs (at least fewer government jobs), the tax base won't have enough left over to support the load of retirees, infrastructure will be minimally maintained, cats and dogs will be living together. It will be chaos, but I'll bet it will have a very interesting music scene.

Canada is held up as an example showing that things didn't have to turn out this way. That's good news because it's looking like I may want to move there in a few years.(less)

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Apr 28, 2011 Sofia rated it 5 of 5 stars · review of another edition Recommends it for: Everyone

Shelves: economics, non-fiction

Posted on my book blog.

Like a lot of people in the world today, I've been struggling for a while to truly understand just how things got to be the way they are right now. Even with everyone and their uncle talking about the crisis, most of what is said concentrates on throwing accusations to one another, and I've missed seeing a systematic, organized account of what went on.

I admit, I'm not the most economically savvy person - my education has been focused primarily in the natural sciences and...more Posted on my book blog.

Like a lot of people in the world today, I've been struggling for a while to truly understand just how things got to be the way they are right now. Even with everyone and their uncle talking about the crisis, most of what is said concentrates on throwing accusations to one another, and I've missed seeing a systematic, organized account of what went on.

I admit, I'm not the most economically savvy person - my education has been focused primarily in the natural sciences and art. But I like to have basic knowledge of pretty much everything (not the healthiest of habits, I know) and not understanding the economic principles behind the crisis upset me, which is why I read this.

This book might just be the most important book I've read so far, this year. It's a great introduction for those who, like me, don't necessarily understand derivatives, credit default swaps, securitization, or how bail outs work. Beware though, this is not for the faint of heart - it's not easy to wrap your head around the sheer craziness of the financial systems, and the unfairness of it all is even harder to accept.

My country is now in the middle of this whole economic shenanigan. A lot of the things in this book, being mostly US and UK-centric, don't apply to us, and our situation can't be explained only by the financial system (our political systems played a big part too), but it's not hard to see that most of what went on globally is a direct consequence of the financial system's irresponsibility. It’s not hard to see that, after the housing and personal credit bubbles burst and financial institutions no longer had that source of high-risk, high-interest rates income, they had to find something else to milk for money. That something, it turns out, is entire countries. And the infamous rating agencies, the central banks, the IMF, they're all part of a broken system that results solely in putting money in the hands of the people who need it the least.

I only wish that more people would read things like this to truly understand what went on. After all, a big part of the problem is that most people had no idea of what was going in. Instead, I suspect most people just won’t find the attention span needed, and will just keep on looking for someone else to blame, not to mention keep on being more concerned with money than with value. That’s human nature for you.

As it says on the book:

Public rage is like lightning, and tends to discharge its energies at anyone who has the bad luck to be prominent in the wrong way at the wrong time. As for where the anger would go if it were properly directed, that’s easy to answer: at the banks, and at the governments which let the banks do what they did.

Highly recommended for everyone.(less)

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Feb 05, 2010 Acacia rated it 4 of 5 stars

Shelves: cultural-criticism, journalism, laughed-out-loud, top-notch-insight

As someone else mentioned a lot of this isn't new information if you're a consistent consumer of public radio or the NYT. More than anything else I like Lanchester's style and the fact that all this information is in one place. The socio-psychological aspects of the book illustrate well why no one should spend the overwhelming majority of their waking hours looking at nothing but numbers. After a few years you start forgetting what people are actually like, or that there are indeed human beings...more

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Mar 24, 2013 Susan Francis rated it 5 of 5 stars · review of another edition

Shelves: non-fiction, books-reviewed, five-star-reads, read-in-2013, talking-books, thought-provoking

I am part horrified part fascinated by the state of the global economy. I am constantly looking for someone - anyone - to clarify how we got here. This has to be the best clarification to date. It isn't pretty - more like depressing with a gloomy ending - but, as they say, knowledge is power and maybe what is needed is for more of us 'mere mortals' to grasp just to what extent the financial sector f*cked things up for everyone - and it is colossal - and say 'no more!' Because governments aren't...more I am part horrified part fascinated by the state of the global economy. I am constantly looking for someone - anyone - to clarify how we got here. This has to be the best clarification to date. It isn't pretty - more like depressing with a gloomy ending - but, as they say, knowledge is power and maybe what is needed is for more of us 'mere mortals' to grasp just to what extent the financial sector f*cked things up for everyone - and it is colossal - and say 'no more!' Because governments aren't willing to and so it could happen again.

It turns out there were numerous contributing factors over many years and it started with the fall of the Berlin Wall - an interesting theory I haven't heard before, but makes sense. Then there was globalisation which led to almost everything being made in China, making China wealthier than ever, leading to China using that wealth to invest heavily in the US economy. The UK went from a country that produced stuff as well as services to one that produces almost nothing and only provides services, the biggest market being financial services, on which it is now dependent.

I did get lost by some of the explanations, such as the point of mortgage backed securities and the concept of risk management in banking (which is unlike any other kind), but I grasped enough to get why they were major contributing factors to the meltdown and subsequent credit crunch.

Lanchester made an interesting point with regard to blame, an opinion I have held ever since 2008 but hardly ever hear or read in the media, which is as much as bankers and governments who failed to regulate them are responsible, so are the collective 'we'. From our obsession with owning property and getting excited as the value continued to go up (into infinity and beyond?) to our gorging on credit to finance everything from our luxury holidays to our must-have Mulberry handbags.

In the western world whenever there is a major incident that affects the lives of the people, such as a major accident rendering it health and safety related, human rights abuse, or terrorism, that country's government tends to step in and create laws to (a) protect its citizens and (b) ensure said incident doesn't happen again. What I learned from this book is for the first time governments (and I mean UK and US in particular) aren't prepared to step in. Why? Because the banks are 'too big to fail' and they are too powerful for governments to mess with. So the result is - 'we', as in the tax payer, will just have to keep on paying for the reckless behaviour of the banking sector (to infinity and beyond?).

Highly recommended.(less)

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May 06, 2010 Todd Martin rated it 4 of 5 stars

Shelves: finance

The global economic collapse was caused by financial institutions aided by a government mindlessly dedicated to laissez faire markets, and none of them saw it coming. The banks, whose primary purpose is to manage risk, failed miserably by creating ever riskier pools of investments. The government neglected to regulate a free market system which, as always when left to its own devices, had degenerated into a fraudulent pyramid scheme. Of course you know the rest of the story, the malfeasance of t...more The global economic collapse was caused by financial institutions aided by a government mindlessly dedicated to laissez faire markets, and none of them saw it coming. The banks, whose primary purpose is to manage risk, failed miserably by creating ever riskier pools of investments. The government neglected to regulate a free market system which, as always when left to its own devices, had degenerated into a fraudulent pyramid scheme. Of course you know the rest of the story, the malfeasance of these wrongdoers was punished severely and failsafe systems were put into place to ensure such an event could never occur again …. Right? Uh, no – being too big to fail the financial institutions were bailed out with taxpayer money, the executives were paid huge bonuses and the politicians have yet to enact any meaningful reform. Absolutely nothing about the system which has wreaked global economic havoc has changed. Feel better?

John Lanchester does a very nice job explaining how we got into this mess in I.O.U.: Why Everyone Owes Everyone and No One Can Pay. And the failures didn’t just include the legislators doing the bankers bidding, the regulators who were asleep on the job, the unscrupulous and greedy bankers, or the clueless economists who didn’t see it coming. It was also a failing of the general public, who participated in the overindulgence of the housing bubble and failed to hold the government’s feet to the fire.

Markets are not sacrosanct. They are human inventions and therefore subject to human error, and weakness. The free market has failed catastrophically … as completely and utterly as it is possible to fail. And those who expound a free market ideology were all wrong … as completely and utterly as it is possible to be wrong. Let’s hope the lesson has been learned and that the reform efforts currently underway will put the watchdogs back on the beat. Otherwise next time (and there will be a next time) we may not be so lucky as to side-step a global depression that will make us nostalgic for the 1930’s.
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May 12, 2012 Iain rated it 4 of 5 stars · review of another edition

Lanchester wrote this guide to the economic collapse after researching his new novel Capital which is set in Londons financial district. He sets out to understand the what, why and how of the great financial meltdown.

The conclusion he reaches is that there was a specific thing (sub-prime mortages) in a specific system (credit default swaps) that was allowed to turn bad by a specific climate (the free market anything goes attitude). This creation of something with potentially disasterous outcome...more

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Nov 26, 2011 Mark rated it 4 of 5 stars

Brilliant and effective little book. Surely Lanchester's finest insight is the comparison of modern finance to modernist art:

"Finance, like other forms of human behavior, underwent a change in the twentieth century, a shift equivalent to the emergence of modernism in the arts--a break with common sense, a turn toward self-referentiality and abstraction, and notions that couldn't be explained in workaday English."

"If the invention of derivatives was the financial world's modernist dawn, the curr...more

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Dec 04, 2010 Jim rated it 5 of 5 stars

Shelves: business, non-fiction

Entitled Whoops! in the UK, this is one of the best overviews of the financial crisis I have read, largely because it assumes you know nothing about things like derivatives, arbitrage and futures, and thus explains them in a straightforward non-technical way. We are not all mathematicians or game theorists, thankfully, but we'd like to slag off and feel more streetwise than those who are, and this book kind of hints you might have a chance at it. Some nice and simple ideas are put forward, like...more Entitled Whoops! in the UK, this is one of the best overviews of the financial crisis I have read, largely because it assumes you know nothing about things like derivatives, arbitrage and futures, and thus explains them in a straightforward non-technical way. We are not all mathematicians or game theorists, thankfully, but we'd like to slag off and feel more streetwise than those who are, and this book kind of hints you might have a chance at it. Some nice and simple ideas are put forward, like that since the fall of the Berlin Wall capitalism strode rampant over the ruins of the worker's utopias with nothing to hold it back. Suddenly everyone looked to finance to provide the measuring stick for society, adopting targets, bonus cultures and a "winners win" philosophy with the Devil taking the hindmost. Formerly traditionally collectivist societies, such as Iceland, suddenly thought "Fuck the poor", and then turned the majority of their citizens into just that while only one or two Viking warriors enjoyed the spoils of the financial rape and pillage. The banks failed to spot that if something looked too good to be true then it probably was, and became carried away by making offers they couldn't understand until suddenly the music stopped and people turned up at Northern Rock asking for their money back.
There are several messages in this book that you feel should be sprayed in mile high letters in the City, namely Your Brand of Capitalism Failed! Or that having a big brain doesn't mean you have any common sense. I still feel there is an immense intellectual snobbery in the financial markets used to try and justify their obscene packages. This book tries to show how these intellectual emperors have no clothes.
There has to be some new thinking about the system that sees winner taking it all and leaving everyone else with nothing, but as you see the bonus pot for Goldman Sachs in 2010 you really wonder if anything was learned at all? I would have liked to see more suggestions as to what we, non-City, non-media or non-Government people could do to reign in this culture of pure greed, rather than sit and moan and wait to bail out the next band of idiots. This is a start, however, and if we had more people like Lanchester writing with an attitude of real disdain and disgust over what has happened to our society, while wanting it to change for the better, the message might begin to get through.(less)

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Apr 13, 2010 Heath rated it 5 of 5 stars

Instead of writing a review, I'll quote a few of the many great passages:

"You have to ask yourself how intelligent people could ever have come to persuade themselves [that the housing market would never go down:]. I'm only forty-seven, but this is the second time in my adult lifetime--the second time in my lifetime as a mortgage paying property owner--that property prices have fallen more than 20 percent. It seems willful and bizarre and well over the fine line between clever and stupid for enti...more Instead of writing a review, I'll quote a few of the many great passages:

"You have to ask yourself how intelligent people could ever have come to persuade themselves [that the housing market would never go down:]. I'm only forty-seven, but this is the second time in my adult lifetime--the second time in my lifetime as a mortgage paying property owner--that property prices have fallen more than 20 percent. It seems willful and bizarre and well over the fine line between clever and stupid for entire banks to have persuaded themselves that such a drop in U.S. home prices was not just unlikely but trillions-and-trillions-to-one unlikely. What makes this even less excusable is that equally unlikely events had happened not long before--yet the models of risk and probability had been allowed to remain intact."

"Banking is all about the management of risk; and in this central respect, the bankers massively failed. They did so by relying on inaccurate mathematical models which they themselves didn't fully understand. The result was that they failed as utterly and completely as it is possible to fail. They weren't just wrong in practice, the way you are wrong if you call heads and a coin lands tails; they were philosophically wrong. They were exposed as doing something which was contrary to the nature of reality."

"A very senior Treasury figure reports that a bank board member came up to him a social function and said he had good news: "We're no longer going to get involved in things we don't understand." He added, 'We now own his bank.'"

"Just to repeat the basic point: a 20 percent drop in U.S. home prices, not on the face of it an extraordinarily unlikely thing, was enough to cause a global banking crisis that nearly destroyed the entire system, followed by a global recession verging on depression. So why didn't more economists seem aware of this possibility? Has the profession really drifted that far away from the real world? The short answer is that with some stellar exceptions--Shiller, Roubini, Krugman, and Kay--yes, it has. The profession's preference for textbook-perfect academic models of phenomena led to it being AWOL during the biggest economic crisis since the 1930s. A profession whose job it is to make sense of economic phenomena collectively failed."
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Aug 03, 2010 Alistair rated it 3 of 5 stars · review of another edition

this is about the credit crunch and explains what happened in a financial sense . if you don't know the difference between a CDS , a put option , a CDO and a cheese sandwich then this book explains in a chatty way how it all worked or finally did not work .
it is a very readable book but i suppose i wanted to read a book more like Too Big To Fail which gave a blow by blow account of the people involved and the the day to day drama of the collapse .
the summing up was excellent and although blami...more

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