John Lanchester Archives - Bankers Anonymous

In reading and reviewing John Lanchester’s I.O.U. – Why Everyone Owes Everyone and No One Can Pay I continue my quest for the best contemporary histories of the 2008 Crisis.

One reason to study and understand a crisis like 2008 is to avoid repeating it. George Santayana’s pithy justification for historical review – “those who do not learn from history are doomed to repeat it,” – is apt, and not just because my father-in-law is a Santayana scholar.[1]

Another reason to study the 2008 crisis is to respond appropriately with a public narrative, and ultimately with financial policy, based on what we learned. I frequently shake my head at both the public narrative about what happened, and I also grit my teeth about financial policy. So I keep looking for the best accounts of the crisis.

Lanchester’s I.O.U. is one of the best. He’s a stunningly clear writer who usefully adopts colloquial language to explain financial concepts. Most non-finance readers need analogies and narratives to grasp a synthetic credit default-swap CDO, and Lanchester wields these beautifully.

Lanchester was researching contemporary City of London[2] life for his excellent Capital – which I reviewed here – when he realized that the financial innovations of The City were:

Fascinating in and of themselves
Completely opaque to non-financial people
Suddenly wreaking havoc around the world

The result is a clear, entertaining, and informative analysis of the causes of the crisis. Lanchester’s review is more comprehensive about the global financial system, for example, than Michael Lewis’ more narrowly-cast The Big Short, which relied on a few closely-drawn characters and their profitable trade against the sub-prime mortgage market.

Unlike the US-oriented histories of the 2008 crisis, Lanchester writes from the UK perspective, rounding out what we may already know from Andrew Ross Sorkin’s Wall Street-oriented Too Big To Fail, for example.

Lanchester reviews the proximate causes of the crisis

a) Extraordinary, hidden leverage in the world’s largest banks (Chapter 1)

b) Financial innovation in securitization models but with limited actual historical data behind the models (Chapter 2)

c) An over-reliance on home ownership as an investment, both in the UK as well as in the USA (Chapter 3)

d) A system of mortgage underwriting and securitization that removed consequences from the originators (Chapter 4)

e) An intellectual failure to consider our tendencies to misunderstand risk (Chapter 5)[3] and

f) A blindness of regulators to the hints of future disaster (Chapter 6).

Lanchester does not risk readers’ ire by shifting some portion of responsibility for the crisis from lenders to borrowers – something I actually appreciated about Edward Conard’s Unintended Consequences – but he’s got a satisfactorily complete narrative of the causes of the crisis.

Have you read a book yet on the 2008 Crisis that is funny, clear, accurate, and in plain English?

I owe you a recommendation.

Try I.O.U.

Now you owe me.

Please see related post: Book Review of Capital by John Lanchester

and please also see All Bankers Anonymous Book Reviews in one place

[1] Can I interest you in Santayana’s most accessible work, the 1935 novel The Last Pilgrim? This edition is edited by my father-in-law, and overall, good stuff. Among other things, The Last Pilgrim offers an interesting view of turn-of-the-last-century Boston Brahmin life. Boston Brahmins were, and are, some impressively thrifty folks.

[2] “The City of London,” or “The City” for non-financial folks does not mean the whole municipal entity including Buckingham Palace and Parliament and all the rest, but rather is shorthand for the capital city’s financial sector. In the UK when people say “The City of London” they mean the equivalent of saying “Wall Street” in the U.S.

[3] Lanchester acknowledges an intellectual debt to Nassim Taleb in this chapter, from his excellent books Fooled by Randomness and Black Swan.

Post read (6354) times.

I learned from Michael Lewis’ article in this month’s New York Review of Books that the English have a particularly literary strength compared to us Yanks.

After quoting a passage from John Lanchester’s Capital featuring the inner quotidian dialogue of a Londoner named Ahmed, Lewis observes:

You can find this sort of thing on every other page—a fresh and interesting description of a sensation you might have experienced a hundred times without ever having bothered to attach words to it. The talent for these sorts of small-bore social observations is peculiarly English—it kept Kingsley Amis in business for years, and still makes Alan Bennett’s diaries feel like required reading. Maybe it’s the bad weather. (All those hours trapped indoors, watching one another.) Or maybe it’s the literary side effect of a middle-class culture in which people are expected to be painfully self-conscious, clammy in their own skin, and alert to their own folly and deceptions, lest they be spotted first by others. Whatever the reason, the English really are just better at this sort of thing than anyone on the planet.

This strikes me as likely and true, so now I will be on the lookout for it ever after.

I also learned from Lewis that the English had a particular historic weakness, relative to us Yanks.

Lewis uses the article to point out the English historical evolution with respect to American Wall Street culture. In the early 1980s, he argues, London exhibited a curiously uncommercial attitude toward business and finance.[1]

Sometime in the last 30 years, however, an über-capitalist mentality seized the City[2] and its new, brash, Masters of the Universe. Lewis reviews John Lanchester’s new novel in part in order to describe the evolution of London’s new elite.

I write book reviews for this site

1. To organize my own thoughts about something I’ve read;

2. To save readers the risk of reading something they’re not sure they’ll enjoy, and;

3. Most often for the largest part, because the book review allows me to make a point about something that I already wanted to say.

The New York Review of Books is better at these latter two functions than any other publication I know of, and of course Michael Lewis is better at writing about finance than anyone else.[3] So you can imagine my pleasure on opening up this month’s NYRB to see Lewis’ review of an author I’d never heard of, who recently published a novel Capital about a diverse collection of characters in the City, in London.

Lewis clearly admires this hitherto unknown-to-me John Lanchester, even anointing him ‘one of the greatest explainers of the financial crisis and its aftermath.’ Further praise by Lewis about Lanchester:

He has a gift for taking a reader who knows nothing about a complicated topic and leaving him with the feeling that he knows all about it, or at least everything worth knowing. He makes you feel smarter than you are.

Which, of course, is what I would have said about Michael Lewis. Bottom-line: I’ve got to get John Lanchester’s book, Capital: A Novel.

Please also see my reviews of Michael Lewis’ books:

Liar’s Poker

The Big Short

And

Boomerang

Please see related post: All Bankers Anonymous Book Reviews in one place.

[1] Lewis related a hilarious (to me) anecdote from the early 1980s London, illustrating this curious lack of commercial attitude. He writes: “There was a small grocery store around the corner from my flat, which carried a rare enjoyable British foodstuff, McVitties’ biscuits. One morning the biscuits were gone. ‘Oh, we used to sell those,’ said the very sweet woman who ran the place, ‘but we kept running out, so we don’t bother anymore.’”

[2] “The City” is the London equivalent of “Wall Street.”

[3] I’ve previously reviewed three of his finance books, Liar’s Poker, The Big Short, and Boomerang.

Post read (6224) times.

Tag: John Lanchester

Book Review: I.O.U. by John Lanchester

Book Review, Review: Michael Lewis on John Lanchester’s “Capital”

Stay in Touch

Copyright 2024 © All rights Reserved. Design by Sweb Development