A couple of years ago, while doing background research for a novel, the British writer John Lanchester discovered the global economic crisis. Realizing that he’d “stumbled across the most interesting story I’ve ever found,” Lanchester began to follow the crisis closely. I.O.U: Why Everyone Owes Everyone And No One Can Pay is the result of his observations. We all owe Lanchester a nonquantitative debt of gratitude for this lovely little book: I.O.U is a must-read for anyone with even a cursory interest in the reasons for the most serious global economic downturn since the Great Depression.
As the author of works such as The Debt To Pleasure, his Whitbread and Hawthornden prize-winning debut, Lanchester brings a novelist’s wit, narrative skills, and appreciation for the absurdity of the human condition to today’s financial crisis. While a 19th-century novelist like Balzac spent his creative energy writing fictional accounts of systemic financial impropriety, a 21st-century novelist like Lanchester finds himself composing a factual account of a story so unbelievable that, were it presented as a novel or movie script, would be dismissed by critics as ludicrously far-fetched.
Yes, Lanchester tells a truly tall tale. He describes today’s economic crisis as like slamming a car into reverse while crazily speeding down an empty freeway. If you were stupid enough to do this, Lanchester explains, “the car’s engine would basically explode; bits of it would burst through other bits, rods would fly through the air, the carburetor would burst into fragments, there would be incredible noise and smell and smoke, and you would swerve off the road and crash with the certainty of serious injury and the high probability of death.”
Tracing the crisis back to the triumphalism that greeted the fall of the Berlin Wall, Lanchester spends the first part of I.O.U detailing how we created an out of control financial economy that zoomed with ever increasing speed down the freeway. He is brilliant at recounting the madness that took over Wall Street in the post 1989 world. He compares the financial world’s increasing reliance on derivatives and other complex mathematical tools to the modernist movement in the arts: “a break with common sense, a turn toward self-referentiality and abstractions, and notions that couldn’t be explained in workaday English.”
Desipte — or perhaps it is because of — his novelist’s talent, Lanchester is actually very skilled at describing this complex economy in workaday English. After the collapse of the wall, he argues, capitalism found a new enemy: “itself.” Sprinkling his sparkling narrative with serious economic ideas and quantitative analysis, he tells the shocking story of a world economy driven by “liar loans,” “scams and tricks,” and other “bizarroworld” financial weapons of mass destruction which, like postmodernist theory, have neither center nor meaning.
The final catastrophe was, of course, inevitable. Yet Lanchester reminds us that, unlike the moral lacunae at the center of our global financial system, the 2008-2009 economic meltdown was rich with meaning. Having created unaccountable tools to enable impoverished and often unemployed people to “buy” real estate that they self-evidently couldn’t afford, the American banking system collapsed, triggering a $4.6165 trillion government bailout that is larger than the combined cost of the Marshall Plan, the Louisiana Purchase, the Apollo moon landings, the 1980s savings and loan crisis, and the wars in Korea, Vietnam, and Iraq.
So what can we learn from the crisis? Citing the groundbreaking work of Israeli economists Daniel Kahneman and Amos Tversky, Lanchester points to the absurdity of a financial system built by clueless mathematicians upon the ideology of rationality and yet operated by the most irrational creature of all — man himself. “As a species,” he reminds us, “we are rubbish about thinking about risk.” Today’s political challenge, therefore, is to liberate ourselves from the insanely complex financial tools which have so destructively fed the greed of irresponsible investment bankers.
“In a world running out of resources,” Lanchester reminds us, the most important word is “enough”. But I certainly haven’t had enough of John Lanchester. Fortunately, the financial crisis hasn’t gone completely to waste. With I.O.U., we have a wise testimony to the stupidity and greed of modern financial man. You owe it to yourself to read this hilariously profound book.