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

HOW BANKSTERS CREATED ZOMBIE BANKS AND BANKRUPTED TAXPAYERS

This book is undoubtedly the most informative of the "WHY" books and articles being published today about the world economic mess. Not only is it full of precisely explained facts but it is also full of metaphors that will have tears rolling down reader faces.
*One such metaphor is about deregulation and how the lifeguards (regulators)secretly poured blood into the water because they wanted to liven up the action with sharks.
*A casino attitude created the most destructive tool of all, the credit default swap or CDS. The metaphor used by the author on CDSs is one of using the invention of seat belts as the opportunity to take up drunk driving.
*Derivatives, products derived from real things (as in mortgages), are projected by banksters to have a greater value assigned to the derivative than to the underlying real thing (the mortgages). The summary metaphor on derivatives is a classic: "In an ideal world, one populated by vegetarians, Esperanto speakers, and fluffy bunny wabbits, derivatives would be used for one thing only: to reduce risk." Instead, derivatives wildly increased risk.
*Think about the cozy relationships between banks and states after 1989 (the fall of the Berlin wall) and you will see why the Japanese economy was changed into a comatose onlooker of global growth.
*The US banking sector has become so rich and powerful that it has excessive influence on US government policy....as in banks "too big to fail." This is why the zombie banks run by banksters have continued to be propped up by the government.
*The free market theory apparently has become a secular religion even though the rules governing markets were never handed down on stone tablets. Human beings create markets and human error destroys markets.
Readers who want a clear understanding of the problems in the world economy will gain insights from "IOU." A terrific book! Julia Hughes Jones, author of The Secret History of 'Weeds' or What Women Need To Know About Their History.

1 out of 1 people found this review helpful.

Better Books out there

A rather dry account of the financial crisis. Check all bankers are bad, check people with money are bad, check all bond brokers are evil, geez can someone come up with something new to write about.

After reading Endgame - this book fell way short of saying the same thing.

Very good account of the economic crisis

This is an outstandingly good introduction to our current economic plight. Writer John Lanchester explains the crisis in simple and humorous terms.

The banks' larger profits and bonuses came not because they were doing anything better, but just because they were making bigger bets. Between 1986 and 2006, the average return per year on banking shares rose from 2 per cent to 16 per cent. Andrew Haldane, of the Bank of England, explained, "Since 2000, rising leverage fully accounts for movements in UK banks' ROE [return on equity] - both the rise to around 24% in 2007 and the subsequent fall into negative territory in 2008."

Lanchester points out, "If we had joined the euro and our mortgages were tied to those groovily low euro interest rates, money would have been even cheaper, and credit even more easily available, so the housing bubble would have been even bigger, and the crash correspondingly crashier. (Two examples of countries where that happened: Ireland and Spain.)"

Chairman of the Federal Reserve Alan Greenspan admitted, "The consequent surge in global demand for US subprime securities by banks, hedge, and pension funds supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem."

Lanchester observes, "the credit crunch was based on a climate (the post-Cold War victory party of free-market capitalism), a problem (the sub-prime mortgages), a mistake (the mathematical models of risk) and a failure, that of the regulators."

As he notes, "the process of lending is no longer driven the legitimate desire of poor-but-reliable people to own a house, but is instead a manufactured process driven by capital which is set loose looking for people to sign up loans. An epidemic began of what has come to be known as 'predatory lending': mortgage lenders doing everything they could to sign up borrowers at higher-than-ordinary, sub-prime interest rates, so that the debt they created could then be pooled and securitized and sold on as tranches of various grades of CDO [collateralized debt obligations]." The USA has 250,000 mortgage brokers, mostly unlicensed and unregulated.

So, "we arrived in the bizarre position in which poor people struggling to pay back their mortgages had miraculously produced the world's most secure financial instruments. This was a fortunate conclusion to reach for both the banks which made money issuing the CDOs and the rating agencies which made money assessing them."

Goldman Sachs "went from having to end its status as an investment bank and take federal support, in September 2008, to declaring all-time record profits - with bonuses to match - in July 2009. The bank which would have gone under without government help, and had to borrow $10 billion from the taxpayer, was less than a year later setting aside $16.8 billion in pay, bonuses and benefits for itself."

In sum, it was "a huge unregulated boom in which almost all the upside went directly into private hands, followed by a gigantic bust in which the losses were socialized."

The OECD rates British banks the 44th safest in the world, six places behind Botswana. Canada's banks are the world's safest, because they are regulated, and this has been good for growth - Canada's incomes have risen by 11 per cent a year since 2004.

Lanchester proposes, "The change should be that, if a bank (broadly defined) receives any taxpayers' money, the existing shareholders are (broadly speak

Difficult reading

I've always "considered" myself intelligent, but I had a very difficult time reading I.O.U.. I repeatedly had to go over the same paragraph to comprehend the meaning of the author's words. This occurred through out the book. Others may find enjoyment in this book and economics may just not be my forte!

An Easy to Digest Economics Lesson for Everyone

This book is well written, fast-paced and on target. I bought the ebook version, which is terrific: I can access it easily on my iPhone and share relevant passages with friends and colleagues. Lanchester is a gifted writer who weaves the story of the economic crisis with strands of cultural literacy, history and even emotion. I recommend this book to anyone who wonders, "what the heck happened?" and "what in the devil is a derivative?" Now, thanks to this book, we can all know the answers.

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