To those who don’t speak it, the language of money can seem impenetrable. Fortunately, John Lanchesterthe best-selling novelist and reporter hailed by The Economist for "explain[ing] complex stuff in a down-to-earth and witty style"is here to bridge the gap between the money people and the rest of us. With wit and candor, Lanchester explains more than 300 common words and phrases from "AAA rating" and "amortization" to "yield curve" and "zombie bank."
|Publisher:||Norton, W. W. & Company, Inc.|
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About the Author
Barnes & Noble Review Interview with John Lanchester
In his 1975 popular economics book Money: Whence It Came, Where It Went, economist and essayist John Kenneth Galbraith famously said, "The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it." Forty years later, it seems sometimes as though things have only gotten worse.
In response, John Lanchester, author of 2012's critically acclaimed novel Capital, has penned a new book called How to Speak Money. It's composed of several chapters of prose that bookend a humorous and acerbic dictionary of financial nomenclature whose definitions are undergirded by a desire to illuminate the counterintuitive and sometimes deceptive realities behind recurring phrases like "austerity" and "business model." In a representative passage, Lanchester describes the latter term as "so ubiquitous it [seems] an obstacle to thought."
Lanchester is both an enthusiastic and cautious critic of high finance and money-speak, aware of both the pitfalls of economese and the elegance of its assumptions. "The lack of definitive conclusions isn't a weakness in the field; it's what's interesting about it," he writes. In the course of the chapters that open and close the book, he carefully explains what he sees as one of the fundamental problems with money talk: the insularity of its lexicon means that its useful aspects are subordinated to the priorities of the people who understand it, not society at large.
Lanchester vividly illustrates the gulf between the hoi polloi and the Masters of the Universe in his description of his experience at Ireland's Kilkenomics festival in fall 2010, "the world's first ever festival of comedy and economics." Concocted by prescient Irish economist David McWilliams and comedy producer Richard Cook, the festival served as a forum for the strange mood brought on by Ireland's sudden reversal of economic fortunes in the wake of the 2008 financial collapse: "a mixture of resignation and fury, alternating between the two feelings so quickly it was almost as if there was a bizarre new hybrid emotion: blazingly furious philosophical resignation."
I sat down with Lanchester at the McNally Jackson bookstore in Manhattan, where he was about to speak Money at a reading of the book. What follows is a transcript of our conversation. -Charles Reinhardt
The Barnes & Noble Review: One of the things I liked about this book is that you're trying to walk the line between two simultaneous realities about money-speak: On the one hand, jargon lets you render a concept palatable that would otherwise be unpalatable, such as "right-sizing (layoffs)," which you mention in the book.
But there's also a less sinister purpose for jargon, which is to condense complex ideas. How do you reconcile those two competing realities?
JL: People are very interested in the question of intent. The question is always: "Are they doing it on purpose?" And what I think is that actually it doesn't matter. Say someone is talking about super-synthetic CDSs, made of synthetic CDOs that are based on RMBS. Is that a deliberate attempt to flummox you? Or is it just an efficient use of very compressed technical language? I think the crucial point is that if you don't know, it doesn't matter, the effect is the same. And the intent thing can become a distraction.
I started from a position of not knowing what things meant. And sometimes with these things, you go on a strange journey. Take something like "securitization." You go on this learning trajectory where you think, "Hmmm, it's security,' is it making something safer? Has it something to do with insurance?" And then you learn that it's about turning things into tradable securities. In other words, if I've lent you money, instead of taking the risk myself, I just turn that loan into something I can chop up and sell off. And then you think, "Oh shit. That's the opposite of safer. Actually I'm using this to magnify my bets and spread risk throughout the financial system." And so I think some of my feeling about the purpose of the book is to capture that moment of "Oh, that's what it is."
BNR: What is more important for understanding the Financial Times: math or English?
JL: I'm a writer so maybe I would say this, but for me the language is both the first obstacle and the main obstacle, because you can't even bring the math to bear if you literally don't know what the words mean.
When you don't understand the math, you know you don't. So in a weird way, there's a kind of transparency to it. With the linguistic thing, you can sort of be in a fog.
But I would paraphrase Doctor Spock: Trust yourself, you know more than you think you do. Civilians aren't going to be able to model derivatives transactions; I know my math's pretty good and I can't. But you can have a sense of what the principle is, and enough of one to know whether you think it's something that does what it's advertised to do: "Increasing safety, managing risk, blah blah." Or if it is, as Warren Buffett said, a weapon of mass destruction.
BNR: Talking about weapons of mass destruction, I wanted to talk a bit about failed hedge fund Long Term Capital Management, whose failed bets almost took the whole financial system down in 1998. I think of them as being an archetypal example of complexity doing the opposite of what it's supposed to do. They had this model, they had the guy who literally wrote the book on modeling derivatives, Myron Scholes, working on their team, and they had this concept that all bond spreads eventually converge . . .
JL: . . . As if it's a principle of physics. As if it's on the same level as "water flows downhill." Gravity operates on the inverse square law, bond yields converge on the price of the bond.
BNR: And they have this incredibly boring name, coming back to language. "Long Term Capital Management." That sounds great. I'll give my money to Long Term Capital Management.
JL: "Because it's long term, and they'll manage my capital." And a more honest name would be "Gigantic, Partially Understood Gambles, Inc." But that's a less soothing name.
BNR: But then, they have two Nobel Prize winners on their team.
JL: There is that Nassim Taleb thing about collecting all the Nobel Prize winners and chucking them in the hoosegow.
There's a structural flaw in economics about its knowledge claim. And a lot of economics students are very exercised about this. They don't want to just be given models and told, "This is how the world works. Here are some equations, go forth and build thy models." They want answers, they want a way to reconnect economics with the work done in the moral sciences.
BNR: Is economics the "imperial social science," as Gary Becker said?
JL: No, but I think it has imperial aspirations. It's Rome in AD 50. You can get some useful results by thinking economically. But you also get useful results out of economics by applying other mindsets too. The reverse applies. And I do think that the metaphor of a toolkit or a set of techniques is a more useful or accurate one. There are things in sociology that you can't get from economics.
If you want to study how a big bank works, and could only send in one crack team of either economists or sociologists, I'd send in the sociologists. Or the anthropologists.
BNR: You have this great part in your book where you talk about how knowledge builds on itself; once you recognize the taste of different wines you can start moving into greater and greater levels of complexity of knowledge about them. Do you think we can reach a point where the complexity of finance is its own undoing?
JL: I think one of the reasons that Michael Lewis's superb book (Flash Boys) has had so much traction is that people knew there was something weird happening in markets, but it took him to explain this almost Wittgensteinian thing about how the word "market" causes you to imagine an exchange that bears no relation to what happens now. It is not a market in the sense that the word is generally understood. It's algorithms executing strategies against each other. Almost all of it in a zero-sum way. Spot the social utility! Good luck.
This book is a benign tumor that grew out of writing Capital. I wanted to talk about why London had changed and how it had changed and why, and what the drivers of that were. Because the change had been astonishing. And you can't really exert pressure on that without starting to think about how finance has reshaped things.
BNR: I like your comparison of repurchase agreements to selling something to a pawn shop, but of course they're really an accounting trick.
JL: If the electorate had a firm sense of what repos were, they'd be outraged. Imagine if you could do that yourself when the audit's coming round. You go to your neighbor and just ask "would you take my car off my hands for some cash? And I'll take it back off you in the next few days?" And then the auditor looks at your books and says, "Oh, you have all this cash, oh that's great." I know that's a cartoonishly simple example, but that's what a repo actually is, and it's totally endemic. And you can see where it came from, you need to balance the books at the end of every working day, we get that, but for it to have turned into this sort of monster . . .
BNR: You talk about this fear you had as you were getting deeper and deeper into the discipline where you were worried about becoming one of "Them." How does one avoid becoming one of "Them," and what does that mean?
JL: Well . . . we're having this conversation, but I bet we could have another one that would make the minority of readers who could follow it say, "Oh, great," but we'd effectively be talking to ourselves and this little subset. You can get a lot said very quickly if you're not having to explain repos and QE or regulatory arbitrage. When I'm with those people, sometimes we talk like that, and there is something fun about it. It's just that it's very, very excluding.
And as I describe in the book, this festival Kilkenomics, it was really interesting. The language has a gravitational pull. It's seductive; you want to talk the talk with the other people who talk the talk. And you need the comedians in there to say, "Hi, we don't know what the fuck you're talking about."
People laugh about things that trouble them. It's fascinating and it's heartbreaking. When I was there, it was that weekend that Ireland got their EU bailout, having said that they didn't need one. And they were on the point of collapse, and there was a real sense of democratic urgency about all those debates because it really mattered. "Are we going to pay back the money or are we going to tell the market to fuck off and default?"
I think something that's hard to grapple with is that question of geographical areas that are broken by modernity and broken by change. It's an easier thing to diagnose than it is to fix.
And sometimes it's an ideological thing as well. It's one of the darker themes about neoliberal economics; the idea that actually you need losers.
BNR: If the public educate themselves more and more about finance and economics and maybe even accounting, is there not the worry that if everyone adopts these tools they'll just end up making the same mistakes as bankers?
JL: Maybe, but I think the public don't suffer from the same temptations of complexity. There's nothing inherently sexy about it in society, whereas so much of banking is zero-sum gambling. I think the public can conceive that the social utility of a lot of these tools is nothing. You can't even argue that they pay their taxes, because the losers don't. They're booking losses. And I would hope that the question becomes "What does finance do for us? We can see that we're customers and consumers and depositors, but what's the benefit of this whole system that we permit and underwrite?"
--November 10. 2014