Non-fiction reads: Whoops and Crisis Economics

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Being in the middle of this Euro crisis and the negotiations, and as a Dutch woman living in England with close family in other European countries, I cannot help but feel  very involved in what is happening with Cameron (England’s PM) giving  his ‘veto’ against the treaty last Friday and so in fact disengaging Britain from Europe.  I am a European, always will be, and was appalled at the stance taken by C and in particular, in the first instance, also by Nick Clegg  (his coalition partner) although the latter now seems to have realised that his party (the Lib Dem) is not actually backing Cameron in his poor judgement.

Like so many others though I did not really understand how we have arrived in this economic mess, whether in Europe, Britain or the rest of the world.  I had not understood  what exactly happened that precipitated the economic meltdown, yes, something about housing and high levels of debt, but I was not sure about the mechanisms or the real cause.  Having read Whoops by John Lanchester I must say I feel a lot better informed and actually followed the explanations and yes, I think I understand what the hell the bankers did do with the money, even though they themselves apparently did not quite understand the formulae they were using in order to arrive at the decision that it was ‘safe’ to lend and to lend and to lend more.  As long as you kept passing it onto other banks and non-financial institutions in complicated packages so that at the end of the trail no one actually knew any longer who owed the money or had the asset in the first place.  Something like that.  I loved this book as it gave me the sense that at long last I began to understand what had happened and so could actually form a view on the politics around banks, the City and bankers.

But what now?   As  Lanchester writes (in 2010), you look back and you wonder about the journey that has been made over the previous ten years and you wonder what to make of it.   You realise that:

‘Looking back, it turns out that we’ve just lived through an economic golden age, one based on debt and on an unsustainable credit bubble and underpinned by a financial system which was, it turned out, taking crazily miscalculated risks – but we didn’t know that at the time.  In fact, most of us had no idea it was a golden age, we didn’t know that we were living through what for many of us will turn out to be the best economic times of our lives.  I wish someone had told us….’

That’s exactly how I feel – suddenly it all seems to have come to a halt, what is there in the future for children and grandchildren to look forward to?  Could we have prevented this from happening?  Lanchester writes that to blame some thirty or forty people in the banking system or the City or in Government for being responsible for the financial ‘shenanigans’ may be true, but misses out something very important which is that so many of us were caught up in the good times ‘when they were rolling’.   And then there is the question we need to ask ourselves which is about how we allowed governments to do it – Lanchester points out that Britain has half of the total European credit card debt…..

His warning relates to the way we have accepted an economic metaphor that came to be applied to all aspects of modern life, especially where it didn’t below: for example in education, health etc the first conversation should be about values and principles and only then about costs and what you can afford as a society.  What has happened in Britain is that the idea of value has gradually faded to be replaced by that of price.

I think that there is the real indictment: the loss of value and the commodification of all aspects of our lives.  How do you turn that around?  Especially at a time when you have to pay the bill for everything that has been mismanaged?

On my Kindle I have another book that is about the economic crisis and that promises to be another readable account in terms of ‘a crash course in the Future of Finance’.  This is Crisis Economics by Nouriel Roubini.  The book’s aim is to bring crises back to the front and the centre of economic inquiry.   It also shows that crises are the norm, not the exception, in emerging as well as in advanced industrial economies.  Crises in the form of unsustainable booms followed by calamitous busts have always been around and that the most recent one is just one of many through the ages.  Usually they go hand in hand with creation of ‘newfangled instruments and institutions for whatever is the focus of a speculative fever’.   So in that respect there is a certain optimism that even if the near future does not look very rosy, perhaps in the longer term things will pick up again.

There is the example of the ‘tulip mania’ in The Netherlands in the 17^th century, when speculators apparently bid up the price of rare tulips to stratospheric levels.  Later there was the South Sea Company speculation in Britain.  And a number of examples are provided, including of course the crash in the 1930s.

The book quotes Aldous Huxley  who once commented that ‘the charm of history and its enigmatic lesson consists in the fact that, from age to age, nothing changes and yet everything is completely different.’  The difference between these various crises then was not in the magnitude of the greed but rather in the new structures and incentives and compensations that channelled that greed into ever higher and dangerous directions.

Sometimes non-fiction seems better than fiction, or maybe just more amazing!

Below is a link to a Guardian article that suggests as much.

Related articles

• No time for novels – should we ditch fiction in times of crisis? (guardian.co.uk)

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