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

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

Written by John Lanchester

Narrated by James Langton


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

Written by John Lanchester

Narrated by James Langton

ratings:
4/5 (14 ratings)
Length:
7 hours
Publisher:
Released:
Jan 18, 2010
ISBN:
9781400185436
Format:
Audiobook

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Also available as bookBook

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Also available as bookBook

Description

The wildest story in the world these days is not fiction; it's what's really happening all around us as the world's global economy has gone into freefall. How did we get here? What does it all mean? How could so many smart people be so dumb and believe their own hype?



Accessibly, cleverly, and with mordant humor, journalist John Lanchester trots the globe in search of the answers to these questions-to Iceland, the scene of catastrophic bank collapse; to Hong Kong, the city of his birth built at the altar of free-market capitalism; to the high-stakes leveraging of Wall Street; and to the tragedy of lost homes in small-town America. And in his capable hands, we see and understand what went wrong and why.



Lanchester believes that the current crisis gives us an opportunity to bring about much-needed change and that a stronger and more compassionate system can emerge from the wreckage.
Publisher:
Released:
Jan 18, 2010
ISBN:
9781400185436
Format:
Audiobook

Also available as...

Also available as bookBook

About the author

John Lanchester is the author of the novels The Debt to Pleasure, Mr. Phillips, and Fragrant Harbor; and a memoir, Family Romance. He is a contributing editor at the London Review of Books and his work has appeared in The New York Times, The New Yorker, The Observer, and The Daily Telegraph, among others. Among several other prizes, including the Whitbread and Hawthornden Awards, Lanchester was awarded the 2008 E.M. Forster Award by the American Academy of Arts and Letters. He lives in London.


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4.0
14 ratings / 14 Reviews
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  • (4/5)
    I read this because of Lanchester's essays in the LRB, which were well written, funny and clear-headed; the book's the same. I think I may actually now know what a collateralized debt obligation is. It's particularly useful for big-picture stuff. He traces and explains the financial instruments, and the mathematical research behind them, that reduced/massively increased the instability of the financial system; he traces the attitudes to home-ownership that increased demand for home loans while said financial instruments tremendously increased the demand for borrowers; he somewhat gently traces the growth of the laissez-faire mindset. His solution to all this is a world-wide rejection of the growth-above-all mindset. That would be nice, but how exactly would we pull it off?

    Two problems with the book: the last two chapters a repetitive and dull. More importantly though, I worry that some of his translations (from professional/mathematical models to everyday language) might be a bit wonky. Particularly odd is the way he frames 'cognitive illusions'. Say a test for a disease is 95% accurate, and the disease affects on person in a thousand. You test positive. What's probability you have the disease? Lanchester says 2%: "if you test 1000 people, the test will give 50 positives, whereas only one of the population actually has the illness." It's been a long time since I did any statistics. But surely the test won't give 50 positives, but rather, 50 incorrect diagnoses for every 1000 people tested? There's nothing in Lanchester's presentation to say that those incorrect diagnoses *must* be false positives; they might be false negatives. I imagine the actual example is framed to exclude this possibility. On the other hand, maybe my maths is so rusty that I've messed this up. Very readable book in any case.
  • (5/5)
    If you are to read one book on the credit crunch and the scandalous things that the bunch of bankers got up to this is the one to read. I know, I have read most of them...
  • (4/5)
    Lanchester writes regularly for the London Review of Books: a magazine that can be very left of centre in its approach and so it is no surprise that in his history of the 2008 credit crunch Lanchester is clear in his views that it was the fault of the bankers; aided and abetted by the insane right wing governments of Thatcher in the UK and Reagan in the US. Thatcher and Reagan were both history when the crash happened, but unfortunately the Americans had George W Bush and England had Chancellor Brown (Blair was probably on his welcome home hero tour after the glorious Iraqi war). When the “too big to fail” banks actually failed, neither government would consider nationalisation although both the US and the UK had to partially take control of the most desperate cases by becoming major shareholders. The result was taxpayers money being pumped into the banks (and their inflated bonuses) as a rescue package and the tax paying public are still footing the bill.Lanchester’s book has the clearest explanation that I have read as to what actually went wrong. He starts off by reminding people about the mysteries of double entry bookkeeping and how this is the basis of much of the banks business; he goes on to explain about derivatives and how this led to CDS’s, CDO’s and the subprime loan market in the US. The bigger the risk the better the profit and if you can sell off the risk to other people then you really have touched the philosophers stone. He spices his explanation with actual events and some witty asides from the calamitous crash year. I have read other histories of the events in 2008, but Lanchester has simplified it enough for me to understand. It made me no less angry.Lanchester has other strings to his bow; he ties up the crash within the context of events in the late 20th century, surmising that the fall of communism had left capitalism as the only viable working system and an increasing belief in the power of market forces. He also spends some time thinking about the psychology of the finance men (I am presuming that they were mostly men) who worked in the banks and the financial industry and who really believed that they were “Masters of the Universe”. They could not or would not believe that they were doing anything wrong. He also talks about the difference between an industry and a business: people who make things generally see themselves as an industry and people who make money are in business. Capitalism needs both to work, but government support has tipped the balance too far over to the business side and the banks are big, big business.It all seems pretty simple now; a consistent policy in the US and the UK of deregulating the banks gave the green light for industry insiders to make lots of money. When the gravy train really picked up speed nobody wanted it to stop; too many people in the industry were getting very rich and they all believed that the money making spiral could go on forever. There were warnings, there were plenty of voices in the wilderness, but nobody wanted to listen. It seems obvious that if you are basing your business on extremely risky loans in the form of mortgages to people who are likely to default (the sub prime market in the US) then something has got to give. It beggars belief that regulatory bodies and government watchdogs went along for the ride. They must have realised it was not a question of if but when the crash would occur, although they might not have realised how big it was going to be.This is a fascinating piece of recent history, but like most historical events it is one we are reluctant to heed in the future. My own view is that while culture in the Western world (and particularly the UK and The US) are based around greed then the credit crunch will certainly occur again. Nobody was held responsible within the banking industry (at the time I would have been happy to see some of them strung up) now I think that a more fitting punishment would have been to put them in specially built prisons (funded by their bonuses) with a sentence that stipulated that they must play roulette on a giant roulette wheel every day until they lost all their money (it would make great television). Shame and blame is the order of the day for me.I really enjoyed getting angry again with John Lanchester. A Four star read
  • (4/5)
    Fairly light trot through the recent financial crisis. Clear and explanatory with some good jibes and personal touches here and there, along the "Would you credit it?" lines. Makes clear how the thing got out of control because of the abandonment of personal interaction and the consequent collapse of trust. A striking part is the mathematisation of finance and the unreality it led to, eg the leading financier describing the collapse as a something-sigma event, meaning a i in umpteen trillion chance where the trillions are more than the seconds in the history of the universe, whereas the guy had in fact seen half a dozen fairly major financial fold-ups in his own lifetime. I found this especially interesting after Cox's "e = mc2", where the largeness and smallness of the working parts of the universe are indeed factual but unimaginable.
  • (4/5)
    The best book I've read so far on the global financial crisis. He goes through it all with care, humour, and vituperation (where deserved). Despite my congenital disability with all things financial, I came out firmly convinced that I understood some of it. Maybe.
  • (3/5)
    IOU is a breezy overview of the financial crisis. It's great for anyone with no financial background and who somehow was unable to see a tv news report or read a magazine since 2007. With hindsight, it pulls together all the elements of the blowup, as if it were obvious, foreseeable, and inevitable. That is the benefit of hindsight, and Lanchester weaves it together as a coherent story that fits my description, with drama, with impact and with color.He explains beautifully how banking is bogus, from the very basic perversion of balance sheets on through to new formulas for new products that don't work, even in theory. The most damning revelation is statistical - that the masters of the universe actually believed their own theories that such a blowup was not statistically possible, for a period of time longer than the universe has been in existence.I was very concerned that there was no mention of the ratings agencies - but he came through, a little weakly, and very late, after page 208 (of 232), but hardly gave them the tonguelashing he gave others and which they richly deserve. They blessed these bogus products, for the money they received, and took down the entire world economy for their 40 pieces of silver. You must not minimize the role of the ratings agencies. They've gotten away with it utterly and completely.One point missed was Alan Greenspan's overlooking of bank balance sheets. Of all people, the detail-obsessed Greenspan should have noticed that banks' balance sheets were ballooning outside of all proportion to their actual state of affairs. Dangerously, disastrously. That was after all, his very business. No one has ever called him on that one.There is also an overriding theme that I got from IOU that the author didn't. That is debt. It seems that all efforts in investment banking, mortgage banking - banking in general - is to put customers in debt. The more they can put people in debt, the richer the bankers become - and of course, that's all that matters. So ways were found to make subprime loans, and then bundle them to make them more creditworthy than quality loans. The Thatcher government was all about getting people out of rentals into private homes they could not afford the way she ran the country. In the USA, no-docs loans, liar loans and the rest were all ways to get people into debt. If you read David Graeber's book Debt, you will see how powerfully crippling this is. It's not a zero sum game; you don't get rich by the amount you put someone else in debt. Leverage makes it far worse than that. And IOU dances all around that fact without ever recognizing it.So while IOU is an easy, breezy overview, it really is just an good overview of a very deep flaw.
  • (4/5)
    A fascinating analysis of how the recent economic downturn was allowed to happen, and how deregulation (to the point of willful negligence) made the crisis not merely possible but virtually inevitable. Lanchester writes with his customary clarity and offers a startlingly cogent yet comprehensive of all the factors that coincided so disastrously, and one finishes the book amazed that it hadn't all happened years before.
  • (3/5)
    The 2008 financial crisis from a British point of view, well explained in plain language.
  • (4/5)
    The best "easy read" explanation of the credit crunch I have read to date. There are better evidenced and more detailed analyses to be had, but this is the best one I have seen so far for providing an explanation to non-economists. Oh yes, and it's funny too.
  • (3/5)
    Short, readable, and not very deep book on the financial crisis, though he’s quite mad at the bankers and writes engagedly and enragedly about the stupidity of the risk analysis they undertook. A British perspective makes this different from many of the financial crisis books I’ve read; Britain is the closest to the U.S. in ideology—both bank-related and homeownership-related—in Europe, so the similarities are quite striking.
  • (5/5)
    Whoops! or Why Everyone Owes Everyone And No One Can Pay, by John Lanchester, is a book about the 2008 world financial crisis and what caused it. The greatest triumph of Whoops! is that – without over-simplifying the details of what can appear (deliberately I think) to be a forbiddingly complex subject – it’s a book that can be read and understood by /anyone/.I’m serious: if you can read, you can read this book. In fact, you should. In the UK (where I'm typing this) we're currently experiencing the biggest cuts to public spending and services that have ever been attempted. If you want to know why that’s happening – why your school library can’t afford new books and your local public library is in danger of being closed, why you had to wait five hours in A&E before a doctor would see you when you broke your arm, why your family is worried about money – then read this book and you’ll find out.The only sense in which this book is difficult to read is that it may make you angry. Successive governments around the world have allowed all our lives to be lashed to the activities of a small group of people who don’t do or make or care about anything except recklessly chasing quick profit for themselves. Moreover, our politicians have failed once more to take any real steps to curb them, or stop the crisis from happening again. It’s not a good feeling. But it’s an important truth, and the younger you are when you discover it, the sooner you can start thinking about how to do something about it.I’d recommend Whoops! to everyone.
  • (4/5)
    The strong point of this book was that it had a very good explanation of all those complicated financial instruments, the CDOs and derivatives and things. It showed that there was originally a rational purpose for them but that they are just being used for no particular purpose except speculation. It's really odd that the people who wrote all of these bad mortgages were immediately selling them to other willing buyers, with the thought that they had gotten rid of risk by spreading it out. Interestingly, there is very little about peak oil or resource depletion issues, which in my mind is driving the whole credit bubble (see Jeff Rubin, Gail Tverberg, Chris Martenson, etc. on this subject). I think he would acknowledge that this is an issue, and equally interesting, the last sentence of the book does just that: "In a world running out of resources, the most important ethical, political, and ecological idea can be summed up in one simple word: 'enough.'" It would have been nice to see a discussion of this, although if he had devoted a lot of attention to this subject, it would have been a substantially different book.
  • (3/5)
    From time to time I like to read about the recent financial collapse in an effort to try to understand what happened. This book is written by an author who normally writes novels, so he knows how to explain things very simply. In the early part of the book it was so simple that I thought it might insult my intelligence. But my mind got stretched soon enough. He used simple fictional examples to try to illustrate how each new financial instrument worked. I think I almost understand now what derivatives are, but don't ask me to explain it.When it's all over and we look back on what happened, it's a case where all the profits from the boom years went into private hands, and when things went bust it was public money (taxpayers) that cleaned up the mess. It's anything but fair. Looking to the future the author says that we will probably look back on the 20 years prior to the financial collapse as the golden years because our future economy will be weighted down paying off the rescue payments. Even if the resulting national debts are not paid off, the lingering burden of paying the interest costs will limit public spending in other areas.It’s all a lesson in how financial incentives can lead intelligent people to do stupid things. When I say stupid, I’m thinking of the college educated math whizzes who calculated the odds of a nation-wide collapse in housing prices to be less than on in a billion (i.e. impossible). The problem was that their models were based on history that did not include a boom in subprime mortgages (i.e. a changed condition). The following quote from the book is a good illustration of why statistics are not good at predicting financial markets:“…how do we know that the normative distribution applies to events in financial markets? The way in which people move and jostle around a room might be plotted and mapped with statistical tools and shown to resemble something like a normative distribution—sometimes people are over here, somewhere in the middle. But shout “Fire!” and the movement of people in the room will look very different—it will feature a stampede toward the exits.”Perhaps those math whizzes need to study more chaos theory.One interesting observation is that not a single bank in Canada has gone broke during the past couple years. The author suggests (presumably in jest) that they were spared because of their propensity of not act like their ultra free wheeling capitalistic neighbors to the south. Their desire to not be like us saved them from doing stupid stuff like us. So they owe us a big word of thanks for our being such a positive influence on them. Actually there is a rational explanation for the Canadians conservatism in banking. They had their own banking crisis about a decade ago, and they fixed it with stringent banking laws. The rest of the world in contrast moved into the direction of total deregulation.On the lighter side, here’s my favorite quote from the book:“I’d like to think he would have enjoyed the old joke about accountants: “What’s two plus two?” “What would you like it to be?” "The above quote is referring to the fact that Luca Pacioli, the first person to write (in the 15th Century) a book that laid out the method of double-entry bookkeeping was also a writer about magic, in the sense of conjuring. No doubt if he were living today he would have also written a book about mortgage backed derivatives. Speaking of big words, have you heard of the following words?--Collateralized Debt Obligations--Collateralized Debt Swaps--Synthetic Asset-Backed Security--Off-Shore Special-Purpose EntityThis book does a good job at trying to explain what these words mean. Using tools such as these the big investment banks figured out ways to make money available for loans “risk free.” Their system allowed them to keep loaning the same dollar hundreds of times over without any of the corresponding risk obligations showing up on their balance sheets. This led to an increase in the amounts of funds available to be loaned. With lots of new money to loan there was more money than good borrowers. Suddenly subprime loans to people who had previously been considered not credit worthy looked very appealing. The loan creator didn’t care if it could be paid off because the mortgage was immediately sold to others. This in-flow of money to the housing market increased the completion among buyers, thus resulting in an artificial increase to the cost of houses. I think the core cause of the financial collapse can be summarized by the following three statements: 1.Risk was separated from the originator of the loan.2.Investors and insurance companies who took on the risk were willing to believe statistical equations--based on historical data--that indicated the risk was virtually nonexistent. 3.When lots of money is suddenly being made by others, nobody wants to be left out. This book leaves me with this unanswered question. How can something so obviously crazy in hindsight not be apparent when it was happening?
  • (5/5)
    Published under the title "Whoops!" in the UK, this is a 200-page aerial-photo of an economic bombsite, explaning the what, how, why and who of the global financial crisis. Each page brings jaw-dropping revelation, laugh-out-loud asides and a deep under-current of anger. A model of clarity and expositionary journalism. Required reading.