BOOK OF THE DAY: Whoops! Why Everyone Owes Everyone and No One Can PayBy John Lanchester Allen Lane, 240pp, £20
'DEVASTATINGLY FUNNY" screams the recommendation, courtesy of novelist Will Self, on the cover of Whoops!. But while fellow novelist John Lanchester's lucid account of the global financial crisis certainly does employ a dry wit – see chapter title "Enter the Geniuses" – the story he relays is undeniably less funny than it is entirely devastating.
Lanchester's motivation for writing Whoops!is that the global financial crisis is the most interesting story he has come across. It also happens to be one whose byways of mathematics, economics and psychology remain "mysteriously unknown" to the general public, despite providing the major plot points. Too many bright people have no idea of "all sorts of economic basics" – as if knowledge is somehow the same as complicity.
Although Whoops! reads like a primer to what went wrong, finance-phobes whose brains switch off at the mere mention of the word "securitisation" will find plenty of drama amid the education. There's the JP Morgan off-site weekend where, in between trashing jet skis, someone invented the concept of the credit default swaps that eventually "broke banking". There's a visit to a post- WireBaltimore where billboard ads offering to save you from foreclosure on the home you "own" thanks to a subprime scam are themselves just another scam.
Among the many national embarrassments to pick from, Lanchester showcases Galway’s cryptosporidium outbreak as a “glaring indicator” of the crisis about to engulf the Celtic Tiger. (“Celtic Car Crash” is among his proposed metaphors for our economy.)
Lanchester is great at tracing the infiltration of banks by the “quants” – the mathematics PhDs who came up with the equations that could allegedly calculate the risk of default on subprime mortgages. Based on their formula, the risk of the current market implosion occurring – a 20 per cent drop in US house prices feeding through to “pass-the-parcel” subprime investment funds – was that it was likely to happen only in a timeframe trillions of years longer than the history of the universe.
It shouldn’t be possible to be that wrong, Lanchester despairs. He himself has lived through two such house-price crashes despite only being alive for 47 years. It didn’t seem to occur to the hapless geniuses that perhaps it was their models of probability that were, um, out a bit.
His thesis is that people who go to work with money, and make money, are “proved right in the most inhumanly pure way”, so much so that they quickly come to see themselves as paragons of rationality, free of the self-doubts that keep the rest of us in check.
He has friends who work in the City, he recounts. “We get on in all the ways in which people get on, but there is sometimes a moment in talking to them when you hit a kind of wall.”
Reading Whoops!, it is easy to understand the studied ignorance of the finance world adopted by people who identify themselves as being outside it. Abetted by the "Reykjavikization" of the world economy and governmental "Cityphilia" – Lanchester apparently embraced a journalistic love of neologisms during his research – devotion to unfettered capitalism took on a cult-like quality. What do you do in the face of such powerful charlatanism? You distance yourself from it as best you can.
It might be too late, though, for some of the “self-bankrupted kleptocracies” busy bailing out banks. “This sucker could go down,” said George W Bush in September 2008. Indeed, this sucker could still go down.
While we wait, this is an excellent book for anyone wondering what the hell is going on. Triple A, as the credit ratings agencies might say. Only this time they would be right.
Laura Slattery is an Irish Timesjournalist
