There was this Evil Empire, see. It was so bad it didn’t even believe in capitalism or the free market or democracy. The Evil Empire was, wait for it, communist. Not communist like Canadian-health-care communist, but worse. Communist as in we’re going to pay doctors the same as janitors and if they make a fuss we’ll kill them. Next to them, we looked awesome in our democratic socks, polishing our capitalist shoes until they were really shiny. A robust regulatory system kept us honest while a minimum of social services meant we were always pretty. It drove the Evil Empire crazy. So crazy that in 1989 the Berlin Wall fell and, not long after, the entire Soviet Union, uh, Evil Empire, along with it.
Without the Evil Empire to measure our moral high ground against, we started loosening up the regulations and throwing away those tacky social services. Fast-forward to 2008. The stock market cuts loose and everyone from Idaho to Iceland is Insane. Buying houses they can’t afford, investing in funds with acronyms that change every day, and cutting apart the social fabric with a chainsaw. It’s the wild West all over again.
This is British novelist John Lanchester’s central thesis in IOU: Why Everyone Owes and No One Can Pay. Begun at first as simply background research to a novel, he soon ditched the fictional plot for the real-life drama of zombie banks, subprime mortgages and credit default swaps.
The result is easily the most engaging and comprehensible book on the recent financial crisis that you’d want to read. With a novelist’s bravura, he connects dots that financial writers barely see and puts things in a perspective others wouldn’t dare. Who else follows the path from the fall of the Soviet Empire, to postmodern art, to the ban on torture, to the privatization of the banking system? From Lanchester’s point of view, they are directly related. One man’s deconstructionism is another man’s water-board is another man’s hedge fund.
But it was the leveraging of risk that tipped the balance. As speculators searched for increasingly creative ways to generate money, risk became a commodity in itself, packaged and traded over and over again. The fact that it was almost completely unintuitive, inorganic and incomprehensible was beside the point. When the American housing market inevitably collapsed – built almost entirely on risk calculation – it took the world’s financial system with it, one country at a time.
The rare bright spot in Lanchester’s financial landscape is Canada. With our regulated financial sector, strong central government, and robust social welfare system, we not only weathered the financial collapse but we stand to come out of the recession on top. Going forward, Lanchester may want to postscript the next edition of IOU with a chapter on how the Harper government turns this around and drives Canada into the ground, beginning with the whittling away of the social services. It’s all connected, see.
Leila Marshy is a Montreal writer and editor. She rarely laughs while at the bank; but that’s okay, she laughs everywhere else.
{ 1 comment… read it below or add one }
This is so annoying. My guess is that I will object to the author's premise(s) but to do so I will have to read the book. Of course I am on record as missing the cold war. That is the culture I grew up in. That was the dominant culture while I was at university and it was the condition that lead to my first job. I am an old cold warrior. The world of my youth is gone and cannot be legislated back.