Credit crunch made simple!
Register for free to read more of the latest local news. It's easy and will only take a moment.
WHOOPS! Why Everyone Owes Everyone and No One Can Pay Back
by John Lanchester
Penguin (£9.99)
THIS hugely readable account of the so-called credit crunch is required reading for anyone still stumped about exactly how we got into the state we're now in.
Given that every second newspaper headline seems to relate to the subject, and that the most savage cuts in living memory are going to touch on most of our lives, Whoops! is an important and thought-provoking contribution to one of the most pressing issues of the decade.
As well as successfully guiding the general reader through the ins and outs of baffling concepts such as sub-prime mortgages and credit default swaps, Lanchester develops his theme to take the discussion beyond the all-too-familiar blame game towards suggestion the good that could yet come out of this mess.
Bbanking should, at heart, be a very simple business, he argues. Customers deposit money at a bank in return for interest. The bank then lends out this money at a higher rate of interest. This is neither glamorous nor interesting - and that's as it should be.
In explaining what went wrong, he sets the scene by throwing around some scary figures. In 2000 the total gross domestic product of Earth was $36 trillion. Seven years later, it was $70 trillion. That seemingly unstoppable growth has gone into sharp decline "with an effect roughly resembling that of putting a car in reverse while doing seventy down a motorway".
The journalist and novelist shows how the aforementioned credit default swap - a tool for supposedly making lending safer - ended up magnifying risks throughout the global system. He compares what happened as the equivalent of people taking up drink-driving after the invention of the seatbelt.
It's all the bankers' fault, right? The answer isn't that simple, tempting though it is to have a straightforward scapegoat. Lanchester gets into the guts of the property market and takes aim at our "pointless obsession" with house prices which, in the long term, "go up and down like a bride's nightie".
Pointing out seemingly obvious flaws in our crazy contemporary system of finance, he argues that when mortgage brokers are essentially salesmen, then the onus is on the customer "not to get screwed". Coupled with this uncomfortable truth, he states, is the fact that as we became obsessed about the price of our houses, we "felt richer than we should, borrowed money we didn't have, spent it on tat, and now the downturn has happened - as it was bound to - we want someone else to blame".
Lanchester likens the credit crunch to capitalism's heart attack. That in turn gives an unexpected - and, he argues, crucial - opportunity to take a long hard look at ourselves as well as our banking system and politicians and make some changes. In a world that is running out of resources - and in which everyone wants to live an equivalent lifestyle to the those of us in the affluent west - there's an opportunity to come to a realisation of what is enough.
This is a lesson which could literally save the world.
