Steve Appleton

Short Book Review, John Lanchester, “Whoops! Why Everyone Owes Everyone and No One Can Pay”. Allen Lane, 2010.


Apparently the world is now moving into its “post credit-crunch” phase. Politicians are keen to put behind us any talk of the causes of the crisis. They direct attention instead towards the “inevitability” of tax rises and public spending cuts.

This is nonsense, of course, so if you read only one book on this topic, read this one by journalist John Lanchester. It explains in accessible terms what happened and why. Whilst “devastatingly funny”, the humour barely hides Lanchester’s justifiable anger about the crisis and its effects on people who had nothing to do with precipitating it.

The author groups events around four themes - a “climate”, a “problem”, a “mistake” and a “failure”.

The “climate” refers to the new world order accelerated by the collapse of the Soviet Union. Whilst he acknowledges the foulness of Stalinism, the “communist” states nonetheless provided some alternative to capitalism. Lanchester says, “the population of the West benefited from [the soviet states’] existence ... For decades there was the equivalent of an ideological beauty contest between the capitalist west and the communist east, both of them vying to look as if they offered their citizens a better, fairer way of life”. With the collapse of Stalinism, capitalism no longer had any need to “behave itself”.

The “problem” for Lanchester was the extent to which big finance came to dominate the “anglo saxon” economies. Take the UK for example; for a hundred years, until the 1970s, the value of the UK banking sector hovered around 50% of GDP. By 2006, this had shot up to no less than 550%! Banking and finance was worth more than 5 times the rest of the economy put together!

New forms of financial “wizardry” were developed; new ways for the major institutions and “high net worth” individuals to speculate and “play the market”. The value of this “trade” according to the author, “exceeds the total of value of all the world’s economic output by ... perhaps tenfold”!

The “mistake” concerned “risk” and the widespread reliance on mathematical models for calculating it. Complex risks were generated by new financial “instruments”, such as the collateralised debt obligations (CDOs) comprising many thousands of “sub-prime” mortgages. It beggars belief that even with the aid of these models no one forecast the (hardly unheard of) possibility that house prices may fall! But they did; and that precipitated the crash and the bank failures. (In reality, the mathematics had provided a fig-leaf behind which greed and profit-taking sought to hide).

According to Andrew Haldane, the Bank of England’s Director of Financial Stability (no irony intended, presumably), the loss of global wealth at the peak of the crisis, the fall in the value of assets, amounted to $25 trillion. This is about 45% of global GDP.

The “failure” for Lanchester related mainly to the absence of government controls and regulation, rather than any wider systemic failure of monopoly capitalism - though much of what he says points directly to this conclusion. Since the days of Thatcher and Reagan, what formal regulation as had existed had been largely abandoned. The regulatory bodies were run by executives drawn from the very industries they were supposed to supervise. Result? “Light touch” regulation and near zero control.

The book describes graphically how the crisis continues to impact the lives of millions of ordinary people. In particular, he describes the impact on US house buyers and how mortgage lenders hawked loans they knew would be difficult to repay. And they were not concerned about repayment because, once contracted, they were immediately bundled together into CDOs and sold!

Whilst not a socialist analysis, the book is a clear and sometimes humorous explanation of this latest capitalist crisis. As to what might be done, Lanchester says, “the Anglo-Saxon model of capitalism has failed.” He appears to suggest that a return to a form of “social democratic” capitalism is needed - capitalism with a “smiley face”. However, this is the model that collapsed with the Soviet Union and the rise of big money triumphalism!

The bulk of working and middle-class people are now facing a future of austerity and uncertainty as Governments around the world seek to offload onto them the cost of the capitalist bail-out.

For the major shareholders of banks and financial institutions, though, life return to comfortable normality! Goldman Sachs went from near disaster to record profits in July last year. The bank, says Lanchester, “which had to borrow $10 billion from the taxpayer, was less than a year later, setting aside $16.8 billion in pay, bonuses and benefits... That is obscene... The big club of potential nationalisation needs to be taken out and warningly brandished.”

Let's not merely "brandish" the threat of nationalisation. Let's build a party committed to the democratic nationalisation of the economy’s commanding heights. Compensation based on need.