Lighter Look at the Culture of Debt

The Washington Times (Washington, DC), January 19, 2010 | Go to article overview

Lighter Look at the Culture of Debt


Byline: Claude R. Marx, SPECIAL TO THE WASHINGTON TIMES

The Great Recession has been extensively dissected by scholars, journalists and so-called business experts. While many of their analyses have been insightful, they are all too often filled with jargon and not particularly enjoyable to read.

Enter award-winning British novelist John Lanchester. In I.O.U.: Why Everyone Owes Everyone and No One Can Pay, he has given readers an engaging and occasionally entertaining look at the culture of debt. He focuses on the big economic picture and doesn't include many human interest anecdotes. No tales of woe such as Jane Smith tried every way possible to avoid foreclosure, but the bank she used got a big bailout.

Fortunately, his engaging writing style makes big numbers and complex concepts approachable.

The financial collapse of Iceland, which was symptomatic of some of the worldwide economic woes, is summarized with this rather pointed observation: Yes, many consumers were personally irresponsible; but then, they were encouraged to be. The banks treated financial irresponsibility as a valuable commodity, almost as a natural resource, to be lovingly groomed and cultivated.

It's nice to see an author criticize all sides. This is a welcome contrast to many liberals, whose sole focus was on the so-called big bad financial institutions, and to conservatives, who blamed it on the government trying to force lenders to make risky loans.

Mr. Lanchester aims most of his criticism at the bankers who engaged in many of the risky investment practices and some of the so-called academic geniuses who devised them. The approach he takes is that of a bemused critic with a sense of humor - a cross between Mark Twain and CNBC's Maria Bartiromo.

This book is a not terribly taxing way to learn about credit default swaps, derivatives and other financial tools, which investor Warren Buffett once called financial weapons of mass destruction.

Mr. Lanchester explains, for example, why financial institutions consider deposits to be liabilities on their balance sheets. Banks classify deposits that way because liabilities belong to someone else. He uses this revelation as not only a teachable moment but also an opportunity to take another shot at banks. He notes that banks too often act as if it's their money and they are doing us a favor by letting it sit in their bank earning interest. …

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