John Lanchester, the well established British author of novels like The Debt to Pleasure, has just released a non-fiction look at the global financial crisis -- I.O.U.: Why Everyone Owes Everyone and No One Can Pay. Lanchester spoke to the Globe and Mail this week about his new book, and where he sees the world going.
What does a mere novelist and financial outsider like you bring to our understanding of the meltdown?
It was much more obvious to an outsider that a gigantic amount of risk was spread through the system. But I think there was a collective groupthink within financial institutions that made them largely uninterested in the cognitive dissonance between what was really happening and what their mathematical models were saying. It's as if they got used to bungee jumping, and stopped thinking that their lives depended on these thin pieces of rubber.
If the long-term capital-market implosion was based on events that were unlikely to happen according to their models, that doesn't mean they were unlucky – as they've been saying – that means they were wrong. The fact that this has been left unaddressed is utterly amazing.
John Lanchester
If they can't be persuaded by outsiders that they were wrong, can they at least be shamed?
The vilification of the banks is the only thing that seems to have any traction. But shame has to be very loud and very systematic before they hear anything at all.
In your epigraph, you mock the banking mentality by citing the famous Spinal Tap observation, “It's such a fine line between stupid and clever.” But were they clever?
Clever in this sense is a highly ambivalent term. It's not a fine line between stupid and intelligent. There's an obliviousness built into this cleverness: It's an interesting example of what happens psychologically if you become rich in the system we have, by using money to make money. Something about this induces an almost ecstatic state of righteous arrogance and a conviction of your own correctness.
Why should the idea of Western liberal democracy automatically imply unregulated free-market capitalism?
So it's not just about greed?
Do greedy people work 16-hour days? It seems to me to be more a kind of unquenchability of the appetite. The Catholic catechism refers to sex as “disordered desires,” and I think there was something of the same sort going on here.
Were these appetites and desires reality-based? You make it sound like bankers operated in a fantasy world.
Well, they weren't sending fleets to discover new lands. It's very difficult to get your head round the fact that the virtual activity of finance so clearly exceeds anything we'd call real: a trillion-dollars-a-day, over-the-counter derivatives market in London alone, reselling, reselling, reselling. The best way to describe it is as if betting on how much you'll earn next year was a thousand times bigger market than what you actually will earn.
So it was a socially acceptable gambling disorder on a global scale?
I don't know that I'd use the past tense.
I.O.U. is in large part a book about understanding, and misunderstanding, risk, an idea that you rather surprisingly trace back to Renaissance humanism.
