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Wall St., close up.Henny Ray Abrams

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.

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.

Yes, it was an important philosophical idea in the transition from the notion that everything happens according to God's will. In the Middle Ages, the church didn't like you playing dice because God chose how dice landed, and it was making too frivolous a thing of his will to turn it into a game of chance. Gamblers, nonetheless, began working out how particular patterns occurred. So it was a humanist project to take responsibility for predicting outcomes and say that's a thing in this world we can study and analyze and manage and master. In this context, the early use of financial derivatives was sane and responsible - this guy's offering me a hundred grand for my wheat crop while it's still in seed form. I'll take it, and then he resells it, while I've fed my kids and met my mortgage payments. But we've come a long, long way from that.

Or we've gone back to the feeling of inevitability, except now we're the banks' playthings, not God's.

Yes, there's something very disempowering that you can lose your job and not quite understand how it connects to subprime mortgages. Fires and floods, we're hardwired to accept them or at least file them under Bad Things Happening. But there's something so abstract and so modern about a bank making a technical mistake about how it funded its obligations to depositors and suddenly you're out of work. That's part of what's so primitively outraging about the banks' return to monster profits.

In your search for a root cause of the meltdown, one factor you bring up is the collapse of communism. Why did the Cold War humanize capitalists?

There used to be a more implicit and vivid argument about the quality of life, especially in Europe, where the continent split down the middle and you had a moral and ideological beauty contest to see which side was better. The need to outperform, and not just economically, really went deep. What was good about Western liberal democracy is that people continually challenged themselves to be better.

Yet according to your analysis in I.O.U., we've lost our way.

That's because we ended up defining our liberal principles too narrowly. Why should the idea of Western liberal democracy automatically imply unregulated free-market capitalism? In political discourse now, it's easier to talk about numbers. Yet GDP is a grotesquely crude tool of measurement. If you get a $20-billion pay rise, GDP per capita rockets, but it doesn't mean anything for most of us.

And yet you spread the blame around. Are we all guilty?

There's something different in Canadian culture; you guys didn't go on a spree. In countries that had a pandemic boom, for average debt to be 170 per cent of our income, a lot of us were guilty. And a lot were in a state of self-exculpating obliviousness. Cheap money feels like the most natural thing in the world, if you don't think about why it's so cheap.

So how will the future look to those who choose to think about it?

I see no reason to be particularly sanguine. First, the banks are the most powerful lobby in the world; they can get what they want. Second, even when the rules are written, the bankers dedicate themselves to getting around the rules. Third, we still have the fundamental problem that movement of capital is completely international but regulation is local.

When I started the book, politicians were talking the talk about fixing the system, but now Plan A has become: Let's stick the idol back up on the altar and hope people start worshipping it. I should have an upbeat conclusion, a message of hope. But I'm worried.

The upbeat conclusion could be: Be more like Canadians - conservative, boring and relatively safe.

The Canadian example would be wonderful - if it caught on.