a curious Yankee in Europe's court

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A British novelist argues that you and I can speak Wall Street if we try

Posted on the February 19th, 2010

John Lanchester’s newly-released book “Whoops!: Why Everyone Owes Everyone and No One Can Pay” is getting raves from critics. One reviewer described it as “Acidic, frightening, and sharply funny.”

The subject of the nonfiction book is the craziness of the world of contemporary finance, and how the lunacy came to be.

Earlier this month, Lanchester offered a peek into the material of his book when he spoke at an event sponsored by the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) in London. I’m especially taken by Lanchester’s ideas because his thesis — my own favorite one — is that we as citizens can and must become informed.

The video is below and I hope you will watch it. As an inducement, I’ve excerpted a few comments.

In his opening remarks, Lanchester alludes to the longstanding idea of the two cultures of arts and science and the gap between them. He suggests that this gap no longer exists, but another one does:

It seems that there’s a much bigger gap between the world of finance and the general public, and that there’s a need to narrow that gap if the financial industry aren’t to become a kind of priesthood administering to its own mysteries and feared and resented by the rest of us. Lots of bright, literate, functioning well-educated people… have no idea about all sorts of economic basics of a type that financial insiders take as elementary knowledge about how the world works…

To people who don’t, as it were, speak finance the language can seem impenetrable and the interlocking ideas too complex to grasp or unpack. I’ve become very preoccupied by this gap which seems to me a real problem not least because the idea of a democracy implies an informed electorate. If you don’t have an informed electorate, which I would argue that we don’t really in this area, then the democracy is thinner, and I tried to do my bit in addressing that gap by writing about it.

Lanchester goes on to describe the faulty mathematical models used by those in today’s finance world. He details their persistent refusal to acknowledge the undeniable proof during recent decades that these models were broken. And, after describing the magnitude of the errors that occurred in 2008, he adds:

That is so wrong you just can’t put it into words. It shouldn’t be humanly possible to be that wrong. We’re talking about a drop in house prices causing people with bad credit to have trouble paying back their mortgages. And they managed to turn that into literally the most unlikely thing in the history of the universe.

And the really outrageous thing is that the banks are still talking about it as if they were unlucky.  As if it were some sort of freak, perfect storm or 100 year event, which is what the bank chairman in the U.S., has just been telling Congress. That’s absolute rubbish — it’s like closing your eyes and trying to run down the strand without opening them and then complaining that you’re unlucky when you get hit by a bus.

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