Whoops: Why everyone owes everyone and no one can pay*

By John Lanchester

An NHS Hospital in Huntingdonshire is to be gifted, more or less, to a private consortium. Further afield, Greece is being carpet bombed with neoliberal demands for debt reduction. But the Greek government is torn between contradictory options, agreeing only on the sacrifices sought from Greek workers. Indeed, every government intervention to shore up the financial system inflicts more damage on thirty years of neoliberal hegemony. Sadly, it is nowhere near dead yet.

In this situation, there is a crying need for precisely targeted propaganda to add resolve to the struggles on the streets and the picket lines of Greece and those countries next in the bomb sights. So can John Lanchester’s Whoops help here? After all, there are already dozens of books on the crisis, Chris Harman’s Zombie Capitalism and Kieran Allen’s Ireland’s Economic Crash, being indispensable among them.

Whoops will surely be widely read. Lanchester’s expose of the shenanigans inside the financial world is witty, scathing and sarcastic. It is thoroughly researched and, above all, contains clear explanations of all the significant events of 2007/2008. It contains loads of detail on the bank-quake of 2008 when Lehman Brothers went over the precipice and how the banks’ (relative) stability was restored only by the massive shifting of private debt to public debt and the creation of new capital. We are now back in 2007. Nothing has changed, not the inflation-generating processes of the City casinos, not the profits and bonuses, not the blind arrogance of the players. All are up and running, continuing to fuel recession in the real economy and, before long, likely stagflation too.

Whoops doesn’t assume any experience of economics in the reader, and manages to do this without being patronising. Yet the basics of economics, banking and even bookkeeping are thoroughly explained. It is a textbook of ‘casino economics for civilians.’

But, as with so many books, Whoops tells only part of the story. Lanchester is primarily a novelist, his political comments generally fail to escape from the glass-walled box of mainstream political thinking. Nevertheless, his dismissal of the ‘fake golden age’ of neoliberalism is forthright so Hayek, Friedman, Thatcher and Reagan get short shrift. But Marx is dismissed in the same breath as the former ‘communist’ states of eastern Europe.

Although inconsistent in places, the mixed-economy model of capitalism finds favour with Lanchester: council house building, government intervention to prevent house price inflation, abolition of mortgage relief on buy-to-let, more property based taxes, hints that governments might have to do more nationalisation in the future…

Occasionally he comes close to radical politics:

‘So: a huge unregulated boom in which almost all the upside went directly into private hands, followed by a gigantic bust in which the losses were socialised. That is literally nobody’s idea of how the world is supposed to work. It is just as much an abomination to the free-marketeer as it is to the social democrat or outright leftist. But the models and alternatives don’t seem to be forthcoming: there is an ideological and theoretical vacuum where the challenge from the left used to be. Capitalism no longer has a global antagonist, just at the moment when it has never needed one more.’ (p. 199)

He also acknowledges that it wasn’t just a minority of individuals who caused the crisis but the whole banking culture:

‘… the only thing the laws can address is what’s legal. They cannot stretch deep into banking and change its culture’. (p. 196)

But he then blames ‘everyone’ for running up personal debts:

‘We were greedy and stupid… Bankers are to blame, but we’re to blame too. That’s just as well because we’re the ones who are going to have to pay.’ (p. 187)

OK, some billionaires are now only millionaires. But we are expected to pay with our jobs, conditions, pensions, savings and houses. Even the book’s main title implies the whole mess is a mistake which, as well as being misleading, misrepresents its content.

But Whoops should be read for its explanations of finance, not its politics. The terms, CDO, CDS, SIV, SPV, VaR … acronyms that Wikipedia’s dry definitions often fail to satisfy, become transparent. ‘Leverage’ gets a good kicking. Banks have always loaned out billions they don’t actually have, but from 1930’s to the 1990’s this was generally ten or so times what they had in easily-recallable assets. For the big US banks the median ‘leverage ratio’ rose to 35, and for the European banks, 45. By 2008, Barclays was lending 61 times its reserves!

Lanchester does spot the crazy ‘double bind’ that governments are now putting on the banks. On the one hand they want the banks to reduce their leverage to pre-crisis levels and reduce risky loans. On the other hand, they want public bail-out money to be loaned straight out again to stimulate economic recovery. They can’t do both at the same time. It is their central dilemma, in UK especially. Rapid pay-down of public debt would prevent any recovery. Slow pay-down would give years of Japanese-style economic doldrums.

The best bits of Whoops provide excellent ammunition for the battles ahead. But, ignore the title.

Dermot Smyth

22 February 2010

* Allen Lane, 2010

Note: A version of this review appeared in Socialist Review, April 2010