LONDON (Reuters Life!) - Novelist John Lanchester says the subprime mortgages, collateralized debt obligations, and complex mathematics at the heart of the financial crisis represent the most gripping story he’s ever stumbled upon.
Lanchester has turned that fascination — coupled with a kind of astonished anger — into a lucid, conversational account of the crisis designed for non-financial types and helpfully leavened with jokes, swearing and interesting asides.
The 47-year old writer is the son of a Hong Kong banker but “I.O.U.,” or “Whoops!” to give its British title, is his first book about money, after three novels and a family memoir.
Journalists, economists, politicians, cartoonists and others have already published dozens, if not hundreds, of books on the crisis.
However, Lanchester, also a food critic and book reviewer, may have a wider frame of reference than some competitors.
For example, he says banking enjoyed a “modernist” period of innovation that started in the 1970s. That makes the crisis, with its complex, hard-to-value instruments, the finance world’s equivalent of deconstruction, the postmodern cultural theory that calls conventional ideas about meaning into question.
“There’s a classical period of financial instruments, a modernist one, and then this bizarre deconstructionist one that we’re living through at the moment,” he said.
Lanchester has published three novels, “The Debt to Pleasure,” “Mr Phillips” and “Fragrant Harbour,” respectively about a sinister gourmand, an jobless accountant, and pre-war immigrants to Hong Kong.
He began reading up on money and finance as the credit bubble began to deflate, researching widely for a fourth novel, which he is now re-drafting.
But, he said, he often over-researches topics just to make sure a story rings true, and anyway, there was no way to cram what he discovered into fiction.
“The story struck me as important to tell and very interesting in its own terms, but it’s something that just wouldn’t fit in a novel,” he told Reuters in an interview.
“You can’t dramatize a credit-default swap (CDS) or a collateralized debt obligation (CDO), even though they are really interesting things.”
Among other things, the book relates how CDS, intended to lay off the risk of a company defaulting on its debts, and CDOs, which bundle together pools of mortgages or bonds, came to play big roles in the crisis.
“Explanation is difficult to put in a novel,” he added. “You get that science fiction thing where the character says, ‘tell me, Professor ... ‘, and they explain things at great length.”
With a father at HSBC, he grew up feeling less squeamish about money than many with no financial background.
“Because my dad worked for a bank and I had a passenger-seat view of that world, it feels less alien. If my dad had been a fishmonger I would’ve grown up having opinions about fish but instead I grew up having opinions about banks,” Lanchester said.
But, he says, public ignorance of finance is dangerous to democracy, and a far bigger gulf exists than the “two cultures” gap between arts and science, which decades ago was the topic of heated debate.
“I think we risk moving to quite a dangerous place — or indeed we have already moved there, and need to get back from it — where bankers effectively end up writing their own legislation because legislators and the public don’t understand, and then when things go wrong get utterly and impotently furious because they don’t know how to fix it.”
Affable and softly spoken, Lanchester is not angry in his demeanor, but he is scathing about the over-reliance on mathematical models, such as those used to calculate the risks of a bond backed by subprime mortgages.
“The idea that people who had never had a job, who had never paid a utility bill, and who had no fixed addresses before they bought their houses — the idea that they would magically produce triple-A debt is just astonishing.”
And Lanchester is gloomy about the outlook for Britain.
He thinks Britain might descend into a “persistent” fury about money, as people confront tax rises and cuts to pay, pensions, and jobs in order to rein in budget shortfalls.
“There’s mayhem to come, for sure: the cuts, the fights we’re going to have over public-sector spending, and the tax rises.”
“People are going to get absolutely livid. It’s only just beginning.”
Reporting by Quentin Webb, editing by Paul Casciato