“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” It’s more than two years since the “great crash” of 2008. Henry Ford’s famous words are as pertinent as ever.
Apart from flashes of anger about bankers’ bonuses there has been no great social movement rising from the ashes of the financial system. Instead, the most articulate voices in response to the banking collapse have come from the political right, where a clear message about Gordon Brown and excessive debt has changed the terms of the debate.
A crisis of irresponsible banking has become a crisis of government spending, and however we might feel about the desirability or justice of the cuts, we are made to feel they are unavoidable. The main reason for this is surely that social movements on the left have yet to develop a common understanding of what caused the financial crisis, let alone agreeing on what should be done about it.
This is essential if the anti-cuts movement is going to be anything more than a defensive one – something peace activists will be familiar with from the last decade of anti-war struggle. These two books on the crisis, both in updated second editions, are excellent ways to get your head around what happened, and think in detail about what is to be done, from authors whose day job is telling stories well.
John Lanchester is a novelist, and his book Whoops! Why everyone owes everyone and no one can pay achieves the unusual in making a book about banking highly readable. When researching a novel about a banker in 2007, he realised the financial system was much more interesting than the novel and became fascinated by it. His book is filled with light-touch explanation that isn’t weighed down by obscure financial vocabulary.
From scenes in the film Annie Hall, to his childhood fear of cashpoints, to the number of people killed by stairs, he takes you through the story of sub-prime mortgages and collateralised debt obligations. His central argument is that the financial crisis was caused by a problem (banks lending too much in search of bumper profits), a mistake (in calculating the risk new investment products based on sub-prime mortgages posed), a failure (of regulators to identify the problem), and a culture (of free market supremacy). He includes human stories too: from members of the Baltimore Civil Justice coalition who are fighting housing foreclosures, to an Icelandic student in Brighton whose savings became worthless overnight.
Overall, perhaps inevitably, his analysis lacks depth, and his liberal intellectual approach may feel less in tune with social movements than readers of PN would expect – from calling Thatcher “Mrs Thatcher” to his “belief that the western liberal democracies are the best societies that have ever existed – which isn’t the same thing as saying that they are perfect”.
Where in the first edition he expected politicians to fix the system, by the second edition, when nothing has changed, he thinks it’s not going to happen.
Paul Mason’s book Meltdown: The end of the age of greed, is both more journalistic and more economically detailed than Lanchester’s – as you’d expect from the economics editor of BBC’s Newsnight.
The book developed out of his blog written in the thick of covering the financial crisis from Wall Street to backrooms of the Treasury. He’s fleshed it out with all the necessary economic and political history – from the Clinton White House’s repeal of the Glass-Steagall Act regulating investment banking in 1999, to a balance sheet of 20 years of neoliberal economics, which is now in crisis.
A thread runs through it that considers social movements as potential agents of change. Part of his story of the financial crisis is that it wasn’t just the financial elite who were swept up in the bubble: “Nobody within the anti-globalisation movement had much to say at all about the finance sector. Subprime and structured finance were the real time-bombs within the system, yet they hardly on the agenda of capitalism’s most vociferous critics.”
Indeed, he spells out his prescription for the next great social movement: less emphasis on thinking globally and acting locally, more on the power of trade unions and the state, since “you cannot reform the banking system branch by branch.”
The “one no, many yeses” approach of the anti-globalisation movement, which flourished in the heyday of neoliberalism, is ill-suited to the urgent task of renewing our political economy (the area of economics that is concerned with politics, not just equations) by socialising the banking system: “It seems likely to me that social- justice campaigners – again, probably against their inclinations – will now have to focus more on the state; that some form of big-picture narrative will emerge that describes how the state intervenes to deliver social justice.”
He’s also very clear that the financial crisis is not over. The bank bailouts leading to crisis in the Euro-zone, he says, have been Phase Two, and we are now entering Phase Three – payback time, with austerity cuts leading to the risk of a double-dip recession.
Perhaps the most depressing thing about these books is that they both conclude by expressing surprise that pretty much nothing has happened since the crash to change the financial system. Which is the main reason to read them: they’ll get you thinking about what activist movements should be doing to confront it.