Literary Financial Literacy


Review of I.O.U.: Why Everyone Owes Everyone And No One Can Pay; Capital: A Novel; and How to Speak Money: What the Money People Say -- and What It Really Means, by John Lanchester

New York: Simon & Schuster, 2010; New York: W.W. Norton & Co., 2012; New York: W.W. Norton & Co., 2014

Americans today are the inheritors of two economic homework assignments -- one unsolicited, the other unsettling, and both financially ominous. Since 1978, the rise of the 401(k), coupled with the demise of pensions and the stagnation of Social Security, have forced citizens to master the investment of their own savings. Then, in 2008, the credit crisis obliged Americans to learn the depressing effects that collateralized debt obligations, credit default swaps, and other triple-barrelled instruments can inflict upon an economy. (As well as upon those aforementioned 401(k) balances.) As a society, we are enrolled -- whether we want to be or not -- in a prolonged pair of courses in intensive micro- and macroeconomics.

To make matters worse, our chief tutors in these two subjects may not be the professors we would like. To understand long-term retirement strategies, we receive little formal training but plenty of ad hoc advertising from Fidelity, Oppenheimer, and other advisory firms who profit from our investments in their mutual funds and retirement accounts. To understand the acute financial crisis, our primary sources have often been the exculpatory memoirs published by former public officials such as Hank Paulson (Treasury Secretary, 2006-09), Timothy Geithner (president of the New York Fed, 2003-09), and most recently, Ben Bernanke (president of the Federal Reserve, 2006-14). The sources in both cases tend to be motivated, one suspects, more by a desire to accumulate or to exonerate than to educate.

For a more impartial tutorial, we need wisdom from a different assortment of instructors. Instructors who are familiar with the intricacies of exchange-traded funds (ETFs), money market funds, and other tools that ordinary investors might use to save for their retirements effectively. Instructors who understand the broad fiscal and monetary policies that created an economic milieu receptive to mortgage-based snake oil. And, perhaps rarest of all, instructors who are fluent not only in the vernacular of these financial topics but also in a language that humans comprehend. In John Lanchester, we may have many of whom we need.

Lanchester has flung himself at this task of educating the laity about the systemic and specific rituals of Wall Street and the City of London in three recent books: I.O.U.: Why Everyone Owes Everyone And No One Can Pay (2010); Capital: A Novel (2012); and How to Speak Money: What the Money People Say -- and What It Really Means (2014). His task is a daunting one: these topics are arcane, sprawling, and often highly politicized. To explain substantive developments in finance and instruments of economics, he must offer a simultaneous translation of their argot. He articulates his mission thusly:

Yes -- economics is about tools. And the most important of these tools, the one without which the others won’t work, is language. 

But financial literacy is a notoriously difficult lesson to impart, and studies consistently show that Americans remain resolutely immune to it.

Lanchester has nevertheless produced an illuminating trilogy for the innumerate. A trilogy in which his fiction may teach more than his non-fiction, and his dictionary may be the least instructive of the three. Across three volumes -- and three genres -- Lanchester surveys our changing financial ecosystem and focuses upon the details of species that have evolved (or perhaps devolved) to inhabit it. 

Beginning with I.O.U., he advances the grand, perhaps even grandiose, thesis that “the end of the Cold War” also concluded an “ideological beauty contest” in which “the democratic world was preoccupied by demonstrating its moral superiority to the Communist bloc.” Consequently, he posits, the West in recent decades has lost its check upon ethically dubious behavior like waterboarding or ragingly unregulated capitalism. 

Many books conducting post mortems on our 2008 financial infarction identify a myriad of causes for it: consumers spending drunkenly, banks securitizing furiously, politicians deregulating brazenly. But few ask why those things occurred. Lanchester’s thesis may be sweeping and unfalsifiable, but it is certainly an original, if too neat, requiem for the extinction of compassionate capitalism. 

Unfortunately, it implausibly assumes that some broad, unspoken consensus for comparative political restraint animated the independent actions of millions of Western bankers, loan originators, borrowers, and other citizens until 1991 . . . at which point we all collectively threw off our superegos. The indulgences of the 2000s are not easily traced to a single, tidy moment; they were, instead, more likely another in the regular cycle of excesses that occur when rich economies get richer.

Skepticism on this scale might seem antithetical to an honest or fair study of Western capitalism, but Lanchester -- the son of an expatriate banker -- devotes himself to the task avidly, like David Attenborough whispering about the marvels of a dangerous insect. Indeed, one wonders whether an author lacking Lanchester’s suspicions might ever have undertaken such a close investigation of our curious financial misbehavior. Like a naturalist, his observations are eager, more infectious than cynical. And though appalled, he seems genuinely riveted by the creative inspiration behind CDO-squared and similar devices. Like others before him, such as Bethany McLean and Joe Nocera in All the Devils are Here, Lanchester apportions the greatest blame to the financial professionals pushing the credit that consumers inhaled.

Lanchester’s zeal makes him an effective teacher of complicated financial engineering. And though his lessons can be somewhat amateur -- such as when he explains securitization as “pooled debt” that has been “turned into something that investors can buy and sell” -- they may be well calibrated to the audience with the most to learn in this field.

Lanchester launched his financial oeuvre with the publication of I.O.U. in 2010. He had been following the crisis since 2008, “as part of the background to a novel” -- which he would subsequently publish as Capital -- when he realized that he “had stumbled across the most interesting story [he’d] ever found.” His “need to understand” diverted him from fiction to non-fiction in an effort to “narrow the gap” between “the world of finance and that of the general public.” That education is necessary, he maintains, “if the financial industry is not to be a kind of priesthood, administering to its own mysteries and feared and resented by the rest of us.”

Lanchester’s heresies are evident, as his repetitive invocation of “banksters” (for bankers) and “noughties” (for the decade of the two thousand aughts) attest. Yet his explication of the complicated machinery behind mortgage-backed securities is lucid and reasonably orthodox. I.O.U. could certainly improve the financial literacy of readers unaware of what happened in 2008. And it may have been able to do so before the revelations of American authors and insiders such as Michael Lewis (The Big Short, 2011), Alan Blinder (After the Music Stopped, 2013), and Hank Paulson (On the Brink, 2013). Though his book is pitched at a general audience,[1] Lanchester attempts a careful excavation of decades of America’s financial and legal fossil record: from Harry Markowitz’s portfolio theory of 1952 to the Black-Scholes valuation formula of 1973 to the repeal of the Glass-Steagall Act in 1999. In just 232 pages, Lanchester leaves an art-loving, finance-fearing readership informed if also a tad deflated.

Two years after I.O.U. was published, he sought out that audience again via fiction in his 2012 novel, Capital. With a Trollopian roster of slightly typecast characters drawn from various strata of London life -- from the meter maid on the beat (Quentina Mkfesi from Zimbabwe) to the owner of a corner shop (Ahmed Kamal from Pakistan) to the City banker (Roger Yount from the English middle class) -- Lanchester sketches a witty and vivid study of the way the English spend now. Or at least the way they did until 2008. 

The real protagonist of the story, however, is Pepys Road, and the novel is primarily the road’s Bildungsroman from home of “lower-middle-class families willing to live in an unfashionable part of town” to a street of people who were “by global and maybe even by local standards, rich.” The Icarian journey of real estate values on Pepys Road is an interesting device to connect the various components of the credit crisis at several levels. Though Lanchester does not offer many surprises -- one readily spots his heroes and villains -- his story does illustrate the roles of financiers at the top of the subprime scheme as well as those trickled upon below.

The Yount family suffers from “the general hard-to-believe expensiveness of everything in London, restaurants and shoes and parking fines and cinema tickets and gardeners and the feeling that every time you went anywhere or did anything money just started melting off you.” Quentina, for her part, lives in fear of deportation.

What makes Capital a useful pedagogical tool for the excesses of the last decade is Lanchester’s ability to weave the roles of borrowers and bankers into a readable story. The least economically inclined among us may balk at a textbook but profit from a novel. Lanchester’s details of the moment (unsolicited offers to buy homes, lychee martinis), wrapped within that moment’s collapse, are certainly readable. Writing any later, he might have forgotten those details; any earlier, he would have missed the story’s natural conclusion: here, the collapse of Roger’s bank and his exile to godforsaken Minchinhampton burdened with an unrepentantly label-/logo-consuming wife and delusional sense of his ability to change.


In 2014, Lanchester next attempted a lexicographic approach to achieve a commendable, if nigh impossible goal: to teach us how to speak money. But, as language instructors surely know, new tongues cannot be learned by reading dictionaries. An even willing readers may find the constant non-sequitur of alphabetical topics a slog.

Many of his entries are amusing if at times pat. He defines “dead cat bounce” as “an apparent but illusory recovery in a falling market” and editorializes that “if you’re wondering who on earth would be so sick as to come up with a metaphor like that, greetings, and welcome to the world of money.” He identifies many of the components in the “Forbes cost of living extremely well index,” for what one senses is their self-evident excess, such as “Russian sable fur coats from Bloomingdale’s, shirts from Turnbull and Asser, Gucci loafers, handmade John Lobb shoes, a year at Groton boarding school, a yacht, a horse, a pool, a Learjet, a Roller [Rolls-Royce], a case of Dom Perignon, forty-five minutes at a psychiatrist’s on the Upper East Side (!), an hour’s estate planning with a lawyer, and, amusingly/annoyingly, a year at Harvard.”

As with any selection of terms in such a broad area, some entries are curious (Jáchymov: home of the thaler, ancestor of the dollar) while others go missing (TARP; subprime). Ever since Ambrose Bierce compiled his Devil’s Dictionary, this genre tends to succeed more at producing pithy aphorisms than genuine enlightenment, though Lanchester does interlard his pith with earnest efforts. For instance, he offers several paragraphs on unfunny entries such as “margin call” and “correlation and cause.” 

More compelling is the introductory essay (“The Language of Money”), in which he presents his argument for the desperate need for citizens to acquire “the linguistic tools to join the conversation.” And the afterword, in which he warns somewhat darkly that rising inequality in our economic circumstances may cause people to protest that “It can’t go on like this”:

what usually happens is that it does go on like that, more extendedly and more painfully than anyone could possibly imagine; it happens in relationships, in jobs, in entire countries. It goes way, way past the point of bearability. And then things suddenly and abruptly change.

Although no single volume can, by itself, satisfy Lanchester’s goal of teaching readers to speak money, his trio of books seems capable of moving a willing pupil a little closer to greater fluency. The financial and linguistic education of a population requires more than any single exposition, novel, or dictionary can offer; students need an extended education with repeated exposure to this complex material. Good teaching, we are told, involves repetition and novelty. Lanchester’s collection of financial works, published over several years and using a variety of styles is certainly a meaningful contribution to the project of improving our financial literacy. Particularly in an America in which ninety million individuals now attempt to manage their own mutual fund investments successfully.

Still, many financial lessons for our citizens remain untaught: managing student debt, navigating a tottering bond market, bracing for corrections to record price-to-earnings ratios. Surely these subjects deserve additional lessons of their own -- poems, perhaps, or a documentary -- ideally before they or other financial perils conspire to deplete our 401(k) accounts or to precipitate a future crisis. Let us hope that John Lanchester and more authors will be willing to keep the language academy open.

Posted on 6 January 2016

WILLIAM A. BIRDTHISTLE is Professor of Law at Chicago-Kent College of Law and the author of Empire of the Fund: The Way We Save Now, (Oxford University Press, forthcoming 2016) .

[1] The copy I borrowed from a university library contained a previous reader’s receipt from an art supply store.