John Lanchester - I.O.U.: Why Everyone Owes Everyone and No One Can Pay

ALSO BY JOHN LANCHESTER

Family Romance
Fragrant Harbour
Mr. Phillips
The Debt to Pleasure

JOHN LANCHESTER

Why Everyone Owes Everyone and No One Can Pay

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Copyright 2010 by John Lanchester

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First Simon & Schuster hardcover edition January 2010

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Library of Congress Cataloging-in-Publication Data

Lanchester, John.
I.O.U.: why everyone owes everyone and no one can pay/John Lanchester.
p. cm.
Includes bibliographical references and index.
1. Global financial crisis, 20082009. 2. Economic history21st
century. 3. International finance. I. Title.
HB3722.L35 2010
330.90511dc22 2009036465

ISBN 978-1-4391-6984-1
ISBN 978-1-4391-6987-2 (ebook)

For Miranda and Finn and Jesse

When the capital development of a country becomes the
by-product of a casino, the job is likely to be ill-done.
John Maynard Keynes,
The General Theory of Employment,
Interest, and Money

Its such a fine line between stupid and clever.
David St. Hubbins, This Is Spinal Tap

CONTENTS

INTRODUCTION

Annie Hall is a film with many great moments, and for me the best of them is the movies single scene with Annies younger brother, Duane Hall, played by Christopher Walken, the first of his long, brilliant career of cinema weirdos. Visiting the Hall family home, Alvy Singerthats Woody Allenbumps into Duane, who immediately shares a fantasy:

Sometimes when Im driving on the road at night I see two headlights coming toward me. Fast. I have this sudden impulse to turn the wheel quickly, head-on into the oncoming car. I can anticipate the explosion. The sound of shattering glass. The flames rising out of the flowing gasoline.

Its Alvys reply which makes the scene: Right. Well, I have toI have to go now, Duane, because I, Im due back on the planet Earth.

Ive never shared Duane Halls wish to turn across the road into the oncoming headlights. I have to admit, though, that I have sometimes had a not-too-distant thought. Its a thought which never hits me in town, or in traffic, or when theres anyone else in the car, but when Im on my own in the country, zooming down an empty road, with the radio on, and everything is moving free and clear, as it hardly ever is with todays traffic, but when it is, I sometimes have a fleeting thought, one Ive never acted on and hope I never will. The thought is this: what would happen if I chose this moment to put the car into reverse?

When you ask car buffs that, the first thing they do is to give you a funny look. Then they give you another funny look. Then they explain that what would happen is that the cars engine would basically explode: bits of it would burst through other bits, rods would fly through the air, the carburetor would burst into fragments, there would be incredible noise and smell and smoke, and you would swerve off the road and crash with the certainty of serious injury and the high probability of death. These explanations are sufficiently convincing that I find that the thought of putting the car into reverse flits across my mind only very temporarily, for about half a second at a time, say once every two or three years. Im sure its something Ill never do.

For the first years of the new millennium, the whole planet was zooming along, doing the equivalent of seventy on a clear road on a sunny day. Between 2000 and 2006, public discourse in the Western world was dominated by the election of George W. Bush, the attacks of 9/11, the global war on terror and the wars in Afghanistan and Iraq. But while all that was happening, something momentous was taking place, not quite unnoticed but with bizarrely little notice: the worlds wealth was almost doubling. In 2000, the total GDP of Earththe sum total of all the By the end of 2006, it was $70 trillion. In the developed world, so much attention was given to the bust in dot-com shares in 2000the greatest destruction of capital in the history of the world, as it was called at the timethat no one noticed the way the Western economies bounced back. The stock market was relatively stagnant, for reasons Ill go into later, but other sectors of the economy were booming. So was the rest of the planet. An editorial in The Economist in 1999 pointed out that the price of oil was now down to $10 a barrel, and issued a solemn warning: it might not stay there: there were reasons for thinking the price of oil might go to $5 a barrel. Ha!

By July 2008 the price of oil had risen to $147.70 a barrel, and as a result the oil-producing countries were awash with cash. From the Arab world to Russia to Venezuela, the treasury departments of all oil-producing countries resembled the scene in The Simpsons in which Monty Burns and his assistant, Smithers, pick up wads of cash and throw them at each other while shouting Money fight! The demand for oil was so avid because large sections of the developing world, especially India and China, were undergoing unprecedented levels of economic growth. Both countries suddenly had a hugely expanding, highly consuming new middle class. Chinas GDP was averaging growth of 10.8 percent a year, Indias 8.9 percent. In fifteen years, Indias middle class, using a broad definition of the term meaning the section of the population who had escaped from poverty, grew from 147 million to 264 million; That seemed utopian at the time the goals were set, but with the world $34 trillion richer, it suddenly looked as if this unprecedented target might be achieved.

And then it was as if the global economy went out one day and decided it was zooming along so well, thered never be a better moment to try that thing of putting the car into reverse. The result well, out of what seemed to most people a clear blue sky, the clearest blue sky ever, there was a colossal wreck. That left an awful lot of people wondering one simple thing: what happened?