From Christopher Lydon’s outstanding Radio Open Source: A fascinating conversation with John Lanchester, editor of the London Review of Books and author of the new novel Capital.
John Lanchester has written a sprawling neo-Dickensian novelCAPITAL about London in the age of funny money and the crash of 2008. He got the germ of it five years ago, noticing a parade of “florists, dog-walkers, pilates instructors” on his own once-modest street south of the Thames, being radically made-over for bankers and the blooming investment-services class — “manifestly symptomatic,” as he says, “of a boom that would turn into a bust.” Like Bleak House or Our Mutual Friend, CAPITAL has what the Brits call a “state of the nation” feel, delivered in the voice attributed to Dickens of the “special correspondent for posterity.” But of course he’s illuminating an affliction gone global by now, describing life as lived in New York, too, or Shanghai, or Boston for that matter. One moral that Lanchester has given his tale is: “We are not in this together,” inverting the Tory slogan. In conversation he adds a touch from the Gospel of Mark: “To them that hath shall be given.” I marvel at how casino capitalism and its costs come clearer, stranger, more ridiculous, more destructive, more outrageous in fiction than in fact – how the right novels can feel truer than the news.
On May 2, 2011, US Treasury Secretary Timothy Geithner sent his third ultimatum to Congress noting that the US is set to reach its statutory debt limit of $14.3 trillion by May 16, and unless the ceiling was raised by August 2, the country could face default. ‘The economy is still in the early stages of recovery,’ he warned, ‘and financial markets here and around the world are watching the United States closely. Delaying action risks a loss of confidence and accompanying negative economic effects.’ These will have a ‘catastrophic economic impact’ and ‘broad range of government payments would have to be stopped, limited or delayed, including military salaries, Social Security and Medicare payments, interest on debt, unemployment benefits and tax refunds.’ It will also lead to ‘sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans.’ Mostly ominously, it will ‘cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover.’
The situation doubtless sounds dire, but there is something mildly ironic about a Treasury Secretary warning the government against losing the trust of an industry which he only recently rescued with an extraordinary cash transfusion of $4.1 trillion in public money. The real costs of the bailout are estimated by Bloomberg at $ 12.8 trillion. But it is easy to overlook the consistency in Geithner’s assessment: the US government was a hostage to the financial industry when it faced collapse, and it is a hostage to it when its own economic future turns increasingly uncertain. The doubling of US national debt between 2004 and 2011 is merely a symptom of the problem—two wars and the bailout have both paid a part—but at its root are the regulatory failures and conflict of interests which are embodied in the person of Timothy Geithner. For over two decades the US Treasury has functioned as a de facto arm of Wall Street, eschewing its regulatory function to act as a passive enabler. Little surprise then that three years after the crisis the institutions that caused the collapse continue to evade responsibility and the price is instead paid by the taxpayer in exorbitant, lost homes and depleting employment opportunities.
In an excellent, thorough investigation of the financial crisis in the last issue of the London Review of Books, John Lanchester had presented the scrapping of pensions in the public sector as a worst case scenario. Looks like it has already started to happen in the private sector with Barclays scrapping the pensions of its 17,000 employees. This does not, of course, affect the President Bob Diamond who last year raked in £21 m, nor does it affect the rest of the the 1,500 best paid employees. Here is Lanchester (however, let me warn that this piece is more than 14,000 words long, so you better have a good strong copy of coffee and plenty of free time before diving in; also, I’ve appended a reader’s letter correcting an accounting error made by the author):
It’s a moment of confusion and loathing that most of us have experienced. You’re in a shop. It’s time to pay. You reach for your purse or wallet and take out your last note. Something about it doesn’t feel quite right. It’s the wrong shape or the wrong colour and the design is odd too and the note just doesn’t seem right and . . . By now you’ve realised: oh shit! It’s the dreaded Scottish banknote! Tentatively, shyly – or briskly, brazenly, according to character – you proffer the note. One of three things then happens. If you’re lucky, the tradesperson takes the note without demur. Unusual, but it does sometimes happen. If you’re less lucky, he or she takes the note with all the good grace of someone accepting delivery of a four-week-dead haddock. If you’re less lucky still, he or she will flatly refuse your money. And here’s the really annoying part: he or she would be well within his or her rights, because Scottish banknotes are not legal tender. ‘Legal tender’ is defined as any financial instrument which cannot be refused in settlement of a debt. Bank of England notes are legal tender in England and Wales, and Bank of England coins are legal tender throughout the UK, but no paper currency is. The bizarre fact of the matter is that Scottish banknotes are promissory notes, with the same legal status as cheques and debit cards.
These feared and despised instruments, whose history has long been of interest to economists, come in three varieties from three issuing banks: the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank. Small countries with big ambitions but few natural resources need ingenious banking systems. The history of the Netherlands, Venice, Florence and Scotland show this – and so does the tragic recent story of Iceland. ‘In the 17th century, when English and European commerce was expanding by leaps and bounds,’ James Buchan wrote in Frozen Desire, ‘the best Scots minds felt acutely the shortage of . . . what we’d now call working capital; and Scots promoters were at the forefront of banking schemes in both London and Edinburgh, culminating in the foundation of the Bank of England in 1694 and the Bank of Scotland in 1695.’ The powers down south, however, came to think – or pretended to think – that the Bank of Scotland was too close to the Jacobites, and so in 1727 friends of prime minister Walpole set up the Royal Bank of Scotland.