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April 14, 2010 > Business Bookclub: "I.O.U.: Why Everyone Owes Everyone and No One Can Pay" by John Lanchester

Business Bookclub: "I.O.U.: Why Everyone Owes Everyone and No One Can Pay" by John Lanchester

They say that what goes up must come down.

Does that rule apply to gasoline prices, airline fees, or the cost of consumer goods? You wonder because, for the past couple years, you've watched everything rise except the amount of your paycheck. Someday, you'd like to see the Law of Gravity meet the Law of Your Bankbook, but you're not holding your breath.

You can point your fingers at banks, CEOs, maybe yourself. But how did we get this way, really? If we know how it happened, maybe we can prevent it from happening again. In the new book "I.O.U.: Why Everyone Owes Everyone and No One Can Pay", author John Lanchester says that may be impossible.

We all want to make major amounts of money, but you can't do so without involving a certain amount of risk. Invest your cash, and risk market and investment volatility. Make a bet in Vegas and cross your fingers. Or, at the very basic level, put your money in a high-yielding bank account and let the bank take the risk.

Well-run banks, says Lanchester, are money-making machines on which economies depend heavily. If a bank collapses, it's like a bad dominoes game. To avoid problems, checks and balances exist to keep banks from taking bad risks, but anything can happen. Major case in point: giving huge mortgages to people who have little-to-no real possibility of paying them off is an exceedingly bad risk, but for far too long, such risks were all but ignored.

To be fair, the world's economic mess wasn't entirely the banks' fault. Credit was easy and consumers spent wildly. In retrospect, the Federal government's prime interest rate became a problem. Wall Street was on a roll. Too many brazen people were playing with what was, essentially, virtual money and massaged numbers. Enron, one of the most infamous examples, "bought things from itself at made-up prices." And we all forgot, says Lanchester that "money does not always cost the same."

So how do we ensure that an economic disaster of this magnitude doesn't occur again? It's possible that we can't, Lanchester indicates. Boom-and-bust happens cyclically, and we always recover...eventually. But, he says, we do need to re-assess. Don't we have - haven't we had - enough?

It's a really good thing "I.O.U." is a hardcover book. Hardcover books can take a beating, and you'll repeatedly throw this one across the room in anger and frustration at what you'll learn.

In his introduction, author John Lanchester says that the story of the world's current financial situation is interesting. He's right but it's also complicated, though he tries valiantly to make it less so. Despite that your head will swim while you read this book, Lanchester will surely make you smile with metaphors and blunt language that entertains between the heavy-duty information he ruefully imparts.

If you're inured to the depletion of your dollars but you're still wondering what happened, this may fill in the blanks. For you, "I.O.U." is a book you'll pick up and won't want to put down.

c.2010, Simon & Schuster
$25.00 / $32.99 Canada
261 pages, includes index

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