Re-reading Dickens: Bleak House

I’ve reached the half-way mark in my odyssey through the novels of Charles Dickens – his most ambitious work, and the one which is widely held to be his masterpiece: Bleak House.

Dickens began writing Bleak House in November 1851, towards the end of the year of the Great Exhibition, that symbol of the high-water mark of Victorian Britain.  Looking back on the year, the Manchester Guardian asserted that were ‘good grounds for satisfaction, for hope, and for self-approval’.  Dickens did not concur.

How robots will eat our jobs

From around 8 am and throughout the day, our avenue is busy with deliveries – vans (mainly white, some liveried) bringing Amazon packages, Ocado deliveries for the posh people up the road or Asda shopping for the students, and much else besides.

John Lanchester’s Capital

If you already lived there, you were rich. If you wanted to move there, you had to be rich. It was the first time in history this had ever been true.

I approached John Lanchester’s Capital with high expectations: the reviews had been uniformly good, speaking of a panoramic, Dickensian, post-crash, state of the nation novel.  I was, frankly, disappointed.  I really enjoyed Lanchester’s journalistic explanation of the financial crash,  Whoops! Why Everyone Owes Everyone and No-One Can Pay, and had heard that he was researching the world of finance so he could put it in a novel. But Capital, although it is set during the early days of the crash, and although a banker is one of the main characters, is not that book at all.

The novel begins promisingly as, with a Dickensian tone, Lanchester introduces Pepys Road, a street in Clapham which is to be the central axis of the various stories that are developed in the book:

Over its history, almost everything that could have happened in Pepys Road, in south London, had happened. Many, many people had fallen in love and out of love; a young girl had had her first kiss, an old man had exhaled his last breath, a solicitor on his way back from the Underground station after work had looked up at the sky, swept blue by the wind, and had a sudden sense of religious consolation, a feeling that this life cannot possibly be all, and that it is not possible for consciousness to end with the end of life; babies had died of diphtheria, and people had shot up heroin in bathrooms, and young mothers had cried with their overwhelming sense of fatigue and isolation, and people had planned to escape, and schemed for their big break, and vegged out in front of televisions, and set fire to their kitchens by forgetting to turn the chip pan off, and fallen off ladders, and experienced everything that can happen in the run of life, birth and death and love and hate and happiness and sadness and complex feeling and simple feeling and every shade of emotion in between.

Now, however, history had sprung an astonishing plot twist on the residents of Pepys Road. For the first time in history, the people who lived in the street were, by global and maybe even by local standards, rich. The thing which made them rich was the very fact that they lived in Pepys Road. They were rich simply because of that, because all of the houses in Pepys Road, as if by magic, were now worth millions of pounds.

This caused a strange reversal. For most of its history, the street was lived in by more or less the kind of people it was built for: the aspiring not-too-well-off. They were happy to live there, and living there was part of a busy and determined attempt to do better, to make a good life for themselves and their families. But the houses were the backdrop to their lives: they were an important part of life but they were a set where events took place, rather than the principal characters. Now, however, the houses had become so valuable to people who already lived in them, and so expensive for people who had recently moved into them, that they had become central actors in their own right.

This happened at first slowly, gradually, as average prices crept up through the lower hundred thousands, and then, as people from the financial industry discovered the area, and house prices in general began to rise sharply, and people began to be paid huge bonuses, bonuses that were three or four times their notional annual pay, bonuses which were big multiples of the national average salary, and a general climate of hysteria affected everything to do with house prices – then, suddenly, prices began to go up so quickly that it was as if they had a will of their own. There was a sentence that rang down the decades, a very English sentence: “Did you hear what they got for the house down the road?”

A variety of characters, some of them wearily predictable, have some kind of connection with the road: a Harrow-educated banker and his brainless wife; the family of Pakistanis who run the corner shop; an elderly widow who just happens to be the grandmother of a Banksy-like anonymous guerilla artist; a Zimbabwean traffic warden who is an illegal immigrant; a builder from Poland; a 17-year-old Senegalese football prodigy who has been signed by a major London football club.

And many more. As Theo Tait observed in his Guardian review, ‘half an hour’s state-of-the-nation brainstorming, you feel, might have produced these dramatis personae’.  What makes things worse is that these characters never really come to life and, while Lanchester is constantly jumping from one person to another in 107 short chapters, we don’t really come to care very much about them.  The characters are not sketched in much depth, while the brief chapters, in which often nothing very much happens, keep killing the momentum.  The storylines of the various characters overlap in only the smallest ways, so they tend not to illuminate each other’s personalities or motivations.

Lanchester avoids bringing his characters together for some great revelatory scene at the end. Fair enough, he may be making a point about how lives in a big city – even of those who live in the same street – only occasionally intersect. But the lack of almost any kind of plot made this feel less like a novel  and more like a series of journalistic case studies. As Leo Robson observed in the New Statesman: ‘vignettes don’t add up to a vision’, while Theo Tait wrote in The Guardian:

Plotwise, Lanchester has chosen not to have the staple set-piece of the panoramic novel: the climactic scene where all the disparate characters meet. This has the advantage of being true to London – where the paths of neighbours often never cross – but it leaves him with an episodic, soapy story whose meaning always threatens to become clear, but never quite does.

‘We want what you’ve got’: that’s the message written on the back of cards posted through each door on Pepys Road at the outset of the novel, each card bearing a photo of the recipient’s front door on the front.  More such cards follow intermittently as the chapters progress. But these disturbing and mysterious actions never develop into anything that grips the reader or seems to signify much.

Indeed, Lanchester seems at pains to reject conventional plot expectations: a terrorist plot appears and fades away, a suitcase stuffed with half a million pounds in old notes does not make the finder rich, the young footballer does not make it big – and so on. Again, fair enough, lives generally don’t conform to to some dramatic story arc concluding in a neat resolution. But, coupled with the lack of any clear theme at all did leave me wondering when I had finished the book: what was the point?

John Lanchester

The burden of dreams

In Werner Herzog’s film Fitzcarraldo, a 19th century rubber-baron obsessively drives an army of poverty-stricken Brazilians to haul a steamboat over a mountain in the Andes in order to grab the land rights to an unclaimed region in the upper reaches of the Amazon where 14 million rubber trees are located.  When it’s done he plans to build an opera house and bring his idol Caruso to perform at its opening.  Les Blank made a documentary – called  The Burden of Dreams – about Herzog’s equally insane determination to complete the film.

Herzog’s  story is a metaphor, of course – of the hubris at the core of capitalism’s insistence that nature can be wrestled into submission, and that the planet is a limitless source of commodities that can be conjured into products that fuel ever-expanding demand and economic growth.

But, I think there’s another burden that we all carry – at least those of us who fear where all this is heading, and who bought a little of what Karl Marx had set out on his stall when we were sifting the market for political certainties in our youth.  It’s this: decade after decade the exploitation, inequalities and injustice persist, yet we continue to dream that change will come.  The madness of global capitalism is a burden, but so, too, is the dream that remains unrequited.

This is all by way of a preamble to drawing attention to three articles that each, in their different ways, examine aspects of the burden.  In an excellent article in the current issue of the London Review of Books, Marx at 193, John Lanchester ponders what Marx would have made of the world today, and makes some interesting observations on what he got right – as well as identifying the ways in which capitalism has evolved that Marx did not foresee.

Lanchester begins by quoting a few choice passages from The Communist Manifesto, which Marx wrote with Engels in 1848, and which have a resounding pertinence to 21st century capitalism:

Capitalism has subjected the country to the rule of the towns. It has created enormous cities. Capitalism has agglomerated population, centralised means of production, and has concentrated property in a few hands.

Capitalism has left remaining no other nexus between man and man than naked self-interest, than callous ‘cash payment’.

Capitalism cannot exist without constantly revolutionising the instruments of production, and thereby the means of production, and with them the whole relations of society. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the capitalist epoch from all earlier ones. All old-established national industries have been destroyed or are daily being destroyed.

In place of the old wants, satisfied by the productions of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes.

Commercial crises put on trial, each time more threateningly, the existence of the entire capitalist society. In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed.

‘It’s hard not to conclude’,  says Lanchester, ‘that Marx was extraordinarily prescient. He really did have the most astonishing insight into the nature and trajectory and direction of capitalism’.

Lanchester admits to fiddling things a bit:  Marx didn’t use the word ‘capitalism’ in these instances – for an important philosophical reason.  To do so would have implied that capitalism was one of a number of competing possible systems – and Marx didn’t believe that.  He didn’t think it was possible to move past capitalism without a fundamental overturning of the existing social, political and philosophical order.  And, as Lanchester observes, he was right: no alternative has developed. ‘Economics as a discipline has in effect become the study of capitalism’.

But Marx could not have predicted how capitalism would spawn so many different variations on the main theme:

Scandinavian welfare capitalism is very different from the state-controlled capitalism of China, which is in turn almost wholly different from the free-market, sauve-qui-peut [every man for himself] capitalism of the United States, which is again different from the nationalistic and heavily socialised capitalism of France and so on..

But there is something common to all these varieties, a characteristic that Lanchester crisply pins down in one brilliant paragraph:

We have at the moment this monstrous hybrid, state capitalism – a term which used to be a favourite of the Socialist Workers Party in describing the Soviet Union, and which only a few weeks ago was on the cover of the Economist to describe the current economic condition of most of the world. This is a parody of economic order, in which the general public bears all the risks and the financial sector takes all the rewards – an extraordinarily pure form of what used to be called ‘socialism for the rich’. But ‘socialism for the rich’ was supposed to be a joke. The truth is that it is now genuinely the way the global economy is working.

Moreover, Lanchester continues, this system of  ‘socialism for the rich’ has alarming implications for democracy:

The financial system in its current condition poses an existential threat to Western democracy far exceeding any terrorist threat. No democracy has ever been destabilised by terrorism, but if the cashpoints stopped giving out money, it would be an event on a scale that would put the currently constituted democratic states at risk of collapse. And yet governments act as if there is very little they can do about it. They have the legal power to conscript us and send us to war, but they can’t address any fundamentals of the economic order. So it looks very much as if Marx’s omission of the word ‘capitalism’, because he foresaw no alternative within the existing social order, was an instance of his crystal ball functioning with particularly high resolution.

The third and fourth sentences there seem hugely pertinent on the morning that The Guardian leads with the story that in the last three years Amazon has sold UK citizens more than £7.6bn-worth of goods without attracting any corporation tax on the profits.  As The Guardian observes, those sales have all been taken from high street stores in the UK:  in Marx’s language, just one example of the ‘constant revolutionising of production’ and the process by which ‘old-established national industries … are daily being destroyed’.

In a lengthy article, Lanchester probes which features of contemporary global capitalism fit Marx’s predictions, and which he might have been staggered to observe, could he be here today.  One passage certainly staggered me: I did not know that Foxconn, the company that manufactures, amongst a multitude of gizmos, Amazon’s Kindle and Apple’s iPad, has a huge factory (one among many) that employs 230,000 people.  Think of that: 230,000 people.  That’s more than half the population of Liverpool!

Marx foresaw the development of a proletariat who did most of the world’s work and a bourgeoisie who in effect owned the fruits of their labour.Lanchester puts this into a 21st century context:

The fact of the proletariat being in the developing world, in effect shoved out of sight of the Western bourgeoisie, does nothing to disprove that picture – an ‘external proletariat’, it’s sometimes called. Take as a case study of this process the world’s most valuable company, which at the moment is Apple. Apple’s last quarter was the most profitable of any company in history: it made $13 billion in profits on $46 billion in sales. Its bestselling products are made at factories owned by the Chinese company Foxconn. (Foxconn makes the Amazon Kindle, the Microsoft Xbox, the Sony PS3, and hundreds of other products with other companies’ names on the front – it’s not much of an exaggeration to say that it makes every electronic device in the world.) The company’s starting pay is $2 an hour, the workers live in dormitories of six or eight beds for which they are charged rent of $16 a month, their factory in Chengdu, where the iPad is made, runs 24 hours a day, employs 120,000 people – think about that, a factory the size of Exeter – and isn’t even Foxconn’s biggest plant: that’s in Shenzhen and employs 230,000 people, who work 12 hours a day, six days a week.

So far so good as far as Marxist prediction goes.  But, as Lanchester wryly observes:

…there is no organised global conflict between the classes; there is no organised global proletariat. There’s nothing even close. The proletariat is queuing to get into Foxconn, not to organise strikes there…

Lanchester suggests that this is because in the modern world our selves are far more fragmented than Marx’s class analysis allowed for:

Marx … talked about people, indeed classes, as being divided into workers and owners of the means of production, and he made some allowance for the fact that we are ‘bearers’ of these roles, different aspects of which might be in play at different times, with the result that a proletarian may find himself competing against other proletarians even though their class interests are aligned. The fact is that in the modern world our selves are far more fragmented and contradictory than that. Many workers have pensions invested in companies whose route to profit lies in cutting to a minimum the number of workers they employ; one of the things that led to the credit crunch was pension funds’ search for higher stable returns to pay the pension liabilities of future generations of retiring workers, so that in very many cases we had a situation in which people lost their jobs because of losses incurred in the attempt to provide future security for the same workers.

Lanchester concludes by noting that there was one fundamental thing –  critical in terms of the crisis facing the planet today – which Marx got wrong.  His philosophy was predicated on the belief that the resources of the natural world were there to be exploited by man – whether organised under capitalism or communism:

What Marx doesn’t allow for is the fact that nature’s resources are finite. He knows that there is no such thing as nature unshaped by our assumptions, but he doesn’t share our contemporary awareness that nature can run out. This is the kind of thing which is sometimes called ironic, but is closer to tragedy, and at its heart is the fact that the productive, expansionist, resource-consuming power of capitalism is so great that it is not sustainable at a planetary level. The whole world wants to have a First World bourgeois lifestyle, and the whole world can see what that looks like by glancing at a television set, but the world can’t have it, because we will burn through its resources before we get there. Capitalism’s greatest crisis is upon us, and it is predicated on the unavoidable fact that nature is finite.

Will capitalism succeed in evolving into some new form that deflects the seemingly inevitable crisis of global warming, or do we need some entirely different social and economic order?  The irony for Lanchester is that this new order might be quite like the one Marx imagined, even if  the route to reaching it is not what he predicted.

When Marx said that capitalism contained the seeds of its own destruction he wasn’t talking about climate change or resource wars. If we feel a natural gloom and despondency at the prospect of the difficulties ahead, we should also take comfort in the fact of our imaginative adaptability and the ingenuity which has brought us so far so fast – so far, so fast, that we now need to slow down, and don’t quite know how. As Marx wrote, towards the end of the first volume of Capital, ‘man is distinguished from all other animals by the limitless and flexible nature of his needs.’ Limitless needs we see all around us and they’ve brought us to where we are, but we’re going to have to work on the flexible part.

While Lanchester’s view is a widescreen one, Aditya Chakrabortty, in Why do bankers get to decide who pays for the mess Europe is in?, in The Guardian, zooms in on part of the detail.  In a revealing piece, he describes how Charles Dallara and Josef Ackermann, two of the most senior bankers in the world, have played a key role in the euro negotiations that imposed strict terms on Greece to avoid default.  ,

Chakrabortty’s article reveals the hidden power that subverts democracy.  Dallara served in the Treasury under Ronald Reagan, before moving on to Wall Street, while Ackermann is chief executive of Deutsche Bank. But their presence at the negotiations was as representatives of the International Institute for Finance.  Chakrabortty continues:

The IIF is a lobby group for 450 of the biggest banks in the world, with members including Barclays, RBS and Lloyds. Dallara and Ackermann and their colleagues were present throughout those euro summits, and enjoyed rare and astounding access to European heads of state and other policy-makers. EU and IMF officials consulted the bankers on how much Greece should pay, Europe’s commissioner for economic affairs Olli Rehn shared conference calls with them. […]

Across Greece, there were massive, repeated protests about the enormous spending cuts that citizens would suffer by paying off Goldman Sachs and the rest. And there was a growing movement in Greece and Portugal and France, among other countries, questioning the legitimacy of some of these loans.

None of these voters, none of these opinions got even a fraction of the consideration, let alone the face time, that was extended to Dallara and Ackermann. …These were summits settling how much misery would be imposed on the Greek people – and no trade unions or civil society groups got a say in them. “The only key players in those meetings were European governments and the bankers,

Chakrabortty’s conclusion is devastating:

So the bankers whose excesses helped land Europe in this mess then get to sit round the big EU table, like any other government, and decide who should pay for it. And the answer, unsurprisingly, is: not them. The bigger question is: why finance has been granted such power? In a forthcoming paper entitled Deep Stall, the Centre for Research on Socio-Cultural Change gives one compelling reason: because so many countries across Europe are, through both their public and private sectors, so dependent on financiers in other countries for credit….The tale of the IIF and how it got such a powerful say on the fate of ordinary Greeks is really a chapter in a much bigger story of how governments across the western world got swallowed up by their finance industries.

Finally, James Meek, in a polemic entitled Human Revenue Stream posted on the London Review of Books blog makes some pertinent points about whose interests are really served by the increasing pace of privatisation of public services:

The privatisations are joining up. First it was gas. Then telecoms, oil, electricity, public housing, water, the railways, the airports. There are moves afoot to obliterate the concept of the council house; NHS hospitals are to be privately run, built and managed; now David Cameron wants to get private companies and foreign governments to ‘invest’ in Britain’s roads. What does it all mean? The episodic character of privatisation – one sector being sold, then a pause, then another – has hidden a meta-privatisation that’s passed the halfway point. The essential public good that Margaret Thatcher, Tony Blair and now Cameron sell is not power stations, or trains, or hospitals. It’s the public itself. It’s us.

What Meek means by that last statement is that the commodity that makes utilities such as water and roads and airports valuable to an investor, is that we have no choice but to use them:

We have no choice but to pay the price the tollkeepers charge. We are a human revenue stream; we are being made tenants in our own land, defined by the string of private fees we pay to exist here.

This process is not obvious because the supposed benefits of privatisation are sold in a ‘hypnotically familiar’ way.

First, the denigration of the existing service, as if a universally accepted truth is being voiced: the schools/hospitals/roads are crumbling/failing/ second-class. Then, the rejection of government responsibility: we’ve no money/bureaucrats are incompetent. Finally, the solution: private investment.

So investment comes, and ‘things get shinier’; old sewers and power stations are replaced.  If these private companies weren’t doing it, surely we’d need to pay higher taxes instead? Meek puts his finger on something that should be obvious:

The truth is that we already do pay higher taxes. They just aren’t called taxes. Our water supply system is being upgraded because of a huge water tax increase. But it isn’t called that. It’s called ‘the water bill’. Water bills have gone up by nearly twice as much as inflation since privatisation. We pay a rail tax: it’s called ‘fare increases’. We pay an energy tax in the form of higher electricity bills, and so on.

And so global capitalism continues on its path of unrestrained growth, draining down the planet’s finite resources, whilst at the same time hollowing out public service and democratic processes.  Meanwhile people struggle onwards bearing the burden of their dreams.

I stood upon the platform
And waited for the train
The first stop was redemption
And the whistle called my name

I stood among the faithful
And raised my banner high
I held my breath with wonder
In the cold October night

They showed me on the TV
Above the ivy and the brick
My face glowed with salvation
But the light was playing tricks

And in the tomb like silence
I walked with my head down
Another broken spirit
In a broken-hearted town

God help us all
God help us all
God help us all
God help us all, we’re sufferin’
God help us all, we’re lost
God help us all, we’re wanderin’
With no future and no hope
God help us all, we’re sick
Of cryin’ all these tears
God help us all
‘Cause we are all that we feared

– ‘God help us all’, Tom Morello

It’s a Wonderful Life: thoughts on banks and ethics

Our annual Christmas Eve ritual: escaping Pottersville to spend 90 minutes in Bedford Falls.  We join the audience packing the Philharmonic Hall to watch It’s a Wonderful Life, a film that has gained resonance since the banking crash of 2008.

But wait – isn’t the hero of this film a banker? Ah, yes, but the Scrooge-like villain,  Henry F. Potter is a banker, too – albeit of a rather different cut. But what kind of banker is George Bailey?  Watching the film, I found myself musing on this, perhaps as a result of having just finished John Lanchester’s brilliant account of the origins of the credit crunch in 2008, Whoops!: Why everyone owes everyone and no one can pay.

Because what lies at the heart of Frank Capra’s film – dressed up in the admittedly sentimental Christmas angel story – is the same question that Lanchester pursues in his book: What are banks for and what social purpose do they serve?

Potter represents the malignant, rapacious side of banking, while Bailey Building and Loan is a bank that is responsible and benevolent, and serves the needs of the local community. This dichotomy is presented most clearly in what is, perhaps, the best scene of the film and the one that most people recall most vividly: the bank run.

George Bailey has just married his childhood sweetheart Mary. As they are leaving town for their honeymoon, they witness a run on the bank that leaves Bailey Building and Loan in danger of collapse. The couple quell the depositors’ panic with a personal bail-out –  the $2,000 earmarked for their honeymoon. George gets up and makes a speech that defines the ethics of socially responsible banking:

Now wait…now listen…now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan, there’ll never be another decent house built in this town. He’s already got charge of the bank. He’s got the bus line. He got the department stores. And now he’s after us. Why? Well, it’s very simple. Because we’re cutting in on his business, that’s why. And because he wants to keep you living in his slums and paying the kind of rent he decides. Joe, you had one of those Potter houses, didn’t you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? Here, Ed. You know, you remember last year when things weren’t going so well, and you couldn’t make your payments? You didn’t lose your house, did you? Do you think Potter would have let you keep it? Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying! And why? Because we’re panicking and he’s not. That’s why. He’s picking up some bargains. Now, we can get through this thing all right. We’ve got to stick together, though. We’ve got to have faith in each other.

In a little lesson on balance sheet accounting, George explains to the crowd that their money isn’t at Bailey Building and Loan:  it’s invested in another person’s house and another’s loan.  ‘You’re thinking of this place all wrong’, he says. ‘Your money is in Joe’s house, that’s right next to yours and in the Kennedy house and Mrs. Macklin’s house and a hundred others. You’re loaning them the money to build and they’ll pay it back’.

Bailey Building and Loan survives because George and Mary and all the depositors of Bailey’s Building and Loan stick together; the bank is saved by contributions from ordinary townspeople. In the 2007-8 remake, it was pretty much the same thing, but on a vaster scale: governments bailed out the banks, using taxpayers’ money. When the big banks required a ‘guardian angel’, they got a bailout, but they were not George Bailey nor are they any longer an integral part of local communities like Bailey Building and Loan was in Bedford Falls.

Remember how it all kicked off, back in September 2007?  The UK’s 5th largest lender Northern Rock experienced a good old fashioned bank-run. People expecting Northern Rock to become insolvent camped outside overnight. The Bank of England had to step in and promise to provide liquidity to Northern Rock, which was taken into public ownership.

It’s pertinent to recall that moment, because Northern Rock was, like  Bailey Building and Loan, a former building society (they call them Savings and Loans in the States), with its roots in the 19th century heyday of building society formation.  Savings and Loans or building societies emerged in the 19th century as small banks that accepted cash deposits from customers and made loans to borrowers in the community, replacing the extended family as a source of capital.  They were democratic in a way that banks were not since they were ‘mutual’ – the depositors controlled the investment strategy deployed by management.  In their UK heyday, there were hundreds of building societies, with just about every town in the country having a building society named after the town.  In contrast, equity investors (such as Potter), usually with no connection to the deposit community, controlled the management of banks.

Borrowers and depositors seem to have genuinely respected these institutions, because the interests of the bank were at one with the local community on which it depended. But It’s a Wonderful Life reminds us that not all banks are so constituted.  Potter, the greedy banker, stokes the run on Bailey Building and Loan, by offering depositors 50 cents on the dollar for their shares (and, later in the film, causes the second, climatic crisis by stealing some of Bailey’s cash).  Unlike Bailey, Potter sees Bedford Falls as a resource to exploit for his own gain.  If he could eliminate Bailey’s, he would  monopolize both the local banking and housing markets and use his market power to grind the faces of the poor.

George has earlier established Bailey Park, an affordable housing project. The residents no longer have to pay extortionate rents to slum landlord Potter, who as the majority shareholder in Bailey Building and Loan, tries to persuade the board of directors to stop providing home loans to the working poor. George talks them into rejecting Potter’s proposal, but it’s at the cost of his dream of leaving Bedford Falls to pursue a college education.The board agree only on the condition that George himself run the Building and Loan.

This episode, too, has its parallels in the events of the credit crunch.  In Whoops! John Lanchester describes in the most intelligible and entertaining manner how the creation by financial engineers of new mathematical formulas underpinned the explosive growth of credit default swaps that seemed to magic away any risk involved in advancing mortgages to people without the means or inclination to repay.  Without the risk, these sub-prime loans, with their high interest rates, became deeply attractive.  In the book, Lanchester quotes a lawyer trying to protect home-owners caught up in the American foreclosure hurricane:

Remember It’s a Wonderful Life?  It’s not like that any more.  They don’t care about you.  If they did, they wouldn’t give you a $300,000 loan if you didn’t have a job and had no chance of paying it back’.

Except Potter would have – if credit default swaps had existed back in the 1930s; and, if they had fallen behind on their repayments, he’d have foreclosed:

– Times are bad, Mr. Potter. A lot of these people are out of work.

– Then foreclose!

– I can’t do that. These families have children.

– They’re not my children

– But they’re somebody’s children, Mr. Potter.

– Are you running a business or a charity ward?

But there is one crucial way in which it’s not like the film any more: there are very few building societies left.  In explaining the roots of the present crisis in Whoops!, Lanchester winds the clock right back to 1980s. In that decade, the end of the Cold War and the collapse of communism, coupled with the re-emergence of a virulent form of free market economic promoted by Thatcher and Reagan,  produced a climate – ‘a victory party of free market capitalism’.  That climate underpinned the deregulation and privatisation mania of the following two decades – one notable feature of which was the demutualisation of the building societies, now free to offer any of the banking services provided by normal banks.  As John Lanchester puts it in Whoops!:

It began with Northern Rock, done in by Britain’s first bank run in 150 years. The bank was a demutualised former mutual society. It had adopted a groovy, go-go financial strategy: only 27 per cent of its funds came from money deposited in its accounts by savers; the rest came from short-term borrowing, on an as-and-when-needed basis, from the international money markets. When those markets choked up the Rock sought emergency funding from the Bank of England, which acted too slowly and by doing so triggered the run on the Rock, which led, after a certain amount of governmental faffing about, to its nationalisation on 17 February.

Note that the Rock wasn’t destroyed by risky lending. Some of its loans were risky: a banker contact of mine told me that there was trouble with a ‘book’ of mortgage loans for 120 per cent of the value of homes. (Why would any sane person want to borrow 120 per cent of the value of the thing they wanted to buy? I can just about answer that question: because they want to do the place up, or spend the extra on a new car, and because all parties involved are mortally certain that the price is going to go up. But it’s still crazily reckless. Why would any sane lender lend the money? No idea.) But while loans like this did nothing to help the Rock, what ruined the bank was its exposure to the now malfunctioning money markets.

If you want a book that will explain derivatives, leveraging ratios,the difference between a CDO and a CDS, the significance of the Var statistical tool, and many other arcane mysteries of the banking stratosphere that contributed to the great crash of 2008, in a highly readable and often humourous manner that even enumerate people like me can grasp, then Whoops! is the book to read. Lanchester’s book reveals clearly how the mathematical models that the ‘quants’ working for the big banks developed in the 1990s were a mistake that ultimately led to the 2008 collapse. They were a mistake because they violated practical common-sense rules of risk management; they proved a disaster because neither the bankers themselves nor the regulators properly understood them.

In summary, Lanchester’s analysis is that ‘the credit crunch was based on a climate (the post-Cold War victory party of free market capitalism), a problem (the sub-prime mortgages), a mistake (the mathematical models of risk) and a failure, that of the regulators’.  He is explicit about the crucial importance of contemporary banking culture – Potteresque in its brutal, money-grubbing lack of ethics:

Doctors don’t, for the most part, pride themselves on saying, ‘What the hell, nobody’s looking, so I’m just going to reuse this dirty needle.’ … But the culture of modern banking is not like that; in fact, it’s close to the opposite of that.  The bankers’ slogan is something closer to ‘We’re not that fussed about safety, because if we have an accident, it’s you who pays’.

Lanchester illustrates this point with the most spectacular example:

Goldman Sachs … went from having to end its status  as an investment bank and take federal support, in September 2008, to declaring all-time record profits – with bonuses to match – in July 2009.  The bank which would have gone under without government help, and had to borrow $10 billion from the taxpayer, was less than a year later setting aside $16.8 billion in pay, bonuses and benefits for itself.

He concludes that the Anglo-Saxon model of capitalism has failed – it only survives because of the huge government bailouts.  ‘The amount of state intervention in the US and UK at this moment is at a level comparable with wartime.  We have in effect had to declare war to get us out of the hole created by our economic system. … It is a 100 per cent pure form of socialism for the rich’.  Two decades after the end of the Cold war, capitalism, Lanchester says, ‘has found a deadly opponent; but the problem is that the opponent is capitalism itself’.

Back in the 1940s, there were some who perceived that It’s a Wonderful Life amounted to more than a syrupy, feel good Christmas film.  The May, 1947 FBI memorandum to the McCarthy committee concerning Communist infiltration of the motion picture industry stated:

In addition, [redacted] stated that, in his opinion, this picture deliberately maligned the upper class, attempting to show the people who had money were mean and despicable characters. [redacted] related that if he made this picture portraying the banker, he would have shown this individual to have been following the rules as laid down by the State Bank Examiner in connection with making loans. Further, [redacted] stated that the scene wouldn’t have “suffered at all” in portraying the banker as a man who was protecting funds put in his care by private individuals and adhering to the rules governing the loan of that money rather than portraying the part as it was shown. In summary, [redacted] stated that it was not necessary to make the banker such a mean character and “I would never have done it that way.”

In Whoops!, Lanchester kicks around some ideas about where we go now. Tighter regulation of banks, splitting ‘casino banking’ off from what he calls the ‘piggy bank’ role (something like the service provided by George Bailey), transparency with regard to pay and rewards and the ratio of pay between top and bottom, and so on. Perhaps most dramatically he argues that if a bank receives any taxpayers’ money, the existing shareholders should be wiped out. That’s what happens, he argues to investors in other institutions: if the firm you’ve bought shares in goes broke, you lose your money.  At the moment, it doesn’t happen with banks (because of the ‘too big to fail’ problem).  But, Lanchester argues, this simple and  brutal change in the law would ensure that banks managed their risks properly.

Maybe, I thought as I watched James Stewart fight to save his community bank, we should have a re-mutualisation process, re-establishing the concept of the building society.  Or, as Will Hutton proposed in his 1995 bestseller The State We’re In, a German-type system of regional banks that would demonstrate commitment to local industry by investing for the long term, rather than for short term profit. Then there’s the credit union model: cooperative financial organisations that are owned and controlled by their members, providing credit at competitive rates, and often furthering community development. At the end of 2010 there were 52,945 credit unions in 100 countries around the world. Collectively they served 188 million members and oversaw $1.5 trillion in assets.

In the end, in It’s a Wonderful Life, George Bailey represents the triumph of  ‘good’ capitalism over the predatory capitalism of  Potter, who espouses the philosophy of the rampant free market at its most rapacious. Potter almost succeeds. But Bailey’s customers recognise that his loyalty to them and their families and to the community of Bedford Falls means more than the get rich at any cost philosophy of Potter. In the memorable closing scene they flock back to the bank with their deposits.  The film’s closing line – ‘to George Bailey, the richest man in town’ – appeals to something buried deep within us – an understanding that real wealth cannot be measured in terms of money.

Lanchester concludes Whoops! on a similar note, re-emphasising his argument about the cultural roots of the crisis. But though he makes the point that a tiny minority of rich people were directly responsible for financial shenanigans behind the crash, and that everyone else is having to pick up the bill, he goes further.  He quotes ‘the greatest economist who ever lived’, John Maynard Keynes, in an essay he wrote in 1930 ‘Economic Possibilities for our Grandchildren’:

The love of money as a possession – as distinguished from the love of money as a means to the enjoyments and realities of life – will [in a century’s time] be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disorder.

For himself, Lanchester concludes:

Free-market capitalism’s victory party lasted for two decades: now it’s time to slow down, calm down and decide how to make the finance industry back into something which serves the rest of society, rather than predating on it.  And the level of our individual response is just as important. On that level, we have to start thinking about when we have sufficient – sufficient money, sufficient stuff – and whether we really need the things we do, beyond what we already have.  In a world running out of resources, the most important ethical and political and ecological idea can be summed up in one simple word: ‘enough’.

As we file out from It’s a Wonderful Life, it’s this truth, I think, that Frank Capra’s film speaks to – and to a yearning by its audience for life in 2012 to be a bit more akin to Bedford Falls and a lot less like Pottersville.  But here’s the rub: Potter keeps the $8000 he stole!  At the core of a film some regard as sentimental is a cold, hard, harsh truth.

See also

• Merry Christmas from Pottersville