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on 13 March 2010
I am deeply grateful to John Lanchester for this lucid, funny and passionate account of the recent Great Crash. Before I read it, I felt impotent and angry; now I feel impotent, angry but informed - and, considering I surrender, numbed and uncomprehending, after two paragraphs of your average money page in the newspaper, I can say that financially informed is an unusual, but satisfying place for me to be. Others have criticised the informal style. It held me spellbound - true, the tone is conversational, the pace as racy as a thriller, but the book is none the worse for that. JL is also articulate, knowledgeable and totally unpatronising. With friendly charm, he kindly assumes that you are both intelligent and curious, and unravels the complexities of the credit crunch with a deftness and lightness of touch that nevertheless confronts head on the profoundly serious situation, moral as well as financial, in which we now find ourselves.
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on 24 October 2010
This book will make any thinking person livid with rage and very, very worried. By pure luck I read it back-to-back with Fools Gold by Gillian Tett, an equally excellent though very different account of the same events. (In Whoops! John Lanchester pays tribute to Ms Tett as one of the few journalists to recognise and warn against the risks which the banks were running before it all blew up). Whoops! is aimed squarely at the intelligent reader who isn't an expert in high finance and the author succeeds brilliantly at explaining in everyday terms concepts which are, at best, abstruse. Given its subject matter, the book is quite astonishingly entertaining but the author's conclusion is both bleak and frightening - a real, effective fix for the banks is not going to happen until after the NEXT crisis and that crisis, whenever it arrives, will be far worse than 2008 because "it will be close to impossible for the politicians to help the banks stay solvent". The most worrying thing about this conclusion is that it is contained in an epilogue added in August 2010. Whoops! is a superb book which should be compulsory reading for every banker (or "bankster" as Mr Lanchester prefers to style them), politician and voter. Highly recommended but ultimately a very uncomfortable read.
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on 30 June 2011
If you have any close friends who are investment bankers, don't buy this book: your friendship will be tested to destruction. Everyone else, buy it now. Don't be put off by thinking you're economically illiterate and therefore won't understand it. Not only is John Lanchester not a 'bankster', as he calls financial insiders, his whole point is to show that us ordinary 'civilians' -- the millions who witnessed, open-mouthed and uncomprehending, the 2008 banking crash, and whose jobs and pockets have felt the force of the resulting credit crunch -- can see what the banksters can't, or won't: that what they've been up to for the past 20 years is madness. Readers of romantic fiction are sometimes advised to keep a box of tissues handy, to cope with the crying. I'm really not sure what would be the best thing to keep by you as you read 'Whoops!' A shotgun, perhaps, or a large bottle of Valium. And your voting card, ready to tear up if nothing else.

Take it slowly, a chapter a day at most; too much outrage all at once could stop your heart. This is not over-written hype, despite the whacky, attention-grabber title. Lanchester's a good writer and journalist, and relies on quotes from the banksters themselves, and from the laughably inadequate legislation that 'controls' them. He likens the explosion in financial self-delusion since the end of the Cold War -- the creation of trillion-dollar markets in financial instruments such as derivatives, collateralised debt obligations and sub-prime mortgage-backed securities, much of it rated AAA and, as we now know, much of it worthless -- to the onset of modernism in the arts, 'a break with common sense, a turn towards self-referentiality and abstraction and notions that couldn't be explained in workaday English.' But these are not his best metaphors; on the rapid development of credit default swaps - which supposedly diminish risk - he writes, 'It's as if people used the invention of seat-belts as an opportunity to take up drunk-driving.' On investment bankers' success in evading regulation, 'They behaved like drivers who regard speed limits as things to be obeyed only by muppets.'

There is more like this, both motoring-related and otherwise, but I am again giving the wrong impression. This book is witty, acerbic AND closely-argued. The wit and acerbity flow directly from the argument. The chapter dealing with the creation of the sub-prime mortgage market in the US is particularly good. He charts the well-meant motivation behind it (the desire to give poorer US citizens the chance to own their own homes), the subsequent, fatal removal of consequence from the actions of lenders, and the chicanery and exploitation that followed.

Do read the small number of less favourable reviews of this book; some of them criticise Lanchester for having a political axe to grind. They are probably right. I would only say, if you can't find even the smallest of axes to grind over the recent doings of the global finance industry, and the still-present danger it poses, then you can't grind an axe over anything, political or otherwise. So buy it.

Oh, and you'll discover a new, and well-founded, admiration for Canada. And, on second thoughts, to those with investment banker friends: do buy the book after all. You'll lose a friendship but it's one you really ought to have lost a long time ago.
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on 7 February 2010
An immensely readable account of the credit crunch by an informed observer rather than a participant with an axe to grind.

Nobody could avoid being totally bemused by the shenanigins of the financial institutions who brought about the credit crunch in 2008 - 2009. I certainly could not nor could I grasp the scale - what does $ trillions mean? How do sane bankers provide mortgages to poor people without any security of assets or income and convert them into triple AAA rated loans? And how can these loans be multiplied up to such an extent that they threaten the global financial markets? What are derivatives and why do they now dominate the financial markets? Should Lehman's bank and the US mortgage companies - Fannie Mae and Freddie Mac - have been allowed to fail? Were we right to bail out Northern Rock and rescue our banks whose key expertise is meant to be assessing risk? And why were the credit rating agencies not blowing the whistle on the incompetent bankers - surely that is what they are paid to do?

Whoops provides a comprehensible and entertaining account of what went wrong. He places the credit crunch in historical context - the collapse of communism in 1989 and the liberalisation of the financial markets especially the Big Bang in the UK and the repeal of regulation in the US. He explains in layman's terms the explosion of derivatives like credit default swaps (CDS's) and collateralised debt obligations (CDO's) and how they rapidly came to dominate the markets. The lack of understanding of their risk by those who ran many banks is absolutely staggering. There were exceptions, notably JP Morgan, who had pretty much invented the CDS and CDO industry and could see how profitable were these instruments, but to whom the risks were apparent and so they avoided them.

Lanchester writes a very human story. He discusses psychology research which proves that humans, even expert humans, have a particular propensity to errors in relation to risk. In the context of a widespread belief in the power of the free market to correct itself with its arch exponent Alan Greenspan, long time head of the US Federal Reserve, and with the growth of the mathematical modellers basing their work on historical data which did not include major downturns, risk becomes underrated.

The absence of any regulation by the financial services authorities is, in hindsight, fatal. The entire climate of opinion throughout the world was in favour of laissez faire, deregulation and financial innovation. Even where regulation was supposed to exist, the US's SEC and the UK's FSA were negligent. The SEC was warned about Madoff's long running Ponsi scheme and journalists did foresee the risks building up in the global financial system but "expert overconfidence" ignored them.

John Lanchester's conclusions are very depressing. Whilst not relating to $ trillions, I can get my head around the projected US deficit being bigger than the Marshall Plan, the Louisiana Purchase, the 1980's Loan crisis, the Korean War, the New Deal, the invasion of Iraq, the Vietnam War, and the moon landing all added together. In the UK relatively we are just as badly off. It is going to take a very long time to pay off this debt off. And John Lanchester is sceptical of the action that will be taken to regulate to prevent future crises.
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on 3 March 2017
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on 18 February 2016
Really great book! You'll learn a lot from this one. Well written.
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on 30 January 2010
It's a cliche to say that every body should read a book, but one of the messages from this brilliant book is that most of us blithely went about our business, perhaps enjoying the boom times, wholly unaware of what was happening in financial markets. Yet what was happening was crazy, fascinating, and driven by geniuses scarily out of touch with reality. It is, as John Lanchester argues, one of the greatest stories ever told--and postmodern to boot. We should have been watching and understanding--because now we will feel the pain of our collective failure.

I spent a year at the Stanford Business School, studied finance, and read several issues a year of the Economist, but I had no idea what was happening. Nor despite reading Galbraith's "The Crash" and Vince Cable's book did I understand it until I read John's book. It is a tremendous achievement and illustrates the value of a highly intelligent mind untainted by technical immersion in a subject studying a phenomenon.

John brings all his wit and novelist skills to the book so that it is highly readable, explains the near incomprehensible, and makes you laugh. It's one of life's greatest pleasures to be fascinated, amused, and educated all at the same time.
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on 29 April 2011
Like a lot of people in the world today, I've been struggling for a while to truly understand just how things got to be the way they are right now. Even with everyone and their uncle talking about the crisis, most of what is said concentrates on throwing accusations to one another, and I've missed seeing a systematic, organized account of what went on.

I admit, I'm not the most economically savvy person - my education has been focused primarily in the natural sciences and art. But I like to have basic knowledge of pretty much everything (not the healthiest of habits, I know) and not understanding the economic principles behind the crisis upset me, which is why I read this.

This book might just be the most important book I've read so far, this year. It's a great introduction for those who, like me, don't necessarily understand derivatives, credit default swaps, securitization, or how bail outs work. Beware though, this is not for the faint of heart - it's not easy to wrap your head around the sheer craziness of the financial systems, and the unfairness of it all is even harder to accept.

My country is now in the middle of this whole economic shenanigan. A lot of the things in this book, being mostly US and UK-centric, don't apply to us, and our situation can't be explained only by the financial system (our political system and non-sustainable spending played a big part too), but it's not hard to see that most of what went on globally is a direct consequence of the financial system's irresponsibility. It's not hard to see that, after the housing and personal credit bubbles burst and financial institutions no longer had that source of high-risk, high-interest rates income, they had to find something else to milk for money. That something, it turns out, is entire countries. And the infamous rating agencies, the central banks, the IMF, they're all part of a broken system that results solely in putting money in the hands of the people who need it the least.

I only wish that more people would read things like this to truly understand what went on. After all, a big part of the problem is that most people had no idea of what was going in. Instead, I suspect most people just won't find the attention span needed, and will just keep on looking for someone else to blame, not to mention keep on being more concerned with money than with value. That's human nature for you.
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on 15 February 2011
This is an outstandingly good introduction to our current economic plight. Writer John Lanchester explains the crisis in simple and humorous terms.

The banks' larger profits and bonuses came not because they were doing anything better, but just because they were making bigger bets. Between 1986 and 2006, the average return per year on banking shares rose from 2 per cent to 16 per cent. Andrew Haldane, of the Bank of England, explained, "Since 2000, rising leverage fully accounts for movements in UK banks' ROE [return on equity] - both the rise to around 24% in 2007 and the subsequent fall into negative territory in 2008."

Lanchester points out, "If we had joined the euro and our mortgages were tied to those groovily low euro interest rates, money would have been even cheaper, and credit even more easily available, so the housing bubble would have been even bigger, and the crash correspondingly crashier. (Two examples of countries where that happened: Ireland and Spain.)"

Chairman of the Federal Reserve Alan Greenspan admitted, "The consequent surge in global demand for US subprime securities by banks, hedge, and pension funds supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem."

Lanchester observes, "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."

As he notes, "the process of lending is no longer driven the legitimate desire of poor-but-reliable people to own a house, but is instead a manufactured process driven by capital which is set loose looking for people to sign up loans. An epidemic began of what has come to be known as `predatory lending': mortgage lenders doing everything they could to sign up borrowers at higher-than-ordinary, sub-prime interest rates, so that the debt they created could then be pooled and securitized and sold on as tranches of various grades of CDO [collateralized debt obligations]." The USA has 250,000 mortgage brokers, mostly unlicensed and unregulated.

So, "we arrived in the bizarre position in which poor people struggling to pay back their mortgages had miraculously produced the world's most secure financial instruments. This was a fortunate conclusion to reach for both the banks which made money issuing the CDOs and the rating agencies which made money assessing them."

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."

In sum, it was "a huge unregulated boom in which almost all the upside went directly into private hands, followed by a gigantic bust in which the losses were socialized."

The OECD rates British banks the 44th safest in the world, six places behind Botswana. Canada's banks are the world's safest, because they are regulated, and this has been good for growth - Canada's incomes have risen by 11 per cent a year since 2004.

Lanchester proposes, "The change should be that, if a bank (broadly defined) receives any taxpayers' money, the existing shareholders are (broadly speaking) wiped out." But, as he points out, no laws have been passed to prevent another crash.
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on 20 February 2010
Published under the title "Whoops!" in the UK, this is a 200-page aerial-photo of an economic bombsite, explaning the what, how, why and who of the global financial crisis. Each page brings jaw-dropping revelation, laugh-out-loud asides and a deep under-current of anger. A model of clarity and expositionary journalism. Required reading.
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