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October 20, 2013 6:12 pm
The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge, by Faisal Islam, (Head of Zeus, RRP£15.99)
The financial crisis has become a literary genre of its own, inspiring a slew of books about the disaster that still weighs on the world. But they are often too sharply focused on Wall Street or the City of London. They can be pacy and compelling – but, at root, they are about tense meetings between middle-aged men. Faisal Islam’s The Default Line is a happy corrective that puts the crash, its causes and its consequences into the necessary perspective. Its extraordinary range captures the extraordinary scale of what has happened.
Islam’s account and analysis is not novel: the usual suspects are rounded up for yet another show trial. Who now doubts the importance of the savings glut in Asia that exposed poor financial regulation? The miscreants are sentenced in a volume that takes the reader from boomtime macroeconomic imbalances through banking crises into the eurozone’s malaise.
But while the analysis is conventional, the storytelling is not. That is where Islam’s book really stands out. The tale of the problems caused by China’s staggering levels of saving – the flow of funds that drove the credit flood that generated the bust – is a case in point. In addition to the usual array of statistics, we meet Deng Zhi, a 24-year-old in the city of Dongguan in the southern province of Guangdong. Since the age of 17, he has been working 26 hours’ drive from his home town. In addition to explaining the toil that defines his life, Islam unpacks how Chinese policies mean Deng has, in effect, been subsidising the consumption of much richer westerners – and his own government.
This is an example of how, in Islam’s hands, the crisis is a story not about flows of funds but people. Some win, most lose. The book’s attention to that fact is its gift. Islam remembers who paid the price of the crisis. He brings out, above all, that the losers were not in the boardroom.
Happily, where the book does revert to accounts of meetings and phone calls – which any account of the eurozone crisis, to some extent, must do – it benefits from the author’s day job as a television economics reporter. He has been a Zelig-like presence at many of the really important meetings and summits in the eurozone crisis. He is an experienced guide to eurosummitry and its accompanying array of financial acronyms.
Islam also has a sense of colour. Deng, he tells us, left the factory line to answer “his calling as a punk hairdresser, catering to his fellow migrant workers. As we spoke, he was dyeing a young man’s spiky mullet a shade of neon pink.” When illustrating the regulatory problems of British finance in the mid-2000s, he introduces a Mr Vigneswaran who it appeared was “giving mortgage advice as an approved mortgage broker [in Britain] just as the credit crunch hit. The only thing was, he could not speak English.” In fact, his son, Selvavinayakam – who had been banned from operating as an approved broker – was fraudulently using Mr Vigneswaran’s identity, without his knowledge.
Some of the rhetoric may be overblown (was the European Central Bank sending shipments of euro notes to Athens really “no less important” than facing down Stalin over the Berlin airlift?) but the result is a Tiggerish, fun book.
The central thesis is outlined in the dedication: “To the incompetence of the generation of European political leaders born in the 50s and 60s.” Policy makers are also excoriated for being too passive. He cites Alan Greenspan, former chairman of the US Federal Reserve, saying in 2008: “Our power to affect the forces driving the bubble were de minimis.” Islam is not convinced: he begins by attacking the idea that economic crises “ ‘befall’ helpless nations like a ruinous hurricane, tornado or tidal wave. It is an analogy that denies agency to the key decision makers. It is an excuse.”
But the book does not quite make its own case. Partly, this is the consequence of its unusual structure: it is less a single thesis than a parade of standalone chapters. This is forgivable; indeed, it is a strength. It allows Islam to marshal vast amounts of material on topics he has chosen to tackle. But it means the conclusion needs to be strong, tying together loose threads to make the case. Sadly, the epilogue is its weakest link.
So while Islam provides an enormously detailed analysis of what went wrong, he has not come up with a master plan to fix the world. The prescriptions with which he closes do not measure up to the rest of the book. Indeed, given the difficulty he has in coming up with a convincing plan, one ends up wondering whether his scorn for policy makers is justified.
But even if the book disappoints as a guide as to what to do next, it provides is an excellent, clear and colourful introduction and explanation of what has happened to us all.
The writer is the FT’s executive comment editor
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