A nod to post modernism

How many of us really understand how modern capitalism works? Or in light of certain recent events, should that be "worked"? In a recent column on these pages, having sketched facets of the crisis facing the world economy, Peter Matheson suggested perhaps we should turn to the theologians, the thinkers and the poets for answers.

And given that the whole shooting match appears to have been founded on a gigantic confidence trick - a highly evolved game of risk and gamble - why wouldn't these prophets of the imagination have as much wisdom in such matters as the bankers and financial services gurus?

After all the latter, apparently, turned the global economy into a highly lucrative plaything and then, through greed and vaulting ambition, simply busted it. (According to Time, in 2008 the 25 highest-paid hedge-fund managers earned $NZ21 billion - on average a mere $840 million each.)

In any case, seeking something of a refresher on the origins of this great modern catastrophe, I have returned to the primers of British novelist and writer John Lanchester.

I first admired the enviably literate Lanchester in the UK Observer as a restaurant critic. With the publication of his novel The Debt to Pleasure - the unorthodox autobiography of sinister gourmet Tarquin Winot - he became familiar as an imaginative writer of more extended substance.

He has gone on to write further fiction, but Lanchester is something of a polymath, and I have revisited his musings on the essence of cutting edge capitalism even as the remains of its gleaming edifices sink further into the toxic swamp of derivative-ordained debt.

It is a swamp that threatens to engulf, and thus undo, the entire global capital system. And as depressing as this may sound, a degree of clarity about the situation in which we find ourselves - and at least a few pointers in plain English as to how we got here - does help.

Lanchester wrote a long, erudite article on banking and the City of London, "Cityphilia", in the London Review of Books in January last year (http://www.lrb.co.uk/v30/n01/lanc01-.html). And I was sent scurrying back to it while trying to untangle and understand a patiently written - yet still mind-boggling - treatise on AIG in Time magazine ("The Bailout Bomb - Why AIG=WMD", Time, March 30, 2009).

Through the "Cityphilia" rendezvous I found his further urbane reflections in the New Yorker article, Melting into Air (http://www.newyorker.com/arts/critics/atlarge/2008/11/10/081110crat-atla...), in which he floats the intriguing proposition that "before the financial system went bust, it went postmodern".

This is a concise way of saying that it ceased to follow the recognisable logic and established conventions of traditional capitalism - and that most people were blinded by its complexity and the profound opulence it promised.

AIG, the giant global insurance and asset management company, has been described as an essential foundation block of the modern capitalist economy.

It has registered with many people because of the massive bailouts it has received as part of the United States Troubled Asset Relief Program.

But more especially because a large number of executives from its financial services division - whose recklessness and deployment of financial instruments, such as credit default swaps, have potentially bankrupted the company several times over - have been given more than $300 million in retention bonuses.

In "Cityphilia", Lanchester lays out in admirably plain English how banks used to work and how, in the hands of the magicians of the financial services industry, they evolved to the point where the derivatives market - essentially a sophisticated form of gambling - was worth considerably more than the real global economy.

"Derivatives," he writes "in their modern form [having evolved from commodities markets where farmers, for example, got to sell next season's produce at a guaranteed price, fixed in advance] are the most powerful and the most complicated financial instruments ever devised . . . derivatives today are worth far, far more than the total economic activity of the planet."

And in "Melting into Air": "If the invention of derivatives was the financial world's modernist dawn, the current crisis is unsettlingly like the birth of postmodernism. For anyone who studied literature at college in the past few decades, there is a weird familiarity about the current crisis: value, in the realm of finance capital, evokes the elusive nature of meaning in deconstructionism . . . [it] can never be precisely located; instead, it is always "deferred", moved elsewhere, located in other meanings, which refer and defer to other meanings - a snake permanently and necessarily eating its own tail."

Now a lot of people might think this is a crock. But I reckon, when it comes to the global financial system, that is precisely Lanchester's point. World leaders attending the "make-or-break" G20 summit in London this week - and anyone else who is interested - could do worse than to read him.

- Simon Cunliffe is assistant editor at the Otago Daily Times.


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