The most popular book of 2007 also proved to be a good allegory for the problems the markets faced all year. In JK Rowling’s Harry Potter and the Deathly Hallows, our teenage hero has to contend with the evil Lord Voldemort, who has split his soul into many different parts, and hidden them across the world. Voldemort can only be killed once Harry finds each of these objects, known as horcruxes, and destroys them – and the act of destroying them is itself fiendishly difficult.
After nearly a year of the subprime crisis, that sounds dreadfully familiar. Subprime loans, which should never even have been offered to the borrowers, were split into many complicated financial instruments, and distributed, or hidden, worldwide. The battle for investors and regulators has been to identify where these “horcruxes” of the subprime loans are hidden, and to neutralise them. Until they are all found, Lord Voldemortgage [!--that's no typo] rules the earth.
It may sound fanciful to read Harry Potter as a financial text. But The Wizard of Oz is frequently cited as a tract about the debate over leaving the gold standard (or “following the yellow-brick road”) so the notion of reading children’s classics as financial allegories has some precedent. The book is great, and genuinely scary because it is not at all clear whether our hero will be all right in the end. I cannot spoil the ending for those who have not yet read it: suffice it to say the same suspense hangs over the credit crisis.
If you are looking for more immediately practical books, then the best basic guide probably continues to be The Money Machine – How The City Works, by the former writer of this column, Philip Coggan. Amazingly, the first edition came out more than two decades ago – yet the lessons in the book remain fresh.
In the original introduction, he highlighted the now long-forgotten scandal of Johnson Matthey Bankers, which was bought for £1 after making high-risk loans that were more than the bank’s entire capital. He made the point that in spite of their reputation for brilliance, financiers in every generation do things that are stupid, and make the same mistakes. When he comes to revise the book to take account of this year’s credit crisis, he will not need to make many alterations...
For those who find the subject incurably boring, try the Harry Potter, and tell them it’s really about subprime.
♠ Posted by Emmanuel in Casino Capitalism at 12/16/2007 03:37:00 PMI got a chuckle out of the Financial Times' John Authers comparing the subprime mess to the final saga of the Harry Potter franchise, Harry Potter and the Deathly Hallows. According to him, those who find the subprime mess "incuraby boring" yet need to be informed about this act of financial legerdemain should read the aforementioned Harry Potter book. No, I am not pulling your leg. This may sound far-fetched, and I doubt whether the Englishwoman JK Rowling has experience as a mortgage broker. Still, the creative Mr. Authers has an intriguing take that should prove to be amusing yet (somewhat) instructive. You may believe this analogy is silly, but since the Wizard of Oz has long been called an allegory for the gold standard, goodbye yellow brick road and all that, why not this analogy? Come to think of it, isn't "Love Lies Bleeding" all about the subprime mess too?