Take it to the bank

John Lanchester writes a book review in the New Yorker (of three recent books about the reasons for the current financial crisis, all of which sound well worth reading: Gillian Tett, Fool's Gold; Richard A. Posner, A Failure of Capitalism; and Shiller and Akerlof, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, although you may feel that just reading the excessively long title of the latter is sufficient). The book review itself is a model of clarity for those like me who find the wall of terminology deployed in banking frustrating and incomprehensible (it always seemed to me that obscure coinages and "in-talk" were as much of a self-protection methodology for financiers as they are for lawyers, mutatis mutandis: if no one understands what we're talking about, somehow that will really impress them, and not only that, our language will be a barrier to entry).

Lanchester writes: "At its heart, banking is a simple business. Customers deposit money at a bank, in return for interest; the bank lends that money to other people, at a higher rate of interest. This isn’t glamorous or interesting, but banking is not supposed to resemble skydiving or hip-hop; what recommends it is that it’s a good way of making steady money (and of creating credit in the economy), as long as the bank is careful about whom it lends money to."

But in banking, unlike the law, it's all about the short term (quoting Posner, who incidentally is a judge and legal academic): "The greater the gains are from taking risks that enable very high short-term profits, and the better cushioned the executive is by his severance package against the cost of losing his job, the more risks he rationally will take".