How to Speak Money: What the Money People Say-And What It Really Means

How to Speak Money: What the Money People Say-And What It Really Means

John Lanchester

Language: English

Pages: 288

ISBN: 039335170X

Format: PDF / Kindle (mobi) / ePub

“One of the world’s great explainers of the financial crisis and its aftermath.”―Michael Lewis

To those who don’t speak it, the language of money can seem impenetrable and its ideas too complex to grasp. In How to Speak Money, John Lanchester―author of the New York Times best-selling book on the financial crisis, I.O.U.―bridges the gap between the money people and the rest of us.

With characteristic wit and candor, Lanchester reveals how the world of finance really works: from the terms and conditions of your personal checking account to the evasions of bankers appearing in front of Congress. As Lanchester writes, we need to understand what the money people are talking about so that those who speak the language don’t just write the rules for themselves.

Lanchester explains more than 300 words and phrases from “AAA rating” and “amortization” to “yield curve” and “zombie bank.” He covers things we say or hear every day―such as GDP, the IMF, credit, debt, equity, and inflation―and explains how hedge funds work, what the World Bank does, and why the language of money has gotten so complicated. Along the way he draws on everything from John Maynard Keynes to the Wu-Tang Clan, Friedrich Hayek to Thomas Piketty, The Wealth of Nations to Game of Thrones.

A primer, a polemic, and a reference book, How to Speak Money makes economics understandable to anyone. After all, “money,” as Lanchester writes, “is a lot like babies, and once you know the language, the rule is the same as that put forward by Dr. Spock: ‘Trust yourself. You know more than you think you do.’”

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establishing agreed figures for PPP in fact involves a huge international survey in which thousands of economists fan out all over the world collecting and collating data.) There used to be something called the Mars bar index, which tried to do something similar with the effect of inflation in the UK, but one of the problems with it is that Mars bars (unlike Big Macs) have changed size over time.21 See if, without looking at it, you can guess the most and least expensive countries in the world.

the body that regulates the US trade in commodities and their derivatives. It’s fair to say that not many people overseas had ever heard of it before they began writing them large checks for the misdeeds of their banks in the Libor scandal: $325 million from RBS, which is 82 percent owned by the taxpayer. In its new career of kicking butt and taking names, the CFTC has also fined Barclays $200 million and UBS $700 million, with more to come as more cases work their way through the legal system.

straightforwardly own. It is expressed as a ratio or as a percentage: a bank with an equity ratio of 20 has an equity level of 5 percent. The big banks have alarmingly low equity ratios, and critics of their current condition are focusing on this as a vital issue for bank safety. An important recent book by Anat Admati and Martin Hellwig, The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It, argues for much higher levels of bank equity as the simplest, quickest, most

worst actively encourages, reckless behavior. Bailing out the banks, for instance, creates a classic form of moral hazard, because it exempts those banks from the consequences of their mistakes. Perhaps the most spectacular example during the credit crunch was the bailout/nationalization of AIG, the company that had insured most of the world’s credit default swaps, and as a result was on the brink of going broke. Banks had taken out insurance with AIG, and there was a case to be made for

dog. stocks and shares Terms for the same thing: the equity of a company. Once upon a time stocks had the specific meaning of all the equity lumped together, i.e., the total stock of the company, whereas a share was just that, a share in the total equity stock. In practice when people say “stocks and shares,” they mean equity. student loans Another candidate for the next big thing to blow up in the US, and perhaps the global, economy. Student loans were the only kind of lending to increase

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