Neither A Lender Nor A Borrower Be

by Theodore Dalrymple (Oct. 2008)

 

The day after I arrived in New York, Lehman Brothers, the investment bank that had been in business for 158 years, collapsed. By the time I left a few days later, Merrill Lynch had undergone a distress sale and the American government, given the choice between apocalyptic financial panic and the bottomless pit, had chosen the bottomless pit and bailed out (and taken over) the giant insurance company, AIG.

 

I arrived back in Britain, the land of my residence for six months of the year, to learn that one of the largest banks in the country, Halifax Bank of Scotland, had been taken over by Lloyds Bank to prevent an undignified and potentially catastrophic run on HBOS, which would otherwise almost certainly have happened. It seemed as if my arrival in countries was a bad augury for the financial markets, and I decided to stay put for a while, just in case there really was a causative relationship.

 

Canvassing the opinion of friends and acquaintances as to the meaning of all this financial turmoil, I began to feel like a share in one of those vulnerable companies that would seesaw wildly in value on the stock exchange, according to the latest rumour, the day before it either collapsed completely or was rescued by one expedient or another. Some would say that the crisis was at most an epiphenomenon, and that the real economy, the one that baked bread and made nuts and bolts, would continue unaffected. Others would say that this was the beginning of the end, that we should all spend the rest of our lives struggling to make ends meet, eking out a bare subsistence, and that we should never feel secure and prosperous again. I swung between complacency and terror, until I finally took refuge in the thought, implanted in my mind by a scribbler of my acquaintance some time during the last episode of financial panic, that during recessions and depressions the demand for journalism and other forms of writing goes up rather than down, reading being a comparatively cheap form of entertainment. Wishful thinking easily attains the status of truth, and so I concluded, on the basis of what was no more than an obiter dictum, that at any rate I should be all right. This conclusion, of course, did not take into account the epidemic of education-induced illiteracy since the last panic.

 

 

 

Large quantities of money result in easy credit, and easy credit inflates the value of assets such as houses. This in turn means that houses, whose prices appear to be rising effortlessly like a good souffle, become collateral to loans to people who would otherwise not merit loans.

 

The banks and mortgage companies, whose business, after all, is lending money, did not enquire too closely into the biographical record of their borrowers. Indeed, those who sold mortgages often had little connection to those who lent the money: rising prices would take care of any risk inherent in ignorance or fraud.

 

 

However, the instruments created were so convoluted and distant from any concrete reality that those who believed in them were ignorant of their foundations. They believed in them as peasants used to believe in miracle-working Virgins.

 

Now pyramid schemes of this nature work splendidly for a time, and those who get out before the denouement, or manage to extract enough from them before they collapse, make a fortune. That, of course, is why they recur through history: many lose in the end, but a few gain, and gain astronomically, in the meantime. Mankind is a herd to be fleeced, and luckily the wool always grows back.

 

Let us now consider some of the cultural implications of what has happened. A few words seem to sum it up: improvidence and lack of probity. But whose, exactly, and in what proportion and with what implications?

 

 

 

 

 

 

 

A short time later, I went to my bank to borrow money to buy a house while I sold another. Within five minutes I was offered a sum the like of which I had never previously handled, and in excess of anything I needed. While it was smaller than my total nominal assets, as I enumerated them, the bank made absolutely no effort to verify that I was indeed the owner of these assets.

 

 

Two considerations led me to turn down all these kind offers. The first is that my taste in holidays of a lifetime runs more to observing civil wars than to lolling in the lap of luxury, and while sometimes expensive to go to, civil wars offer little in the way of sybaritic possibilities (though there was a surprising availability of pink champagne during the Liberian civil war, even if it was difficult to chill).

 

 

 

 

 

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