[...]... M.A degree, and she was comfortably solvent We’ve all had the experience of sticking our card in the wall and not getting any money out of the ATM machine because we don’t have any money in our account But what Rakel, and thousands of other Icelanders that day, were experiencing was something much stranger and more unsettling Her ATM card was blanking on her not because she didn’t have the money but because... money The basic principle of banking is to pay a low rate of interest to the people who lend money and charge a higher rate to the people who borrow it The bank borrows at 3 percent (say), and lends at 6 percent, and as long as it keeps the two amounts in line and makes sure that it lends money only to people who will be able to pay it back, it will reliably make money forever This institution, in and. .. didn’t have enough money, it was the Apocalypse Now scenario: her card wasn’t working because Iceland had run out of money On October 6 the government closed the banks and froze the movement of any capital outside the country because it was on the verge of going broke By the time Rakel’s credit card payment for her term’s fees cleared, one day later, the Icelandic króna had collapsed and the amount... to finance and economics, and my hope is that I can talk across that gulf My need to understand is the same as yours, whoever you are That’s one of the strangest ironies of this story: after decades in which the ideology of the Western world was personally and economically individualistic, we’ve suddenly been hit by a crisis which shows in the starkest terms that whether we like it or not and there... is usually stated as follows: these are assets which can t be accurately priced and which therefore spread uncertainty and insecurity throughout the financial system But that isn’t quite right It’s true that some of the problematic mortgagebacked assets at the moment have no price because there is no market for them, and no one knows whether or not there ever will be such a market again But many of... they can If the global economic crisis can be reduced to one single phenomenon, it is this: the fact that nobody knows which banks are solvent Because banks are crucial to the creation and operation of credit, a bank crisis leads directly to a credit crunch It’s also why the huge amounts of money being pumped into the banking sector by governments are tending not to do the thing they were supposed... river, and not much else Now go and stand on the same spot today, and you are looking at Shenzhen, the fastest-growing city in China, with a population of 9 million—in a place where there were literally no buildings thirty years ago At that time, Hong Kong was like an experiment, a lab test in free-market capitalism Circumstances of history and demographics had conspired to make it a global one- off... of the detail of the Icelandic case is exotic: basically, a small group of rich and powerful people sold assets back and forth to one another and created a grotesque bubble of phony wealth “Thirty or forty people did this, and the whole country is paying for it,” a Reykjavík cab driver told me and I’ve yet to meet an Icelander who disagrees But although a small group of people was ultimately responsible... of London and the rest of the country, it would be that one I have yet to meet a single person not employed in financial services who was aware of it; I wasn’t aware of it myself We’re all well aware of it now, though, since the British taxpayer has had to bail out RBS to the tune of tens of billions of pounds: no one yet knows how much the final cost will be, but £100 billion is probably not far off... two houses and a plot of land, taking out three different mortgages to the tune of about $750,000, on the basis of conversations with the bank which never lasted more than fifteen minutes One of the loans was denominated not in Icelandic krónur, which had high interest rates, but in a basket of five different foreign currencies This might sound like a crazy thing to have done—but in Iceland and elsewhere, . John. I.O.U.: why everyone owes everyone and no one can pay/ John Lanchester. p. cm. Includes bibliographical references and index. 1. Global financial crisis, 2008–2009. 2. Economic history—21st century to Pleasure JOHN LANCHESTER I.O.U. Why Everyone Owes Everyone and No One Can Pay Simon & Schuster 1230 Avenue of the Americas New York, NY 10020 www.SimonandSchuster.com Copyright © 2010 by. unpayably upward and you think: just what is this money stuff, anyway? I can see its effects—I can thumb a banknote, flip a coin—but what is it, actually? What do these abstract numbers stand