Monday, May 3, 2010

IOU by John Lanchester

The full title of this book is IOU: Why Everyone Owes Everyone, and No One Can Pay. Do not take me the wrong way. I think that John Lanchester says some interesting things. However, let’s not mistake him for someone who knows what he is talking about when it comes to finance. The one thing I found most interesting is the change in title between UK’s market and North American’s market.

The UK’s market’s name was IOU: How Capitalism Broke Itself. I am in Canada, and they probably did not change the title for us. We do not matter that much. The change in title is for the US market and it is as I have shown, IOU: Why Everyone Owes Everyone and No One Can Pay. I personally wonder about the title, especially when talking about subprime mortgages. I thought that the whole point about subprime mortgages is that the mortgagor can not pay.

One of my biggest beef about this book is that Lanchester confuses investing and gambling, and also about taking risks and gambling. Sure, you can use the stock market to gamble. You can gamble within a lot of human activities, but investing is not gambling. Placing bets is gambling. Why do I feel this way? Because what I do is investing. I buy shares in real companies that supply goods or services that people want or need to buy. This is what I believe is investing.

However, if you buy stock of a company of which you know nothing about in the hopes that you will make capital gains, I believe that is gambling. There is also a whole lot of gray areas between what I do and those that place bets on stocks. I think that those that buy things they have no understanding of are really gambling and they are just kidding themselves if thing otherwise.

Do I take risks in buying stocks? Of course I do. But we take all sorts of risks, all the time that hardly qualifies as gambling. Crossing the street is taking a risk. Putting money in something “safe” like a bank account is also “taking a risk”. Maybe this is not as risky as investing, but still a risk. In fact, putting money under your mattress is also taking a risk.

John Lancaster talks about the recent boom and bust. However, this has been going on forever. I have been investing since the 70’s and the stock market has not been tame all along until now. Believe, as I have been invested all this time. There have been lots of booms and busts. I believe this is called the business cycle. No matter what we want, we do not seem capable of taming the business Cycle.

I think that taming the business cycle is a big socialist fantasy. Anyone who has tried to seems to just get rid of the booms. The busts always seem to come around. Economic decline seems to be to be one bust after another. I you read history as I do, booms and busts have been around a very long time. Before the industrial revolution and we were all working on the land, there were good years and bad years - booms and busts. I remember as a child reading a bible story about Egypt where someone said that they would have 7 good years followed by 7 bands years. The idea was to save in the good years to help them through the bad years.

This is no different from what we should do now. When times are good, we should save for future bad times. We do not need to go to extremes, but we do need to put something aside for the future. We should not exhaust all we get and expect good times to last forever. I think that is why the busts are so hard for some people. The have created no reserves. Both the government and people need to act more sensibly. Then, perhaps, the bad times will not be so hard.

There is a Wikipedia page about John Lanchester, see Wikipedia. If you want a regular time book review, see Globe and Mail. See John Lanchester on YouTube.

On my website is how to find this book on Amazon if you care to purchase it. See Lanchester. Also, this book review and other books I have reviewed are on my website at Book Reviews.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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