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How to Speak Money (Book Review)

This great read is by John Lanchester, who is the author of the best-selling expose of the 2008 crisis, I.O.U.: Why everyone owes everyone and no can pay.

He makes an interesting point when he conjures the images that a widespread sewer disaster might compel members of the general public to learn plumbing jargon. The same applies to finance following the 2008 system breakdown.

In contrast, Lanchester offers a primer on economic thinking, along with a broad lexicon that includes the specific meanings of technical terms and translations of often-used idioms that can baffle even the most literate nonspecialists.

From the very start, he is open about his own biases, but he nonetheless provides informative explanations of esoteric terms and perplexing figures of speech.

Glossary:
  • esoteric: belonging to the select few
  • lexicon: the vocabulary of a particular language, field, social class, person, etc.

Main reading notes

  • Trusting in experts, particularly in finance, makes life easier for most people, until disaster strikes.
  • Knowing a profession’s language and main terms permits people to participate in dialogues and form their own opinions.
  • “Neoliberal economic philosophy” posits that financial markets are self-regulating.
  • The “efficient-market theory” says prices contain all relevant information about asset values, and thus no one can beat the market.
  • “Securitization” is the act of turning an asset you can’t easily trade into one you can.
  • The prices of “derivative” financial instruments come from the values of underlying assets but have no hard connection to them.
  • Major banks have low “equity ratios” and thus narrow margins of safety.
  • The “shadow banking” system includes institutions that provide banking functions outside of the range of normal depository banks.
  • “Quantitative easing” is a government action to buy back debt with money it creates.
  • “Interest rates” contain information about a wide scope of economic activity.

Further reading

  1. The Language of Money
  2. Efficient Markets
  3. The Language of the Boom and the Bust
  4. The Language of the Era After the Crisis
  5. Other Financial Terms to Know

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