Sunday, February 22, 2009

Fiction to read: a list

1000 novels everyone must read

from the Guardian 23 January 2009

http://www.guardian.co.uk/books/2009/jan/23/bestbooks-fiction

Supplement to the list:

Guardian 21 February 2009

Comedy

The Caravaners by Elizabeth von Arnim (1909)

This story describes the adventures of an Anglo-German group of holidaymakers who travel through the English countryside in three horse-drawn Romany caravans. Written in the form of a journal by one of the group, Baron von Ottringel of Storchwerder, a major in the Prussian army, it is a scathing attack on male pomposity and sexism. At times cruelly funny, Von Arnim's gentle mocking of German and English national stereotypes had me in stitches. Hildegard Dumper, Bristol

The Fall and Rise of Reginald Perrin by David Nobbs (1975-78)

David Nobbs's The Fall and Rise of Reginald Perrin is hilarious from start to finish and boasts an undercurrent of poignant seriousness. I would urge anyone who hasn't read it to do so quickly and then watch the original TV series before the remake comes along. Earwig.Nicholas Royle, Manchester

Some Experiences of an Irish RM by Somerville and Ross (1899)

This classic tale draws on the authors' childhoods in 19th-century south-west Ireland. The adventures of Major Sinclair Yeates, recently married and newly arrived Resident Magistrate, target of every plausible rogue in the area, are told with warmth and wit. In the course of his duties and social life he tangles with a range of wonderfully realised characters, from eccentric members of the Anglo-Irish gentry to the native horse dealers/thieves, tenants/poachers, household servants and his unforgettable landlord, Flurry Knox. I first read this hilarious book when I was 14 and have returned to it regularly ever since; the magnificent set pieces and gentle humour never fail to make me laugh.Ruth Anderson, Birmingham

Trooper to the Southern Cross by Angela Thirkell (1934)

This was written under a male pseudonym, "Leslie Parker". Thirkell may not have been a feminist, but a more biting satire on male complacency would be hard to find. It was written a few years after her flight from Australia (and from her second husband) and is quite unlike her other work. Thirkell captured a certain kind of male mentality - practical, self-sufficient, not so much condescending as oblivious to all emotional values - so perfectly that contemporaries had no doubt the author was a man.Margaret Pelling, Oxford

Drowned Hopes by Donald Westlake (1990)

Westlake's reputation as king of the comic crime caper is well-earned. His novels employ tight plots peopled by everyday recidivists and related with pace and humour - notably in the banter between his characters. There are about-turns aplenty as a gang of mismatched criminals attempt to retrieve the plunder of a bank heist from its hiding place . . . at the bottom of a reservoir. This isn't as straightforward as it might seem.Ian Joyce, Milton Keynes

Crime

The Fashion in Shrouds by Margery Allingham (1938)

Margery Allingham's crime novels span the 1930s to 50s and can be rated alongside those of Agatha Christie and Dorothy L Sayers. Her detective, Albert Campion, tall and thin, hides his intelligence behind horn-rimmed spectacles and an amiable expression of idiocy. The Fashion in Shrouds is set in London. Campion displays less vacuity than usual as his sister Valentine, a fashion designer, is involved in the plot involving a circle of couturiers, clients, models, aircraft designers and night-club owners. The emotional intensity of three murders and the teasing out of the plot are enlivened by Campion's relationship to Amanda, his down-to-earth red-headed fiancée, and Lugg, his cockney ex-burglar valet. Anne Fletcher, Ironbridge

The Tiger in the Smoke by Margery Allingham (1952)

Margery Allingham could write far better than Agatha Christie. A classic "atmospheric" novel set in postwar London where the fog of the city becomes one of the key ingredients, adding texture and background, The Tiger in the Smoke is about buried treasure and who will get to it first. The novel builds to an exciting climax, although it undoubtedly fails on the PC front, the baddies including an albino, a dwarf, a hunchback and so on. Robin Percival, Derry, Northern Ireland

The Final Days by Alex Chance (2008)

A dangerous man has abducted a child in Utah and then taunts a completely unrelated psychologist in San Francisco (who has a daughter the same age) about the missing girl. The history of an extreme sect that once based itself in the Church of the Final Days comes to haunt a new generation, and the faith of some characters, such as the newly baptised chief of police in Canaan, Utah, is severely tested. There is enough violence to provide ongoing menace, but without being gratuitous. The Rev Tony Bell, Chesterfield, Derbyshire

Night and the City by Gerald Kersh (1938)

Kersh's London classic proves that an English author could write crime fiction in the 1930s every bit as hard-boiled as his American contemporaries - and without having to do a Raymond Chandler and hop across the Atlantic. Small-time Soho con and pimp Harry Fabian faces two problems. First, the police are cleaning up the streets in preparation for the coronation of George VI and Harry is in their sights. Second, he needs money, about £100 - not a huge sum, even in the 1930s, but enough to drag him ever deeper into the seedy underworld of the capital's clip joints, jazz clubs and all-night cafés. A shocking read from a much-neglected writer.Andrew McCallum, London

The Way Some People Die by Ross Macdonald (1951)

Ross Macdonald is the heir of Dashiell Hammett and Raymond Chandler, and probably better than either. He wrote incredibly complicated, almost baroque sagas of the twisted truths and corruption concealed at the heart of American families, with less emphasis on the character of the private eye (Lew Archer) and more on those of the people he encounters in the course of his investigations. Richard Harman, Brixen, Italy

The Underground Man by Ross Macdonald (1971)

I recently unpacked a box of books by Ross Macdonald, whose works the screenwriter William Goldman described as "the finest detective novels ever written by an American". Macdonald's landscape is the deserts, forests, beaches and canyons of California, whose flawed, alienated suburbanites he dissects as incisively as Richard Yates. The Underground Man is representative of his later interests (psychology and sociology) and concerns (dysfunctional families, environmentalism). Wearied and appalled by his discoveries, Archer - Macdonald's PI - must pursue the truth and save a kidnapped boy. The Underground Man is romantic and finally hopeful - though, as the author sourly remarks elsewhere: "There was nothing wrong with southern California that a rise in the ocean level wouldn't cure."Ralph Willett, Sherborne

Watchmen by Alan Moore and Dave Gibbons (1986-87)

Watchmen is so many things at once: detective story (who murdered the Comedian?), history of the comic superhero (Golden Age and Silver Age), meditations on power and time and justice, love story - the list goes on and on for one of the most imaginative graphic novels ever written. Released initially as a 12-issue comic book, Watchmen coheres as an idea-packed work of art, full of memorable characters - you'll never forget the omnipotent and tragic Doctor Manhattan.Holly McGuire, Chicago, IL, USA

True Grit by Charles Portis (1968)

How can you leave out the story of Mattie Ross avenging her father's blood over in the Choctaw Nation when the snow was on the ground? True Grit has the toughest 14-year-old in literature. She, certainly, wouldn't be impressed at being overlooked, but her opinion of newspapers was low anyway: "The paper editors are great ones for reaping where they have not sown."Sam Costello, Melbourne, Australia

I Was Dora Suarez by Derek Raymond (1990)

Set in the flyblown hinterlands and sex clubs of Thatcher's London, I Was Dora Suarez features an unnamed protagonist (a semi-alcoholic veteran in the Met's special - and fictional - "Factory" division) on the trail of a uniquely vicious killer. Poverty, prostitution and Aids are intrinsic to this world, but such obvious causes of misery are mirrored by an intensive critique of monetarist self-interest and irresponsibility. Like the 80s noir of Dennis Potter, or James Ellroy and David Peace, Raymond's fiction takes crime as the premise for existential pessimism, and refuses its readers the triumphal pay-offs of the traditional detective story. Joe Kennedy, Budapest

Family and self

Pather Panchali by Bibhutibhishan Banerji (1929)

Translated as Song of the Road by TW Clark and Tarapada Mukherji, this novel came to be known in the west by virtue of the widely acclaimed film directed by Satyajit Ray. The novel, a masterpiece of Bengali literature, is set at the turn of the last century in a remote village in West Bengal and narrates the childhood of a loving brother and sister who are part of an impoverished family. The father's dream of becoming a famous balladeer never materialises, nor does the mother's hope of eluding gnawing poverty. As the children grow up, their eyes are opened to the magic and mystery of nature. Sam Banik, London

Parents and Children by Ivy Compton-Burnett (1941)

Pick any novel in Ivy Compton-Burnett's magnificent idiosyncratic series, persevere for the first few chapters and you are hooked. Dramatic events occur - death, incest, adultery, inappropriate marriage, return from the dead - but it is the effects of them on the multigenerational upper-class Victorian family that provide the drama. Sharp observations are offered by onlookers - servants and even a cat - while the tyrant head of the family reveals himself in his self-righteous musings. Linda Lamont, Lewes, East Sussex

Hopscotch by Julio Cortazar (1963)

"A random encounter was the least random thing in our lives . . ." Here you have the opportunity, however random, of having an encounter with Cortazar, the Great Cronopio (Cronopios and Famas is also a must). Reading Cortazar is essentially playing - rather like a game of hopscotch in this case: jump from chapter 73 to 1 and then to 2 and 116; wander from continent to continent, from La Seine to El Rio de la Plata, and back to chapter 3. You will laugh, you will cry, you will get angry, but ultimately you will fall in love with the prose of an author who will surprise you at every corner, and who always wins the game.Carmen Pinto, London

Cards of Identity by Nigel Dennis (1955)

You missed the most original, cleverest and wittiest novel of the 1950s: Cards of Identity by Nigel Dennis. A satire on the idea of identity, it features the annual convention of the Identity Club, whose members adopt the role of psychologists and present imaginary cases of shifting identity. Real-life local people have their identities transformed into overworked household servants. The story is peppered with obsessions of the time - the NHS, rationing, brainwashing, communism, sexual ambiguity and, in the funniest part of all, heraldic rituals presumably inspired by the royal funeral and the coronation. Elizabeth Burney, Cambridge

Death of an Ordinary Man by Glen Duncan (2004)

Why is Glen Duncan so criminally neglected? I started with I, Lucifer, which is utterly dazzling, but I'd argue that his best book is Death of an Ordinary Man, about a dead man who watches as his friends and family live on. It is as good as anything Martin Amis or Will Self has written, not least in terms of the sheer beauty of the prose. Edward Collier, Cheltenham

The Poisonwood Bible by Barbara Kingsolver (1998)

An American Baptist preacher goes to work in the Congo, taking his wife and three daughters with him. Joy and tragedy are present both in the lives of the American family and in the local African community, and all is seen against the background of the wider political situation in the Congo of the 1960s. The writing is often very funny and gives a wonderful picture of young western women growing up in an alien environment. Hazel Conway, Barnet, Hertfordshire

The British Museum Is Falling Down by David Lodge (1965)

The book is by Lucky Jim out of Ulysses. There have been worse pedigrees than that. We share a day in the life of Adam Appleby. He is a poor, married, Catholic research student and (very much a connected point) father of three children. Is his wife pregnant a fourth time? We share his anguish as he telephones from the British Museum for up-to-date bulletins. Adam learns by the end of the day the crucial difference between life and literature: "Literature is mostly about having sex and not much about having children; life is the other way round."William Lamont, Lewes, East Sussex

The Country Girls by Edna O'Brien (1960)

Kate and Baba, O'Brien's heroines, marked a transition in Irish fiction in 1960. In the first of a trilogy, these girls, in their giddy, salacious and catty adolescence, showed What (Young) Irish Women Wanted. Kate and Baba had had enough of home - they wanted life. Their rural idyll and its repression was replaced by more relaxed urban mores when they decamped to Dublin - all described in mellifluous, erotic prose. Every 14-year-old boy should read it. No one else in Ireland was writing like this at that time. The Catholic church shook with anger, lighting matches under a pile of O'Brien's books in the churchyard of her home village.Jonathan Hauxwell,
Crosshills, North Yorkshire

The Fortnight in September by RC Sherriff (1931)

Their annual fortnight's holiday in Bognor Regis is much anticipated by all members of the Stevens family from south London. Each moment of the holiday, described in detail, is precious, but as the days pass not all hopes will be fulfilled. A poignant tale of simple pleasures and aspirations.Jenepher Hawkins, Chelmsford, Essex

Riders in the Chariot by Patrick White (1961)

The uncategorisable Riders in the Chariot by Patrick White is the ultimate outsider novel. It is excoriating of social mores, and written in prose of oblique beauty and finally with a rumour of redemption. Unforgettable and timeless.Brenda Cusack, Wexford Town, Co Wexford, Ireland

Soul Mountain by Gao Xingjian (1990)

Gao is the only Chinese Nobel winner for literature. Soul Mountain is a dizzyingly poetic journey into the depths of self, born of his inexplicable reprieve from death.Tia Shearer, Knoxville, TN, USA

The Daisy Chain by Charlotte Mary Yonge (1856)

A serious omission from the list is Charlotte Mary Yonge, whose studies of Victorian family dynamics were bestsellers in their time. Because of the perception of some influential critics that she was merely a propagandist for the high church Oxford movement, led by her friend and mentor John Keble, she was dropped from the "canon" and few of her books remain in print in the UK. Her output was enormous, but the best known of the "family" novels are probably The Daisy Chain, The Trial and Pillars of the House, which offer in-depth studies of adolescence, parenting and the "woman question".Janet Clarke, Chesterfield, Derbyshire

L'Assommoir by Émile Zola (1877)

Zola's powerful and hauntingly atmospheric novel of 19th-century Parisian working-class life is a vivid portrayal of a descent into alcoholism, poverty and squalor. Uncompromisingly stark in its descriptiveness, it is a highly detailed and richly chronicled social document of the period, as well as a story charged with emotion. Patrick Argent, Scarborough, North Yorkshire

Love

Before She Met Me by Julian Barnes (1982)

Although it is very short and a trifle unsettling, this novel is a wonderful evocation of the extremes of love, encompassing adoration, indifference, desperation and infatuation in a similar way to Wuthering Heights, but with a 20th-century twist. It all ends in a shocking and brutal manner.Ian Gray, Beverley, East Yorkshire

The Bread of Those Early Years (Das Brot der frühen Jahre) by Heinrich Böll (1955)

No other novel gives such immediate access to the postwar German soul - resentful and regretful, yet capable of optimism, love and forgiveness; there is also the lightning communication of the hero's states of mind and the mood, reaction and character of everyone he meets in his chain-smoking odyssey through the aftermath of Germany's "hour zero". Its perfection raises the question of whether any novel need be longer than 121 pages.Patrick Devlin, London

La Regenta by Leopoldo Alas Clarin (1884-85)

Here is the 19th-century novel at its best. It combines a love triangle with an astonishing psychological portrait of a woman torn between what she wants to do and what she has to pretend to be. People have compared it to Anna Karenina and Madame Bovary, but La Regenta's complexity makes the other two seem conventional. Igor Urra, London

Belle du Seigneur by Albert Cohen (1968)

The "love" section missed this, one of the most important books of world litterature, translated into English as Her Lover. It is one of the deepest explorations of love, from initial attraction to its destruction by boredom or excessive passion. Jean-Claude Poimboeuf, London

David Copperfield by Charles Dickens (1849-50)

There was a lot of Dickens on the list, but I think David Copperfield should have been there. It's the book that taught me about people - that you find goodness in unexpected places (the Micawbers), deceit in handsome packages (Steerforth), that behind unctuousness can be self-serving manipulation (Uriah Heep) and I don't know what else. Besides that, what a great story about the wrong choices in love.Simone Seydoux, Ventura, CA, USA

The Siege by Helen Dunmore (2001)

In this novel, Dunmore creates an utterly convincing account of what it was like to be a citizen of Leningrad in 1941, when Hitler ordered that the city be surrounded and starved into surrender. The reader is brought face to face with both suffering and the human will to survive. The physical realities of starvation and extreme cold are powerfully realised, but the overwhelming sense one is left with is an uplifting one: that love, bravery and self-sacrifice can triumph in the most appalling and tragic circumstances. My bones ache with cold just recollecting this novel.Meyrick Kitchen, Preston

Ask the Dust by John Fante (1939)

John Fante was the writer whom Charles Bukowski referred to as "my God" and Ask the Dust was the novel he cited as having exerted "a lifetime's influence on my writing". Loosely autobiographical, it plots the bittersweet relationship between the struggling writer Arturo Bandini and the Mexican waitress Camilla Lopez in 1930s Los Angeles. The sad ending results in Bandini maturing both as a man and as a writer. It is because of this book and his many others that Bukowski wrote of Fante: "The way of his words and the way of his way are the same: strong and good and warm."Justin Small, Lewes, East Sussex

Senseless by Paul Golding (2004)

How could you not include Senseless? This brave, witty, heartbreaking novel - in which each chapter relates to the five senses - will set your nerve-endings tingling. Follow the passion-filled life of George, his brother Kelly and Matthew. Agonise over friendships lost and love squandered. You will never find another book with such a heart-stopping last chapter.Jane Partridge, Morchard Bishop, Nr Crediton, Devon

A Pair of Blue Eyes by Thomas Hardy (1873)

Four other Hardy novels made the list, although A Pair of Blue Eyes is a purer love story than the others. It is a psychologically incisive exploration of a love triangle in which Elfrede, the heroine, falls in and out of love with one man and in love again with his friend. It was a favourite novel of Marcel Proust and influenced his approach to the psychology of love in In Search of Lost TimeWilliam Keen, Brighton

In Love by Alfred Hayes (1953)

Like Raymond Carver at his best, novelist-cum-screenwriter Alfred Hayes addresses the human condition and its heartbreaks with brevity and brutal honesty. In Love was Hayes's fourth novel, and as the story unfolds, there is a dreadful sense that the middle-aged protagonist is heading for disaster by falling in love with a younger girl who "inhabits a world from which he is excluded". When a rival appears, in the shape of a millionaire with an indecent proposal, the cynicism and misery of the situation become almost unbearable. Out of print for many years, the book was recently republished. Brett Ascott, London

The Price of Salt by Patricia Highsmith (1952)

Overshadowed by the Ripley novels and initially published under a pseudonym, this tale of an obsessive Sapphic affair grips as tightly as anything in Highsmith's canon. The love between a young sales assistant and the sophisticated older woman she serves in a New York department store is both forbidden and adulterous, but ultimately triumphant. The dramatic road trip away from the stifling city is a yearning travelogue of the heart.Mark Wild, Bath

What I Loved by Siri Hustvedt (2003)

What I Loved is a contemporary tale of love and art. Love between men and women, between parents and children, and between friends of the same sex. It's a complex tale of the inner workings of an artist and the commitment to his art and his relationship with property and money in New York. The characters are so finely sketched, the loyalties, betrayal and sadness so intelligently told, that once I had finished the book, I felt I had lost friends. Edwina Larner, Frome, Somerset

The Cloud Sketcher by Richard Rayner (2000)

Everyone must read The Cloud Sketcher because its skyscrapers stand for vertiginous human aspiration, untainted by 9/11. It sets the pursuit of artistic perfection and love against the intoxicating backdrop of the jazz-flapping, bootlegging dizziness of 1920s New York.Natalie Cate, London

I Sent a Letter to My Love by Bernice Rubens (1975)

Amy Evans has always been ugly, and resents her sickly brother Stan with his "pale imploring beauty" and angelic stoicism. When their parents die, single, fiftysomething Amy is left to care for Stan. Determined to escape the monotony and despair of her existence, she puts an ad in the classified column of the local newspaper. When she receives a response, her life changes for ever, and so does Stan's. The intensity of Rubens's writing and the acuity of her psychological insight take your breath away as the story shape-shifts from its conventional beginnings into a darkly surreal portrayal of love and dependency. Suzy Ceulan Hughes, Aberystwyth

Fanny by Gaslight by Michael Sadleir (1940)

This love story set against the underworld of Victorian London was made into a film with Stewart Granger and James Mason in 1944, then into a drama series by the BBC in the late 1970s. It is a lovely book, but is out of print now - unfairly I think. I wish a publisher would bring it out again.Susan Raynor, Sheffield

The Tale of Genji by Murasaki Shikibu (early 11th century), translated by Royall Tyler

Written almost 1,000 years ago, this is the original kimono-ripper. Often claimed to be the world's first psychological novel, it is bursting with sex, intrigue and mistaken identity. It's about the many loves of the Shining Prince Genji and paints a saucy picture of court life in Heian-era Japan, with trysts, marriages and morning-after love poems tied to seasonal flowers. The author, whose true name is unknown, is now referred to as Murasaki, the woman Genji moulds to be his ideal. Rosemary Chapman, Halifax

Zoo, or Letters Not About Love by Viktor Shklovsky (1923)

In 1922, the Russian formalist critic emigrated to Berlin, where his infatuation with Elsa Triolet resulted in this epistolary novel. Triolet, whose own letters are reproduced verbatim in the book, insisted: "Don't write to me about love." Shklovsky, adopting his own theory of making strange the everyday, writes her letters on such subjects as exile, Einstein's relativity, monkeys, Boccaccio, pants, how to hold a fork, Japanese folk tales and a fascination with the automobile. They are all, of course, actually about love. Written at the same time as Ulysses, The Waste Land and Proust's Recherche, it is their equal. James Norton, London

Gordon by Edith Templeton (1966)

In London during the immediate aftermath of the second world war, a young woman, Louisa, has a chance encounter with an older man in a pub, a psychiatrist named Richard Gordon, and begins an intensely sexual and stifling affair that ends in tragedy. Through the progression of their damaging relationship, Templeton provides a psychological exposition of the enjoyment gleaned from surrender, offering an evocative, unconventional take on the traditional love story. Banned on first publication, the novel appeared in its present form in 2001, with Louisa's first-person narrative offering a timeless example of enslavement by infatuation.Abby O'Reilly, Mountain Ash, South Wales

Ethan Frome by Edith Wharton (1911)

Ethan Frome has been forgivably overlooked by your list's compilers, who perhaps developed a deep aversion to this oft-studied tale of unrelenting misery in their schooldays. Ethan, a solitary and brooding figure in a landscape of desolation, is ruined first by a loveless marriage and then by his desperate attempt to break free from it. Human will is continually frustrated and Ethan has no control over his own fate. It is his decrepit and jealous wife who finally wields the power as she works to thwart Ethan's love affair. Renowned for the cruelty and bleakness of its ending, Ethan Frome does not allow love its harmonising and redemptive influence.Natalie Barker, Leigh-on-Sea, Essex

The Bridge of San Luis Rey by Thornton Wilder (1927)

This is a beautiful novel about love and fate, which centres on the accident that befalls five characters in Peru in 1714. Wilder, a master stylist, weaves a meditation on life: "There is a land of the living and a land of the dead and the bridge is love, the only survival, the only meaning."Gary McKeone, London


Science fiction and fanatasy

Ender's Game by Orson Scott Card (1985)

Everybody can fall in love with the little boy who is the hero of this story and then enjoy his ascent to the leadership of the space navy. This book is enjoyable without its three sequels, and I recommend it to those who may not normally read science fiction. Nicolas Pelletier, Montréal, Canada

Little, Big; or, The Fairies' Parliament by John Crowley (1981)

Praised by Harold Bloom (who included it in The Western Canon) and Ursula K Le Guin, who said that "all by itself it calls for a redefinition of fantasy", this is a multigenerational story of families and fairies, all twined about their house in the country, Edgewood, though it takes sidelines - from the return of the Emperor Barbarossa to writing soap-operas in New York City. It is a story about growing up and about falling in love, as well as what it's like to be inside of a story; it plays with echoes of Alice in Wonderland, Frances Yates and Shakespeare (A Midsummer Night's Dream), as well as fairy tales and the Tarot. Zvi Gilbert, Toronto

Malazan Book of the Fallen by Steven Erikson (1999-)

Steven Erikson's Malazan Book of the Fallen (eight volumes and counting) is high fantasy in a weird, weird world which has many thousands of years of civilisation and war behind it, meaning the characters have held their grudges for a very long time. You're thrown into a battle between armies with no backstory, no long-winded explanations of historical allegiances and past wars, just smoke and blood and sorcery. It admittedly takes an effort to get to the end of the first book, but after that your attention is repaid a thousandfold with an astonishingly wide canvas of characters and locations, asking difficult questions about religion along the way. It's absolutely bloody brilliant. Made me cry a lot, too.Jo Tacon, London

Lost Horizon by James Hilton (1933)

The long-lived inhabitants of a community have pledged to preserve, in secrecy, the best of civilisation until the world is once again in a fit state to receive and understand what the best can teach us. Hilton's premise strikes a deep chord in today's "everything is relative" society. His utopia retains all its charm and, in his creation of Shangri-La, he added something permanently to the language.John Colmans, London

Island by Aldous Huxley (1962)

Huxley remains one of the most intelligent people ever to write a novel, and I see Island as his most important work. While Brave New World is excellent at painting a picture of a humanity gone wrong, Huxley himself acknowledged that a much more difficult task was to create a novel in which humanity was the opposite; awakened, enlightened, cured. As such, Island reads both as a beautiful story and as a guide to living. Daryl Sweet, Belfast

Canopus in Argos by Doris Lessing (1979-83)

Lessing considers the five books in this series to be her finest works. It would be hard to find better written or more profoundly explored utopias/dystopias that cast light on the state of the world we live in now. The novels range across politics, global warming and personal relationships, particularly gender and sexual politics. No list of SF and futurism would be complete without them.Voula Grand, London

The Boys From Brazil by Ira Levin (1976)

A number of 65-year-old male civil servants around the world are to be killed in order to fulfil "the destiny of the Aryan race". Gradually, we learn that this is part of a sinister experiment to reproduce another Hitler. Written when cloning was still in the realms of fantasy, the novel explores genetics, environment and ethics. Levin makes the premise disturbingly credible, setting the plot against the backdrop of real events and people - the rise of the Third Reich; Josef Mengele, the angel of death; and the Nazi-pursuer, a barely disguised Simon Wiesenthal. Dorrie Swift, London

The Case of Charles Dexter Ward by HP Lovecraft (1941)

HP Lovecraft's first novel (though published posthumously) concerns a young antiquarian, Charles Dexter Ward, in the 1920s researching his family history, especially an ancestor from witch-haunted Salem. He unearths an abominable tale of necromancy, vampirism and other world horrors that start manifesting in the present age, affecting him mentally (and even more strangely physically) so that he descends into a deepening spiral of insanity. Vince Pennell, Loughlinstown, Co Dublin

The Wave Theory of Angels by Alison Macleod (2005)

This novel defies bland categorisation: although it explores realms where science and dreams meet, it transcends both SF and fantasy. Its journey in time moves the reader between medieval Beauvais and a research centre in modern Chicago. Macleod's is a powerful tale about various kinds of love and desire. It is part-thriller, part-philosophical speculation, part-exploration of postmodern physics, and is quite beautifully written, combining play with poetry and with moments of deep emotion and powerful realism. John Saunders, Oxford

The Confidence Man by Herman Melville (1857)

It's April Fool's day and the devil boards a Mississippi steamboat, sardonically named the Fidèle. Under a number of guises he engages the passengers (who make up a representative cross-section of antebellum society) in dizzying philosophical and theological disputations on the subjects of trust and belief. Punning on the concept of confidence, Melville's last novel is a satire on 19th-century liberal optimism in all its varied manifestations. That one of the devil's avatars should be a broker who trades in non-existent shares merely lends added piquancy to a novel which has much to say to our own precarious times.Vincent Taggart, Essex

Tom's Midnight Garden by Philippa Pearce (1958)

Ostensibly a child's book, this is a major work of literature which manages to make the impact of war, family cruelty and love, and Victorian mores accessible to all ages without sacrificing complexity and honesty. The final meeting of Tom and Hatty (as an old woman) is unbearably moving.Fay Dolnick, Chicago

Lord of Light by Roger Zelazny (1967)

Set on a colonised planet in an unspecified future, where the gods of the Hindu pantheon use their very real powers to ensure a rigid caste system and stifle any independent thought, Lord of Light follows hero Sam, an archetypal trickster, as he is granted a second opportunity to challenge his fellow "gods" by reviving Buddhism as a challenge to their theocracy. Imaginative and beautifully written, Lord of Light addresses religion as a tool for social control, yet balances this with heroic fantasy and hi-tech science fiction, all carried along by perfectly judged self-reflective humour.Jamie Miller, Glasgow

State of the nation


Havoc In Its Third Year by Ronan Bennett (2004)

This superbly driven narrative benefits from Bennett's comprehensive knowledge of 17th-century England and had me gripped from beginning to end. It is, however, the subtle way in which parallels are drawn with today that makes the novel worthy of inclusion in such a list. John Shields, Wilmslow

A Journal of the Plague Year by Daniel Defoe (1722)

I first read this account of the great plague of London in 2001 during the foot-and-mouth crisis, which may have heightened my appreciation of it. The narrator is "HF", possibly Defoe's uncle. His original intention is to flee London, but various obstacles prevent this, which he takes as a sign from God to stay, witness the events and warn future generations. He roams the streets recording the progress of the disease, and the death and despair it leaves in its wake. While believing that only a spiritual transformation will prevent the plague's return, he does record how good local government, science and medicine can alleviate its effects. Jeremy Hayes, Snodland, Kent

And Quiet Flows the Don by Mikhail Sholokhov (1934)

Sholokhov was a member of the Supreme Soviet under Stalin, which makes it all the more remarkable that he could produce a novel encompassing the period of the first world war, the Russian revolution and civil war with relative even-handedness. The mundanity, feuds and adulteries of everyday Cossack life and the tedium of military life are set against the bewildering drama of great national political intrigues and events. The characters' motivations are explored and explained as they are swept up in the inevitability of change like horses carried away by the great, silent river at the heart of the story. Sholokhov won the 1965 Nobel prize primarily because of this magnificent, epic novel.Steve Whittaker, Blandford Forum

The Sea and Poison by Shusaku Endo (1958)

This dark, claustrophobic, creepy novel deserves a place on your list. It is the ultimate indictment of militarism and one of the very few works by Japanese artists that portray the spiritual death of a society devoted to war.Kevin Monahan, Kanazawa, Japan
The Football Factory by John King (1996)
This brilliantly constructed novel tells an abhorrent tale of football hooliganism, young male anger and friendship, while also capturing the depth and psychology of a rich vein of British culture often ignored in literature. By choosing as the story's narrator Tommy Johnson, a perceptive man who knows he's really a bit too sharp for the thuggery he enjoys, King allows his writing to dazzle with its analysis, its pace and its pull-no-punches-kicks-or-headbutts realism.Damon Lambert, Yalding, Kent

The Octopus by Frank Norris (1901)

The Octopus of the title is the thinly disguised Southern Pacific Railroad, part of the First Transcontinental, the dominant owner of California land and politicians for a good half-century after its completion in 1869. In the novel, the Octopus uses its dominance to strangle its opponents, by manipulating the leaseholds of their ranches and the freight rates of the wheat that is their principal crop. A railroad agent is drowned in a cargo of wheat, and rancher Derrick is ruined when the railroad bribes his lawyer son. Shelgrim, the railroad president, explains that what happens is a matter of economic forces, and the law of supply and demand. Marx could not have put it more succinctly.Leslie Bell, North Ferriby, East Yorkshire

Joseph Knight by James Robertson (2003)

Robertson takes us on a journey from the fields of Culloden to the plantations in Jamaica and finally to the coal mines of Fife. Spanning the years 1746-1803, the novel captures the true nature of what it felt like to be taken from Africa across the "Black Atlantic", worked half to death in the Caribbean and finally deposited in a cold, inhospitable Scotland. Along the way, Robertson skilfully weaves Boswell, Johnson, Robert Burns and Toussaint L'Ouverture into the story. The final chapter set among the colliers of Fife reveals the true relationship between master and slave. It is a book that will stay with me for ever. Andy Aitken, Ayrshire

Persepolis by Marjane Satrapi (2003)

Going through puberty in a theocratic police state sounds like a black farce, but for Satrapi - and millions of other Iranians - it actually happened, and is still happening. Satrapi combines adolescent concerns about sex, drugs and peer hierarchy with a story of a society hammered by revolution and war. Drawn in beautiful and somehow expressive monochrome, Satrapi's graphic novel entwines the political with the personal to create a marvellous study in human defiance. There's a glorious moment when a state policeman tells Satrapi to stop running - because her "behind makes movements that are ... obscene!" "Well, then," roars Satrapi, "don't look at my ass!"Max Dunbar, Manchester

Downriver by Iain Sinclair (1991)

I found it unbelievable that England's foremost contemporary novelist, Iain Sinclair, appeared to have fallen off the edge of this bookshelf. Sinclair is not simply the writer of the most fantastically hard-edged prose sentences, full of extraordinary imagery and rhythms, nor is he just a writer who has informed the culture of the 1990s and 2000s through his range of interests. He is the writer who has best anatomised the society of the UK in the late 20th century and the subsequent years. Downriver is a masterpiece that goes beyond the surface realism of Thatcherite society. Leigh Hughes, Saltash, Cornwall

When Memory Dies by A Sivanandan (1997)

The subtle and shifting lens masterfully manipulated by A Sivanandan in this three-generational novel about Sri Lanka allows for a focus on both personal and national tragedy. It is lyrical, wise and sorrowful for a country's lost loveliness.Frances Webber, London

Fame Is the Spur by Howard Spring (1940)

Evocatively set in northern England, Fame Is the Spur takes Labour pioneer Hamer Shawcross from his youthful connection with Peterloo, through the early days of the labour movement and the socialists who formed his views and sustained his career, to the final outcome of his ambition as Viscount Shawcross of Handforth. When, at the age of 16, I began to be involved in the Liberal party, my mother made me read this book as a warning on how politicians can be seduced away from principles. It has hovered over me ever since.Michael Meadowcroft, Leeds

Sostiene Pereira by Tabucchi (1994)

Tabucchi, an expert on Portugal and Portuguese literature, has used the setting of the nation in 1938 to tell a story of what one "little" man can accomplish in the face of tyranny and political repression. Particularly successful in Italy at the beginning of the Berlusconi years, when fascism was seen as being on the rise, the message is no less important today, when we all are in need of reminders of the importance and responsibility of the individual.Jane Stivarius, Miami Beach, FLA, USA


War and travel

Half of a Yellow Sun by Chimamanda Ngozi Adichie (2006)

Set in 1960s Nigeria, this novel's blinding, graphic account of the Biafran struggle for independence is told through three poignant personal stories. I knew nothing about the country or these events in its history when I started the book; at the end I was gripped by the tragedy revealed through exquisite detail and what felt to me like historical authenticity. An Olivia Manning for our times. Frances Kay, Adrigole, West Cork

Riceyman Steps by Arnold Bennett (1923)

Novels about Britain in the immediate post-first world war period with its fears, real or imagined, about communism, are few and far between. In my opinion this novel is the best of them. The doom-laden book dealer Henry Earl Forward and wife Violet Arb, wonderfully counter-balanced by young war widow and live-in servant Elsie Pickersby, precisely capture the essence of that period. Tom Farrall, Oswestry, Shropshire

A Good Place to Die by James Buchan (1999)

John Pitt, an inexperienced young Englishman, comes to Isfahan in 1974 eager to pierce the "veils of tourism and industry and military power", to move beyond perceptions of plane trees and pomegranates, historic architecture and dingy shops. He begins a love affair with Shirin, a general's daughter breaking free of her corrupt aristocratic world, and with Iran itself. As the Islamic revolution takes hold and war follows with Iraq, Pitt is pursued by murderous forces, loses his family, is imprisoned, tortured and finally moves on to some kind of holy quest. Susan Causey, London

The March by EL Doctorow (2005)

This story is set at the climax of the civil war as General Sherman lays waste to the state of Georgia and the Carolinas. Doctorow follows the fates of a picaresque group of fictional characters caught up in Sherman's "March", two of whom have appeared in previous Doctorow novels. There are wonderful portrayals of Sherman, Grant and Lincoln. But never forget that this novel was published in 2005 as the war in Iraq was developing. All similarities are intentional.Simon Surtees, London

Consul at Sunset by Gerald Hanley (1951)

Officers isolated in a desert fort, surrounded by fanatical, feuding Somalis and unreliable Bantu askaris, lose their grip. The political officer shoots himself, a "sand happy" lieutenant runs into the desert and a replacement captain loses his faith in white supremacy. Finally, even the robotic NCO becomes mentally dysfunctional. When the book made its debut, it challenged all the myths of front-line gallantry. Anthony Burgess said that Hanley was worthy of Conrad, perhaps even Melville.George Harding, Blackrock, Cork

Tree of Smoke by Denis Johnson (2007)

Spanning 1963 to 1983, with one storyline tracing covert CIA psychological intelligence operations stretching across much of South East Asia while another follows the experiences of two brothers before and during the Vietnam war and its aftermath, this is a vivid, epic exploration of a world gone crazy. Panoramic in scope and with a cosmopolitan cast of natives, outsiders and eccentrics, this unforgettable novel ranks among the finest accounts of war in fiction.Martin Hills, Chichester, West Sussex

The Middle Parts of Fortune by Frederick Manning (1929)

This is arguably one of the greatest war novels ever written. Manning not only succeeds in conveying the horror and squalor in convincingly realistic detail, but also manages to present dispassionately the links between the individual performance of soldiers and their mutual responsibility. Michael Copp, Sudbury, Suffolk

The Killer Angels by Michael Shaara (1974)

This is a Pulitzer prizewinning novel about the US civil war, which served as a guideline for the movie Gettysburg. The novel is told by both sides of the war, the Union and the Confederacy, and does a wonderful job of showing that the men fighting this war had feelings about why and how they were fighting. It is one of the most authentic and best-written civil war novels. Kate Kline, Brighton

The Miracle Game by Josef Skvorecky (1972)

The story concerns reports of a statue, thought to be moving, in a rural church in the Czechoslovakia of 1948. The newly installed communist regime cannot tolerate such stories and goes to incredible lengths, including the murder of a priest, in order to impose its own credo on the population. The narrator reflects on the events of 1948, to which he was witness, 20 years later as the Prague spring turns into bitter autumn. Skvorecky, himself a post-1968 Czech exile, provides a panorama of the absurdity of Czech communism, which relied on the denigration of all faiths while establishing its own creed together with attendant "miracles" and "catechisms".Andrew R Williams, Hounslow, Middlesex

And 20 more

Captain Corelli's Mandolin by Louis de Bernières (1993)
Heart's Journey in Winter by James Buchan (1995)
The White Guard by Mikhail Bulgakov (1955)
Aegypt by John Crowley (1989)
Chronicles of Thomas Covenant by Stephen Donalson (1977-83)
Troubles by JG Farrell (1970)
Night Soldiers by Alan Furst (1988)
I, Claudius by Robert Graves (1934)
See You in Yasukuni by Gerald Hanley (1969)
The Friends of Eddie Coyle by George V Higgins (1972)
Phantom Lady by William Irish (1942)
March Violets by Philip Kerr (1989)
Near to the Wild Heart by Clarice Lispector (1990)
Khan Al-Kahlili by Naguib Mahfouz (2008)
A Song of Ice and Fire by George RR Martin (1996-)
If Nobody Speaks of Remarkable Things by Jon McGregor (2002)
The Spanish Farm trilogy by RH Mottram (1924-26)
Gormenghast by Mervyn Peake (1950)
The Time of Our Singing by Richard Powers (2003)
Angel Pavement by JB Priestley (1930)


Wednesday, February 11, 2009

Credit crunch - three views

Adam Smith gets the last laugh

P.J. O’Rourke

Financial Times February 10 2009

The free market is dead. It was killed by the Bolshevik Revolution, fascist dirigisme, Keynesianism, the Great Depression, the second world war economic controls, the Labour party victory of 1945, Keynesianism again, the Arab oil embargo, Anthony Giddens’s “third way” and the current financial crisis. The free market has died at least 10 times in the past century. And whenever the market expires people want to know what Adam Smith would say. It is a moment of, “Hello, God, how’s my atheism going?”

Adam Smith would be laughing too hard to say anything. Smith spotted the precise cause of our economic calamity not just before it happened but 232 years before – probably a record for going short.
“A dwelling-house, as such, contributes nothing to the revenue of its inhabitant,” Smith said in The Wealth of Nations. “If it is lett [sic] to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue.” Therefore Smith concluded that, although a house can make money for its owner if it is rented, “the revenue of the whole body of the people can never be in the smallest degree increased by it”. [281]*

Smith was familiar with rampant speculation, or “overtrading” as he politely called it.
The Mississippi Scheme and the South Sea Bubble had both collapsed in 1720, three years before his birth. In 1772, while Smith was writing The Wealth of Nations, a bank run occurred in Scotland. Only three of Edinburgh’s 30 private banks survived. The reaction to the ensuing credit freeze from the Scottish overtraders sounds familiar, “The banks, they seem to have thought,” Smith said, “were in honour bound to supply the deficiency, and to provide them with all the capital which they wanted to trade with.” [308]

The phenomenon of speculative excess has less to do with free markets than with high profits. “When the profits of trade happen to be greater than ordinary,” Smith said, “overtrading becomes a general error.” [438] And rate of profit, Smith claimed, “is always highest in the countries that are going fastest to ruin”. [266]
The South Sea Bubble was the result of ruinous machinations by Britain’s lord treasurer, Robert Harley, Earl of Oxford, who was looking to fund the national debt. The Mississippi Scheme was started by the French regent Philippe duc d’Orléans when he gave control of the royal bank to the Scottish financier John Law, the Bernard Madoff of his day.

Law’s fellow Scots – who were more inclined to market freedoms than the English, let alone the French – had already heard Law’s plan for “establishing a bank ... which he seems to have imagined might issue paper to the amount of the whole value of all the lands in the country”. The parliament of Scotland, Smith noted, “did not think proper to adopt it”. [317]
One simple idea allows an over-trading folly to turn into a speculative disaster – whether it involves ocean commerce, land in Louisiana, stocks, bonds, tulip bulbs or home mortgages. The idea is that unlimited prosperity can be created by the unlimited expansion of credit.

Such wild flights of borrowing can be effected only with what Smith called “the Daedalian wings of paper money”. [321] To produce enough of this paper requires either a government or something the size of a government, which modern merchant banks have become. As Smith pointed out: “The government of an exclusive company of merchants, is, perhaps, the worst of all governments.” [570]

The idea that The Wealth of Nations puts forth for creating prosperity is more complex. It involves all the baffling intricacies of human liberty. Smith proposed that everyone be free – free of bondage and of political, economic and regulatory oppression (Smith’s principle of “self-interest”), free in choice of employment (Smith’s principle of “division of labour”), and free to own and exchange the products of that labour (Smith’s principle of “free trade”). “Little else is requisite to carry a state to the highest degree of opulence,” Smith told a learned society in Edinburgh (with what degree of sarcasm we can imagine), “but peace, easy taxes and a tolerable administration of justice.”

How then would Adam Smith fix the present mess? Sorry, but it is fixed already. The answer to a decline in the value of speculative assets is to pay less for them. Job done.
We could pump the banks full of our national treasure. But Smith said: “To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils.” [440]

We could send in the experts to manage our bail-out. But Smith said: “I have never known much good done by those who affect to trade for the public good.” [456]
And we could nationalise our economies. But Smith said: “The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary”. [818] Or chairman of General Motors.

* Bracketed numbers in the text refer to pages in ‘The Wealth of Nations’, Glasgow Edition of the Works of Adam Smith, Oxford University Press, 1976

The writer is a contributing editor at The Weekly Standard and is the author, most recently, of On The Wealth of Nations, Books That Changed the World, published by Atlantic Books, 2007


Do not destroy the essential catalyst of risk

Lloyd Blankfein

Financial Times February 8 2009

Since the spring, and most acutely this autumn, a global contagion of fear and panic has choked off the arteries of finance, compounding a broader deterioration in the global economy.
Much of the past year has been deeply humbling for our industry. People are understandably angry and our industry has to account for its role in what has transpired.

Financial institutions have an obligation to the broader financial system. We depend on a healthy, well-functioning system but we failed to raise enough questions about whether some of the trends and practices that had become commonplace really served the public’s long-term interests.
As policymakers and regulators begin to consider the regulatory actions to be taken to address the failings, I believe it is useful to reflect on some of the lessons from this crisis.

The first is that risk management should not be entirely predicated on historical data. In the past several months, we have heard the phrase “multiple standard deviation events” more than a few times. If events that were calculated to occur once in 20 years in fact occurred much more regularly, it does not take a mathematician to figure out that risk management assumptions did not reflect the distribution of the actual outcomes. Our industry must do more to enhance and improve scenario analysis and stress testing.

Second, too many financial institutions and investors simply outsourced their risk management. Rather than undertake their own analysis, they relied on the rating agencies to do the essential work of risk analysis for them. This was true at the inception and over the period of the investment, during which time they did not heed other indicators of financial deterioration.
This over-dependence on credit ratings coincided with the dilution of the coveted triple A rating. In January 2008, there were 12 triple A-rated companies in the world. At the same time, there were 64,000 structured finance instruments, such as collateralised debt obligations, rated triple A. It is easy and appropriate to blame the rating agencies for lapses in their credit judgments. But the blame for the result is not theirs alone. Every financial institution that participated in the process has to accept its share of the responsibility.

Third, size matters. For example, whether you owned $5bn or $50bn of (supposedly) low-risk super senior debt in a CDO, the likelihood of losses was, proportionally, the same. But the consequences of a miscalculation were obviously much bigger if you had a $50bn exposure.

Fourth, many risk models incorrectly assumed that positions could be fully hedged. After the collapse of Long-Term Capital Management and the crisis in emerging markets in 1998, new products such as various basket indices and credit default swaps were created to help offset a number of risks. However, we did not, as an industry, consider carefully enough the possibility that liquidity would dry up, making it difficult to apply effective hedges.

Fifth, risk models failed to capture the risk inherent in off-balance sheet activities, such as structured investment vehicles. It seems clear now that managers of companies with large off-balance sheet exposure did not appreciate the full magnitude of the economic risks they were exposed to; equally worrying, their counterparties were unaware of the full extent of these vehicles and, therefore, could not accurately assess the risk of doing business.

Sixth, complexity got the better of us. The industry let the growth in new instruments outstrip the operational capacity to manage them. As a result, operational risk increased dramatically and this had a direct effect on the overall stability of the financial system.

Last, and perhaps most important, financial institutions did not account for asset values accurately enough. I have heard some argue that fair value accounting – which assigns current values to financial assets and liabilities – is one of the main factors exacerbating the credit crisis. I see it differently. If more institutions had properly valued their positions and commitments at the outset, they would have been in a much better position to reduce their exposures.

For Goldman Sachs, the daily marking of positions to current market prices was a key contributor to our decision to reduce risk relatively early in markets and in instruments that were deteriorating. This process can be difficult, and sometimes painful, but I believe it is a discipline that should define financial institutions.
As a result of these lessons and others that will emerge from this financial crisis, we should consider important principles for our industry, for policymakers and for regulators. For the industry, we cannot let our ability to innovate exceed our capacity to manage. Given the size and interconnected nature of markets, the growth in volumes, the global nature of trades and their cross-asset characteristics, managing operational risk will only become more important.

Risk and control functions need to be completely independent from the business units. And clarity as to whom risk and control managers report to is crucial to maintaining that independence. Equally important, risk managers need to have at least equal stature with their counterparts on the trading desks: if there is a question about the value of a position or a disagreement about a risk limit, the risk manager’s view should always prevail.

Understandably, compensation continues to generate a lot of anger and controversy. We recognise that having troubled asset relief programme money creates an important context for compensation. That is why, in part, our executive management team elected not to receive a bonus in 2008, even though the firm produced a profit.

More generally, we should apply basic standards to how we compensate people in our industry. The percentage of the discretionary bonus awarded in equity should increase significantly as an employee’s total compensation increases. An individual’s performance should be evaluated over time so as to avoid excessive risk-taking. To ensure this, all equity awards need to be subject to future delivery and/or deferred exercise. Senior executive officers should be required to retain most of the equity they receive at least until they retire, while equity delivery schedules should continue to apply after the individual has left the firm.

For policymakers and regulators, it should be clear that self-regulation has its limits. We rationalised and justified the downward pricing of risk on the grounds that it was different. We did so because our self-interest in preserving and expanding our market share, as competitors, sometimes blinds us – especially when exuberance is at its peak. At the very least, fixing a system-wide problem, elevating standards or driving the industry to a collective response requires effective central regulation and the convening power of regulators.
Capital, credit and underwriting standards should be subject to more “dynamic regulation”.


Regulators should consider the regulatory inputs and outputs needed to ensure a regime that is nimble and strong enough to identify and appropriately constrain market excesses, particularly in a sustained period of economic growth. Just as the Federal Reserve adjusts interest rates up to curb economic frenzy, various benchmarks and ratios could be appropriately calibrated. To increase overall transparency and help ensure that book value really means book value, regulators should require that all assets across financial institutions be similarly valued. Fair value accounting gives investors more clarity with respect to balance sheet risk.

The level of global supervisory co-ordination and communication should reflect the global inter-connectedness of markets. Regulators should implement more robust information sharing and harmonised disclosure, coupled with a more systemic, effective reporting regime for institutions and main market participants. Without this, regulators will lack essential tools to help them understand levels of systemic vulnerability in the banking sector and in financial markets more broadly.

In this vein, all pools of capital that depend on the smooth functioning of the financial system and are large enough to be a burden on it in a crisis should be subject to some degree of regulation.
After the shocks of recent months and the associated economic pain, there is a natural and appropriate desire for wholesale reform of our regulatory regime. We should resist a response, however, that is solely designed around protecting us from the 100-year storm. Taking risk completely out of the system will be at the cost of economic growth. Similarly, if we abandon, as opposed to regulate, market mechanisms created decades ago, such as securitisation and derivatives, we may end up constraining access to capital and the efficient hedging and distribution of risk, when we ultimately do come through this crisis.

Most of the past century was defined by markets and instruments that fund innovation, reward entrepreneurial risk-taking and act as an important catalyst for economic growth. History has shown that a vibrant, dynamic financial system is at the heart of a vibrant, dynamic economy.

We collectively have a lot to do to regain the public’s trust and help mend our financial system to restore stability and vitality. Goldman Sachs is committed to doing so.

The writer is chief executive of Goldman Sachs

Now is the time for a revolution in economic thought

Anatole Kaletsky

The Times
9 October 2009

In my column last Thursday, I explained how academic economics has been discredited by recent events. It is now time for what historians of science call a “paradigm shift”. If we want to flatter economists, we could compare this revolution needed to the paradigm shift in physics in 1910 after Einstein discovered relativity and Planck launched quantum mechanics. More realistically, economics today is where astronomy was in the 16th century, when Copernicus and Galileo had proved the heliocentric model, but religious orthodoxy and academic vested interests fought ruthlessly to defend the principle that the sun must revolve around the Earth.
I

n this article I will outline some of the unorthodox approaches to economics which conventional economists have ignored and which might have helped to avert the present crisis — in the weeks ahead I plan to give more detail of some of these ideas.
Consider the following passage:
“Most economic theorists have been going down the wrong track. When economic models fail, they are seldom thrown away. Rather they are ‘fixed' - amended, qualified, particularised, expanded and complicated.
“Bit by bit, from a bad seed a big but sickly tree is built with glue, nails, screws and scaffolding. Conventional economics assumes the financial system is a linear, continuous, rational machine and these false assumptions are built into the risk models used by many of the world's banks. As a result, the odds of financial ruin in a free global market economy have been grossly underestimated. By using such methods there is no limit to how bad a bank's losses can get. Its own bankruptcy is the least of the worries; it will default on its obligations to other banks - and so the losses will spread from one inter-linked financial house to another. Only forceful action by regulators to put a firewall round the sickest firms will stop the crisis spreading. But bad news tends to come in flocks and a bank that weathers one crisis may not survive a second or a third.”

This uncannily precise description of the present crisis above was not written by an economist. While some economists had warned for years about global trade imbalances, escalating house prices, of excessive consumer borrowing, none of them remotely foresaw the truly unprecedented feature of the present crisis: the total breakdown of financial markets caused by the unforced blunders by investors and banks. Modern economists were inherently incapable of understanding such a problem because they assumed that investors were “rational” and markets “efficient”.
These assumptions led inevitably to disaster once they were blown apart. The author who came so close to understanding the true causes of the present crisis was not an economist but a mathematician.

Benoît Mandelbrot, a towering figure of 20th-century science, who invented fractal geometry and pioneered the mathematical analysis of chaos and complex systems, wrote the above words six years ago in his book The Misbehaviour of Markets. Mandelbrot's ideas found fruitful applications in the study of earthquakes, weather, galaxies and biological systems from the 1960s onward, but the field that originally inspired his ideas turns out, in this very readable book, to have been finance and economics. Yet 40 years of effort by Mandelbrot to interest economists in the new mathematical methods, which appear to work far better in modelling extreme movements in financial markets than the conventional methods based on statistically “normal” distributions, have been either ridiculed or ignored.

At the other end of the academic spectrum, we find economists treating ideas from sociology, psychology or philosophy with the same derision and disdain. George Soros is no mathematician like Mandelbrot, but he has repeatedly demonstrated far better understanding of how market economies work than any professional economist by using psychological and philosophical ideas. His books have explained convincingly how false beliefs among investors can create self-reinforcing boom-bust cycles of exactly the kind afflicting the world today. But the reaction to these ideas has been the same as to Mandelbrot's: a complacent refusal among academic economists, regulators and central bankers even to think seriously about approaches that challenge the central orthodoxies of modern economics: that “efficient” markets inhabited by “rational” investors send price signals which, in some sense, are always right.

Reality is very different, as everyone now admits: investors often misinterpret information and markets sometimes send price signals that are dangerously wrong. What Soros shows, moreover, is that such behaviour should not be regarded as irrational or an aberration. On the contrary, rational investors can find it very profitable to act on false premises - for example that credit will always be available without limit - if these false ideas become so widely accepted that they change the way the economy actually functions, at least for a time.

One reason why such fruitful insights have been ignored is the convention adopted by academic economists some 30 years ago that all serious ideas must be expressed
in equations, not words. By this weird standard, the intellectual giants of the subject — Adam Smith, Ricardo, Keynes, Hayek — would not now be recognised as serious economists at all.
But even if we accept the mathematical formalism of modern economics, there is vast scope for new ideas.

A control theory approach, used by serious mathematicians such as Nicos Christofides and Shahid Chaudhri, working at the Centre for Quantitative Finance at London's Imperial College, has applied advanced mathematics from aerodynamics and control engineering to analyse financial turbulence without the over-simplified assumptions, such as continuous liquidity, which have caused the recent disasters in risk management and regulation.

But the challenge that existing economic orthodoxy may find most disconcerting is Imperfect Knowledge Economics (IKE), the name of a path-breaking recent book by Roman Frydman and Michael Goldberg, two American economists. Building on ideas of Edmund Phelps, one of the few Nobel Laureate economists who rejected the consensus view on rational expectations, IKE uses similar tools to conventional economics to generate radically different results. It insists that the future is inherently unknowable and therefore that there is always a multitude of plausible models of the way the economy works.

With this obvious, but critically important, change in assumptions, IKE demolishes most of the conclusions of rational expectations. More importantly, it shows that reasonable assumptions about economic uncertainty can produce financial models that give less spurious accuracy than the rational expectations models but are statistically far closer to what happens in the real world.

These are just a few examples of the creative thinking that has started again in economics after 20 years of stagnation. But the academic establishment, discredited though it is by the present crisis, will fight hard against new ideas. The outcome of this battle does not just matter to academic economists. Without a better understanding of economics, financial crises will keep recurring and faith in capitalism and free markets will surely erode. Changes in regulation are not sufficient after this financial crisis — it is time for a revolution in economic thought.