At the time Gordon Brown presided over the British economy, as Chancellor of the Exchequer, he had boasted in a speech given at the Mansion House, that forty percent of the world’s foreign equities were traded in the City of London. He told his enraptured listeners that the country’s financial sector owed its glowing achievement to the government’s risk-based regulatory approach, declaring: I want us to do even more to encourage the risk takers.
Suddenly he was Prime Minister. The focal figure at yet another hastily organised press conference, about to announce a gigantic bailout for British banks. It was another week and another bank bail-out. He, with his Chancellor, looked haggard, bushwhacked, as though they had spent the cold night driving back from their Scottish bailout negotiations in the back of an old LDV van. Had Brown paused to remember his past words, he would have certainly cringed at his reckless bravado, but that was not in the nature of politicians, all of whom seemed to suffer from selective amnesia.
The seemingly endless crisis was beginning to take its toll on the country’s leaders and to add to their burden the sixty year old war between Jews and Arabs had commenced a new and dangerous episode, forcing the Prime Minister to rush off to a peace conference, one more in a long series of what were described as last ditch peace conferences, this time in Sharm al-Sheikh, to prop up the facsimile of Middle East peace.
It coincided with the announcement by the Governor of the Bank of England that the UK retail price index was about to go negative, pointing to the risk of deflation and falling prices. That may have seemed like welcome news, but deflation meant less income to reimburse fixed debts.
Images from John Steinbeck’s novels ‘The Grapes of Wrath’ and ‘Of Men and Mice’ would have lurked in better read politicians’ minds. The descriptions of the Great Depression painted by the writer were haunting. ‘The Grapes of Wrath’ portrayed by John Ford in his film version of the novel had vividly told the world of the disaster that ruined the farmers of the America’s Midwest. Hit by collapsing crop prices they were unable to pay the mortgages. Their properties were ruthlessly seized by banks and hapless families forced onto the road. For a decade, men, women and children wandered the land in a desperate search of work as the nation struggled to fight depression.
During the Blairite decade Britain had prospered as never before in a boom fuelled by credit. Consumers, in their rush for mortgages and credit, piled up mountains of debt. Britannia was really cool when easy money could instantly satisfy any whim, whether it be a new flat screen TV, a holiday in the sun, a fitted kitchen complete with granite tops, a new car, a home extension, a larger house or even a second home. Every wish could be granted at a wave of New Labour’s magic wand. Britons, rich or poor, lived in an enchanted world where everything was theirs for the asking. A quick run down to Bluewater, or the nearest mega shopping centre in their latest model car, a quick flash of plastic, a magic pin number, and hey presto they were owner of a new computer, iPhone, extra-large flatscreen TV, or whatever.
Eighteen months after the bubble had burst the spectre of unemployment was casting its sinister shadow over the land, replacing the euphoria of the carefree days of the boom with fear. How many of those once happy consumers had ever heard of margins calls, collateralised debt obligations, or leveraging? Probably very few, but the wheel had turned and the meaning of job loss, recession and falling expectations was slowly beginning to sink in.
How long would the crisis last? It was anyone’s guess. Rising unemployment was beginning to take the shine off those new cars. New home extensions were already looking like an endangered species. Viewers watched on their unpaid for flat screen TVs the sad spectacle of politicians thrashing around looking for a way out of their predicament. Bankers and fat cats hung their heads in false remorse as golden boys and traders desperately tried to off-load their extravagantly priced homes.
The credit crisis was slowly gnawing its way into the real economy. Job losses were hitting City workers. Those still in a job trembled at the thought of the news they might find when they arrived in their offices each morning. Former high flyers adopted low profiles; it was bad form to be seen ordering a one hundred and fifty pound bottle of vintage wine, or dining in an expensive restaurant.
The model that Britain had pushed as laudable, and had urged others to adopt, was now in tatters after self-destructing. Those who had been taken in by the fast talk of impostors suddenly found themselves with nothing but their eyes to cry with. The same imposters who at the height of the boom had blacked whistle blowers as Jonahs and doomsters.
City of London financiers had fallen into the trap of believing in their own indestructibility. Their wealth and power had seduced politicians, convincing them of the benefits of unregulated markets, opening the door to never-ending prosperity. In the short term cheap credit had produced huge profits for banks, profits that were to prove to be ephemeral. The price was a mountain of debt and the transformation of Britain into one of the most indebted nations on the planet.
In an arrogant display of misplaced self-satisfaction the Prime Minister tried to foist himself onto the public as the saviour of not only Britain, but the entire planet. If it had not been so serious it would have been laughable. Brown was the architect of the system that brought Britain to the precipice. It was he who had preached the idea of buy now pay later as acceptable. He now found himself advocating QE, trying to persuade the nation that printing of money by the Bank of England was the solution to a problem he largely created himself. As the celebrated economist John Maynard Keynes, an advocate of government spending, had once described it, the Bank of England was pushing on a string.
Cool Britannia’s world of showbiz glitz was reeling. Brown, like a desperate magician, had plunged his hand into his battered hat in search of one last frantic trick and abracadabra! Quantitive easing had appeared: a miracle remedy for a desperate nation.
Quantitive easing was nothing less than a euphemism for printing money to repay the nation’s debts. Hundreds of billion pounds, for which every British man, woman and child, would pay the price, carrying the burden for decades to come.
Chapter 21 LONDON