Any Lessons Learned From The Credit Crunch?

Will Hutton, reviewing a number of books about follies and failures that has led up to the current global credit crunch for today’s edition of The Guardian, opens his piece by  observing  that  Gordon Brown’s Mansion House speech on Wednesday 20th of June 2007, which he calls “one of the greatest political and economic misjudgments among postwar politicians” is likely to be forgotten. He says that even political opponents, by which he presumably means the Tories, are not likely to draw attention to it because they were equally in thrall of what the city was achieving and are on record as saying as much

This is an era that history will record as a new golden age for the City of London,” Brown intoned. “I want to thank all of you for what you are achieving.” Just weeks later the financial catastrophe burst, creating the “great recession” and leaving the UK taxpayer with a one-sided exposure of £1.3 trillion in loans, investments, cash injections and guarantees to the banking system, of which over £100bn may be lost for ever. Brown went on to hymn the City’s “creativity and ingenuity” that had enabled it to become a new world leader. In language so purple it could make a cardinal blush, he praised London’s invention of “the most modern instruments of finance” – the very instruments that were to bring it and the western banking system down.

Invoking Adam Smith, Brown declaimed: “The message London’s success sends out to the whole British economy is that we will succeed if, like London, we think globally … and nurture the skills of the future, advance with light-touch regulation, a competitive tax environment and flexibility.” He even managed to boast that, after financial and accounting scandals in the US such as those that brought down Enron and WorldCom, which led the American government to introduce new regulatory reforms, “many who advised me, including not a few newspapers, favoured a regulatory crackdown. I believe we were right not to go down that road.”

Hutton, in his various writings and in television programmes he has fronted, has done much to guarantee that Brown does not forget that particular speech.

But it is not a question what Brown, or indeed anybody else in politics or power, remembers or forgets, it is what has been learned from the whole sorry messthat really matters matters.  

This quartet of books indict modern finance. They cannot be read without wishing for something different. Yet even now I am not sure that the politicians and officials get it. The support for British banks is disgracefully one-sided. The taxpayer will lose at least £50bn, if not £100bn, but there has been no concomitant willingness on the part of the bankers to restructure their business model – or accept that their pensions, bonuses and pay should be seriously qualified. They want to get back to the glory days, and if once in every 30 or 40 years the rest of us suffer recessions and a £100bn bill while they make personal fortunes – so be it. It is not a fair bargain. These books set out why, and how it could be changed. Read all of them.

Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City’s Golden Decade
by Philip Augar
272pp, Bodley Head, £20

Fool’s Gold: How an Ingenious Tribe of Bankers Rewrote the Rules of Finance, Made a Fortune and Survived a Catastrophe
by Gillian Tett
352pp, Little, Brown, £18.99

Meltdown: The End of the Age of Greed
by Paul Mason
192pp, Verso, £7.99

The Crash of 2008 and What It Means: The New Paradigm for Financial Markets
by George Soros
288pp, Public Affairs, £9.99

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