UK’s stormy affair with finance

Reading Scottish journalist Iain Martin’s book today serves as an interesting ‘literary bookend’ experience. The publication of Crash, Bang Wallop has been timed for the 30th anniversary of the ‘Big Bang’ financial deregulation that British Prime Minister Margaret Thatcher unleashed in the UK in 1986.

When it was introduced, the move was celebrated as an unshackling of global finance of sorts, which facilitated Britain’s ascendance as a financial powerhouse.

The stuffy old ‘boy’s club’ of London’s Square Mile, the epicentre of old money power, was given a kick in the pants by the introduction of electronic trading and transcontinental commerce, and a spirit of US-style Darwinism came to override the celebrated stiff upper lip stoicism that was seen to characterise the bowler-hatted men of finance in London.

The ripple effect of the Thatcherite ‘revolution’, and of Ronald Reagan’s own efforts at bending the arc of conservative politics and economics in the US, have been felt in far corners of the globe, including in India.

But 30 years later, the wages of buccaneering 1980s capitalism are painfully evident. A succession of global financial crises, the most recent of them in 2008, have laid bare the consequences of laissez faire licentiousness in the matter of regulating financial markets, and the ‘Greed-is-good’ worship of Mammon.

The Brexit vote earlier this year — and the more recent election of Donald Trump as US President — amplify the assertion that while the spirit of ‘go-go capitalism’, where making money off money has become a closed-loop pursuit, has unlocked enormous wealth for the few that were positioned to profit from it, it has bypassed large sections of people in the industrial rust belts — who are, in most cases, worse off. And are increasingly voting with their feet.

Crash, Bang Wallop does a masterly job of tracing the rise of the ‘City’ back to the 16th century, when Thomas Gresham (merchant, financial schemer, property developer, and Royal adviser) enriched London’s money mavens with inside knowledge of the financial innovation tools he had learnt in the then-flourishing financial capital of Antwerp.

The spread of the British empire, against competing colonial powers and driven by unabashed mercantilism, fast-tracked that ascendance, although as Iain points out, much of that wealth was tainted by association with slavery and plunder.

To be fair, long before the ‘Big Bang’ deregulation of 1986, and in fact right from the early days of financial ‘innovation’, investment ‘bubbles’ and scandals were high-incidence events. Iain pointedly draws attention to these to dispel the myth that financial markets were marked by an earthy innocence (as most left-wing criticisms of financial deregulation like to frame it).

The South Sea bubble, which induced a stock market crash in 1720, induced much the same polemical hectoring and hand-wringing that we’ve seen closer to home in the 1992 securities scam centred around ‘Big Bull’ Harshad Mehta — and in the wake of every stock market crash since.

In fact, in Iain’s telling, the architects of the Thatcherite Big Bang deregulation did not have a precise understanding of the financial forces they were about to unleash. In that sense, they were themselves shooting in the dark.

And, of course, it didn’t help that the launch, in October 1986, proved inauspicious: the servers collapsed under the weight of the orders, leaving officials red-faced with embarrassment.

There were other portents of the downsides of being interconnected with global financial gales: precisely a year later came the Black Monday crash of October 1987.

And, yet, London’s financial hub emerged stronger after each such downturn, despite the increasingly widespread perception that a small slice of the City was profiting (in the form of fat bonuses and pay checks) at the expense of more widely disbursed economic misery. Embracing more edgy risk became something of a fashionable pursuit.

Iain interestingly offers cultural vignettes from the rise of the ‘yuppie culture’ of the 1980s that came to represent the youthful exuberance, even borderline brashness, of those times. That brashness would soon spill over onto the trading floor.

In an earlier time of relative innocence, a raised eyebrow from the financial regulators was felt sufficient to compel reckless financial entities to rein it in. Increasingly, however, the line between what was legal and what was not came to be blurred.

It is in this context that the Brexit vote acquires political significance. In a sense, the spirit of the ‘Big Bang’ reforms of 1986 has been up-ended by Brexit. If the former marked an opening up of a Britain (which was then in industrial decline) to the world of finance, Brexit represents a slamming of the door of internationalisation.

That global financial firms are now plotting their very own exit from the UK into continental Europe is sufficient affirmation of the creeping isolation of Britain.

Iain is somewhat more sanguine about London’s financial future. He writes: “All that one can say is: the City will survive, and prosper. It usually does.” Even giving allowance for the fact that it is difficult to foresee the rise and fall of civilisations with certainty, it is hard to share that optimism. It used to be said in an earlier time that the sun never sets on the British Empire.

The more sobering reality is that it doesn’t rise over it any more. For all the catalytic effect that it has had around the world, Britain’s ‘Big Bang’ revolution seems fated to end not with a bang, but with a whimper.

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