After the crash, Americans trying to find their bearings could at least hold on to the thought that George W. Bush’s right-wing government presided over the bubble. As was to be expected, it did not intervene when sharks more interested in pocketing commissions than the principles of reputable lending sold millions of Americans mortgages they could not hope to repay. The Bush administration, like Herbert Hoover’s Republican administration in 1929, believed that the market knew best and did not worry when financiers offered derivatives of such obscurity no one understood their risks. The conservatives’ neglect made ideological sense. All of the great crashes occurred under politicians who accepted laissez-faire, such as Hoover, or politicians the moneymen corrupted, such as the Georgian oligarchs of 1720 who took the bribes of the South Sea Company.
Until yesterday, that is, when Britain broke the mould. When the bubble reached its peak in the summer of 2007, Texan oilmen and former investment bankers did not govern this country. Nor were our leaders enriching themselves with bribes from the City. The British dreamed their dream under a relatively honest, social democratic government, many of whose members had been fiercely sceptical of finance capital.
Those from radical families learned the histories of the Great Crash and Great Depression at their mothers’ knees. At university in the seventies and early eighties, moderate leftists clutched the works of Lord Keynes and J. K. Galbraith to their breasts, while the extremists quoted Karl Marx and Antonio Gramsci.
By prejudice and well-grounded conviction, the left had always been wary of ‘funny-money men’ and ‘spivs’. In 1975, while still at Edinburgh University, Gordon Brown edited The Red Paper on Scotland, a collection of essays that dreamed of radical transformation. He endorsed the vision of the early socialists who wanted to abolish ‘the split personality caused by people’s unequal control over their social development—between man’s personal and collective existence—by substituting communal co-operation for the divisive forces of competition’. A better world could come only if the public accepted ‘the necessity for social control of the institutional investors who wield enormous financial power both in fostering privilege in our social security system and in controlling the economy’.
Three decades on, Gordon Brown and his Labour colleagues allowed the ‘divisive forces of corruption’ and the ‘institutional investors’ to engage in an orgy of speculation. For the first time in financial history, one of the great market manias that punctuate the history of capitalism was presided over by a centre-left rather than a centre-right administration. Like the most gullible investors in the Wall Street of the twenties, social democrats thought ‘the Big Bull Market would go on and on’, and did not see the crash coming.
Think back to yesterday, and you will remember that they were not alone.
THE FINANCIERS COULD no more imagine the coming disaster than the politicians. They applauded the hospitality of the Labour government, along with the tax breaks it offered foreign dealers and private-equity buyers, and went on a speculative bender.
Men ‘go mad in herds’, declared the Victorian journalist Charles Mackay, as he looked at the stock-market crashes of the eighteenth and nineteenth centuries. He might have been writing of the twenty-first. Bankers, drunk on cheap money, packaged and traded in supposedly high-yielding, mortgage-backed securities, unaware or unconcerned about the possibility that poor ‘homeowners’ might default and leave them with worthless assets.
Why should anyone be anxious? The bankers said that they had spread the credit risk on the securities they sold to investors by slicing and dicing mortgages, so that good-quality loans were bundled in with riskier debts. Even if the diced borrowers had lied about their income or been bamboozled into debt by commission-hungry brokers, house prices were rising around the world, and politicians and central bankers were saying they had abolished the booms and busts of the business cycle. If individual borrowers fell ill or lost their jobs, they were entitled to sympathy, but lenders could always repossess their homes and sell them for more—often far more—than the value of their mortgages. Property guaranteed profits.
Meritocratic theory holds that the rich are rich because of their keen intelligence and hard work. They are not the beneficiaries of inherited wealth or good luck, but deserve their fortunes. Instead of seeing the potential for catastrophic failure in the financial system they were supposedly managing, the British rich engaged in the most conspicuous consumption since the Gilded Age of the late nineteenth century. The Candy brothers became commercial celebrities for meeting the exacting requirements of the global plutocracy. In 2007, they announced that they would soon be offering properties in a development near Hyde Park, with prices ranging from £20 million for ordinary apartments to £100 million for a penthouse that the press described without exaggeration as ‘the most expensive flat in the world’. The brothers provided luxuries humanity had never known it needed before—a 360-degree ‘memory mirror’,* a purified air system, a tunnel from the car park to a nearby Michelin-starred restaurant, a floor-to-ceiling fridge and a ‘panic room’ (which, I admit, was prescient).
Creative entrepreneurs produced work to match the times. In 2007, Damien Hirst displayed the world’s most expensive piece of contemporary art, a diamond-encrusted platinum cast of a human skull. The memento mori had been a staple of Western art since the Middle Ages, so Hirst won no prizes for novelty. All that concerned onlookers was Hirst’s asking price of £50 million. His work created a sensation because of its saleroom rather than its aesthetic value. The following year, on 15 September 2008, he proved that the triumph of the art sale over the artwork was complete. He auctioned at Sotheby’s pieces he cheerfully admitted his employees had mass-produced in his studios. The buyers did not care, and gave him £100 million. Even the critics did not pretend to be interested in what message, if any, he had for his public, but reported the sale like business journalists covering a soaring stock.
As the buyers made their bids, Lehman Brothers collapsed.
Until then, £50 million for a kitsch skull had not appeared beyond the reach of the richest of the super-rich. The Office for National Statistics reported that annual bonuses in the City had risen by 30 per cent to £14.1 billion in August 2007. The overall level of British bonuses, which included payouts to CEOs, senior managers, the new breed of commercialised public servants and up-market car and property dealers, as well as City financiers, reached £24 billion—a figure that comfortably exceeded the entire British transport budget.
To accompany apartments with secret tunnels to Michelin-approved chefs and objets d’art peppered with diamonds, were ever-more sumptuous versions of traditional luxuries. A Poole-based boatbuilder produced Britain’s first ‘super-yacht’. For £8.75 million the buyer received a 37-metre boat, fitted out with American black walnut furnishings, sleeping quarters for twelve (plus eight crew), a king-size bed in the master stateroom and a bar, dining area and hot tub on the sky deck.
The astonished children of England’s upper-middle class started to talk about the vertiginous gap between the ‘haves and the have yachts’. It was not only that they could no longer keep up with the Joneses—or the Abramoviches or Mittals, as their more successful neighbours were more likely to be called—they could no longer keep up with their parents.
Sebastian Cresswell-Turner remembered that when he was a child in the seventies almost everyone he knew ‘lived in a large house in the country or in one of the better parts of London’.