The top 25 per cent of society was wealthy: couples with a joint income of more than £60,000, and a mortgage on a house whose price was rising faster than their salaries—faster, indeed, than they dreamed possible. As the complaining upper-middle class proved, even couples bringing in £100,000 to £150,000 did not feel rich, although those who complained about how hard it was to pay school fees were among the richest in the land. (A mere 7 per cent of parents educated their children privately.) Only the super-rich surpassed them. They did not worry about paying school fees, but, as Dorling nicely put it, ‘worried about being kidnapped’.
With China pumping out cheap goods, the standard rate of retail price inflation, and the interest rates that tracked it, stayed low. With Chinese savers pouring their capital into the international money markets, anyone who could make a half-credible case for a loan found a receptive audience among bank and building society managers.
A glut of cheap money produced rocketing asset prices, and a new generation of investors discovered the wonder of leverage. Everyone from bankers to young house-hunters could borrow cut-price to play the financial or property markets. When they sold, their asset had shot up in value while the size of their debt had merely increased with its interest rate. Few thought about the possibility of their assets shrinking in value while the size of their debt continued to increase with its interest rate. The horror of deflation was yet to come. For if the politicians, the speculators in the investment banks and the rich did not see what was about to hit them, neither did the once staid high-street bank managers—or all the eager customers who grabbed their loans.
THERE WERE PROPERTY and credit bubbles in America, Australia, much of Europe and Russia. Britain’s was up there with the best of them. Although everyone wanted to blame the Americans for the crash when it came—blaming Americans was what Europeans did best, after all—house prices rose faster in Britain than in the US, as did personal debt. While American household indebtedness reached 140 per cent, British indebtedness grew to 169 per cent of disposable income—every £1 coming into the average home had to service £1.69 of debt.
In August 2007, Britain passed a grim landmark. Consumer debts in the form of mortgages, loans and credit card bills totalled £1.35 trillion and overtook the entire gross domestic product of the country, which stood at £1.33 trillion. To put it another way, the British owed more than the value of the output of every office, factory, farm, quarry, mine and fishery in the land—and that was before economists included the immense debts of the public sector and business, which took the sum of Britain’s borrowings to three times annual economic output.
We were a bankrupt nation.
Don’t fret, said conventional economists, most personal debt is secured against homes whose prices are heading heavenwards. It is not folly to borrow to secure a piece of the action. Nor were existing ‘homeowners’ adding to their burdens if they went back into the debt market by remortgaging to pay for holidays or cars or their children’s stay at university. They were ‘releasing equity’ in their property, as the jargon of the day had it: receiving a share of profits that were rightfully theirs.
You can understand why heads were turned. By the peak of the bubble, the price of the average home was six times the average wage. Britain had never seen the like before. Even at the top of the last housing boom in 1989, average prices peaked at 4.8 times average salaries.
If they already had a halfway reasonable job, or were university students who looked to the bank as if they would have one soon, the British were flooded with offers of loans, credit cards and store cards. The managers of Northern Rock, whose roots lay in the mutual and self-help values of the building society movement of the Victorian North-East, abandoned prudential principles and hosed their customers with money.
Those who did not have the £250,000 income they needed to be truly wealthy in 2007 had no need to feel hard done by. They could still take a mortgage of up to five, six, seven, eight times their income, add in credit card and bank loans and live as if they were wealthy in executive homes with Porsche Cayennes in their drives.
Lending at this level was fantastically reckless behaviour for creditor and debtor alike when the few building societies, which had not taken advantage of Margaret Thatcher’s offer to turn themselves into banks, stipulated that three times salary was the safe upper limit. Like other lenders, Northern Rock also gave mortgages on 125 per cent of the value of a property. The banks’ generosity had the advantage of allowing borrowers to pay off credit card bills and have money left over to kit out their homes. It had the disadvantage of immediately placing debtors in negative equity.
Few cared. Houses had provided a phenomenal rate of return for a phenomenally long time. The Halifax bank estimated that between 1996 and 2006 the average house price rose by 10.6 per cent per annum (from £62,453 to £179,425). Investing in homes was more lucrative than investing in the stock market, which grew at 4.6 per cent per annum, and the returns outstripped the 2.6 per cent rise in retail price inflation four-fold.
Acquiring the capital to lever yourself on to the escalator seemed the wise option. And without doubt it is always wise to jump in and out of a bubble market, as long as buyers get the timing right and remember the cynical investor’s advice to sell on to ‘the greater fool’ before it is too late. It was not only the rich who benefited, many ordinary families made large profits that transformed their lives and status by playing the property market and cashing in before the crash came.
The media trumpeted their good fortune, but paid less attention to the casualties, whose number was growing long before the markets turned. Journalists, entertainers and artists were hopeless at dramatising their suffering, and many revelled in it.
By the twenty-first century, the politically correct had placed racism and homophobia off limits. The culture industries compensated by turning on underprivileged whites with all the suspicion and condescension they displayed towards the old upper class. Wealthy media executives commissioned shows such as Little Britain and Shameless in which the white poor were white trash: stupid teenage girls who got pregnant without a thought for how they would care for their babies; alcoholic fathers with delinquent children who wallowed in the illicit pleasures of drugs and sex, which the taxpaying viewers could enjoy only in moderation because they had to go to work in the morning. The poor were the grasping inhabitants of a parasite paradise, scrounging off the cozened middle classes in television comedy, or freaks to be mocked on the British versions of the Jerry Springer Show.
There was truth in the stereotype—for there is truth in all stereotypes. Television comedy producers could point to estates with families that had not worked for generations, living at other people’s expense on the edge of the law. The producers of the reality shows could say that they did not force their freaks to go on air. Contestants and guests willingly played their parts, hamming up their performances for all they were worth to secure a fleeting moment of fame. The failure of the BBC and Channel 4 was not their abandonment of residual notions of pity for the victims of an increasingly harsh financial system, but their lack of imagination. They did not have the intelligence to realise the fragility of their own and their scoffing viewers’ lives. They never said, ‘Don’t laugh too loud because one day you may be poor too.’ In the broadcasters’ version of the make-believe world, the gap between living in the house with the Northern Rock mortgage and being on the council house waiting list was unbridgeable. Brute economic forces did not push people into poverty. The poor were poor because of their own depravity and weakness. They had chosen to be the way they were.
The idea that there would soon come a time when hundreds of thousands would face penury through no fault of their own was beyond them.
The high arts occasionally played the same games with race and class. In the 2007 film adaptation of Monica Ali’s Brick Lane, cast and crew successfully conveyed the novel’s sensitive portrayal of the struggles of a young Bangladeshi wife in London’s East End, but could show her white neighbours only as neo-Nazis or obese and tattooed grotesques. In general, though, literary