No writer is obliged to write a state-of-England novel, but so few wanted to that the critic D. J. Taylor complained in 2007 of ‘the fatal detachment of the modern “literary” writer from the society that he or she presumes to reflect’.
The markets were on the longest run in history, creating greed, envy, barely disguised sexual competition, riches and ruin. The decisions made in Canary Wharf and Wall Street affected everyone, high and low. But Taylor concluded that when it came to talking about ‘globalisation, the rise of the international money markets, the creation of a virtual economic world stratospherically removed from the processes of ordinary life—the number of contemporary writers capable of understanding their complexity, much less rendering them into fictional form, could be accommodated behind a very small table’.
In short, there was no Dickens for the twenty-first century to bring to life the stunted aspirations and stultifying fears of the leveraged economy. Indebtedness became an everyday misery, quietly endured by stragglers the circus that had briefly enchanted, then left behind. You found them lamenting their folly and cursing the banks on radio phone-ins or in Internet chat rooms rather than on the Booker Prize shortlist or television schedules.
‘Being young, naive and overwhelmed with the opportunity of all this cash, I took up almost every offer that was thrown my way—much to my deepest regret,’ wrote a young woman from Liverpool on a BBC Net forum. ‘I see now that I was extremely stupid, yet the way the interest-free overdrafts and “don’t pay anything for 12 months” was sold to me, it was hard to resist. I finished university this year and I now have extreme amounts of debt. I let my overdrafts get overdrawn, and the charges have amounted to thousands. At the same time, my credit card charges have amounted to hundreds. And these are just a small example of the problem I am in. I am 22 and have been advised to declare bankruptcy.’
Others told how they had lost their homes, or how they were trying and failing to repay hundreds of pounds a month while living on benefits. A woman from Southampton gave a little sketch of the giddy world of banking when she said, ‘I’m only 21 years old and already in more than £10,000 worth of debt. I even work for a bank! I just kept increasing my loans and overdrafts thinking that I could pay it back in the future, but now it has got to the point that I can’t afford to have a social life. I’m on anti-depressants now to help me with the stress. Anyone out there that is just turning 18 and can now get loans and credit cards—don’t! If you haven’t got it, don’t spend it!’
EVERY BUBBLE PRODUCES a self-serving ideology. In 1999, financial analysts who proclaimed that the Net was creating a ‘New Economy’ pumped up dotcom shares. The boom that led to the Great Crash of 1929 was cheered on by economists who reassured investors that they were living in a ‘New Era’ dominated by highly trained and ruthlessly efficient ‘scientific managers’.
Equally fanciful dreams preceded the Great Crash of 2008. The most popular came from the American journalist James Surowiecki. In his 2004 The Wisdom of Crowds he claimed that diverse groups of individuals independently reaching their own decisions were more likely to find the right answers than experts, however well qualified. His democratic argument fitted neatly with the explosion of user-generated sites on the Internet, which had the potential to allow anyone to publish their thoughts on anything to an audience, which in theory extended to everyone in the world with access to a computer. All users were equal on the Net. Politicians, academics, journalists and specialists could no longer monopolise media news, as they had done in the days when a few publishers controlled the outlets. Everyman could be his own expert. Everywoman could be her own publisher. Jimmy Wales echoed Surowiecki when he declared that he had no more faith in the knowledge of a Harvard professor than in a high-school kid. On Wales’s Wikipedia site both the professor and the kid had the same intellectual authority, which, as the critic of techno-utopianism, Andrew Keen, pointed out, was ‘really the same as saying that neither had any authority at all’. Wales was also a true believer in the free market and a disciple of the ultra-capitalist Ayn Rand. The theory of wise crowds not only chimed with the flightiness of the Web 2.0 boosters, but also provided ideological support to the bubble market.
Surowiecki recognised that bubbles posed problems for his belief in collective wisdom—as did, he might have added, mass panics, teen crazes, religious hysterias, superstitious fears, tribal loyalties and outbreaks of belligerent nationalism—and tried to adjust his theory. His refined version boiled down to ‘crowds are wise—except when they’re not’.
Unsurprisingly, no one took any notice. Popular capitalism was the spirit of the age. Politicians and central bankers bowed before the market’s judgements. If tens of millions of people independently decided to take out loans, if tens of thousands of bank managers and mortgage brokers calculated that there was no risk in lending to them, and if thousands of dealers in finance houses packaged their debts and offered them as lucrative mortgage-backed securities, what right did they have to gainsay them?
The market was not mad. It was the wisdom of the masses in motion.
Believers is wise crowds and rational investors forgot that the human race can be pushed into speculative frenzies by emotions that are far from wise: the herd instinct, the appeal of acquisitiveness, the fear of missing out, the envious desire to keep up with friends and neighbours and the seductive temptation to gamble and win.
I learned how far crowd psychology had taken over in 2007 when I talked to Capital Economics, a hitherto sceptical London consultancy. In 2005, it had warned that house prices were unsustainable. First-time buyers could no longer afford to buy. Developers were throwing up blocks of flimsy flats on brownfield sites, not as homes for people to live in but as casino chips for investors who had taken out 1 million buy-to-let mortgages. The folly had to stop, Capital Economics declared. But the folly did not stop.
Instead of reaching the conclusion that the fall would be all the harder when it came, they recanted. When I asked whether prices could keep on rising, the reply came, ‘You’re going to think I’m utterly insane, but they can.’ Immigrants were still heading for a booming Britain. In the City, 4000 bankers and traders had received bonuses of £1 million or more. The law of supply and demand, low interest rates and the City’s special place in the global market guaranteed a prosperous future. The profits from property had overwhelmed the prophets of doom.
In June 2007, Professor Stephen Nickell, the chairman of the government’s Housing and Planning Advice Unit, predicted that the price of the average home would rise to £300,000 and that the average first-time buyer would have to obtain a mortgage ten times the size of their annual income.
Three months later, Northern Rock crashed and panicking depositors queued outside a British bank for the first time since Overend, Gurney & Company went under in 1866.
Those rogue economists, who have never believed that crowds are wise, have a name for the emotion that surges through investors as the market reaches its zenith: euphoria. It builds gradually. After a long period without a recession, speculation grows. Belief in free markets or corruption stops politicians intervening while the damage can be contained. Allegedly elitist financial experts do not stand aloof from the crowd, as Wales and Surowiecki imagined, but prove their democratic credentials by joining the mob and egging it on. Finally, as everyone who can piles in to take a share of leveraged profits, swindles proliferate, eye-watering debts become normal and, in the words of the economic historian Edward Chancellor, a carnival atmosphere descends. ‘The spirit of speculation is anarchic, irreverent and anti-hierarchical,’ he wrote in 1999.
It loves freedom, detests cant and abhors restrictions. From the tulip colleges of the 17th century through to the Internet investment clubs of the late 20th century, speculation has established itself as the most demotic of economic activities. Although profoundly secular,