As mass expressions of anti-capitalist rage go, ‘Occupy London Stock Exchange’ has been a bit of a damp squib. What was meant to be an assault on the epicentre of evil dealing, co-ordinated with similar eruptions in New York and elsewhere, swiftly turned into an extended coffee morning on the steps of St Paul’s Cathedral. Perhaps the genteel protesters did not realise that their target was ill-chosen anyway because the Stock Exchange building in heavily defended Paternoster Square (owned by the Mitsubishi Estate company of Japan — there’s globalisation for you) houses only the market’s bureaucrats, while the evil dealing itself takes place in cyberspace above. What I’m sure they did not realise is that they were heralding the 25th anniversary of the last time the Exchange was invaded — by bankers, when the ‘Big Bang’ reforms came into effect on 27 October 1986.
Those were the measures that turned the City into a closer imitation of Wall Street by abolishing fixed dealing commissions, removing barriers between broking and market-making, and allowing high-street banks to taste the glamour of investment banking by buying up Stock Exchange firms. It is instructive to look back at what we said about Big Bang on its 20th anniversary in 2006, at the very height of the boom. ‘So has it all been a success?’ asked my former City boss Sir Martin Jacomb. ‘The answer is a resounding yes.’ Foreign banks and investment managers had flocked to London; the proportion of global dealings and the number of jobs secured were ‘astounding’.
As for me, I began by sounding a more sceptical note: ‘Within banks like ours [Sir Martin and I both worked for BZW, the predecessor of Barclays Capital] it destroyed shareholder value, job security and collegiate trust and made millionaires of some very undeserving people; on a wider front it encouraged … excessive risk-taking in increasingly volatile markets, while doing nothing to protect or boost savings.’ But a grand dinner in Canary Wharf — yes, reader, I had been swigging Lehman Brothers’ claret — persuaded me my first judgment was too harsh. As I joined a throng of bankers heading home at the end of their 14-hour working day, it occurred to me that two decades of ‘creative destruction’ in the financial world has also produced ‘extraordinary energy and physical renewal’.
Hindsight says I was right the first time. But it’s even more instructive to see what The Spectator said in October 1986. The economist Tim Congdon dismissed Big Bang as a ‘sideshow to … a much Bigger Bang’ which had already been taking place for 25 years, namely the explosive growth of offshore financial markets and the tendency of London to capture the lion’s share of the business generated. Arguably, that was where the energy and renewal really came from, while the impact of Big Bang itself was merely to multiply City pay levels and transfer huge risks to high-street bank shareholders and depositors, and ultimately to taxpayers. If the protesters are still there on 27 October, I might join them.
The EU powers-that-be are taking an excruciatingly long time to unveil their ‘€2 trillion rescue plan’. This is expected to include a €200 billion recapitalisation for European banks crippled by sovereign exposures, coupled with a write-off of at least 50 per cent of Greek external debt. Reports say details are being ‘thrashed out’ following a G20 finance ministers’ meeting in Paris last weekend, in time for an EU summit this weekend or failing that, for another G20 get-together in early November. Meanwhile, paralysis deepens, growth dwindles to zero and rumours swirl as to which banks are worst afflicted. The incompetents who occupy the space where European leadership ought to be should listen to my old friend (and Gordon Brown’s) Baroness Shriti Vadera, who sums up the lessons of 2008 in a succinct soundbite: act swiftly, be resolute, overshoot market expectations. So far, Europe has done the very opposite. Dexia’s collapse was more than sufficient warning, but bigger banks will totter before urgency finally overwhelms prevarication. We’re in a strangely quiet lull, but it can last no more than a few days.
• The fraudster’s mindset
I’ve been up to my eyeballs in fraud. The result is Fortune’s Spear, my biography of the 1920s fraudster Gerard Lee Bevan, which is published next week by Elliot & Thompson. Bevan — who has had a couple of previous walk-ons in this column — was a high-living City aristocrat who enjoyed 25 years of success in stockbroking and insurance before his house of cards collapsed in the slump that followed the post-Armistice boom. He was a classic example of the risk-taker who walks a fine line between financial sophistication and outright dishonesty while basking in the admiration of his peers — so long as markets are running his way. When the tide turns and losses mount, he has the choice of admitting mistakes or disguising them, doubling his bets, hoping against hope that all will come right, and running away when it doesn’t. Bevan chose the latter path, reached Vienna before he was arrested, did five years in jail, and died, old before his time, in Havana. Though he was too grand and too early to be callled a ‘rogue trader’ — and smarter at covering his tracks than Kweku Adoboli, who is alleged to have cost UBS $2.3 billion — he fitted the mindset: ‘I became blinkered to all that was happening around me … the important thing was to keep the myth — and the status — alive at all costs … Very quickly a form of tunnel vision descends … However bad it gets, failure is still never an option.’
That wasn’t Bevan, but Nick Leeson, the trader who destroyed Barings in 1995, in a programme note for the National Theatre’s 2006 revival of Harley Granville Barker’s The Voysey Inheritance, a fraud story which Bevan probably saw in its first West End run in 1905. Nothing is ever really new in the financial world: all forms of misjudgment and misbehaviour have happened before, and are highly likely to happen again.