One of the lessons taught in these pages over many years by Christopher Fildes was that, because financial markets are human nature in action, anything that goes wrong in them is almost certain to have happened before and highly likely to happen again. Technology may advance, the language and methods of business may evolve, the objects of speculative desire may transmute from tulip bulbs in one era to dotcom shares in another, but the propensity to err remains constant. As Geoffrey Elliott puts it at the beginning of this entertaining account of the greatest upset of the Victorian City: ‘Money muddles always start the same way, when judgment is fuddled by greed, ambition and overweening self-confidence; then when problems arise, there follows an obstinate refusal to admit mistakes or the imminence of disaster.’
So it was with the catastrophic failure in May 1866 of Overend, Gurney & Co, a discount house and ‘banker’s bank’ with a turnover double that of all its competitors combined and second only to the Bank of England’s, and a reputation for the ‘shrewd probity’ that was particularly associated with Quakerism. The Gurneys of Norfolk were one of the most respected banking dynasties in England — and indeed both their name and their fortune survived this scandal sufficiently undented to allow them to become founding partners in Barclays Bank 30 years later.
And yet in the space of three years the six partners of Overend, Gurney had ruined themselves and almost brought London’s barely regulated banking system crashing down around them. They had indulged in a series of grossly ill-judged speculations on railways, ships, shipyards and other ventures; they had been seduced by an exotic gallery of rogues, bankrupts, fraudsters and middlemen, including a Greek novelist and a wheeler-dealing Irish parish priest.
To make matters worse, the partners had tried to stave off disaster at a late stage by raising fresh capital through the sales of shares to investors ‘lured by a prospectus that, even by the lax standards of the day, was short on hard facts and long on soft promises’. Finally the partners were sent — by the Lord Mayor, sitting as a magistrate — for trial on fraud charges at the Old Bailey, where the prosecution’s reckless over-egging of the case against them helped them to an acquittal. The Lord Chief Justice, Sir Alexander Cockburn, declared them guilty of ‘grave error’, but not of anything that in those days counted as a crime, and the jury concurred.
All this is told with great pace and evident enjoyment by Geoffrey Elliott, who was a banker in London and New York for many years before turning his hand to writing. His characters are vividly drawn and set against a panorama of Victorian banking parlours, drawing-rooms and sweatshops, plus a wealth of additional detail in copious end-notes. Contributing to the liveliness of tone — though sometimes rather confusing for the reader — is Elliott’s eagerness to compare and contrast with modern-day financial disasters, such as the Crown Agents’ property dealings in the 1970s and the ‘junk bond’ extravagances of Wall Street in the 1980s.
Perhaps surprisingly, though, he does not make much of the comparison with the collapse of Barings in the mid-1990s, which has many points of similarity: notably, in both cases, a dynastic reputation for prudence which lulled the Bank of England and the market into false confidence in the partners’ abilities. If there is a crucial difference, it is perhaps that Barings’ chiefs did not properly understand their underlings’ trading activity, while clinging to assurances that it was profitable and above board. The Overend, Gurney partners, on the other hand (though they ceded a certain amount of power to, and tried to pin the blame on, a man-of-business called Edward Watkin Edwards), were directly responsible for their speculations, but less than frank in the information they gave their outside investors.
Guilty or not, they let the side down and their punishment was to live out their days in obscurity. Their bank’s collapse made headlines around the world as big as those made by Barings or Enron in recent memory, and stirred the Bank of England into taking a more active role as the City’s watchdog. But the lessons learned by the financial community lasted only within the generation directly affected. Elliott concludes:
When all is said and done, the simplest explanation for what happened is the human factor. Basically good men led themselves further and further astray, and they paid a heavy price. It has happened many times since; in the years to come the cast will change but the basic plot will be the same.
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