Crash Bang Wallop: An extremely engaging book on London

By: | Published: March 5, 2017 3:35 AM

As technology reshapes the future of money, no other financial centre has more natural advantage than London, says the author.

WHAT DISTINGUISHES senior British journalist Iain Martin’s book Crash Bang Wallop from its countless predecessors on the banking crisis of 2008 and the great recession that followed is the historical richness that he brings to the city of London’s ascendance to becoming a global financial centre in the late 20th and early 21st centuries. It’s an attempt to explain “why and how the story of the West since the Second World War is to a large extent about an explosion of money”.

Martin, who regularly contributes to Financial Times, follows up on his award-winning 2013 study of the collapse of the Bank of Scotland, Making it Happen, by looking for the roots of the crisis and London’s history in his new book. He recounts how London became a magnet for talent and money, as Margaret Thatcher unveiled her market-freeing measures, leading up to the Big Bang of 1986.

Yet, he argues, the Big Bang was only a small part of the city’s incredible rise. The process has been driven by increasing debt, financial innovation, cross-border trade and the development of new technology to move money faster around the globe. It is also “the story of visionaries and rascals, and of the combined effort of millions of souls… constantly repeating the cycle of wealth generation, excessive excitement, panic, bust and renewal.”

There has been, as always, a price to pay. “Money follows money and just about anything British—apart from the Queen—is for sale for the right price,” he writes. But the financial reforms that followed the crash of 1987 renewed the demand for the city’s financial talent. The costs of regulatory compliance, for example, rose sharply after the Big Bang, from £20 million in 1986 to £90 million in 1992.

Paradoxically, much of the city’s later growth followed the launch of the euro in the 1990s. The currency that Britain refused to adopt generated massive opportunities for London—a market worth trillions to be managed, traded, hedged and securitised. “The irony is that the Thatcher-era reforms had led to London dominating trade in the European currency the UK had decided not to join, ending a 60-year shutdown in global securities markets that dated to 1914, and which had partially been reopened with the eurobond in 1963,” says Martin.

The city became the “crossroads between the dollar and the euro”. Located between New York and Tokyo, it “was in the perfect time zone for trading and it also had the English language, long-held expertise in foreign exchange and financing trade and a framework of institutions in place stretching back several centuries…” From a $15-million deal in 1963, eurobond issuance grew into a $4-trillion market by 2013. That year, the UK managed 78% of all EU foreign exchange trading; 85% of hedge fund assets; and 50% of Europe’s fund management. Financial services account for 2.1 million jobs (100,000 in Scotland) and £65 billion in taxes.

But Brexit has dampened this spirit. The European Central Bank has long argued that financial institutions handling billions of transactions in euros should be in the Eurozone, not just the wider EU. And financial centres such as Frankfurt stand to gain with Britain out of the EU.

Post-Brexit, will the city survive? Will the global financial firms exit Britain? Martin is a Eurosceptic, like Joe Stiglitz, the Nobel laureate, who reminds us that “monetary systems come and go”. In his book, The Euro, Stiglitz says, “In the end, the euro is just an artifice, a human creation, another fallible institution created by fallible men.” Martin argues that the era of big trading blocs like the EU is over and Britain could very well take a leaf out of Wall Street’s books managing the rest of the world’s money rather than just Europe’s.

Martin has written an extremely engaging history of London as the world’s money pod. The language is often intriguing, the descriptions stunning. His writing reflects a warmth for the main characters despite their many flaws. And above all, he builds hope. Despite Brexit, Martin is optimistic about London’s financial future. As technology reshapes the future of money, he says, no other financial centre starts with more natural advantages in terms of experience, language, time zone and history than London—the Internet economy has doubled since 2010 and is expected to provide 12.4% of the UK’s GDP in 2016 (8% in South Korea). “All that one can say is: the City will survive, and prosper. It usually does.”

What Martin neglects to discuss in greater detail is how much of the survivor’s spirit will be dampened by Brexit. London flourished also because of the open political economy—that welcomed immigrants, entrepreneurs and innovators—which stands in threat after the vote. Martin recounts what Gene Rotberg, a former treasurer of the World Bank, told the audience at the 50th anniversary celebrations of the Eurobond at the Savoy in 2013: “It is not likely that you will be remembered by name in a hundred years… but a little girl from Bangladesh, as yet unborn, will have dinner here returning from her studies at Oxford or Cambridge and she will one day do wondrous things.”
Brexit seems to have clouded that little girl’s future for now.

Paromita Shastri is a former financial journalist

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