All history now, isn’t it? The credit crisis that began in August 2007, the ensuing banking crash and global recession. One bumper episode from the long-ago past, when the iPhone was a newborn and Amy Winehouse still made records. Now done, dusted, reformed and resolved. Or so one assumes, from the official self-congratulation. The European Commission marks the 10th anniversary of the credit crisis by trumpeting: “Back to recovery, thanks to decisive EU action.”
Yes, the same clapped-out European establishment that has spent the last decade kicking a can down the road. The head of the derivatives industry body, ISDA, admits: “We sometimes forget to articulate the social value of what we do.” Indeed so: Before the crash, bankers emailed each other about how the derivatives that they were paid so much to flog were “[****]” and “vomit”. Everyone knows history is written by the victors, but this is something else. Even the banks are back to bragging how many billions they generously chip in to the exchequer..
Let’s get three things straight. First, it was working and middle-class who paid for the mess, who are still paying for it now and who will keep paying for it.
Second, the crash has prompted almost no fundamental reckoning or reform. And, most importantly, the combination of those first two factors means the crash that began in 2007 cannot be consigned to the past. Today’s politics — from Brexit to United States President Donald Trump and the collapse of centrism — is just one of its products. For politicians and financiers to treat the crash as history brings to mind Stephen Dedalus in Ulysses: “History is a nightmare from which I am trying to awake.”
In 2008, the economy tanked, former British prime minister Gordon Brown got booted out in the United Kingdom, and David Cameron, the then British prime minister pretended a private banking catastrophe was a crisis of a supposedly profligate public sector. You know what happened next: First the children’s Sure Start centre closed, then the library; your mum waited ages to get her hip replacement; the working poor had their social security stolen, and the local comp began sending begging letters.
Debt racked up through the greed of financiers being dumped on the poor, the young and people with disabilities in what must rank as the biggest bait and switch in post-war Britain. I say that, but we have only had seven years of austerity. If Philip Hammond stays in No 11 and sticks to plan (one must hope he does neither), the cuts will continue until the middle of the next decade. In the US, former president Barack Obama set up the independent financial crisis inquiry commission, which produced a 545-page report into the causes of the crash and possible remedies. The British equivalent was Alistair Darling creating the Bischoff Commission, led by a banker. Three-quarters of the combined working lives of its members had been spent either at a bank, or in a closely related field. Former British chancellor of the exchequer George Osborne’s version was the Vickers report — 40 per cent of whose authors were ex-bankers. In Britain, disgrace is almost always for the poor; the rich can almost always find redemption.
Whatever technical reforms have followed on from the crash, the economic and business model that created it remains intact. Britain could have used the nationalised banks to direct credit to strategic industries and regions; instead, Labour and the Tories insisted on treating them as if they were still private sector industries. Britain could have used the crash to ensure a far more equal and democratic society. Instead, the UK is still grossly unequal. And so Britain remains reliant on debt — aptly termed “the raw material for bubbles and crashes” by Daniel Mugge at the University of Amsterdam. According to the Bank for International Settlements, the UK is far deeper in the red now than it was when Northern Rock collapsed.
Government debt has shot up under the Conservatives, but so too has household borrowing. Were the UK to crash again, its government no longer has the political capital nor the fiscal headroom to save the financial system. And with interest rates scraping along the bottom, the Bank of England has barely any firepower left. Ten years of political fudge and failed austerity has left Britain’s state machinery tapped out. It has also left the country in barely suppressed civil war between those sinking into debt because their wages aren’t going up fast enough, and the asset holders who got bailed out and then handed out extra money in the form of quantitative easing. Think about the battles now being fought along these lines: Baby boomers vs millennials who have neither permanent homes nor secure jobs — but a huge chunk of student debt. The metropolitan elite vs everywhere else.
In trying so desperately to retain their position after the crash, the political and financial elites who caused it have ushered in the era of Brexit and Trump. “They had learned nothing and forgotten nothing” was Talleyrand’s obituary for the Bourbons. Much the same will be said of us.
— Guardian News & Media Ltd
Aditya Chakrabortty is a senior columnist and writer.