By John Brindley - Staff Author
THE CITY of London was a major player in the world financial crisis, claims investigative journalist and best-selling author Nicholas Shaxson.
The 52-year-old tackles the criminal methods of banks and other financial high flyers inside the shadowy Square Mile in his brilliant new book The Finance Curse.
Shaxson dismisses the widespread narrative that London’s financial powerhouse is good for the British economy, then explains why its malevolent influence contributed to the worldwide financial disaster from 2007.
Taking an historical and political approach, Shaxson records that the first ‘seeds of trouble’ were sown in the 1950s as Britain lost its empire and the City ‘faced powerful democratic forces at home which curbed its profits and its power’.
Yet with the rate of taxation for the wealthy set at 99.25 per cent in the UK during the Second World War and 97.5 per cent for most of the 1950s, Western Europe grew by an average 4.1 per cent from 1950 to 1973.
He writes: “The mainstream narrative in Britain is that the City of London is the goose that lays the golden egg. But the finance curse reveals the City to be a different bird: a cuckoo in the nest that is crowding out other sectors.”
He adds: “It is no coincidence that the decline of British manufacturing since the 1970s has been so much faster than in other industrial economies, at the same time as Britain’s financial sector assets have grown so much larger as a share of the economy than in comparable Western nations.
“It is no co-incidence, either, that – for all the trillions of dollars that sluice through the City of London and the glitzy Oligarchs who populate our restaurants and theatres – the United Kingdom is no better off than it’s peers: if anything, it’s worse off.
“Britain’s GDP per capita is lower than that of its Northern European peers, but it is also a much more unequal place, and with power overall scores on health and well-being.”
Shaxson quotes US finance academics Professor Gerald Epstein, of the University of Massachusetts, one of America’s best-known authorities on financialisation, and Juan Montecino, of Columbia University, as estimating that Britain’s oversized finance sector has cost the UK economy upwards of £4.5 trillion. This is equivalent to two and a half years’ economic output or £170,000 per household.
Shaxson traces Britain’s move towards a more financial services-based economy to Margaret Roberts, then president of the Oxford University Conservative Association, being enraptured by the ideas of Austrian economist Frederick Hayek, now recognised as the founder of neoliberalism, in his book The Road to Serfdom.
According to Hayek, competition and the price system were the only legitimate arbiters of what was good and true.
It was the future Mrs Thatcher’s massive financial deregulation when Prime Minister in 1986 that gave the City of London the freedom to become what he describes as ‘Britain’s second Empire.’
Thatcher ignored advice that this would lead to ‘unethical behaviour’ and ‘boom and bust economies’ and was ironically given strong support by John Redwood, head of her policy unit, who is to become a knight in The Queen’s New Year’s Honours list after showing better judgement by highlighting the flaws in Theresa May’s current Brexit withdrawal bill.
The author then goes on to explain in a chapter entitled The London Loophole how the City and is links with off-shore tax havens allowed financial criminals to run amok and endanger the world’s economy.
“Were Britain and the City of London somehow ‘worse’ than Wall Street in terms of financial regulation, so more to blame for the global financial meltdown?..............And the answer is, without a doubt, yes,” he writes.
He argues that the growth of global finance not only fostered a step change in Britain’s contribution to the rising global crime wave, but also ‘put it at the centre of a series of changes that would lead to the global financial crisis.
“In both areas London and the spider’s web affected other countries’ financial systems in two main ways: first by providing an escape route and second as a ‘competitive’ battering ram, offering Wall Street lobbyists an example and a threat to justify further deregulation.”
The author quotes financial criminologist and former US bank regulator Bill Black referring to the ‘three Ds’ that incubated the crisis – deregulation, desupervision and the de facto criminalisation of financial firms.
Black says: “By God, London won the competition in regulatory laxity with the United States which is why it became the financial cesspit of the world.”
Shaxson details how the City tried to deflect the crisis during the BCCI scandal. Instead of closing BCCI down when it discovered it was financing terrorism and laundering drug money, the Bank of England helped the bank shift its headquarters, officers and records away from Britain to Abu Dhabi.
He goes on to record how then Labour Prime Minister Tony Blair forcefully underlined Britain’s anti-regulation approach in 2005 by slamming Britain’s Financial Services Authority for being ‘hugely inhibitive of efficient business by perfectly respectable companies that have never defrauded anyone.’
Still closer to the crisis becoming evident, Chancellor and future Prime Minister Gordon Brown also showed his misjudgement of the situation by congratulating a group of City financial and political bigwigs on ‘an era that history will record as the beginning of a new golden age for the City of London’.
The Financial Curse is a compelling and astonishing read by the author of international bestseller Treasure Islands. It is currently available in Waterstones for £20.
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