Bell Ends

So, it’s ten years on from the financial crash, and Big Ben is about to stop ringing. I can’t be the only one who feels this is bad omen. The bongs are a re-assuring, constant presence on our kitchen radio, or at least they have been until midday today. An authoritive, rich, historic sound signalling continuity, letting us know that everything is ok, everyone will solider on, and that somewhere, an adult is in charge. Especially when they ring at 6pm, and it’s wine time.

Ten years on, and it’s easy to forget what happened 10 years ago, and decide it is all ancient history, and that it won’t happen again. It is easy to forget how close we came to complete, total meltdown. It’s easy to forget that money market funds came within a few hours of drying up completely – and without any liquidity in the global financial system, there’d have been no credit, and with no credit no trade, and then…well, before long, no food in the supermarkets. Don’t MI5 say that we are four meals from chaos? After Hurricane Katrina, it took five days before doctors stopped attending hospitals to protect their own families. The traders I worked next to in the City at the time were buying shotguns.

So, why did it happen, again?

The crash happened because Goldman Squids et al conned the ratings agencies into believing that the crap they were selling (complex derivatives such as CDOs, synthetic CDOs etc) were AAA rated, and by the time the markets realized they were worthless, there were billions of the buggers hidden in bank's balance sheets. No banks trusted any other banks, as no one knew who was solvent, Libor rates went up and eventually no one would lend. Banks that had no actual money of their own for their day to day activities (Ponzi schemes, basically), but instead relied on wholesale money markets etc for day to day funding, like Northern Crock, went out of business sharpish and the whole thing snowballed.

The government stepped in, and stopped the world from ending, but putting in a temporary fix: ZIRP. Zero interest rates, and masses of printed money to inflate asset prices. This temporary fix is, of course, still in place.

What's changed since then, exactly? What's that...nothing?

The cycle goes on. Real wages are flat: most people without assets are poorer. Nothing has been done to try and make capitalism more inclusive, or spread wealth more fairly, or re-capitalize the poor. House prices in London have pretty much tripled (by contrast, during the last comparable financial crisis of 1929-1933, property prices in most western economies dropped 80%).

The amount of outstanding complex (ie no one really understands them, certainly not senior bank management) derivatives globally has quadrupled since the financial crisis. Consumer debt has doubled, asset prices have sky-rocketed and banks have, accordingly, since lent billions to the property market. The leverage ratios imposed by regulators are still pathetic, although they've been tripled, they have basically tripled 'nothing'. If residential property prices drop by even 30%, what would happen to the balance sheets of almost all of our high street banks? By their own models, they'd be bankrupted.

Inequality, the fundamental cause of the last crisis, is still rising. We seem to not be willing to do anything to stop it, before it’s too late, because the cause of the inequality is hard-wired into the system – partly via fractional reserve banking.

One possible answer would be to forget ring fencing currently pushed by the regulators - but actually spin off investment and retail banks, and make retail banks actually capitalize themselves properly, ie primarily through deposits. Of course this would never happen, as our fiat-currency and fractional reserve financial system would collapse and have to be re-built to accommodate it.

So there is nothing we can actually do, just sit and wait for everything to go up in flames again, which it will, but much worse this time. The GFC caused so much anger because the people at the top lost their jobs, but still walked away with millions. This anger is what will end the cycle eventually, and probably not in a good way. Housing is at the route of it, but there's nothing we can do now, it's too late. Even building 400,000 houses a year will make no difference to affordability, until house prices crash, and then no one will be able to afford a house, no matter what the market value is, because no one will be lending.

You may be a baby-boomer sitting comfortably in your big, equity rich house with your final salary pension, BTL portfolio and be thinking: I’m ok. But if I were you, I’d be sh****g myself and getting as much money into a bank account in Antigua as I could.

Now, I am not on the same page as Corbyn – I’m not even reading the same book. But I am perhaps in the same library. And what will happen when he gets in? And he will get in.

I’ll tell you: property confiscation and land taxes. Most people under 35 support this sort of thing, because they are locked out of the market anyway and have nothing to lose, in their own minds: if BTL properties are confiscated from their owners, what do they care? They won’t lose anything. In the same way that the average Zimbabwean didn’t lose anything when Mugabe took away land from the “evil white colonialist” farmers. Until, of course, millions started dying in the subsequent famine.

Corybn is talking about property confiscation already, when superficially things are going well (a thin, empty veneer of false, empty credit growth) and the thirst for schadenfreude is on the back-burner for a while.  But as soon as things take a dip for the worse again and the fact that the system is rigged will once more go to the forefront of people’s minds, the temptation to take people’s stuff will re-surface, because they’ll realise that in a rigged game, that’s their only option. Corbyn will be all over it.

And property prices will tank. Banks will go bust. Traders will start buying shotguns again.

And there’ll be no Big Ben to re-assure us that Britain will soldier on.