No, I Didn’t Bring Down Wall Street Just to Sell My Book
13 Oct 2008
Selwyn Parker, whose The Great Crash, has just been published looks at the parallels between the current economic crisis and The Thirties.
A week can be a long time in publishing. When veteran editor Alan Brooke, then with Piatkus shortly before it was sold to Little Brown, signed me to write a new history of the Wall Street Crash of ’29 and the horrors of the subsequent Great Depression, we both agreed over a glass of wine that the latest global boom was about to run its course and would end in tears fairly soon. So the timing looked serendipitous.
Then, a few months before the credit crunch started in August 2007, he suggested I deliver the book eight months earlier than planned, just in case. By the time I finished the manuscript in April 2008, the financial markets were in deep trouble. They continued to deteriorate during the final edit, with some of Wall Street’s most famous institutions toppling.
As early copies of the book, The Great Crash, were being despatched for review, the US Treasury and the Fed were fighting a full-sale panic with giant banks failing or being rescued almost by the day. Finally, in the first week of October when the book was officially launched into the trade, we were flat-bang in the middle of a global financial meltdown, the biggest crisis since the implosion of Wall Street 78 years earlier with appalling, global consequences such as the rise of Hitler. Suddenly media outlets from the BBC to the New York Times wanted to talk about the parallels between then and now. I didn’t know whether to be horrified or delighted by the timing.
Now, as governments and central banks rush around like firemen fighting a runaway forest fire, the connections between the thirties and today are showing up on a regular basis. When I was researching the book -- that is, before the credit crunch, I would sometimes try and discuss these parallels with top bankers. None of them could see any link at all between the thirties and now. “It’s very different today,” typically insisted the chief operating officer of a leading retail bank.
In fact, it’s very similar. It’s just that the names and dates have changed. An avalanche of borrowing, stupendous leverage, brass-necked over-confidence by bankers and politicians about endless prosperity, inadequate to non-existent regulation, a patently rotten system of rewards for insiders using other people’s money, spreading social and real-economy consequences (which are now rapidly revealing themselves) and finally, a cataclysm made in America that contaminates UK and Europe: These are just some of the parallels. So altogether, this particular meltdown bears many of the characteristics of its big sister and, in principle, most of its origins.
The thirties was the first great age of debt when Americans, in particular, borrowed heavily to buy the must-have consumer durables of the day such as automobiles, radios and fridges. When the crunch came, they were let high and dry as bankers pulled the plug and started to hoard capital. Similarly today, because of the vaporisation of something like $3 trillion in savings and investments in the meltdown so far, we now have the same collapse in liquidity that occurred in the USA and other countries between 1930 and 1937, with devastating results. Deposits may be protected these days, but investments aren’t.
And rather like Gordon Brown boasting about the record years of prosperity while he was chancellor, there was a mounting conviction in the thirties that wealth for all was almost inevitable. “Everybody ought to be rich,” by GM executive John J. Raskob was one of the most-quoted articles of the time.
Perhaps the most compelling parallel is that absolutely nobody predicted this latest disaster. Indeed right up until the September meltdowns, the worst was supposed to be over and the financial markets were recovering. Ever since this crunch began some 18 months ago, events that were considered quite unthinkable as recently as last summer have occurred with devastating regularity.
Are we facing another Depression? Probably, in those developing countries that depend on the health of strong western economies. The social consequences in those countries may be as severe as in the thirties, especially in agriculture-based economies. (A collapse in commodity prices worsened by horrifying droughts devastated hundreds of farming communities in the America.)
In the developed economies, we will probably escape with a recession. And although there will be much discomfort and even misery in USA, UK and Europe, the most disadvantaged people won’t suffer as deeply they did in the darkest days of the greatest slump of all time, if only because there is now a floor underneath them in the form of advanced social welfare. And just like in the Depression, life wasn’t too hard for people in steady jobs and those with a store of cash because their money went further as prices collapsed through lack of demand.
However, as in the thirties when politicians and duped regulators took their revenge, the self-serving Anglo-American banking model as we know it is for all intents and purposes bust. And in most nations we can expect governments to fall like ninepins, just as they did throughout the thirties as voters exacted their own vengeance.