Stephen Nickell
Since the financial crisis started, economists have been lambasted for failing to predict it. But foretelling the future is always tricky, as any climate scientist will tell you. Foretelling the future of the economy is especially tricky because the very act of publishing forecasts will, if they are believed, affect the future path of the economy. At least the weather doesn’t respond to weather forecasts.
Suppose that in early 2007 economists had predicted that 2008 was going to be the year of financial collapse. Assuming that they were believed, people would have become a lot more cautious, and wary investors would have started to sell assets to ensure that they got out in time. In the blink of an eye, sellers would have been rushing into the market, asset prices would have plummeted and 2007 would have been the year of the financial collapse, not 2008. The economists would have been wrong yet again.
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Elizabeth Kirkwood
Public spending: what should get the chop?
Of all the things that the modern British state provides, what could we do without? Britain has to cut state spending, and while we might argue about how much and how soon, there is no question that it will have to come down.
To this end, we’re inviting our readers to suggest how they would go about cutting Britain’s £655bn state spending by 15 per cent. We are looking for a range of answers—from serious and practical to imaginative and amusing—and if they are inventive and original enough we’ll publish them in the magazine.
Post your suggestions in no more than 200 words below, or if you feel you can be really frugal with your pitch why not tweet us your ideas: @prospect_uk
Tom Streithorst
Banks all over Europe hold Greek debt
The euro, which has been falling for months, rallied yesterday as markets grew slightly more confident that Germany would bail out Greece. For years, the strong economies of Europe have insisted that no matter what, they were not responsible for the debts of other eurozone nations. However, this policy may be changing.
Is Greece Europe’s Fannie Mae? The US corporation, put into government conservatorship in the dark days of September 2008, flourished for years because of an implicit guarantee from the federal government. Markets took the guarantee seriously, allowing Fannie to borrow at preferential rates, only a few basis points over comparable treasury bills. Shareholders and management made out like bandits, exploiting their huge funding advantage over other financial companies. Even as Fannie became dangerously overleveraged, markets shrugged off the risk. They knew Uncle would come to the rescue should anything go wrong. Read more »
Jonathan Ford
A worthy winner: Simon Johnson, Professor at MIT, Peterson Institute fellow and former IMF chief economist
The financial crisis has destroyed both wealth and received wisdom. The idea that prices are always right and markets self-correct is fatally challenged. Even Alan Greenspan admits that the “whole intellectual edifice” of the efficient market hypothesis collapsed in the summer of 2008. The financial establishment is in a state of deep confusion. As the FT’s Gillian Tett put it in September’s Prospect: it is like “a priest who has lost faith in the Bible, but still has to go to church.” But this is not a bad thing, for it has opened up new ways of thinking about markets, institutions and the all-important cause of financial reform.
Unfamiliar voices have come to prominence, aided by a new wave of financial bloggers eager to push fresh ideas. But who has made the most impact? Prospect assembled a panel of experts to draw up a list of leading “public intellectuals” of the financial crisis in 2009 and then decide on the most important. Our criteria were simple. Anyone who had made an impact on policy with their ideas, or who had changed the “public conversation” was a candidate.
The panel sifted hundreds of names, with an unavoidable bias towards Britain and the US, but felt the most important contributions had been in financial reform—those trying to work out what to do next. The crisis has laid a staggering financial burden on the world, with some $14 trillion propping up US and EU banks. We cannot afford another one. Moreover, we urgently need a new regulatory philosophy. Are liquid markets always good? Is complexity in financial services harmful? Can finance firms stop “herding,” creating wild booms and busts?
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CityBoy
Oily answers: Russia has not been not successful
Sorry to have been AWOL for a few weeks. I have in fact been delving into the world of the former Soviet bloc to see if indeed there is anything we can learn about recovering from a crisis.
Certainly Russia has had its fair share of hardship over the past 18 months—some would say an unduly large portion. With the Georgian conflict and the stand-off over the excitingly named Star Wars missile defence plan still fresh in the minds of many columnists, a healthy serving of humble pie was largely felt to be their just desserts.
The view from Russia, of course, is rather different. It was not, they say, their banks which indulged in the “merry-go-round” of CDSs and CDOs, or their financial regulators who sat, rubber stamp at the ready, as the magical mystery tour of complex financial products traipsed across their desks.
Nor, they holler, was it their consumers who were piling on the debt to pay for their Yves Saint Laurent clothing and full Rock Band sets. And they’re right, it wasn’t their fault.
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Edward Docx
“Dude, where’s my cheque? Either this is not a recovery, or you forgot to mail out our cheques while the recession was on.”
“That’s what you’d open with?”
“Yes, he’s the prime minister so he’s probably busy, right? And I think we would need to get in on him straight off—prevent him from using his famous charm.”
Early in September, my poet friend Mitch and I were sitting beneath skies of sodden sugar attempting to enjoy our second barbecue of the day. Sometime in May, we had inadvertently bought 200 bags of charcoal. (Online—Paypal—a tip from a malicious playwright of our acquaintance.) The summer months had passed in a blaze of drizzle and James Purnell and we had never got around to lighting a single briquette. So now that autumn was all but upon us, we were flame-grilling pretty much every meal.
We were discussing the much-whispered end to the recession. Specifically, we were going over what we would say to Gordon Brown in the event of our finally being called into Downing Street. This idea had first flourished during an earlier “if I ruled the world” conversation, back in 2008, along the lines that if the government was bailing out the banks, it was surely only a matter of time before they started bailing out novelists and poets.
“We’re even more of an essential part of the national fabric,” Mitch had argued. “If we go down, the nation goes down. Before the bankers, I would have called in all the writers and promised that—as long as we undertook to stop all high-risk stuff—there would be taxpayer funds made available.”
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Elizabeth Kirkwood
Fuld: a Shakespearean anti-hero for today
How to mark an anniversary? Whether a happy or sad occasion it’s always a tricky business, especially when that very anniversary is one marking a tricky business itself. A year on from the collapse of Lehman Brothers, perhaps the obvious choice is to flagrantly burn a wad of cash in the street, a sort of miniature funeral pyre to the ghost of the 160-year old bank. But for the more sensible among you a far more fascinating and less profligate way of marking the event would be to watch the The Love of Money: the bank that bust the world, which offers a truly extraordinary insight into the man behind Lehman Brothers—Dick Fuld.
This, the first episode of BBC2’s new three-part series (originally aired last Thursday, but still available to watch via BBC iplayer), is the story of the fateful weekend last September when the rotting carrion of the Lehman corpse started floating to the surface with a terrify speed. The man at the helm of the biggest bankruptcy in history, the reptilian Fuld, is a mesmerising figure, exhibiting a level of hubris which makes Oedipus look like a cautions fella. (See also City Boy’s thought on Fuld here).
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Michael Coveney
Enron
Royal Court Theatre, 17th September-7th November, Tel: 020 7565 5000
Also on the theatre: Mary Fitzgerald’s web exclusive article on the Edinburgh festivals
This is turning out to be one of best years in London theatre for ages. Significant dramas about climate change, racism and political disaffection are hitting the stage with almost unseemly regularity. Suddenly, at a time of political anxiety and economic recession, the theatre has renewed its ancient function as a sounding board in society.
The most notable success of all is Enron, a thrilling new play about the collapse of America’s seventh largest corporation in 2001. Combining the talents of Britain’s hottest new stage director, Rupert Goold, with a long overdue return to large-scale epic adventures in the Jacobean and Brechtian styles, Enron proves that there’s no business like big business in show business.
“It’s an exciting time,” says the 38-year-old Goold, who runs Headlong, the touring outfit that developed Enron at the Chichester Festival Theatre (where it was seen in July and August) and the Royal Court in London (where it opens this September). “People want to see their lives coming back at them. We wanted to do something complex and contemporary, and also something of high theatrical voltage, to catch this current mood.” Twenty-eight-year-old playwright Lucy Prebble, whose father ran a multinational software company and whose siblings both work for big consultancy firms, first pitched Enron as a musical but, says Goold, “with all of her lyrics the show would have lasted for ever, so we never got the music written.”
As it is the show runs for almost three hours, but it passes in a whirl of acidly satirical scenes, imbued with the giddy physical excitement of the deals and bluffs. The traders sit at illuminated desks like regimented figures in a dance piece; the stage is hung with celestial neon-lit pipes; the banking Lehman Brothers are portrayed as a comic double act crammed into one large pinstriped suit; Arthur Andersen, the doomed accountancy firm, is a mute ventriloquist’s dummy. Later on, three blind mice stalk a stage populated by large-masked vultures.
This expressionist approach is totally different from the kind of puritan aesthetic that governs most political theatre. We have had countless courtroom dramas and “verbatim” plays at the Tricycle in Kilburn—on subjects as diverse as the Nuremberg rallies, the internment camp at Guantánamo Bay, and the wars in Iraq and Afghanistan—as well as elegant political diagnoses by our leading contemporary playwright, David Hare. But Enron does something else. It restores a sense of buzz and excitement to our theatre that goes beyond the confines of the subsidised arena where Hare’s plays are presented (admittedly to an engaged and appreciative audience). A leading British banker, now retired, who saw the play in Chichester, told me that Enron was absolutely accurate in terms of the crazy energy and tunnel vision people had at that time.
More importantly, he said, while our own British banking institutions used to be able to stand back and look at things dispassionately, even morally, they have been increasingly moving to the American model so horrifically presented in Enron. And what Enron does is personalise the tragedy of capitalism in the character of Jeffrey Skilling, formerly the chief executive of Enron—and now serving a long prison sentence. The ruthless Skilling, played by Samuel West as a geek with personality problems who transforms himself into a sharp-suited untouchable, is a genuine tragic anti-hero: a Macbeth of market manipulation in criminal la-la-land as he brings California to its knees with power cuts in order to sell on electricity at massively inflated prices.
This kind of character creation, a modern Shakespearean monster, is rare in the theatre these days. But, significantly, it’s the second such this year: already at the Royal Court we’ve seen Mark Rylance play a Falstaffian naysayer and drug-pusher in Jez Butterworth’s Wiltshire pastoral, Jerusalem, in which the rural alternative life of myths and legends fights back against creeping urbanisation. Like Enron, it’s a play for today with knobs on.
Both these new plays take British drama out of the fringe closet and into the mainstream. Goold, who has no particular axe to grind about anything—except making his work both as popular and radical as he possibly can—was worried for a time that Skilling might run away from him and become a right-wing monster. Surely, I put it to him, that would not have mattered much: there’s not a lot to like about any of Shakespeare’s tragic heroes, is there? “Ah yes, but you see you have to love them a little, even if you don’t like them,” he replies, “and I didn’t want Skilling to become someone you couldn’t love just a bit.”
It’s likely that a more straightforward sense of outrage will inform David Hare’s new play at the National Theatre, The Power of Yes, in September. Here, according to the subtitle, “a dramatist seeks to understand the financial crisis.” To this end, Hare has talked to bankers and traders, as well as victims and politicians. Goold has talked to no one very much—Lucy Prebble did all the research—but he does have a younger brother in the money business. As he explains, “My brother Toby was a banker with Citigroup until he was fired at Christmas and was unemployed for three or four months. Now he and his team have found new positions with Bank of New York Mellon in their London offices. But I’m more interested, really, in unleashing the theatre-ness of this subject, and I wanted to make sure that it was going to be understood by a non-specialist audience.”
Enron’s collapse has already been the subject of a documentary film, Enron: The Smartest Guys in the Room (2005), based on the bestselling book by two Fortune magazine reporters, Bethany McLean and Peter Elkind. But Prebble and Gould go beyond mere documentation, not only in the figure of Skilling, but also in the secondary theatrical monsters of the cigar-chomping, golf-loving Enron owner Ken Lay (Tim Pigott-Smith), who died of a heart attack while awaiting sentence; and the chief financial officer Andy Fastow (Tom Goodman-Hill), the amoral, satanic accomplice who led Skilling to the mountaintop and showed him the promised land.
Goold’s recent productions include a brilliant revival of Macbeth with Patrick Stewart, set in a white-tiled kitchen where blood gushes out of the taps and victims are dispatched in a clanking metal lift; and an acclaimed re-imagining of Pirandello’s 1921 landmark tragedy of illusion and reality, Six Characters in Search of an Author. This dynamic compression of plays ancient and modern into their metaphorical elements is a process characteristic of his work for some years now. In 2002, he staged Milton’s Paradise Lost—the greatest English theatrical poem outside of Shakespeare—at the Northampton Theatre Royal. In 2006, he and his constant dramaturge Ben Power put on a rewriting of Marlowe’s Faustus, completely modernising the setting into an art gallery where the exhibits were the work of the Chapman Brothers. There’s no shyness about blazing away at the big subjects in Goold’s work, and he has a sort of genius at making unruly, difficult projects appeal to a mainstream ticket-buying audience: he’s an intellectual showman.
The commitment of Goold’s Headlong to the Enron project also echoes Caryl Churchill’s 1987 play Serious Money: an exciting theatrical response to the “big bang” financial reforms of the 1980s that is in many ways Enron’s model. Complete with songs by Ian Dury, Serious Money anatomised in good old leftie fashion the Tory years of concupiscence and pillage among the corporate raiders. Churchill prefaced her play with a reference to Thomas Shadwell’s The Volunteers: or The Stockjobbers (1693), thus making a link with the Restoration comedies that followed the Jacobean model. In the Shadwell extract, there was a premonitory flash of a nation on the rampage for shares in public enterprises and the leisure markets—not hotels and fashion, but performing monkeys and rope acts.
In Serious Money, every single character is marked by greed and corruption, from the chairman of Albion Products to the Peruvian businesswoman who sheds her holdings in the mines when the price of copper plummets, abandoning the workforce to their fate. There’s an unexplained suicide and a landslide election victory for the Conservatives—“five more glorious years”—as the loadsamoney bandwagon rolls inexorably onwards. The context of Enron is obviously very different, and Prebble introduces not only news reporters and lawyers, but also victims at ground level and even Skilling’s little daughter, who releases a refrain of “Why?” into the ether that he is tortuously unable to deal with.
There’s a sense of apocalyptic finality and exhaustion about Enron, too. Churchill’s play operated in a mood of almost helpless but theatrically vibrant opposition. Enron, on the other hand, represents a majority feeling about what happened. “A lot of the play happens inside a bubble that burst,” says Goold, “but there are always more bubbles. Part of me is clear that it will happen again. Andy Fastow, somebody said to me the other day, will probably be out of prison in time to attend the first night at the Royal Court!”
The play is already being talked of in terms of awards, and producers in New York are going crazy to claim a piece of the action. “One great irony,” says Goold, “is that theatre producers in London to whom we showed the play early on said they simply couldn’t risk getting involved. The other great irony is that now we have a very successful play about hubris, a hit show born out of disaster, just like Mel Brooks with The Producers.”
James Crabtree
To discover what comes next, says Geoff Mulgan in this month’s cover story, “After Capitalism”, maybe we should look upwards? Mulgan explains how skylines have long provided a simple test of what a society values: “a few centuries ago the greatest buildings in the world’s cities were forts, churches and temples; then for a time they became palaces. Briefly in the 19th century civic buildings, railway stations and museums overshadowed them. And then in the late 20th century everywhere they were banks.”
In what is one of the most fascinating big picture commentaries on the current crisis published in the UK, Mulgan then goes through the causes of the current moment. More importantly, he shows how the seemingly permanent edificie of contemporary market capitalism in its longer context, and asks what might come beyond it. Only a few decades ago this quesion, he points out, was common—with everything from managerialism and communism both mooted as realistic successors. Now we’ve got out of the habit of predicting such big changes; something Mulgan wants us to re-learn. And in an eclectic range of indicators—from worker cooperatives to urban greening projects—he thinks some of that future, in which markets will be tamed. might already be with us. And looking up to the skyline? As Mulgan concludes: it might be “great leisure palaces and sports stadiums; universities and art galleries; water towers and hanging gardens; or perhaps biotech empires?” As ever, let us know your own opinions below.
Tom Chatfield
“Any great failure should force us to rethink,” begins Robert Skidelsky’s cover story for our new issue. And there can be few failures more lurid than the current crisis of the global financial system. It embodies, Skidelsky argues, a profound moral as well as a pragmatic failure—not only has an “intellectual edifice” toppled, but the world’s largely uncritical acceptance of the very idea of a system built on debt and leverage is wavering.
It is a long time since we’ve entered a new year facing such bleak global tidings. But, as Skidelsky argues, the question of what happens next is one that can yet be turned to the good of the world. As David Goodhart notes in his editorial this month, notions that until recently belonged to the fringe of global politics—that, for instance, globalisation has done little to increase wellbeing in rich countries—will now have their mainstream advocates. And discussions of “values” may well take more seriously questions of experience, loyalty and even old-fashioned moral integrity than the get-rich-quick analyses of investors and their abstract projections.
One way or another, as recession begins to bite, we will see a rebalancing of the global economy, and of the assumptions driving its participants. As Skidelsky argues, post-national finance and citizenship have already begun to look like utopian abstractions from another age. But their replacements may have more to offer the world than debt-fuelled growth seems at the moment to have done. We find ourselves, Skidelsky argues, dissatisfied with “the corruption of money.” But we may now have have an opportunity “to redress the balance between capital and impotent labour”—and regain some sense of values that will not, unlike bonds, collapse under the pressure of blind economic forces.
As ever, let us know your own thoughts and views below.
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