I worked for one of the most
notorious casualties of the financial crisis before, during and after the
investment bank BNP Paribas took the decision to stop redeeming on mortgage
securities the true risk profile of which it did not understand, an act which
sparked demand for liquid funds from buyers of these bonds and which was the
speculator’s equivalent of a run on the banks.
I worked for Northern Rock. I
worked in junior roles, in HR. I was an outsider, with no access to privileged
information – other than biographical anecdotes of the main players, which have
in any case been publicised – and I was economically illiterate. I do have a
raft of anecdotes, the most moving of which that I considered buying options
that same August – I forget whether it was before or after BNP Paribas’
decision on 9 August 2007 – seeing the decline in the share price as temporary
market chicanery and a situation in which I could later have profited. Later, I
grasped that its precipitous fall from its peak of over twelve pounds to seven
pounds was a case of the Telltale Heart:
investors and analysts were increasingly aware that the sound beating under the
floorboards was the virile heart of over-exposure to risk.
These shares fell off a cliff
after 14 September 2007, following Robert Peston’s exposure on the
evening of 13 September 2007 that Northern Rock had run out of money and
applied for emergency liquidity from the Bank of England – the ‘lender of last
resort.’ No one wants to invest in a company which doesn’t have enough money to
give to its customers, because there certainly won’t be any crumbs left for
investors once the accounts are filed.
Those shares later lost their
value completely and were sequestered guiltily by the very government that had fostered
the consumer credit boom, in February 2008. An independent valuer later
recommended that former shareholders not be compensated for nationalisation of
their shares. Northern Rock then downsized, split into a ‘good’
bank and a ‘bad’ bank – as if we suddenly became moral about credit risk – and
the ‘bad’ bank merged
with that other nationalised bank, Bradford & Bingley and eventually rid itself of its
Newcastle workforce. The ‘good’ bank then downsized again. I left
before the government’s holding cronies UKFI – with whom I had protracted and
tortuous conversations on the topic of bonus payments to staff and executives
in 2010 – sold the ‘good’
bank to Virgin Money. By this point, I had distanced myself completely from the
squalling maelstrom of UK retail banking and left for a different industry; I’d
emotionally sold off my stake in the affair. Nevertheless, it continues to
haunt me. As LIBORgate shows, the wounds of financial deregulation are very
much still scabrous.
Galbraith blamed the Great Crash
of 1929 on irrational exuberance. The Great Crash of 2008 (as it matured and
bigger victims like Bear Stearns, AIG and Lehman Brothers began to succumb to
the rot) was equally a case of irrational exuberance. What differentiates the
cause of the Great Depression and the ‘Credit Crunch’ (a comically understated name
if there ever was one) is that our bust was the result of a policy of growth by
the expansion of consumer credit, and not wild speculation. According to the FinancialCrisis Inquiry Commission, this policy started in Clinton’s administration. The
idea was that the more people that own houses, the more people will lift out of
poverty. Greenspan lowered the nets, putting central bank interest rates at one
percent. Then financial people in Wall Street began parcelling up debt and selling
it in tranches. This fuelled huge profit and huge bonuses. More importantly, it
gave consumers more liquidity than they had ever dreamed of.
House prices increased and
consumers began to use their houses as cash machines. I temped in Northern Rock’s
Mortgage Retention department in 2006, processing ‘Together’ mortgages which
offered unsecured top-ups on fully-leveraged secured loans at up to 125% loan-to-value.
The House Price Index between January 1995 and October 2012 for Newcastle upon
Tyne, where Northern Rock was based, show that trough-to-peak, house prices
more than doubled in little over six years.
Source: Land Registry.gov
I remember something was up when
I started looking for houses with my girlfriend. Two moderate incomes, and no
way in hell could I afford a property anywhere. My friends were in the same
boat; they either rented, or lived at home. These were early signs.
For the first time, I noticed the
ubiquity of the black Range Rover in the suburbs. Audis and BMWs proliferated.
Everyone acquired a flatscreen TV. It was conspicuous consumerism fuelled by a
negative balance of trade and a credit boom.
Legislatively, England became a
nicer, more civilised place – at face value. Labour introduced the National
Minimum Wage in April 1999. It banned fox hunting in 2004. It passed a series
of laws strengthening employment rights and the rights of the disabled. On the
other hand, we had the bizarre phenomenon of ASBOs – neither tough on crime nor
effective – and the proliferation of CCTV
and internet monitoring. We also had access to the dark underbelly of
globalisation. Society started to look more and more like Blade Runner in the cities, even as the suburbs glutted itself on
credit.
Culturally, money dominated.
Football removed the last vestiges of its working class origins and spent all
of the excess on gate receipts on players’ wage bills. Celebrity was for
celebrity’s sake – this was the age of the Big Brother house. Few of its
addicted viewers recognised the negative connotation which traces back to
George Orwell’s novel.
Every age gets the art it
deserves. Recent events demonstrate that between 2001 - when Greenspan started cutting the Federal Reserve interest rate in the wake of 9/11 - and 2008 - the year of the banking bailouts - we lived in the
Age of Greed. The first work in this series of works for our age is Damien Hirst’s
For the Love of God.
It is a human skull, decorated with
human teeth, platinum and diamonds. The rather florid patterning on the
forehead could be a logo. It resembles an Affliction t-shirt, a brand whose
florid designs first obtained popularity in the latter part of the Age of
Greed.
A reminder of our mortality, this
gaudy crystal skull – and there is nothing beautiful about it. It is designed
to be a piece of absurd excess; perhaps a reduction of our lives to bling, a
sort of Curse of the Sutton
Hoo Burial, in that the meretriciousness of our irreligious lives ends in
accumulated things which outlast our decaying bodies, and our existences melt
away into nothingness.
What is interesting in the
context of my own experience is the contrast between the book value of Hirst’s
work – the face value of the materials and labour in its construction – and its
market value. Traditionally, the art work is produced at minimal cost – canvas,
paints and time. At its most extravagant, the saleable artwork is made or
marble or gold. But this is where Hirst’s work differs: here, diamonds and
platinum are appended to the skull.
They are not functional or structurally integral to the work in any way.
The face value at production was
£14 million. Its market value was $100 million at sale (roughly £63 million, at
current exchange rates). The owner of the skull is therefore – deliciously – accepting
market risk into his portfolio in a rather more obvious way than if he
purchased a Van Gogh. Artwork-as-market risk is my first choice to include
amongst the art works of our age.
