Works of our age 1: For the Love of God

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.