The Steep Decline of the British Economy

His real job is to spread confidence. An astute investor, he was long considered one of the stars in the private banking department of a powerful British financial institution.

But nowadays fear has taken hold within the bank, where 20 percent of David L.'s colleagues have already been let go. If the bank continues to do this poorly, he says, another 30 percent will probably lose their jobs soon. "When that happens," he says, "I'll be gone, too."

Ten years in the financial industry have made him a wealthy man, with a house in the exclusive Kensington neighborhood, four children in private schools and a wife who wears handmade Manolo Blahnik shoes.

Nowadays, says David L., he sometimes feels nauseous with panic. He imagines a future in which many people are poor and angry, people who could even break down his door in Kensington and enter the house. He has even been thinking about ways to protect his family.

An Economy Dependent on the Bloated Financial Sector

In good times, investment bankers were treated like celebrities in Great Britain, and dubbed, like their counterparts in the United States, "masters of the universe." Children dreamed of working at Goldman Sachs, and the London City, the world's largest financial center, was the shining center of the British economy, the capital of excess.

It looked as though Great Britain had created an economy of the future, but in reality it had become dependent on an increasingly bloated financial sector. Even though it generated only 8 percent of gross domestic product (GDP) in the best of times, the financial sector provided the government with a quarter of all corporate taxes. The number of Britons working in the financial sector grew from 4.4 to 6.5 million in the good years.

The papers were filled with tales of excess, like the account of a banker who, after having completed a successful deal, handed his black American Express card to the bartender at the Baglioni Hotel and paid for everyone in the bar, for the entire evening. The bill included 851 cocktails and six magnum bottles of Dom Perignon. At the end of the night, the man readily paid the £36,000 ($51,000) tab and even handed a waitress a £3,000 ($4,260) tip. The year was 2005, and in those days the banker's magnanimous gesture was considered cool.

But the country's once-powerful bankers sounded significantly more subdued as they ate humble pie before the Parliament's Treasury Select Committee in London at the beginning of February. Lord Dennis Stevenson, the former chairman of the HBOS banking and insurance group, told the committee: "Our shareholders, all of us, have lost a great deal of money," and "We are profoundly, and I think I would say unreservedly, sorry at the turn of events."

The current widespread loathing of bankers has reached levels reminiscent of the year 1720. That was when the "South Sea Bubble," one of the first speculative bubbles in history, burst, and a parliamentary inquiry suggested sewing the guilty into sacks filled with poisonous snakes and tossing them into the Thames River.

But how could the banking sector in Great Britain have grown at such a dizzying pace in the first place?

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