Would you list your company on the London stock exchange if you had any choice?
There are deep pools of capital in London to this day, but they are nowhere near as deep as they used to be.
2008 saw to that.
It was a crucial year in the history of global capitalism, the first full year of the global financial crisis. And in many ways, it was actually the last year in which anything like untrammelled free market capitalism was allowed to exist.
What happened?
Bailouts are what happened.
The state intervened, prevented failing businesses from failing – as they should always be allowed to do in capitalism – and essentially nationalised the financial system.
That this passed unnoticed by most of the world isn’t perhaps surprising.
Markets everywhere were crashing. A few banks were actually allowed to go under, before that process was stopped. Homes were being repossessed. The entire country of Greece was going bankrupt.
There was a lot going on.
But when the dust settled, some banks were actually state-owned or partially state-owned – oh yes, the UK and US governments actually nationalised specific banks and insurance companies, as well as seizing control of much of the financial system. In the US, there was Freddie Mae and Freddie Mac (OTCQB:FMCC), while in the UK there was HBOS, RBS, Bradford & Bingley, and Northern Rock.
And that’s just the highlights reel.
To be sure, it is possible to go further back than 2008 and argue the toss about who was to blame for all this. Was it the unrealistically cheap mortgages that US politicians effectively mandated the US financial system to provide during the early part of the 21st Century, in order to lift poorer families out of poverty? Maybe.
Or was it simply that the banks themselves got greedy and overleveraged themselves. Again, maybe.
Afterwards, though, countries with diverse economies, with deeper manufacturing bases, for example, recovered more quickly.
But guess which country doesn’t have a diverse economy, a country which is unnaturally tilted towards the provision of financial services? – that’s right, Great Britain.
This erstwhile mightiness in financial services stems from better days as regards Britain’s influence in the world. A hundred and twenty years ago, at the time of the great San Francisco earthquake, only British insurance companies were strong enough to absorb the financial stress and payout on their policies.
Back then, the strength of British finance was unquestioned. But then came World War One, losses in the Russian Revolution, World War Two and general industrial decline.
International finance still flowed through London as in days of old, partly out of habit, and partly because in terms of time-zones London is well situated to deal both with America and with Asia at different times of the day.
But Frankfurt has a similar time-zone advantage, as does Paris, so it wouldn’t take much to shift business elsewhere.
What exactly would it take?
Wiping out the incredible depth of the capital pools of London is one thing. That happened in 2008. While London is still rich, it’s nowhere near as rich as it once was, neither in real terms, nor in comparison with European and up-and-coming Asian competitors.
Making it harder for London-based capital to access key markets would be another thing. It was no accident that the City was largely pro-Remain in the Brexit debate. The City knew which way its bread was buttered when it came to accessing the European markets. It wasn’t just access for their own institutional funds, but how money from abroad was routed into Europe. Prior to Brexit, the obvious way to import capital into the European markets was through London. Afterwards, not so much.
And what do we have?
A government that slavishly followed the example of the Chinese dictatorship and shut down the economy in the face of a major health crisis. Did lockdowns work? Not if you were in entertainment, or small business retail or hospitality, they didn’t. If you think they saved more lives than they cost, try conducting your internet searches using DuckDuckGo instead of Google Chrome. At the very least, the debate on that remains unsettled.
In any case, as night follows day, so lockdowns required money printing which required inflation, which in turn further impoverished the country. Right on cue, a foreign war erupted, which not only distracted everyone, but also caused even more treasure to be diverted away from the UK.
That Ukraine war allows Britain to posture as influential. But it just isn’t. The country hasn’t got the money to be influential anymore. And everybody else knows it.