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Looking Back at the Ruins

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their sense slowly, and one by one.

CHARLES MACKAY, Extraordinary Popular Delusions and the Madness of Crowds, 1841

TWO YEARS AFTER the Great Crash of 1929, the American journalist Frederick Lewis Allen looked back on the Jazz Age of the twenties as if remembering a dream. The daring flappers, abandoning their corsets and lifting their skirts ‘far beyond any modest limitation’, the swaggering investors, who ‘expected the Big Bull Market to go on and on’, ought to have been fresh in his readers’ minds. But Lewis knew that the bank failures and mass redundancies of the Great Depression had made the recent past utterly foreign. The optimism brought by prosperity was now as far away as a distant star. Wondering what to call his book, Allen hit on a title which was also a reminder, Only Yesterday.

After a deluge, nothing seems as remote as the day before it came. The thirties and the eighties have more to say to us now than the Britain of eighteen months ago. Across the centuries, historians of bubbles have reached for metaphors from fantasy worlds and lunatic asylums when they have tried to describe how crashes twist the linear progression of past to present out of shape. They talk of manias, lusts, fevers and delusions in make-believe lands that people take to be real until the sound of the roof falling in wakes them to face a bleak new world. Alexander Pope spoke for all sceptical historians when he wrote of the South Sea Bubble that ruined early Georgian England, ‘they have dreamed their dream, and awakening have found nothing in their hands’.

For this generation to think about what it was like before the Great Crash of 2008 will take the same mental wrench as the thirties’ generation needed to see back before the Great Crash of 1929. Only yesterday, level-headed young couples took mortgages of four or five times their joint incomes to buy hutch-like apartments in streets which estate agents described as ‘up-and-coming’ and their friends described as ‘scary at night’. Only yesterday City dealers in nightclubs threw handfuls of notes in the air for giggling girls to catch, as waitresses marching to the theme tune from Rocky brought £500 bottles of vodka and methuselahs of champagne to their tables. Only yesterday, Her Majesty’s Government encouraged speculators from every part of the globe to settle in London by so under-regulating finance capital that NatWest bankers and media moguls involved in scandals as notorious as the Enron affair of 2001 and the collapse of Conrad Black’s empire in 2003 could not be brought before British courts. American prosecutors took the alleged fraudsters to the US for trial, and confessed that Britain’s lenient treatment of serious crimes baffled them. They did not understand that only yesterday politicians and civil servants had boasted that the City’s economy was booming because of their ‘light-touch regulation’ of speculators whose number included potential swindlers. As a few of us noticed at the time, the politicians and civil servants never went on to argue that the inner-city economy might boom if the authorities applied a similarly light touch to the policing of the slums whose inhabitants included potential drug barons.

After the crash, Americans trying to find their bearings could at least hold on to the thought that George W. Bush’s right-wing government presided over the bubble. As was to be expected, it did not intervene when sharks more interested in pocketing commissions than the principles of reputable lending sold millions of Americans mortgages they could not hope to repay. The Bush administration, like Herbert Hoover’s Republican administration in 1929, believed that the market knew best and did not worry when financiers offered derivatives of such obscurity no one understood their risks. The conservatives’ neglect made ideological sense. All of the great crashes occurred under politicians who accepted laissez-faire, such as Hoover, or politicians the moneymen corrupted, such as the Georgian oligarchs of 1720 who took the bribes of the South Sea Company.

Until yesterday, that is, when Britain broke the mould. When the bubble reached its peak in the summer of 2007, Texan oilmen and former investment bankers did not govern this country. Nor were our leaders enriching themselves with bribes from the City. The British dreamed their dream under a relatively honest, social democratic government, many of whose members had been fiercely sceptical of finance capital.

Those from radical families learned the histories of the Great Crash and Great Depression at their mothers’ knees. At university in the seventies and early eighties, moderate leftists clutched the works of Lord Keynes and J. K. Galbraith to their breasts, while the extremists quoted Karl Marx and Antonio Gramsci.

By prejudice and well-grounded conviction, the left had always been wary of ‘funny-money men’ and ‘spivs’. In 1975, while still at Edinburgh University, Gordon Brown edited The Red Paper on Scotland, a collection of essays that dreamed of radical transformation. He endorsed the vision of the early socialists who wanted to abolish ‘the split personality caused by people’s unequal control over their social development—between man’s personal and collective existence—by substituting communal co-operation for the divisive forces of competition’. A better world could come only if the public accepted ‘the necessity for social control of the institutional investors who wield enormous financial power both in fostering privilege in our social security system and in controlling the economy’.

Three decades on, Gordon Brown and his Labour colleagues allowed the ‘divisive forces of corruption’ and the ‘institutional investors’ to engage in an orgy of speculation. For the first time in financial history, one of the great market manias that punctuate the history of capitalism was presided over by a centre-left rather than a centre-right administration. Like the most gullible investors in the Wall Street of the twenties, social democrats thought ‘the Big Bull Market would go on and on’, and did not see the crash coming.

Think back to yesterday, and you will remember that they were not alone.

THE FINANCIERS COULD no more imagine the coming disaster than the politicians. They applauded the hospitality of the Labour government, along with the tax breaks it offered foreign dealers and private-equity buyers, and went on a speculative bender.

Men ‘go mad in herds’, declared the Victorian journalist Charles Mackay, as he looked at the stock-market crashes of the eighteenth and nineteenth centuries. He might have been writing of the twenty-first. Bankers, drunk on cheap money, packaged and traded in supposedly high-yielding, mortgage-backed securities, unaware or unconcerned about the possibility that poor ‘homeowners’ might default and leave them with worthless assets.

Why should anyone be anxious? The bankers said that they had spread the credit risk on the securities they sold to investors by slicing and dicing mortgages, so that good-quality loans were bundled in with riskier debts. Even if the diced borrowers had lied about their income or been bamboozled into debt by commission-hungry brokers, house prices were rising around the world, and politicians and central bankers were saying they had abolished the booms and busts of the business cycle. If individual borrowers fell ill or lost their jobs, they were entitled to sympathy, but lenders could always repossess their homes and sell them for more—often far more—than the value of their mortgages. Property guaranteed profits.

Meritocratic theory holds that the rich are rich because of their keen intelligence and hard work. They are not the beneficiaries of inherited wealth or good luck, but deserve their fortunes. Instead of seeing the potential for catastrophic failure in the financial system they were supposedly managing, the British rich engaged in the most conspicuous consumption since the Gilded Age of the late nineteenth century. The Candy brothers became commercial celebrities for meeting the exacting requirements of the global plutocracy. In 2007, they announced that they would soon be offering properties in a development near Hyde Park, with prices ranging from £20 million for ordinary apartments to £100 million for a penthouse that the press described without exaggeration as ‘the most expensive flat in the world’. The brothers provided luxuries humanity had never known it needed before—a 360-degree ‘memory mirror’,* a purified air system, a tunnel from the car park to a nearby Michelin-starred restaurant, a floor-to-ceiling fridge and a ‘panic room’ (which, I admit, was prescient).

Creative entrepreneurs produced work to match the times. In 2007, Damien Hirst displayed the world’s most expensive piece of contemporary art, a diamond-encrusted platinum cast of a human skull. The memento mori had been a staple of Western art since the Middle Ages, so Hirst won no prizes for novelty. All that concerned onlookers was Hirst’s asking price of £50 million. His work created a sensation because of its saleroom rather than its aesthetic value. The following year, on 15 September 2008, he proved that the triumph of the art sale over the artwork was complete. He auctioned at Sotheby’s pieces he cheerfully admitted his employees had mass-produced in his studios. The buyers did not care, and gave him £100 million. Even the critics did not pretend to be interested in what message, if any, he had for his public, but reported the sale like business journalists covering a soaring stock.

As the buyers made their bids, Lehman Brothers collapsed.

Until then, £50 million for a kitsch skull had not appeared beyond the reach of the richest of the super-rich. The Office for National Statistics reported that annual bonuses in the City had risen by 30 per cent to £14.1 billion in August 2007. The overall level of British bonuses, which included payouts to CEOs, senior managers, the new breed of commercialised public servants and up-market car and property dealers, as well as City financiers, reached £24 billion—a figure that comfortably exceeded the entire British transport budget.

To accompany apartments with secret tunnels to Michelin-approved chefs and objets d’art peppered with diamonds, were ever-more sumptuous versions of traditional luxuries. A Poole-based boatbuilder produced Britain’s first ‘super-yacht’. For £8.75 million the buyer received a 37-metre boat, fitted out with American black walnut furnishings, sleeping quarters for twelve (plus eight crew), a king-size bed in the master stateroom and a bar, dining area and hot tub on the sky deck.

The astonished children of England’s upper-middle class started to talk about the vertiginous gap between the ‘haves and the have yachts’. It was not only that they could no longer keep up with the Joneses—or the Abramoviches or Mittals, as their more successful neighbours were more likely to be called—they could no longer keep up with their parents.

Sebastian Cresswell-Turner remembered that when he was a child in the seventies almost everyone he knew ‘lived in a large house in the country or in one of the better parts of London’. His father was a moderately successful architect and his mother did not have a career, but they could still afford to buy a converted rectory and send their children to private schools. When he was growing up, ‘London’ to Cresswell-Turner and his school friends meant Kensington, Chelsea or Hampstead. ‘Battersea and Clapham were entirely off our radar, Stockwell another country, and Brixton, Peckham and Streatham simply unheard of,’ he wrote. ‘Now, with a few exceptions among those who are notably rich or successful, the next generation of the same families I grew up with is living in just these areas.’

Unless they were working in the City, they could not think of living in the type of homes their parents had brought them up in, or sending their children to the type of schools their parents had sent them to. ‘Career choice is now all-important,’ said Cresswell-Turner, who was a writer and had therefore made the wrong one. ‘Go into the City, where they encourage and feed off the very process that is putting such pressure on the rest of us. As my host at an Oxfordshire dinner party said the other day: “A generation ago it didn’t make much difference what one’s chums did, whether they went into the army or the City or publishing or whatever; but now it’s a make-orbreak decision.”’

Couples from the old bourgeoisie worried about how much they needed to earn to become like their parents—an ambition which would have appalled them when they were teenagers but was now looking more desirable by the day. What was the cost of a house in a sought-after area, a manageable mortgage, regular foreign holidays and places in smart schools for their children? The breathtaking annual income of at least £250,000, and preferably £500,000, the Sunday Times told them in early 2007. If they wanted to be truly rich and afford the central London town house with Britart bric-a-brac on the walls, holiday homes in exotic resorts, access to a private jet and accounts at the chi-chi stores, they would need to make at least £2.5 million—preferably £10 million. Rachel Johnson, who reported the findings, wasn’t exactly a poor little match girl, she was the sister of Boris Johnson, who became the first Tory mayor of London in 2008, but she concluded:

When I look around my normal, as in non-City, contemporaries they are all working their socks off, hamster-wheeling, both the husband and the wife (only one in 10 women of working age can now afford the luxury of staying home unwaged to raise her children). They are raiding their parents’ nest eggs to keep their heads above water, remortgaging their houses to pay the school fees and, if they go abroad at all, they head off to eco-turismo communities in Sicily where several families share a swimming pool (if there is one) and all eat pasta together. As the super-rich are getting richer all the time, they are driving up the prices of the things that we middle classes used to be able to afford on one income, but now can’t manage with two.

In a wicked world full of suffering, the complaints of the shabby genteel were not pressing concerns for busy people with limited supplies of compassion. Nevertheless, I thought them worth listening to because I have found that spectators on the edges provide the best descriptions. They have the access to a privileged milieu, and can see what outsiders cannot; but unlike the truly privileged, who socialise only with fellow insiders, they are not lulled by routine into thinking that the freakish is normal. In the case of the bubble world of 2007, the dazzled and envious commentaries of those on its margins also performed the essential public service of blowing away consoling illusions.

THE GREATEST PROPAGANDA success of its rich men was to convince the rest of society that they were not plutocrats but ‘middle class’. Indeed, not only were the rich meant to be middle class, so was everyone else. The working class, once the object of implausible hopes on the left and unreasonable fears on the right, and the upper class, once the object of surly contempt on the left and abject deference on the right, disappeared from the national conversation. ‘We’re all middle class now,’ declared the media, and hardly anyone noticed that it was talking twaddle.

The proletarianisation of manners explains why. The old ruling class was almost a caste. It had separate schools, separate tastes, separate newspapers and, occasionally, separate countries when its members were sent to govern the Empire. When the Empire fell, so did its legitimacy. The last upper-class prime minister was Sir Alec Douglas-Home. Educated at Eton, he was the only British prime minister ever to play first-class cricket. He ruled briefly from 1963 to 1964, before being shoved aside by Harold Wilson, a new man, who had not been born into privilege, and promised to forge a meritocratic Britain in the ‘white heat’ of technological revolution. The Tory Party responded by promoting meritocrats of its own. Margaret Thatcher, a provincial grocer’s daughter, so preferred clever Jews to the landed gentry that traditional Conservatives moaned that she had ‘more Estonians than Etonians’ in her cabinet. When her colleagues deposed her in 1990, they decided that Douglas Hurd’s Eton education made him too aristocratic to be her successor, and elected John Major, the son of a former trapeze artiste. Educated at Rutlish Grammar School, he was the only British prime minister ever to run away from the circus to become a politician.

The producers of popular culture confined aristocrats to the society pages or pilloried them as embodiments of all that was devious and dangerous. In a time of multiculturalism, they supplied the solitary stock character Hollywood felt it could denigrate safely. The Germans were long gone and the Soviet empire had fallen. The West was under attack from radical Islamists, but writers and directors worried that it was ‘Islamophobic’ to be beastly about them. The English upper class filled the gap in the market. You only had to hear a cut-glass accent in a Hollywood film or British television thriller to know it belonged to the villain.

The new rich never aroused the same class hatred as their predecessors because they lacked caste distinctions and seemed more at ease with the modern world. The bombastic figure of Philip Green, the shopping tycoon, exemplified their ordinariness. His fortune was beyond the imagination of most—in 2005, he paid himself a dividend of £1.17 billion, the largest payout to an individual in British corporate history. As impossible for the masses to emulate was his ability to avoid paying the same taxes as the little people who shopped or worked in his stores by ferreting away much of his wealth in the Monaco tax haven. But his tastes, like those of most of the rest of the new elite, were those of the common man. For his son’s bar mitzvah in 2005, he spent £4 million on a three-day party for his guests and hired Destiny’s Child to serenade them. A few years before, for his fiftieth birthday, Sir Philip had hired Tom Jones and Rod Stewart to perform at another three-day party, a toga one this time. On his fifty-fifth in 2007, George Michael and Jennifer Lopez did the honours. Given the same resources, the overwhelming majority of his compatriots would have paid to have Stewart, Jones and Michael croon for them if they were old, or to have Lopez and Destiny’s Child impress their friends if they were young. Culturally, the rich were no longer different from you and me. With the exception of the intelligentsia, ‘we’ could all seem the same.

To pretend, however, that ‘we were all middle class’ was wishful thinking when anyone who looked at Britain could see that ‘we’ were more segregated than at any time since the early twentieth century. At the bottom were the poor. Journalists and economists put much effort into maintaining that poverty no longer existed in Britain. The argument’s propaganda value lay in its ability to persuade the wealthy that they need not allow twinges of guilt to spoil the enjoyment of their riches—a remote possibility, I grant you, but one which free-market enthusiasts felt the need to warn against.

But although widespread hunger had been unknown since the thirties, the bottom 25 per cent of households, who could not afford to save £10 a month or pay for an annual holiday, were hard up. Those at the very bottom of the heap, living on an income of £8,600 or less, and unable to afford even £3 for a school trip without cutting back on food or heating, were poor by the standards of the rest of society.

The poor appear in these pages cooking the dinners and looking after the children of the wealthy, or cleaning up after the bankers and journalists of Canary Wharf. Inevitably, their role in the crash was to be its victims when their jobs went—assuming they had jobs, that is: the government was content to leave many vegetating on unemployment or incapacity benefit.

On the next rung up was the 50 per cent of the population which Danny Dorling, a cartographer of the English class system at Sheffield University, described as the ‘normal’ British. They had single incomes of £13,400 to £29,600 and joint incomes if they were in couples generally running into the forty thousands. They could afford school trips for their children and annual holidays. They also had the money to play the apparently unlosable housing lottery. For all their desire to be owner-occupiers, no previous generation would have described them as truly middle class. They were what we used to call the respectable working and lower middle classes.

The top 25 per cent of society was wealthy: couples with a joint income of more than £60,000, and a mortgage on a house whose price was rising faster than their salaries—faster, indeed, than they dreamed possible. As the complaining upper-middle class proved, even couples bringing in £100,000 to £150,000 did not feel rich, although those who complained about how hard it was to pay school fees were among the richest in the land. (A mere 7 per cent of parents educated their children privately.) Only the super-rich surpassed them. They did not worry about paying school fees, but, as Dorling nicely put it, ‘worried about being kidnapped’.

With China pumping out cheap goods, the standard rate of retail price inflation, and the interest rates that tracked it, stayed low. With Chinese savers pouring their capital into the international money markets, anyone who could make a half-credible case for a loan found a receptive audience among bank and building society managers.

A glut of cheap money produced rocketing asset prices, and a new generation of investors discovered the wonder of leverage. Everyone from bankers to young house-hunters could borrow cut-price to play the financial or property markets. When they sold, their asset had shot up in value while the size of their debt had merely increased with its interest rate. Few thought about the possibility of their assets shrinking in value while the size of their debt continued to increase with its interest rate. The horror of deflation was yet to come. For if the politicians, the speculators in the investment banks and the rich did not see what was about to hit them, neither did the once staid high-street bank managers—or all the eager customers who grabbed their loans.

THERE WERE PROPERTY and credit bubbles in America, Australia, much of Europe and Russia. Britain’s was up there with the best of them. Although everyone wanted to blame the Americans for the crash when it came—blaming Americans was what Europeans did best, after all—house prices rose faster in Britain than in the US, as did personal debt. While American household indebtedness reached 140 per cent, British indebtedness grew to 169 per cent of disposable income—every £1 coming into the average home had to service £1.69 of debt.

In August 2007, Britain passed a grim landmark. Consumer debts in the form of mortgages, loans and credit card bills totalled £1.35 trillion and overtook the entire gross domestic product of the country, which stood at £1.33 trillion. To put it another way, the British owed more than the value of the output of every office, factory, farm, quarry, mine and fishery in the land—and that was before economists included the immense debts of the public sector and business, which took the sum of Britain’s borrowings to three times annual economic output.

We were a bankrupt nation.

Don’t fret, said conventional economists, most personal debt is secured against homes whose prices are heading heavenwards. It is not folly to borrow to secure a piece of the action. Nor were existing ‘homeowners’ adding to their burdens if they went back into the debt market by remortgaging to pay for holidays or cars or their children’s stay at university. They were ‘releasing equity’ in their property, as the jargon of the day had it: receiving a share of profits that were rightfully theirs.

You can understand why heads were turned. By the peak of the bubble, the price of the average home was six times the average wage. Britain had never seen the like before. Even at the top of the last housing boom in 1989, average prices peaked at 4.8 times average salaries.

If they already had a halfway reasonable job, or were university students who looked to the bank as if they would have one soon, the British were flooded with offers of loans, credit cards and store cards. The managers of Northern Rock, whose roots lay in the mutual and self-help values of the building society movement of the Victorian North-East, abandoned prudential principles and hosed their customers with money.

Those who did not have the £250,000 income they needed to be truly wealthy in 2007 had no need to feel hard done by. They could still take a mortgage of up to five, six, seven, eight times their income, add in credit card and bank loans and live as if they were wealthy in executive homes with Porsche Cayennes in their drives.

Lending at this level was fantastically reckless behaviour for creditor and debtor alike when the few building societies, which had not taken advantage of Margaret Thatcher’s offer to turn themselves into banks, stipulated that three times salary was the safe upper limit. Like other lenders, Northern Rock also gave mortgages on 125 per cent of the value of a property. The banks’ generosity had the advantage of allowing borrowers to pay off credit card bills and have money left over to kit out their homes. It had the disadvantage of immediately placing debtors in negative equity.

Few cared. Houses had provided a phenomenal rate of return for a phenomenally long time. The Halifax bank estimated that between 1996 and 2006 the average house price rose by 10.6 per cent per annum (from £62,453 to £179,425). Investing in homes was more lucrative than investing in the stock market, which grew at 4.6 per cent per annum, and the returns outstripped the 2.6 per cent rise in retail price inflation four-fold.

Acquiring the capital to lever yourself on to the escalator seemed the wise option. And without doubt it is always wise to jump in and out of a bubble market, as long as buyers get the timing right and remember the cynical investor’s advice to sell on to ‘the greater fool’ before it is too late. It was not only the rich who benefited, many ordinary families made large profits that transformed their lives and status by playing the property market and cashing in before the crash came.

The media trumpeted their good fortune, but paid less attention to the casualties, whose number was growing long before the markets turned. Journalists, entertainers and artists were hopeless at dramatising their suffering, and many revelled in it.

By the twenty-first century, the politically correct had placed racism and homophobia off limits. The culture industries compensated by turning on underprivileged whites with all the suspicion and condescension they displayed towards the old upper class. Wealthy media executives commissioned shows such as Little Britain and Shameless in which the white poor were white trash: stupid teenage girls who got pregnant without a thought for how they would care for their babies; alcoholic fathers with delinquent children who wallowed in the illicit pleasures of drugs and sex, which the taxpaying viewers could enjoy only in moderation because they had to go to work in the morning. The poor were the grasping inhabitants of a parasite paradise, scrounging off the cozened middle classes in television comedy, or freaks to be mocked on the British versions of the Jerry Springer Show.

There was truth in the stereotype—for there is truth in all stereotypes. Television comedy producers could point to estates with families that had not worked for generations, living at other people’s expense on the edge of the law. The producers of the reality shows could say that they did not force their freaks to go on air. Contestants and guests willingly played their parts, hamming up their performances for all they were worth to secure a fleeting moment of fame. The failure of the BBC and Channel 4 was not their abandonment of residual notions of pity for the victims of an increasingly harsh financial system, but their lack of imagination. They did not have the intelligence to realise the fragility of their own and their scoffing viewers’ lives. They never said, ‘Don’t laugh too loud because one day you may be poor too.’ In the broadcasters’ version of the make-believe world, the gap between living in the house with the Northern Rock mortgage and being on the council house waiting list was unbridgeable. Brute economic forces did not push people into poverty. The poor were poor because of their own depravity and weakness. They had chosen to be the way they were.

The idea that there would soon come a time when hundreds of thousands would face penury through no fault of their own was beyond them.

The high arts occasionally played the same games with race and class. In the 2007 film adaptation of Monica Ali’s Brick Lane, cast and crew successfully conveyed the novel’s sensitive portrayal of the struggles of a young Bangladeshi wife in London’s East End, but could show her white neighbours only as neo-Nazis or obese and tattooed grotesques. In general, though, literary writers and film-makers had little interest in deprivation and wealth, and failed to see the connections between the two. Raised in public sector families, educated in universities and on creative writing courses, and working in day jobs in academia, they were the artistic equivalents of Westminster’s political class: narrow professionals with few outside interests and fewer experiences of life beyond their trade. The only part most of them played in the debates of the day was to mouth the standard liberal platitudes and applaud when actors at agitprop theatres told them that Tony Blair and George W. Bush were very bad men.

No writer is obliged to write a state-of-England novel, but so few wanted to that the critic D. J. Taylor complained in 2007 of ‘the fatal detachment of the modern “literary” writer from the society that he or she presumes to reflect’.

The markets were on the longest run in history, creating greed, envy, barely disguised sexual competition, riches and ruin. The decisions made in Canary Wharf and Wall Street affected everyone, high and low. But Taylor concluded that when it came to talking about ‘globalisation, the rise of the international money markets, the creation of a virtual economic world stratospherically removed from the processes of ordinary life—the number of contemporary writers capable of understanding their complexity, much less rendering them into fictional form, could be accommodated behind a very small table’.

In short, there was no Dickens for the twenty-first century to bring to life the stunted aspirations and stultifying fears of the leveraged economy. Indebtedness became an everyday misery, quietly endured by stragglers the circus that had briefly enchanted, then left behind. You found them lamenting their folly and cursing the banks on radio phone-ins or in Internet chat rooms rather than on the Booker Prize shortlist or television schedules.

‘Being young, naive and overwhelmed with the opportunity of all this cash, I took up almost every offer that was thrown my way—much to my deepest regret,’ wrote a young woman from Liverpool on a BBC Net forum. ‘I see now that I was extremely stupid, yet the way the interest-free overdrafts and “don’t pay anything for 12 months” was sold to me, it was hard to resist. I finished university this year and I now have extreme amounts of debt. I let my overdrafts get overdrawn, and the charges have amounted to thousands. At the same time, my credit card charges have amounted to hundreds. And these are just a small example of the problem I am in. I am 22 and have been advised to declare bankruptcy.’

Others told how they had lost their homes, or how they were trying and failing to repay hundreds of pounds a month while living on benefits. A woman from Southampton gave a little sketch of the giddy world of banking when she said, ‘I’m only 21 years old and already in more than £10,000 worth of debt. I even work for a bank! I just kept increasing my loans and overdrafts thinking that I could pay it back in the future, but now it has got to the point that I can’t afford to have a social life. I’m on anti-depressants now to help me with the stress. Anyone out there that is just turning 18 and can now get loans and credit cards—don’t! If you haven’t got it, don’t spend it!’

EVERY BUBBLE PRODUCES a self-serving ideology. In 1999, financial analysts who proclaimed that the Net was creating a ‘New Economy’ pumped up dotcom shares. The boom that led to the Great Crash of 1929 was cheered on by economists who reassured investors that they were living in a ‘New Era’ dominated by highly trained and ruthlessly efficient ‘scientific managers’.

Equally fanciful dreams preceded the Great Crash of 2008. The most popular came from the American journalist James Surowiecki. In his 2004 The Wisdom of Crowds he claimed that diverse groups of individuals independently reaching their own decisions were more likely to find the right answers than experts, however well qualified. His democratic argument fitted neatly with the explosion of user-generated sites on the Internet, which had the potential to allow anyone to publish their thoughts on anything to an audience, which in theory extended to everyone in the world with access to a computer. All users were equal on the Net. Politicians, academics, journalists and specialists could no longer monopolise media news, as they had done in the days when a few publishers controlled the outlets. Everyman could be his own expert. Everywoman could be her own publisher. Jimmy Wales echoed Surowiecki when he declared that he had no more faith in the knowledge of a Harvard professor than in a high-school kid. On Wales’s Wikipedia site both the professor and the kid had the same intellectual authority, which, as the critic of techno-utopianism, Andrew Keen, pointed out, was ‘really the same as saying that neither had any authority at all’. Wales was also a true believer in the free market and a disciple of the ultra-capitalist Ayn Rand. The theory of wise crowds not only chimed with the flightiness of the Web 2.0 boosters, but also provided ideological support to the bubble market.

Surowiecki recognised that bubbles posed problems for his belief in collective wisdom—as did, he might have added, mass panics, teen crazes, religious hysterias, superstitious fears, tribal loyalties and outbreaks of belligerent nationalism—and tried to adjust his theory. His refined version boiled down to ‘crowds are wise—except when they’re not’.

Unsurprisingly, no one took any notice. Popular capitalism was the spirit of the age. Politicians and central bankers bowed before the market’s judgements. If tens of millions of people independently decided to take out loans, if tens of thousands of bank managers and mortgage brokers calculated that there was no risk in lending to them, and if thousands of dealers in finance houses packaged their debts and offered them as lucrative mortgage-backed securities, what right did they have to gainsay them?

The market was not mad. It was the wisdom of the masses in motion.

Believers is wise crowds and rational investors forgot that the human race can be pushed into speculative frenzies by emotions that are far from wise: the herd instinct, the appeal of acquisitiveness, the fear of missing out, the envious desire to keep up with friends and neighbours and the seductive temptation to gamble and win.

I learned how far crowd psychology had taken over in 2007 when I talked to Capital Economics, a hitherto sceptical London consultancy. In 2005, it had warned that house prices were unsustainable. First-time buyers could no longer afford to buy. Developers were throwing up blocks of flimsy flats on brownfield sites, not as homes for people to live in but as casino chips for investors who had taken out 1 million buy-to-let mortgages. The folly had to stop, Capital Economics declared. But the folly did not stop.

Instead of reaching the conclusion that the fall would be all the harder when it came, they recanted. When I asked whether prices could keep on rising, the reply came, ‘You’re going to think I’m utterly insane, but they can.’ Immigrants were still heading for a booming Britain. In the City, 4000 bankers and traders had received bonuses of £1 million or more. The law of supply and demand, low interest rates and the City’s special place in the global market guaranteed a prosperous future. The profits from property had overwhelmed the prophets of doom.

In June 2007, Professor Stephen Nickell, the chairman of the government’s Housing and Planning Advice Unit, predicted that the price of the average home would rise to £300,000 and that the average first-time buyer would have to obtain a mortgage ten times the size of their annual income.

Three months later, Northern Rock crashed and panicking depositors queued outside a British bank for the first time since Overend, Gurney & Company went under in 1866.

Those rogue economists, who have never believed that crowds are wise, have a name for the emotion that surges through investors as the market reaches its zenith: euphoria. It builds gradually. After a long period without a recession, speculation grows. Belief in free markets or corruption stops politicians intervening while the damage can be contained. Allegedly elitist financial experts do not stand aloof from the crowd, as Wales and Surowiecki imagined, but prove their democratic credentials by joining the mob and egging it on. Finally, as everyone who can piles in to take a share of leveraged profits, swindles proliferate, eye-watering debts become normal and, in the words of the economic historian Edward Chancellor, a carnival atmosphere descends. ‘The spirit of speculation is anarchic, irreverent and anti-hierarchical,’ he wrote in 1999.

It loves freedom, detests cant and abhors restrictions. From the tulip colleges of the 17th century through to the Internet investment clubs of the late 20th century, speculation has established itself as the most demotic of economic activities. Although profoundly secular, speculation is not simply about greed. The essence of speculation remains a Utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its many inequalities of wealth. Throughout its many manifestations the speculative mania has always been, and remains to this day, the Carnival of Capitalism, a Feast of Fools.

No one who saw the roaring boys of the City in the early twenty-first century, or watched the gurgling presenters of the ‘property porn’ shows, could doubt him.*

On this reading, all bubble markets are the same. The bust of 2008 was no different to the South Sea Bubble of 1720, which ruined early Georgian London, or the railway share mania of 1845, or the Great Crash of 1929, or the slower unwinding of the Japanese market in the nineties. ‘Progress is cumulative in science, but cyclical in finance,’ wrote the economic analyst James Grant in 1993, and there is a strong temptation to respond to the crash of our day with banalities about there being nothing new under the sun.

The politicians, the speculators, the bankers and the crowds of mad investors did not see the crash coming, but then their predecessors did not realise that the South Sea Bubble was about to burst. What’s new?

Not much sounds a fair answer, but it pays no attention to the nagging difference. This time around, a left-wing government ignored a monstrous bubble.

Its behaviour needs explaining because, contrary to cliché, 2007 saw something new under the sun.

LOOKING BACK AT the ruins, I can see faults in my writings from the bubble years. I have never been interested in consumerism, never seen shopping as anything other than a chore, and I suppose I underestimated the happiness the boom brought to many. In theory, I know that distress brings no good and poverty inspires no nobility. In practice, I find misery interesting and contentment dull. Like most writers, I instinctively believe Tolstoy’s assertion that while ‘all happy families are alike; each unhappy family is unhappy in its own way’—and do not want to remind myself that happiness comes in many forms while desolation in its final stages is grindingly uniform.

Therefore, and in fairness, I ought to balance what follows by acknowledging that the period this book covers was not all bad. The British were richer than they had ever been. Between 2003 and 2007, national income per head grew faster in Britain than in any other developed country. The formerly privileged complained of downward mobility, but the debt bubble, like every other bubble, created upward mobility and allowed City boys from humble homes to leap the fences of old England. I also accept that if money could not buy the British happiness, it at least allowed them to be miserable in greater comfort. We lived longer and enjoyed greater access to education and health-care. We were free to read what we wanted, sleep with whom we wanted, think what we wanted and live where we wanted and how we wanted. Our Labour leaders had reason to be proud. They could walk into any town, see new schools and surgeries, and think ‘we built those’. They did not damn the flood of wealth in London, but used it to revitalise Britain. The boom brought the best of modern urban architecture to once forlorn provincial cities. Manchester was a grim northern town when I grew up there in the seventies. Birmingham had had the life beaten out of it by the collapse of manufacturing industry when I took my first job there in the eighties. The Labour years transformed both for the better.

I make no further apologies for the tone of this book, however. Writing in 1931, Frederick Allen Lewis rightly feared that people would one day think of the Jazz Age of the twenties as the good old days and ‘would forget, perhaps, the frustrated hopes that followed the [First World] War, the aching disillusionment of the hard-boiled era, its oily scandals, its spiritual paralysis, the harshness of its gaiety’.

I hope that no one will forget that the years before 2008 had oily scandals and aching disillusionments of their own. Even before the crash, it was obvious to me that for all its benefits globalisation was battering Britain. As the nation-state disintegrated, we did not know what to call ourselves, ‘British’, ‘English’, ‘Scots’, ‘Welsh’.* The immigrants brought in by the boom changed the country, and neither the right nor the left understood how to think clearly about coping with the concomitant social tensions. Increased wealth and better health created citizens who seemed to believe that death was optional and the human condition escapable. They made impossibly authoritarian demands for the state to follow the precautionary principle and guarantee that they would never suffer accidents or harm.

Above all else towered the misery brought by asset-price inflation, as housing, one of life’s necessities, became nonsensically dear.

London was as close to being the financial centre of globalisation as anywhere in the world could claim to be. With the City accounting for a fifth of the British economy, the political left cut a deal.

I don’t want to accuse it of ‘selling out’. However shamelessly Tony Blair and Peter Mandelson welcomed the super-rich into Downing Street and accepted invitations to their Mediterranean villas in return, however cravenly Gordon Brown capitulated to demands from billionaires to provide them with privileges, the paradox of the 1997 Labour government was that it was at once a left-and a right-wing administration. It wanted a huge public works programme. It aimed to redistribute enormous amounts of wealth. To achieve both these desirable goals, it made a bargain with the markets.

All right, the political left said, we will accept extremes of wealth we once denounced as obscene. We will embrace your speculators and not drive them overseas with tough regulation. If the authorities overseeing the Wall Street markets or the Frankfurt bourse become too inquisitive, capital will always be able to find a sanctuary from scrutiny here. Nor will we restrict the operations of financial services, even though they are entrapping our supporters in levels of debt that the puritan in us finds frightening. We will concede all this, if in return you will give us the tax revenues which will allow us to the build the new schools and hospitals, and increase the incomes of our struggling constituents.

For all its virtuous intentions, the political left was living off the proceeds of loose financial morals. Prostituting itself, to be blunt.

The brightest and the best graduates went to work for City firms. By 2007, politicians of all colours regarded them as their intellectual superiors, modern alchemists who could conjure gold out of lines of flickering figures on a screen. Ken Livingstone, the allegedly left-wing mayor of London, genuflected before the cardinals of the money market with as much reverence as any Tory. If he had had his way, London would have become a Shanghai-on-Thames, its skyline punctured by gleaming towers for the bankers and dealers he assumed would always be landing at Heathrow.

The anti-capitalist movement had nothing interesting to say about high finance, but spitefully concentrated on opposing free trade, the one neoliberal policy that raised the living standards of the world’s poor. Everyone else was lulled into acquiescence by the success of globalisation. Young radicals from Gordon Brown’s generation did not abandon socialism because they ‘sold out’, they abandoned it because they saw that socialist societies produced stagnant economies, along with some of the worst crimes in human history, while market economies not only worked but produced the revenues social democrats could use for leftish ends. The British economy had been growing since the collapse of the Soviet Union in the early nineties. Like so many others, Britain’s social democratic leaders came to take growth for granted and forgot that no one can abolish the business cycle.

In his March 2007 budget, Gordon Brown described a happy land of ‘rising employment and rising investment; continuing low inflation, and low interest and mortgage rates’. The ‘longest period of economic stability and sustained growth in our country’s history’ was marching on, bringing ‘prosperity and fairness for Britain’s families…We will never return to the old boom and bust!’

In the same month, the International Monetary Fund issued a prophetic warning. By encouraging the UK economy to become dependent on international financial markets, it said, Brown ran the risk of a global financial contagion infecting a country that was already drowning in debt and in no fit state to cope with hard times.

The government took no notice. As late as April 2008, Labour MPs fell about laughing when the Liberal Democrats presented a motion to the Commons warning of imminent disaster. ‘The Liberal Democrat motion has been much commented on, possibly because it reads like the storyboard for Apocalypse Now, or perhaps even Bleak House,’ guffawed Angela Eagle, a Treasury minister. ‘According to the motion, we are facing an “extreme bubble in the housing market” and the “risk of recession”, and we must “act to prevent mass home repossessions”. Fortunately, for all of us, however, that colourful and lurid fiction has no real bearing on the macro-economic reality. Now that we have had Apocalypse Now and Bleak House, I am going to talk about An Inconvenient Truth, which is that the economy is strong and stable.’

The spivvery of the City afflicted the political left as severely as its blind optimism. Early on in the Labour government, I had an argument with one of Robin Cook’s aides about a project I thought a waste of public money. I cannot remember the details but I cannot forget his incredulity at meeting an apparent leftist who worried about value for money for taxpayers. The left allowed its supporters to condemn businesses that exploited the vulnerable. In 2006, Farepak, a hamper company that collected monthly payments from humble families saving for a Christmas treat, collapsed. The left knew instinctively that it was wrong for its capitalists to run off with other people’s money. They did not need to have it explained to them. They felt it in their bones. When employers underpaid their workers, the left again had no trouble in condemning them. But when the state took taxes on pain of imprisonment and then threw them away, the left treated other people’s money as casually as a Lehman Brothers dealer. So accepting of profligacy and confident of future growth did Gordon Brown become, he saved nothing during the boom years to help Britain through a recession. When the crisis came, his country was naked before the storm.

And so in an unprecedented manner, and with not wholly bad intentions, the left in power went along with a lawless market, and only after it went down did it show the boldness of true social democrats by taking over much of the banking system. It left it too late because while the bubble lasted it did not want to think what would happen if the City fell apart. Failure was an unimaginable eventuality because, in truth, no one on the left or right had the faintest idea how else a country in which agriculture formed a tiny part of the economy and manufacturing industry had withered could make a living. The political left might have tightened the regulation of the banks and the City, but the financiers did not seem to be joking when they said that they would respond by emigrating and leaving the economy in the lurch. It might have given the Bank of England the authority to raise interest rates to stop the growth of debt and the rise in house price inflation, but the economic consequences would have seemed too severe to contemplate. By 2007, the only sectors of the economy that were booming were retail and leisure, funded by consumer debt, financial services, dedicated to getting consumers further into debt, housing, bought with yet more debt, and state spending, based on levels of government debt which made borrowers from Northern Rock seem like paragons of responsibility. If they brought down the debt economy, what else could they put in its place?

By the end, Labour politicians were boxed in. Even if they had realised the danger Britain was in—and there is no evidence that they did—the price of changing course would have struck them as unacceptably high. They couldn’t challenge the status quo, until the status quo changed and challenged them.

Politicians and pundits are already providing many reasons for England’s crash, and there is merit in blaming the Bush administration, Gordon Brown’s catastrophic complacency and global financial forces beyond any government’s control. Yet too few commentators could say why the British left’s recession looked like being worse than recessions in comparable developed countries.

The best answer is also the simplest: England crashed because England did not have a Plan B.

THE LIBERAL INTELLIGENTSIA that dominated Britain’s cultural life as completely as Labour politicians dominated its government, might have reminded the politicians of the need to stick to leftish principles. But, and here I come to the second theme of this book, liberal England’s dereliction of duty surpassed that of its political leaders. The roots of its recklessness are to be found in another unprecedented feature of the 2008 crash.

Previous stock market crises occurred in times of peace. The South Sea Bubble began four years after the end of England’s long war against Louis XIV’s France in 1715. The railway and the canal manias flourished in the Pax Britannica after Waterloo. The destruction of Wall Street shares in 1929 came a decade after the end of the First World War, while the Japanese bubble peaked once the cold war was over.

Peace breeds booms. Politicians grow lazy and no longer feel the need to stop speculation before it imperils the national interest. Their citizens, meanwhile, have nothing to distract them from getting and spending.

The crash of 2008 broke the pattern. Britain and America were at war in Afghanistan and Iraq, and had been for years. For if the chaos in the markets represented the end of the liberal economic dreams of the era of globalisation, a dark shift in world politics had dashed liberal political hopes long before.

When the Berlin Wall fell in 1989, it was possible to believe that Immanuel Kant’s dream of enlightened nations living in ‘perpetual peace’ was at last being realised. Liberalism in the form of democracy, open government, free markets, common security and respect for human rights seemed the best and only way for societies to grow and prosper. Francis Fukuyama proposed that history was over, and although his many critics mocked and misunderstood him, he was making what seemed an unanswerable argument. Certainly, if a gang of totalitarian fanatics in Afghanistan wanted to order their territory according to the barbaric principles of medieval religion, it could. Fukuyama was not saying that every society had to be liberal; simply that if societies wished to be successful, liberalism was the only model on offer.

Twenty years on, his confidence lay in tatters. The most rapidly advancing power was China, whose dictators combined repression with economic success. Individual dissidents protested, but there was little doubt that the majority of the Chinese went along with their rulers’ mixture of nationalism, capitalism and authoritarianism. Russia, which had seemed likely to become a normal nation, turned its back on the Europe of human rights conferences and limited government, and embraced autocracy. Liberal Russians protested, but again only optimists could doubt that most were happy with Putin’s plans to rebuild the empire of the tsars and commissars. Meanwhile radical Islam, the most psychopathically anti-liberal ideology since Nazism, was not confined to the mountains of Afghanistan, but swept the Muslim world. Although polite commentators maintained that only a ‘tiny minority’ of Muslims supported clerical fascism, it was embarrassingly obvious to honest reporters that a far wider section of the Muslim population was unwilling to oppose it.

The American strategic thinker Robert Kagan encapsulated the shift from the late twentieth to early twenty-first century by putting himself in the shoes of an aspiring dictator. In the nineties, a potential strongman would have thought autocracy a bad bet. Everyone believed that you could not combine dictatorship with economic growth, and if you did not have economic growth, your power as an autocrat would fade, leaving you at the mercy of your enemies. Twenty-years on, Kagan continued, well, the world was looking a much better place.

The Chinese and the Russians are demonstrating that economic growth and strong autocracy can coexist perfectly happily. Now in Russia’s case it’s mostly about oil, but it’s not entirely about oil. In China’s case, it’s not at all about oil. China clearly is an increasingly market economy; it’s an increasingly capitalist system but nevertheless with rigid political controls. And the bargain that’s being offered to both of these peoples is a very old bargain. It is the bargain that says, ‘you can live your life, you can have whatever private life you want, no one’s going to come and in and tell you what to read or how to think (within certain limits), you can make money, you can prosper…just keep your nose out of politics. And if you get your nose involved in politics, we’ll cut off your nose.’ If the money is flowing, I think that’s a bargain people will take for a very long time.

He might have added that Islamists and other apocalyptic sects did not even need a successful economy to hold the world in thrall. The growing availability of weapons of mass destruction meant that the twenty-first century would have to live with the nightmare of relatively small bands of psychopathic men obtaining and detonating armaments that had previously been the sole possession of superpowers.

No one could have expected liberal England to applaud the thundering market and its inequalities of wealth. But outsiders might have expected it to support the promise that human rights and democracy offered the world, and oppose the enemies of freedom when they attempted to roll them back. In their own countries, no one shouted louder against real or actual diminutions of personal liberty, yet when confronted with ultra-reactionary movements and dictatorial regimes, liberals recommended surrender.

The first years of the twenty-first century were a second ‘low, dishonest decade’: a time when the BBC was more likely to indulge supporters of oppression than Fox News; when embattled feminists from the Muslim world were more likely to be belittled by writers from the New York Review of Books than the editor of the Daily Mail; when you were more likely to find anti-Semitism by looking to the left rather than the right; and when the general secretary of Amnesty International was more likely to denigrate human rights as white, middle-class indulgences than the general secretary of the Communist Party of China.

Few progressive movements worthy of the name could survive in such a poisonous environment, and few did.

Although liberal England liked nothing better than condemning left-wing politicians for being cowards, it was no braver than its leaders. Labour in power failed to deal with the thundering market because it could not bring itself to face the economic consequences of a necessary confrontation. Liberal England stayed silent as tyranny swept by because it too wanted the quiet life.

Normally, left-wing eras end because the left loses itself in ideological excess and careers off into the margins of politics. The left of the early twenty-first century was an exception. It failed not because it was left-wing but because in crucial respects it was not left-wing enough. It forgot the lessons of the Great Depression and failed to regulate runaway markets. It forgot the best of its achievements of the twentieth century and failed to defend them from the assault of the twenty-first.

As economies crash and governments make colossal interventions to save them, it might seem reasonable to predict a revival of the better side of the left-wing tradition. I hope to see it come, not least because social democrats have the best answers to today’s financial and environmental crises. But I won’t pretend that many obstacles remain in the way of a return to reputable politics. Liberal opinion went wilder in Britain than in any other European country. Although some liberals will ‘recover their senses slowly, and one by one’, as Charles Mackay predicted, others will be stuck in their ideological prisons for the rest of their lives. Meanwhile, although Labour responded well to the crash, it cannot escape responsibility for failing to see the crisis coming and may well pay the political price for its failure.

I cannot think of a more revealing measure of that failure than the transformation of the English aristocracy from pantomime villains and chinless wonders into viable leaders of the nation. At the end of the longest period of left-wing government in British history, the Etonians were back for the first time since the fall of the Empire. A battered public seemed willing to embrace its old ruling class with something approaching relief.

A NOTE ON THE TEXT

To paraphrase Norma Desmond in Sunset Boulevard, ‘the newspapers got small’ during my career in journalism. In selecting works for this book, I have not only tidied up ugly sentences, but also added material I could not fit into the original articles at the time of writing. Since my last collection of essays, I have published two full-length books—Pretty Straight Guys and What’s Left? I have tried to avoid overlap, and the only large repetition I have allowed is in ‘Vänster Om, Höger Om!’, the second half of which appeared in the postscript to the paperback edition of What’s Left?

Everyone is in debt now and I am no exception. I must thank Robin Harvie of 4th Estate for suggesting this book and being a model editor and Natasha Fairweather of the A. P. Watt literary agency for making everything possible. No writer can work without editors who will publish him and I am also indebted to John Mulholland of the Observer, Jason Cowley of the New Statesman, Daniel Johnson of Standpoint, Veronica Wadley of the Evening Standard, Mat Smith formerly of Arena, Johan Lundberg of Axess and Kenneth Baer of Democracy. ‘The Reasonableness of Ranters’ originally appeared in Time Out’s 1000 Books to Change Your Life. The quotes from Max Frisch’s Arsonists come from the new English translation by Alistair Beaton, which Ramin Gray directed at London’s Royal Court in November 2007. The lyrics by Joe Strummer come from ‘White Man in Hammersmith Palais’, written by The Clash. Francis Wheen talked me through problems with the text.

As ever, all errors of taste and judgement remain the sole responsibility of the author.

*Although it looked like a full-length mirror, it was in fact a video screen with a time-delay function. Why would anyone want such a thing? Well, with a memory mirror you did not have to put yourself through the momentary inconvenience of looking over your shoulder to see if a dress fitted neatly over your bottom. You could turn around and study an image of your haute-coutured derrière taken ten seconds earlier without the risk of cricking your neck.

* When her world fell apart, Kirstie Allsopp, who hosted Location, Location, Location, the most boosterish of all the property programmes, could not accept that her assumptions had been faulty but instead saw a conspiracy of doom-mongers. ‘In recent weeks I’ve been described as a “property porn queen” in the New Statesman, sniped at on the pages of the Guardian and lambasted by Panorama for excessively inflating house prices. Some of the recent gloomy headlines make me suspect that all the journalists in the country have sold up and are doing everything in their power to cause a property house price crash so that they can buy at rock bottom.’

* I get around the problem of deciding when to say ‘English’ and ‘England’ and when ‘British’ and ‘Britain’ by using whichever sounds best in the context of the sentence. I won’t pretend that this is a solution which stands up to rigorous scrutiny.