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by Simon King



Brown looked dishevelled, as if he had just rolled out of bed. His tie and his suit jacket had been put on in a slapdash manner. He looked exhausted. Indeed, he often looked moribund in public – and he now looked even more so. The room was spacious, but it was only populated by two people. The room was encircled by several tables, which were draped in table cloth.

He was in a room within 10 Downing Street, away from the room at Number 11 which was teeming with a gaggle of bankers, lawyers and consultants. He was now alone with Alistair Darling, the chancellor of the exchequer, who had spent the entire night negotiating a deal. They had woken up Brown who had asked ‘Will it work?’ – and the powerful group assented.

 ‘They accepted the terms?’ Brown asked.

 ‘They more or less accepted the broad structure,’ Darling replied. ‘They haggled over the percentages, but that is what these people do.’

 ‘We did it. The banks did not collapse. Money still exists. Banks will open. Cash machines still work. We had forty-eight hours to avert catastrophe, but we did it.’

‘Get some sleep, Gordon. That is what I am going to do,’ Darling said, as he left the room and closed the door.                     

But Brown could not sleep. It had been a tumultuous weekend. Prior to the weekend, markets had been in a death spiral. They had no faith in their ability to stabilise themselves, let alone in the ability of the government to rescue them. Stocks had lost 18% of their value, London and Frankfurt were down by 21%, Japan’s Nikki index crashed by 24% and General Motors was worth less than it was in 1929.  Additionally, depositors were worried about the state of RBS and other British banks. There was no precedent for a collapse of this kind of severity.

Inconveniently, Brown had been out of London on a regional tour of the country. Brown and Darling both concurred that a government bail-out of the banking sector was of the outmost importance, as it would save jobs and businesses. He attempted to justify this to the British public, which was not easy. Bankers had at one point been seen as exemplars of British society, as aspirational wealth-creators. Now that the whole banking system had brought the world economy to its knees, the public no longer had such a benign view of them. Brown attempted to justify giving them billions of pounds. Why should we rescue these parasites? It epitomised the idea of crony capitalism, of government and big business as shady overlords who conspired to dupe the public.

Brown had urged Merkel, Sarkozy and other European leaders to recapitalise the banks, as they had, as Alistair Darling pronounced, ‘run out of capital.’ John Gieve, governor of the bank of England and head of HBO and RBS, declared that they had ‘run out of money.’ It was a crisis of apocalyptic proportions. Two massive banks would not be able to open their doors the following Monday. If both HBOS and RBS went down, then Barclays and Lloyds would crash down, too. It could topple all of the British banks and the entire world economy would crumble. This would mean that cash machines would stop working, cheques would become valueless and credit cards would become useless. With no banks and no cash machines, money and savings would disappear. The lives of everyone would grind to a halt. It was the kind of thing that communists and Marxists dreamed about, except that who, in a world of such wealth, abundance and prosperity, could call himself a communist anymore?

However, few people outside the government and the banking sector appreciated the gravity of the situation. The British government had forty-eight hours to avert a catastrophe, starting from the Friday evening to breakfast-time on Monday. As a result, the treasury overflowed with an assortment of bankers, lawyers and wealthy consultants. So many people had been crammed into the treasury that they had run out of chairs for them. It was peculiar to see such powerful men wandering around Number 11, looking lost and confused.

The prime minister and the chancellor were out of the country for stretches of the weekend, as Darling flew to America for a meeting with the finance ministers of the G7. Everyone there was afraid about was going on, as stock markets were falling by 5% a day. Darling argued in favour of recapitalising the banks with public money and presented a five-point plan which attempted to stabilise the banks with tax payer’s money. Darling sold this to the finance ministers in America whilst Brown promoted the British plan to his European counterparts. He did this at a Eurozone meeting – in other words, a meeting that he had not been invited to. In this context, he was an intrepid participator who had derailed the meeting so as to make them embrace the policy of recapitalisation. Both America and Europe had been won over, as major banks recognised that they needed help.

Darling flew back from Washington on Saturday and landed back in London at breakfast time on Sunday. He sat with the bankers, lawyers and consultants in a crowded room in number 11. They all, by and large, signed up to the conditions of the agreement. It was announced on Monday that the government would be buying stakes in HBOS, Lloyds, TSB and RBS. They would be injected with £37 billion worth of capital, but Barclays would be recapitalised through private sources. The state was now a majority shareholder of RBS and would own 40% of a new bank created by merging HBOS and Lloyds. At no other point in economic history had governments injected so much money into buying assets and printing so much money. At no point had interest rates been so low.  

A few months prior, the government had nationalised Northern Rock. The head of the Federal Reserve had claimed that we should have let the banks default, but that surely would have been folly. A shadow banking system had emerged and globalisation meant that the whole system had become so entangled that the whole world economy had seized up. Many bankers had ceased to follow the rules.

Brown went to the other end of the room, picked up a cup and filled it up with water from a dispenser. His head brimmed with thoughts and with the events which had elapsed, even if he still felt exhausted. He heard the murmurs of voices outside the room. He believed deeply in social justice and he thought that he had acted justly so as to avert an apocalyptic catastrophe. He had joined the Labour Party because he wanted to make Britain a more fair and just society. Upon becoming chancellor in 1997, he had made a Faustian pact with the banks whereby they would be lightly regulated and their revenues would be used so as to fund social programs, tax credits, redistribution and public services. Now the government had amassed a colossal deficit and cuts would have to follow. Brown sipped the water and felt forlorn. A recession and spending cuts awaited Britain, but it could have been so much worse. 



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