Big Bang transformed the City for the better, as I hoped at the time. It broke up the cosy cartel of the old stockbrokers and jobbers, introduced competition into commissions which made share buying and selling so much cheaper, allowed in many foreign banks and brokers with extra capital, new business and job opportunities, and allowed UK institutions to raise serious amounts of new money to operate on a world scale.
It built one of the dominant financial service and banking sectors of the world. The City expanded from the narrow Square Mile around the Bank of England, to encompass Aldgate, Liverpool Street, the Finsbury area , parts of Mayfair, St Paul’s and parts of docklands. Today we earn £60 billion from our financial and business service exports, and have a group of companies and service industries that the world envies. Without Big Bang none of that would have happened, and the UK would be a lot poorer. Instead of blaming Big Bang for financial scandals, people should remember there were scandals before Big Bang, and remember above all that it was Mr Brown’s regulators who helped bring on the crash they were meant to prevent.
I think Big Bang did bad things (speeding up the mess of fiat money) as well as good (doing lots of business in London). The more Austrianist you are, the earlier you will think the rot set in. Nixon takes Dollar off Gold Standard in 1971? Founding of the Fed? Founding of the Bank of England? But Redwood is right that Gordon Brown certainly didn’t help avert the crisis we are now stuck in, even if him keeping Britain out of the Euro may prove to be his most significant decision in the long run.
Remember, just because one of us here selects something as an SQotD doesn’t mean we necessarily agree. We are merely noticing that something significant, and usually true-ish, has been forcefully put.
Didn’t El Gordo want to tax the crap out of the city because he was entitled to the wealth they generate to splurge on largesse.
Sometimes the political class can make the right decisions for entirely wrong reasons.
There are, broadly, two views of what a “free market” is.
One view, the view that Mr John Redwood has, is that a “free market” is something that government creates – in line with the academic “perfect competition” model of neo classical economics.
The older view was and is that a “free market” is simply what people voluntarily do – without threats from either government or private criminals.
No one was forced to trade shares in the pre “Big Bang” London Stock Exchange – other stock exchanges existed (such as the Liverpool stock exchange – which has a direct line to Shanghai, via undersea cables, as far back as the early 1900s) and trading “off exchange” was also legal.
Now it so happens that the claims of Mr Redwood are wrong – the “new City of London” is not a better place for small private investors, in fact the new structure (which is no longer dominated by independent share retailers “brokers” acting for investors and independent share “jobbers” acting for companies) is a massive rip off where small private investors are looted without mercy. Thousands of pages of government regulation (the reality of so called “deregulation”) have proved to be no good substitute for the “restrictive practices” – i.e. the rules of good conduct in private clubs and associations that had evolved (in Hayekian fashion) over time. Remember a guild is only bad if it is COMPULSORY – the London Guilds, in lots of different trades, have actually been a GOOD thing for centuries (because one does not have to be a member of these clubs – one can do business outside them if one wishes to do so).
But IT WOULD NOT MATTER IF MR REDWOOD WAS CORRECT.
It is simply not the job of the government courts to say “the way you are doing business, whilst it does not involve force or fraud, is wrong – you should do business this way ……. instead, because this is what some economists have drawn on a blackboard and said is correct…..”.
It is like thinking that how much money should be lent out and at what interest rates should be decided by the Bank of England (wise experts – such as Saruman from the “Lord of the Rings”) rather than REAL SAVERS.
“Real savers are not lending out enough money” or “the interest rates that real savers are charging are too high”.
This is the sort of thinking I would now expect from Mr Redwood – leading him to support the “monetary expansion” (credit money Ponzi scheme) of the Central Banks.
Am I correct in this judgement? Does Mr Redwood support the “low interest rate” policy?
And, please remember, Mr John Redwood is what passes for a hard core free market person within the establishment (Fellow of All Souls and so on) – he is the “extreme free market” type, by their standards.
And Mr Redwood does not even speak the same language, use the same basic concepts, as a real free market person.
If I knew when I was young what I know now my life would have been very different. I would have not spent many years smashing my head against a brick wall in universities.
The situation, the intellectual situation, is hopeless.
By the way – a architectural point for Brian.
Financial services are a legitimate part of an economy – but banking and so on should not be vastly larger than everything else. If they are, then the capital structure is radically distorted.
The large numbers that Mr Redwood cites, which he thinks are a strength, are actually a sign of weakness – but so is the physical look of the landscape of cities.
If the largest buildings in a city are banks, and other such, something is wrong.
Indeed the physical appearance of cities such as London and New York is a direct manifestation of the distorted capital structure of the economy (both the British economy and the world economy).
Well there’s a coincidence.
Before Xmas I had a long meeting with a stockbroker over a relative’s investment fund. And I worked for a stockbroker, back way before the Big Bang.
Bollocks.
Commission rates are much the same as they were then*. But portfolio management charges are ruinous. We didn’t charge them. Portfolio management was part of what you did, brought the clients, earned the commission.
Pre-Big Bang, the only reason the Stock Exchange & stockbrokers existed was convenience. There was nothing stopping people buying & selling each other shares outside the Market. Anyone could offer advice on investment. What counted was performance & reputation.
Bloke I dealt with was an “authorised investment adviser”. For that read salesman. Conversation moved outside his script he was floundering. But now they’ve got it all tightly locked up in regulation, barred to anyone not part of the club, so that’s what you get.
Regulatory capture.
*And computerisation has made actual transaction costs, to the industry, trivial.
Yes bloke in spain.
But say any of that to our rulers (including the “free market” ones) and they will either not believe you, or think that the problem can be solved by new regulations.
Still “what do I know” – I thought that the bubble economy would go long before now.
Those people who thought they had plenty of time to loot wealth for themselves before the bubble burst have been proved correct – and I have proved wrong.
The crooks will not suffer when things finally do fall apart – on the contrary they will have their own private islands (and get to watch people like me killed and eaten – if they want to watch such things).
Actually I wish them well – I really do.
After all it is the crooks who will rebuild society – if anyone does.
They understood their society – they understood its central motto “after me the deluge” and they will be around AFTER the deluge, with resources (and intelligence) to actually build something.
This is not true. If you spread all the banking offices around Britain, say allocated to towns by the number of residents times salary, then I doubt that banks would be a dominant feature of the townscapes. But London, being a capital city, is the banking center for the entire country. In London’s particular case the investment banking offices serve the whole of Europe and many other international outfits are headquartered here.
All that said, I agree that globally too much time and money is spent on transactional activity with very little or close to no value. London’s success reflects this global mis-allocation of resources.
Sorry, Paul. Just read your quote properly!
However, clearly the relative matters so I still don’t think you can tell much by considering the make up of industries in a few major changes.
It wasn’t a real Big Bang, it was a smothering of economic life with a fire blanket of regulations. For many years now the industry seems to have attracted the ‘sales’ type who look only for their own commissions, safe in the knowledge that competition is stifled, and I speak as a former adviser to one ‘trade’ body’s members who were notorious for lying to us about ‘their’ legal problems, which were in fact those of their clients as they sought ‘free’ advice to build their relationships.
For a real Big Bang, here is a fire in a fireworks factory in Colombia, no serious injuries.
PeterT, the fact that all those banking offices *are* concentrated in one center rather than being spread around Britain is a symptom of the problem. They are drawn by the power, influence and flat out raw capital under the control of the politicians like pigs to a slop trough. I was not aware of the Liverpool exchange that Paul had mentioned but such would seem to be much more in-line with a more equitable distribution of power.
To be sure, one expects some concentration of such services but it is way beyond the bounds of reason anymore.