Magazine article The Spectator

Wolves of Whitehall

Magazine article The Spectator

Wolves of Whitehall

Article excerpt

This week, Martin Scorsese's film The Wolf of Wall Street opened and the Office of National Statistics reported that house prices are up by 12 per cent in London and by 5 per cent across the UK as a whole. While the former represents the cocaine-fuelled greed of bankers, which many like to think caused the financial crisis in the first place, the latter represents a wider form of greed which has even more to do with the problems that have afflicted the world from 2007 onwards.

The Wolf of Wall Street is no fantasy.

While the behaviour of the antihero, Jordan Belfort, has been ratcheted up for the purposes of Hollywood, the story reflects a genuine sickness at the heart of high finance: its tendency to attract, and tolerate, psychopaths. The theory is that bank directors can use them as truffle hunters use pigs: harness their hunger, then pull them away before they do too much damage.

It doesn't always work. Especially if a bubble mentality envelops those running and regulating banks, as it did in the run-up to the crash.

The authorities have yet to get to grips with the criminal behaviour which afflicted the boom years. London is doing less well than New York on this score; not for the first time, it has been left to the US authorities to charge a City trader over Libor-fixing, our own regulators seemingly unable to investigate allegations of serious fraud.

London was arguably the first point of contagion for the global crisis: when AIG collapsed, bets taken by its London division were at fault. The Icelanders who almost destroyed their country's economy tended to do so from London offices. Labour's fractured regulation turned the City into the world's banking casino.

But it is a grave error to think that the financial crisis would have been averted had the City and Wall Street been cleaned of criminal behaviour. The crisis was, at its root, the result of mass delusion among politicians, economists and policy makers, who completely failed to spot what we now know to be the worst case of economic overheating in post-war Britain. The banks were the bartenders; the politicians threw the party. They confused the illusory wealth created by debt with earned wealth. Indeed, the tendency of governments to believe that wealth can be conjured out of thin air fed directly into bad behaviour in the financial world.

Britain's problem was the wolves of Whitehall. Political greed for the City's tax revenue (and stamp duty from the housing bubble) was a bigger problem. If we fail to recognise that, we risk repeating the same calamitous mistake now. …

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