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.
accepted the terms? Brown asked.
more or less accepted the broad structure, Darling replied. They
haggled over the percentages, but that is what these people do.
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
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%, Japans 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.
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 payers 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
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.