t’s funny how people have short memories. They’ve forgotten how George
Osborn had called on Britain to learn how to run an economy from Ireland.’
‘Lucky for him,’ Kennedy said looking up from his papers.
‘Is that all you’ve got to say Pat?’
‘Well we had a good decade up to 2007.’
‘Because of low company taxes.’
‘That policy worked.’
‘Did it? Well you could say that the market looked after itself.’
Pat clammed-up, his intuition told him he was about to receive a lesson.
‘Wrong! The idea the market can take care of itself is foolish. The banks and the
property market were allowed to run wild. The same went for wage policies.’
‘Well we did alright out of it,’ Kennedy replied weakly.
‘You’re kidding Pat. If there had been a little more regulation and restraint we
I
wouldn’t be in the shit we’re in today.’
Pat would have liked to remind Fitzwilliams’ his negative opinion of the prime
minister had not prevented him from enthusiastically applauding his speech at the
Guildhall the evening before along with an audience of four hundred leading
British and Chinese business leaders. Like so many other bankers, businessmen
and politicians, Fitzwilliams liked having his own ideas confirmed, and when the
PM declared he wanted more order in the world of finance and banking he felt
vindicated; filled with sense of self-satisfaction.
David Cameron declared, as though suddenly waking-up, that China’s economic
growth over the previous five years was an event historic of importance. He
continued by telling his audience what they already knew, namely China’s growth
for the year to come would exceed ten percent and spoke of its importance to the
UK. Fitzwilliams whispered to his neighbour it would be even better if it was the
other way around.
John Francis smiled at the incongruity of the PM’s words, even as Cameron
spoke speculators in New York were shorting China. Forecasts of double-digit
growth did not add up and the risk of a huge bubble was on the books. Gordon
Chang, the author of The Coming Fall of China ten years early, still believed in his
prediction, though for the moment events appeared to belie his words.
That certain hedge funds were betting against China was ominous. It was one
thing for a Sunday Times economic journalist to spout contrarian ideas, and quite
another to bet hundreds of millions by shorting the market. It was not good news
and one more shock to the world’s fragile economy would certainly derail its
hesitant recovery.
John Francis recalled Al Jazeera’s story of Ordos Shi, an entirely new city in
Inner Mongolia, a province in the north of China, built at huge cost, generously
equipped to house one million people, a ghost city, almost entirely empty. In
China’s large cities, vast areas of office space lay unoccupied, tens of millions of
new apartments remained empty, as construction continued to surge, a phenomena
the recalled Spain prior to its property crash, but on a much vaster scale. To
compound the problem Chinese banks had lent trillions for property development
with hugely inflated land values as collateral. It was as if China was fuelling its
own version of the sub-prime collapse.
The idea that China’s incalculable millions could own their own homes was a
reminder of George Bush’s promise to ordinary Americans. Whether they could
afford them was not an issue, growth would supposedly look after that, based on
the erroneous assumption satiated Western consumers could consume more
Chinese imports. If China’s bubble burst the troubles of a few Eurozone nations
would be dwarfed.
With riots and demonstrations threatening the stability of the Greek government
the danger of civil unrest lay much closer to home. In Dublin a cement truck,
daubed with the words TOXIC BANK, was rammed into the ornate iron gates of
the Irish Parliament. In Lisbon demonstrators filled the streets protesting against
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the government’s austerity measures and in the centre of Madrid mobs confronted
the forces of law and order. Trouble loomed large in the UK as the number of
strikes increased to a level not seen since the days of the general strike in 1926.
Of course other countries besides Greece, Spain and Portugal had been profligate.
The question was why? What had drawn once cautious European nations into the
morass of consumer debt and lax government spending? There was of course the
euro and low interest rates, but that argument, suggested by the yapping jackals of
the City and its media supporters, was too simple.
All good financial sense had been thrown out the window by the illusion of
wellbeing created by bankers and political leaders during the period leading up to
the financial crisis. It had no doubt contributed to the disaster, but that did not
provide a satisfactory answer to the question as to why.
The lack of political realism could however be measured by the comments made
by the American Embassy in Reykjavik, relating to Iceland’s ability to weather the
crisis recently published by WikiLeaks: Given the intense financial media scrutiny
Iceland has been under for the past two months, it can be argued that the country’s
economy, major conglomerates, banks, and financial markets have actually
weathered the storm fairly well. As the Wall Street Journal put it: ‘The jury is still
out on whether it is anything more than a rough spot.’