Our financial sweatshop

THE CITY OF LONDON: Volume IV. A Club No More: 1945-2000 by David Kynaston

(Chatto, 30)

THE fourth and closing volume of David Kynaston's modern history of the City of London opens with the Square Mile a bombsite, financial and commodity markets in ruins, Britain all but bankrupt, rationing and fuel shortages and the partners of Baring Brothers working at their desks by candlelight. It closes, 800 pages and 55 years later, with the City as a vast financial entrept in a seamless international capital market, British only in its time-zone and Barings just a foolish memory.

Between 1945 and 2000, Kynaston takes us through a story of unrelenting drama and incident, of sterling crises and hyperinflation, three savage bear markets, the cult of the equity and the disappearance of the private investor. Then there is the growth of the Euro-markets, the scandals and takeover battles of the Eighties, and the wholesale opening up and destruction of the securities industry in Big Bang, to give us the stateless financial sweatshop that Kynaston, following Christopher Fildes, calls Hong Kong West.

Two themes run through the book and organise it:sterling, or what Kynaston terms the "sterling fallacy ", and the attempts by the London stock and insurance markets and the merchant banks to resist or accommodate change.

The costly and doomed effort to maintain sterling as a world currency, with all the paraphernalia of exchange control and credit restriction, occupied the City and Whitehall long after the rest of the country had abandoned fantasies of empire.

As Sir Samuel Brittan once surmised, if only sterling had been floating and convertible in the Fifties, this country might have been spared the passions of the Thatcher era. The rise of the Eurodollar and Eurocurrency markets from the end of the Fifties showed that sterling and a diminishing sterling area were quite irrelevant to the City's prosperity.

For Kynaston, the external value of sterling is the tragic blindness that ruins the administration of otherwise able and decent men in Whitehall and Threadneedle Street, from Cob-bold to Lawson. And I had thought that the postwar British chancellors up to Norman Lamont and the Bank governors up to Sir Edward George were merely incompetent!

Oddly, Kynaston does not devote even a sentence to North Sea Oil, which is what, after all, got us out of economic jail. That is a pity, for it was the moment of Tony Benn.

To portray the struggle over change, Kynaston uses techniques borrowed from the financial novelists of the 19th century, and, above all, Dickens:tight and garish character sketches and a confident sense of place, historical period and even season of the year. Kynas- ton revels in the sheer oddity of this closed society before the Eighties:Siegmund Warburg, with his insistence on grapho-logical testing, the "four colonels "at Lazards, the great discount broker Tommy Trinder, who thought that the fellow in The Lost Weekend didn't drink all that much. He has no prejudices against the past. He writes that the postwar City was more stuffy, timid and nepotistic than the City before 1914, that it was riddled with social and occupational shibboleths, but even so was able to detect the opportunities offered by the Eurodollars sloshing around as a result of the unfav-ourable American balance of payments. Indeed, I am not aware that, at least since the Barings collapse of 1995, our Brave New City has produced any financial innovation at all.

In the last 200 pages, a note of regret enters the story. That is not, thank heaven, any sort of aristocratic lament:Ah, that Vickers da Costa should be dead:Ah, that Scrimgeors Kemp-Gee should be dead. In attempting to emulate the New York firms, Barings sold out its traditions and its bondholders and its extinction is both comical and unregretted.

The City taught us not to care if, say, the British automobile industry was owned and managed by foreigners, so why should we bother if SG Warburg, for Kynaston the pick of the barrel, has vanished into Swiss Bank Corporation?

A CITY bred on Etonian values, political naivete, understatement, self-importance and robbing amateur investors has been replaced by a City based on US values, political naivete, hyperbole, self- importance and robbing amateur investors. Anyway, the financial markets are now so unstable that if you dislike the style and culture of, say, Cherne Byrne and Shaft, then, just wait a year or two.

No, Kynaston's regret is the age-old lament that goes back to Adam Smith and the dawn of commercial society:that the division of labour in the money society demolishes the wholeness of the personality and turns its practitioners into idiots. Kynaston misses a man of the character of Siegmund Warburg. I once had the hon-our of conversing with Dr Michael von Clemm, pioneer of the Euromarkets, on the subject of India. His opinions were so ignorant and so confidently expressed that I thought, at first, that he was mad.

With this volume, there ends the most interesting and original piece of history writing of our times. The City of London must have been a labour, but shows no sign of effort or impatience. That such intelligence and humanity have been showered on the most illiterate segment of British society the FA Barclaycard Premiership not excluded is a reminder that scholarship is its own reward.

_. . James Buchan is a novelist and former Lex columnist for the Financial Times.

Copyright 2001
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