In Memorium Lehman
SATURDAY marks the tenth anniversary of the collapse of Lehman Brothers, the giant US investment bank, and the onset of the Great Bank Crash. Lehman Brothers defaulted on September 15, 2008 on a staggering $613bn of debt obligations, the biggest bankruptcy in American history. Result: a sudden seizure of bank liquidity around the world, a general collapse in share prices, and a global recession. But who killed Lehman Brothers and started the rot? You’ll be surprised by the answer: Alistair Darling.
It was inevitable the media would celebrate the tenth anniversary of the financial crisis by giving air time to the guilty. But I was surprised by the supreme lack of self-consciousness with which our Alistair trumpeted his involvement (as UK Chancellor) with the Lehman debacle. Up he piped on the Today programme to explain that it was he, Alistair Darling, who had rejected a last-minute plea from Hank Paulson, his US opposite number, to agree a saving takeover of Lehman Brothers by Barclays, the big UK bank. Result: Lehman’s collapse the next day and global financial turmoil. Thanks Alistair.
Barclays was desperate to acquire Lehman and had put a deal in place, beating off a rival bid from Bank of America. The idea was to transform Barclays into a global player in investment banking. To close the deal quickly, Barclays needed authorisation from UK regulators and the British Government to wave a vote of its own shareholders.
Cue a phone call from Hank Paulson to Alistair Darling, at home in Edinburgh.
But Alistair had been briefed by the Financial Services Authority (FSA), the clod-hoping, incompetent bureaucracy set up by Gordon Brown to manage the City of London on behalf of the City of London. This was run by Brown’s crony, ex-banker friends with vested interests coming out of their ears. Predictably, FSA had failed to notice the emerging financial crisis or the run on Northern Rock. Now in a panic, FSA advised Alistair to have nothing to do with Barclays’ takeover of Lehman lest the UK Treasury have to bail it out.
There’s a happy ending – for Barclays’ shareholders. After Lehman went down, Barclays snapped up most of their $50bn of supposedly toxic assets for a mere $1.7bn. To celebrate, Bob Diamond, head of Barclays’ investment division, had “God Save the Queen” played on the trading floor at Lehman HQ in New York. Those Lehman assets turn out not to be so radioactive after all. Barclays made a fortune on what has been called “the deal of the decade”. So did others from the bits of Lehman that Barclays did not acquire.
Of course, had Darling allowed Barclays to acquire Lehman in a more orderly fashion, there would still have been a global financial crisis. But its catastrophic consequences most likely would have been mitigated – especially for poor Americans with subprime mortgages. Not to mention the 1.2 million folk who lost their job in the UK between 2007 and 2010. As for Baron Darling of Roulanish, he is now a member of the board of directors of the giant US investment bank Morgan Stanley. According to that bank’s accounts, non-employee board members are paid between $85,000 and $115,000 – plus $250,000 in shares.
DAMNED LIES AND STATISTICS
This week saw the publication of the latest Scottish employment figures, for the quarter ending in July. These showed the jobless total down by 6,000 compared to the three months to June, but also suggested that the overall number of Scots aged 16-64 who are in employment has dropped by a worrying 32,000 compared with this time last year. Cue a typically po-faced statement from Tory Secretary of State David Mundell: “Scotland’s performance is worsening” and blaming it on the SNP Government rather than Brexit or the Chancellor.
However, the official monthly employment stats are highly unreliable and frequently nonsensical because they are compiled using a very dubious sampling method. Politicians (including ScotGov) should ca’canny in responding to them. Monthly variations in the figures are often incomprehensively huge, before reverting to trend with the next set of statistics.
Consider: in last month’s data set, the number of Scots in work aged 16- 64 is recorded as down by 3,000, comparing April-June 2017 to April-June 2018. Yet only four weeks later, the latest stats claim a drop of 32,000 in employment, comparing May-July 2017 to May-July 2018. Which means, taken at face value, there was a heck of a jump in folk suddenly exiting the Scottish labour market in July 2018, just as fields needed harvesting and hotels needed extra staff. Pull the other leg.
In fact, taken over a long period, the employment data is more consistent with the Scottish labour market performing strongly. Youth unemployment is lower compared with the UK average, and more women are in work. But in fairness, David Mundell has helped boost Scottish employment. According to a parliamentary answer in July, the Scotland Office now employs 16 communications officers to put out the Secretary of State’s propaganda press releases.