How Do We Fix This Mess? The Economic Price of Having It All and the Route to Lasting Prosperity
Hodder & Stoughton, 480pp, £20
Robert Peston is not so much a journalist as a phenomenon. When he came to the BBC as business editor in 2006, he had built up a considerable reputation in print on the Independent and the Financial Times as a man who got scoops and also possessed an unusual appetite for mind-numbing financial and statistical detail. He was no broadcaster but, in a heartwarming triumph of content over style, he has become a cult – never off the television or radio while banging out countless blogs and tweets that try to get us to understand the latest dose of rotten news to afflict business, the financial markets and the banks.
And now, somehow, he has managed to fit in a book about . . . well, more or less about everything. Peston analyses the background of the crash, the financial regulatory system and the state of both the UK and world economies in a sprawling tome that displays his gargantuan appetite for facts, numbers and economic and financial history. It is an appetite that cannot be fully sated by his life at the BBC, where the great man is constrained by the immense compression demanded by broadcasting.
He reminds us of some of his best scoops (such as Northern Rock’s bankruptcy and the bailout of HBOS) and gives us some more. At the end of the book, we get the most detailed account yet of the ousting this summer of Bob Diamond at Barclays, following the Libor-rigging scandal. More importantly we learn something new about serious failings at the Bank of England going back a long way. Someone very senior in the Bank told Peston four years before the crash that the UK’s asset price bubble was in danger of getting out of hand and the Bank had the regulatory tools to fix the problem. Nothing happened. Peston also encourages us, with rich detail, to believe that Northern Rock could have been saved if Mervyn King had not, in effect, blocked Lloyds TSB from rescuing it – against the advice of the UK’s main financial regulator, the FSA.
Peston tries to be fair to Sir Mervyn and to some of the others at the helm in recent years. Yet it is clear that he thinks King made too many mistakes, that Gordon Brown and Tony Blair could have done more to get Britain to pay its way in the world and that Alan Greenspan at the Federal Reserve was talking through his hat.
Peston’s main villains are the banks – even more than the regulators, who are dismissed as being merely “naive and complacent”. Nothing unusual about that but he charts brilliantly the uncontrolled growth in the derivatives markets and in bank borrowing. Of the welter of statistics that pour from this book, those on this explosion of unproductive finance are the most striking. How about this? “The outstanding notional amount of derivative bets is ten times the world GDP – or more than $100,000 per person on the planet.” And then this: the nominal economic output of the world is up sevenfold in the past 30 years but foreign exchange trading is up by a factor of 234.
Even better, and worth the hard going, are his passages on the rules supposedly governing the capital reserves that banks need to hold when trouble sets in. His demolition of the Basel rules that were supposed to make banks behave responsibly is convincing and he doesn’t care much for the minor improvements that have been adopted since 2008.
Peston’s style is self-consciously jaunty – even a bit matey (“To state the bloomin’ obvious”) – but he is capable of very valuable summaries. Looking to the future, he writes: “The challenge for regulators and politicians, in trying to reduce the incidence and severity of future crises, is somehow or other to ground the optimism of those who make important decisions on markets in a more realistic view of history and the future.”
Peston begins with the view that the UK can fix the problem – though the next few hundred pages suggest the opposite. When he gets to remedies, he is largely orthodox – less reliance on high finance, more investment in education to improve productivity, better behaviour by bankers. He gently advocates some more government intervention to pick industrial winners and cagily hints that George Osborne has room to spend, given Britain’s very well-managed debt portfolio. In any event, he thinks that we won’t get more than an average of 1 per cent growth a year. It’s hard to argue.
Peston’s range is dazzling but nobody would accuse him of restraint. He is guilty of sometimes taking us too far away from the thrust of an argument with bits and bobs that get in the way. Passages on the Heathrow runway saga or the pattern of the container ship trade feel like padding. But I imagine any editor trying to convince Peston of the need for brevity would have his work cut out.
It is worth the effort. Peston is a BBC treasure – one of the journalists who justify the licence fee. If, every few years, he needs to breathe out and write a long book, we should encourage it. As they used to say in the pre-Twitter age, he knows his stuff.
Mark Damazer is master of St Peter’s College, Oxford. He was controller of BBC Radio 4 from 2004-2010.