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The House of Finance at the Goethe-University in Frankfurt am Main
(Source: Thomas Seidel) |
The first lecture of the new year at
the Frankfurt Goethe University deals with the consequences of
financial market deregulation in Britain in the 1980s. If considered
in a large historical arc, it could have been unmasked as a cause of
Brexit, instead it withers to a microscopic detail view. Catherine R.
Schenk did a disservice as an economics historian to her faculty.
Although not widely perceived by the
general public, October 27, 1986, was one of the most important days
in the world's financial history for the global financial community.
The day was known by the term "Big Bang". On this day, a
deregulation of national financial markets came into force in the
United Kingdom. In retrospect, it is fair to say today, that with
this day London's financial center has gradually become one of the
most important in the world. However, that day also changed the
overall economic structure of the United Kingdom, from a heavy
industrial manufacturing economy to a finance-oriented services
economy. Along with this, the focus of British national economic
activity has shifted away from the coal and steel industries of the
provinces in the north of the country to the slick suit-bearers of
the London banking district in the south. This marks the exact
boundary between the Brexit advocates and Brexit opponents. So if one
want to understand the Brexit, one have to deal first with the Big
Bang and one have to go back to the 1970s.
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Catherine R. Schenk (l) is being introduced
(Source: Thomas Seidel) |
The England of the 1970s is today known
to most people especially as "groovy". The word describes a
sense of fashion and art that inspired the young people worldwide.
These were the days of fashion designer Vivian Westwood, Twiggy,
miniskirts, bell bottoms, hot pants, the Rolling Stones, Eric
Clapton, Queens, David Bowie, the hippies, and above all the long
wild hair, everywhere. The money was in the hands of less rich people
and institutions, there was no free capital market with access for
everyone. But at the same time, this England was badly battered. It
could easily be called the Greece of the 1970s. The country was
officially governed by the Socialist Labor Party. But in reality, the
powerful trade-unions of miners and steel workers prevailed. Absurd
wage demands led to high inflation, strikes paralyzed the economy,
and the state was heavily in debt. Thus, in 1979, the country fell
into the hands of the Conservatives, led by Lady Margaret Thatcher.
The longtime prime minister, later referred to as the "Iron
Lady," knew that the poor situation in the country could only be
improved if she succeeded in breaking the power of the trade-unions
once and for all.
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A statistic shows consequences of the Big Bang
(Source: Thomas Seidel) |
Personally vilified, publicly mobbed,
politically harshly attacked, Margarete Thatcher, against all odds,
made tremendous reforms to the labor market, breaking the power of
the trade-unions in the country effectively to this day. It operated
a strongly monetarist economic policy and privatized state-owned
enterprises, indeed it began to de-industrialize the country
downright. Never should a working class from Liverpool or Birmingham
set the tone. The alternative was to build up a smart service
economy, especially the financial sector. It was in the exclusive
hands of bankers, brokers and jobbers. But even this business was
under pressure.
After the collapse of the Bretton Woods
world economic order, Americans had liberalized their financial
sector as early as 1975 in the so-called US MayDay, thus capturing
the entire Eurobond bond market. There was a need for action and, in
fact, the Thatcher government put pressure on the national financial
industry to give up their cozy business in favor of competition. This
is precisely where Catherine R. Schenk starts with her comments,
focusing almost exclusively on one factor, the liberalization of
trading fees for securities transactions. Of course, Schenk is right
in saying that this part of the liberalization was politically
enforced against considerable resistance from the national financial
industry. But to understand the consequences of the Big Bang neither
this explanation, nor the statistics shown enough. Schenk also does
not seem to have dealt with other aspects of financial market
deregulation. The author of this article was working at a British
bank at the time of the Big Bang and can testify from his own point
of view what happened there in advance. The banks have meticulously
prepared for this moment. They were just waiting to finally get
started on derivative financial products, as they had not existed in
the world before. They were happy about the new options and greedy
for the hoped-for profits.
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A truth statement about the Big Bang
(Source: Thomas Seidel) |
As a result, the financial business
exploded in London and the run of investment banking of the 1990s and
2000s began, as it had recently experienced. For Great Britain, that
meant a huge social change. While thousends of new rich people in
London and generally in the south of the country became millionaires
and celebrated one party after another and the money was literally
squashed like fireworks, the province and especially the north
impoverished poorly. While Wales and Scotland were able to gain
special rights and began earning good money with land and people in
tourism, the Empire's proud, northern heavy industry centers
transformed into impoverished, bleak areas. Monetarism and the
liberalization of a Margarete Thatcher have left a ruined country at
their core. Great Britain no longer has any significant heavy
industry, it can not even build its own warships as a nuclear power,
and if they do, they themselves have already lost some of their own.
The once-rich auto industry is almost entirely foreign-owned, as are
many other industries. The industrie of Great Britain can be
considered as sold out to foreigners. What has been privatized on
public infrastructure only works bumpy and is ailing, like the
railways and public transport. Healthcare is extremely costly but at
the same time ineffective. Now that the recent financial crisis has
also plagued the financial sector and the state has had to rescue
dilapidated banks with billions, there are no alternative industries
that could possibly support a boom.
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Catherine R. Schenk is focussing to much on details
(Source: Thomas Seidel) |
But the the people rather blame an
anonymous bureaucracy of the European Union for these conditions, as
the own politicians. To cover up his own miserable political failure,
former Prime Minister David Cameron had UK citizens vote on leaving
the European Union in June 2016. The hour of revenge for the
forgotten province had come. A majority of rural citizens voted in
favor of leaving, believing that the good old days of the long-lost
empire will come back if only one can decide for themselves. So the
Big Bang was the beginning of a hopeful development for a few, at the
end of which Brexit stands as a disappointment of many.
Had Catherine R. Schenk pointed out
these connections, she could have held a brilliant lecture. But she
preferred to spend her time with small details. A big litter has
failed her thoroughly. No great moment for the Goethe University in
Frankfurt. Unfortunately!
