Sometimes it is hard to feel much sympathy for the City. Waiting to be interviewed in a BBC studio on Monday night I listened to an interview with a group of City traders about to start drinking themselves silly in a pub somewhere to block out the trauma of the day. It’s been horrible, said one, “I’ve already had to cancel one of this year’s holidays and who knows where I might have to cut back next”.
Still, however much one wants to slap some of these selfish nitwits, the sad truth is that these days their worries are our worries. This man’s holiday cancellation matters. Not because we care about his health or about how many times his wife throws his Blackberry into the pool in any given week in Barbados, but because it tells us he’s nervous. Falling stock prices might mean that he will soon be out of a job soon and they certainly mean that his bonus – likely to be paid mainly in stock, not cash, this year – is steadily disappearing in a sea of red screens.
So he will soon spend less time in the luxury shops of Mayfair, he will take fewer flights; he will rent fewer villas, he might delay buying a new car and, worst of all for the property-dependent UK economy, he will cut back on his binge buying of houses. The same goes for all his colleagues. Worse, just as he starts spending less, so will the rest of us.
As the stockmarket falls, so does the value of our ISAs and pensions and so do our confidence levels – both in the value of our savings and the security of our jobs. Who’s going to nip out and buy a new sofa this weekend? Falling markets and prospects of recession also destroy corporate confidence and wipe out expansion plans. Who’s going to hire now? And who’s going to start building an expensive new website or replacing their IT systems? No one.
It is now pretty much accepted that the US is in recession regardless of the rates cuts (that’s why European markets fell another 5% on Wednesday). The misery of Monday’s soon-to-be-drunk trader makes it clear we’ll shortly be miserable too (see Don’t panic: here’s what to buy now to find out what investors should do about it).
Mervyn King said this week that “we’ve little control over the winds buffeting our economy”. He’s right, we haven’t. There isn’t anything we can do right now to turn back the clock of the credit bubble. But here’s the maddening bit: one thing we could have done was to be better prepared for the fall out. Gordon Brown has spent the last decade claiming he has abolished boom and bust. None of us believed it and, to be honest, I didn’t think he did either. I thought it was just his own kind of grandiose spin. But it turns out that he must have believed he had worked some kind of magic.
Why else would he have allowed us to get to the edge of recession with inflation edging upwards, the public finances in their worst state for decades, a bank nationalisation on the cards (this is what the new deal on Northern Rock really is) and an economy almost entirely dependent on the failing businesses of trading stocks and houses?