Time’s panegyric to the City of London is beyond parody

September 29th, 2011

It’s incredible how some journalists got it so wrong about the City of London just prior to the crash of 2007-09.

In January 2007 Time Magazine’s Adam Smith wrote an unctuous feature about the Square Mile which lavished praise on Gordon Brown’s “light touch” approach to financial regulation. In his second paragraph, Smith declared that the “City has never been fitter.”

Smith, who also described the role of regulation as being “to serve the industry”, repeatedly claimed that the UK’s laissez-faire approach to regulation was enabling London to beat Wall Street at its own game.

Here are some choice excerpts from the article, which was headlined “The New Capital of Capital” and published on January 31st, 2007:-

But in 1986, sweeping deregulation known as the Big Bang finally blew things wide open. Out went the late starts, long lunches and cartel practices beloved of London’s fusty gents. In came U.S. investment bankers toiling for Goldman Sachs, Merrill Lynch and others, and, with them, a vital injection of talent and competitive instincts.

London owes much of its recent success to its lighter regulatory touch. In 1997, Britain’s government brought an overdue end to a complicated and largely self-regulatory system with the creation of the Financial Services Authority (FSA). As lines between financial markets and firms blurred — telling a bank from a stockbroker was becoming more and more difficult — a one-stop regulatory authority, parliament concluded, appeared best suited to serving the industry. (For companies operating in the U.S. and much of Europe, no such single body exists.)

The FSA’s remit: working with firms to pinpoint potential risks long before things go wrong, rather than simply prescribing rules. While the U.K. watchdog listens, suggest industry representatives, U.S. regulators prefer to bark.

City workers racked up $17.2 billion in bonuses last year, according to the CEBR, 18% more than the previous year. (The windfalls have sent London house prices skyrocketing. Property valuations in the capital soared by around 10% in 2006.)

Smith didn’t even question whether these bonuses, usually paid at shareholders’ and depositors’ expense might have any negative connotations. Nor did he bother to question whether turbocharged house prices might conceivably be a bad thing. Nor was there any analysis as to whether the boom might be unsustainable. Smith concluded his panegyric to the City by saying:-

For now, though, with two dozen of Broadgate Tower’s floors already taking shape, it seems there’s little to spoil the view.


As we all know, “light touch” regulation turned out to be a recipe for disaster. It meant banks and other large financial institutions were able to bend the rules at will, with regulators barely batting an eyelid, even in cases of massive fraud. As a consequence there were some massive storm clouds on the horizon, and it was only six months later, in July 2007, that the chill winds of the American subprime crisis and the consequences of reckless lending by banks including HBOS, Royal Bank of Scotland and Northern Rock, were felt in Europe.

h/t Private Eye In the City

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