The Power of Yes
Lyttelton
My Real War 1914–?
Trafalgar Studios
Here comes Hare. And he’s got the answer to the credit crunch. His energetic, well-researched and richly informative new work opens with an actor playing the writer himself (curious frown, Hush Puppies) as he sets out to discover why the markets jumped off a ledge last autumn. The result is less a play and more a commission of inquiry. Over many a lingering lunch Hare has leaned his inquisitive ear towards senior bankers, top journalists and leading economists. He then distilled their testimony into this fact-crammed pageant. The City’s major players saunter across the Lyttelton stage, their silk-lined suits softly whistling, to deliver gobbets of wisdom and insight. Gradually, the picture takes shape. For 15 years the financial world had been suffering from an acute case of overconfidence. And it never knew it was sick.
The trouble began when banks started selling debt to one another. That a debt could originate in one institution and be owned by another looked like a smart idea. It was extraordinarily hazardous. If you buy a debt you own a liability but it appears on your balance sheet as an asset. Its value depends on the debtor’s ability to make the repayments so the system relies on the accuracy of the debt gradings. These were wildly overoptimistic. But that optimism seemed like sanity. The fundamentals seemed to have changed in the 1990s. Economies had stablised. Markets were secure. Inflation, the great cancer of the 20th century, appeared to have been driven out for ever by those sturdy Chinese hordes toiling away for 46 cents an hour. Bankers were feeling chipper about risk and they assumed that the new credit swaps (‘pooling debt in opaque structures’, as one financier calls it) would make the market even safer.
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