The Mediation of Financial Crises

The result was the huge increase in the power, scale and reach of the large banking groups, whose interests and influence soon spanned the globe. Although these global banks were largely American – such as Citigroup, JP Morgan, and Bank of America – UK and European banks such as Barclays, RBS, and Deutschebank joined in the quest for international acquisitions and revenue streams. The close integration of the global financial system, as well as its size and scale, was a major reason that the financial crisis spread with lightning speed across the world.

These developments were broadly applauded and indeed aided by the policies of most Western governments. The banking sector was deregulated and encouraged to expand, for example, by the opening up of the City of London to global investment in the 1980s, and the ending of the division between retail and investment banking in the USA. The introduction of ‘light touch’ regulation in the UK under Labour, and the belief in the self-correcting nature of financial markets by the head of the US Federal Reserve, Alan Greenspan, led to a relaxed attitude towards the continued expansion of the financial sector at the expense of the real economy, and indeed the domination of short-term financial gains rather than long-term investment in the corporate sector.

The failure to regulate the exotic financial instruments, such as CDOs (collateralized debt obligations) and CDSs (credit default swaps), created by the banks to boost profits led directly to the highly leveraged and increasingly unstable architecture of the financial system. And outside the official banking sector, unregulated “shadow banks” were able to take even greater risks and become an ever bigger part of the global financial system.

For most of this period, the benefits of globalisation were largely uncontested, both by politicians and the financial press. The benefits of globalisation – increasing prosperity and economic stability, growing government revenues to fund tax cuts or further spending, and the integration of all countries into a global economic system – seemed obvious and overwhelmingly positive. The downsides of globalisation – the growing disparity of wealth and income, as a global elite gained the most economic benefits, while workers in developed countries suffered job losses and reduced wages; the overweighting of finance against manufacturing in the real economy; the instability of the financial system, and the inability of national governments to manage their economies in a global economic system – were overlooked. The idea that there were going to be losers as well as winners from globalisation, both between and within countries and regions, was not on the radar.

This embrace of globalisation has been generally subsumed in the broader term “neo-liberalism” or “market fundamentalism,” which seeks to embed this policy change in a general shift away from state intervention in the economy (such as Keynesianism), which arose after the Great Depression in the 1930s, to the laissez-faire policies embraced by the Thatcher and Reagan governments in the 1980s and continued by their successors.

The financial press, which itself had greatly expanded during this period, was predominantly a cheerleader for this process, embracing and covering the emergence of global finance on terms that sometimes bordered on adulation. It rarely questioned the consensus between policy-makers, politicians and businessmen. The specialist financial press, in particular, whose audience was precisely these business and finance professionals who were benefitting from globalisation, saw its role as an enabler rather than a critic of the rapidly changing financial landscape.

This book provides vital evidence and a deeper understanding of this process and in particular, the reasons why the Press was unable to play the watchdog role that might have warned the public about the inherent dangers in the path the global economy was taking.