Northern Rock and Brexit. Connected.

I was at Alistair Darling’s #10yearsafter event organised by RSA (@RSA_events) last week. Alistair provided amusing anecdotes and a behind the scenes look. On how he got a call from the Chairman of the world biggest bank (RBS at that point) that they were haemorrhaging money and that they were going to run out of the capital by the afternoon. On how early signals on Society Generale’s collapsing in France was ignored. Moreover, how the centre of gravity in the UK was on monetary policy to support growth, the lazy way to make money. As long as people could own their homes, and the prices were rising, the economy was going great. A mixture of complacency and happiness.

Alistair spoke about some dilemma, such as the moral hazard of supporting banks. If you keep rescuing them, they’ll never learn their lesson, but if you don’t rescue them, the whole economy goes down. A decision to let them learn their lesson is valid in peacetime but need to be revisited when in a crisis. Banks were not lending to each other. Nobody would give money to RBS. What do you doing the biggest bank crashes? It is similar to fuel strikes, and the country runs the risk of civil unrest.

Ten years after the northern rock crisis, we are still dealing with the political and economic ramifications of the-the event and Brexit is one of them. What is the use of a globalised world where people lose their jobs? The parts of the country that prospered was the Southeast and London. The parts that suffered were the old industrial England, where the rising tide did not take them forward. A slowdown shows the cracks.

History repeats? All forms of regulation finally fail. What regulation cannot do is replace the judgement of people running the company. The possibility of a 2008 crash repeating happens when the last person who experienced it walks out of the door and the institutional knowledge is lost. We don’t have the resilience as a country to handle another RBS like situation.

What will happen to the City of London after Brexit? It has been an emotive subject. If you want a greater insight, the recent book “Crash Bang Wallop: The Inside Story of London’s Big Bang and a Financial Revolution that Changed the World”, by Iain Martin provides fascinating insights. It is wrong to assume that the recent success of the City as a financial centre is either natural — or permanent.

I heard the Deputy Mayor of London Rajesh Agrawal talk about #Londonisopen at the UK India Tech Summit at the London TechWeek. Notwithstanding today’s decision to ban Uber, will this “open” attitude survive Brexit? The British government insists so. Moreover, Martin takes a moderately active stance, suggesting “the City will survive, and prosper. It usually does.”

That will only happen if London creates a political economy that welcomes immigrants, entrepreneurs and innovators. At the launch of UCL’s School of Management in Canary Wharf almost a year ago on 26th September 2016, the UCL Provost Mike Arthur echoed the same views. Deep Mind would not have been a British company and a Google acquisition if London was not open. After all, the Swiss had rejected the company formation, and London became their natural home.

The Millennials have been the hardest hit by the fallout.

Until now every generation that came was better off than the previous. Except for the Millennial generation, which is poorer than the last generation. The intergenerational burden is the greatest. Not only do the Millennials worry about housing and affordability, but they are also saddled with student debts and have to pay for the triple lock on state pensions of the over 60s who are living longer than before.

Moreover, with Brexit, they are not likely to find the mobility and professional growth to fund their careers as their parents could.

From macro to the individual. As we brace ourselves, we can treat this a “positive” crisis to focus on innovation and competitiveness, frugality – regarding undertaking the personal inventory of what matters and what doesn’t; and above all take action – after all the rising of interest rates is a matter of when, not if.

Fix your mortgage terms before it is too late.

Here are some useful tips and links.

Personal: What time can you allocate to activities categorise as investment activities. Decisions and actions that will pay future dividends in the face of change. Fixing mortgage is one, education is another.

Organisational: Evaluate how you can innovate today. Innovation is not limited to R&D, its product, process, business model, strategic and management innovation. Make a start today. Some options on innovation here: https://www1.essex.ac.uk/ebs/business/executive-education/

You can join a free webinar here

If you are interested in the RSA event podcast, where Alistair spoke, here’s your link https://soundcloud.com/the_rsa/10-years-after-the-crash

- Viren Lall