An Unhappy Anniversary – The Psychosis of Decline

Posted by Paul Cherpeau

Chief Executive

Fri 11th, Aug

This week marked the unofficial tenth anniversary of the financial crisis.

I doubt there were too many celebratory parties across the business community but it is perhaps a good time to reflect on the prevailing wake of those mid summer days of 2007 when the collapse of Northern Rock precipitated the subsequent demise of the banking system as we knew it. 

We grew accustomed to periods of profound booms and busts throughout the twentieth century, yet it is telling that this particular collapse continues to resonate so fully today. A decade, it is worth remembering, is a long time and whilst the upheaval in the geo-political world has been monumental, the credit crunch and global financial crisis has remained a tether in people’s conscience and collective memory. “Where were you when Northern Rock went bust?” feels like our equivalent to JFK being shot, such is the ongoing narrative coverage of this epochal moment.

Politicians, economists, journalists, business people continue to speak of the crisis as today’s news, no doubt accentuated by ongoing austerity programmes and a consistent political discourse citing caution over the previous recklessness.

“Events, dear boy, events” was Harold Macmillan’s articulation of a Prime Minister’s principal fear. The 2007 crash was pre-empted by a multitude of factors across multiple continents, including a lax culture of banking regulation, financial institution’s exposure to toxic debt and the insufficient insulation between such institutions which led to the inevitable domino effect.

Alex Brazier’s recent visit to Liverpool enabled him to share his thoughts about the Bank of England’s principal concerns about the current status of the UK economy. Particularly notable was the contention that there are signs that the institutional knowledge about the circumstances surrounding the crash within banks and financial institutions has shown signs of being eroded.

Alex specifically stated that “Lenders have been the lucky beneficiaries of the benign way the economy has evolved. In expanding the supply of credit, they may be placing undue weight on the recent performance of credit cards and loans in benign conditions.” Complacency is creeping in.

The UK economy’s current dependency upon consumer spending (and associated debt) should not fall victim to the ostrich approach. Maintaining a level of incentive to keep us spending on goods is key amid the uncertainty of the Brexit state of flux, but the efforts of government must be to create the conditions within which the wider economy can lessen such dependency upon our personal wallets, particularly as the historic low levels of inflation show signs of increasing.

“Build it and they will come” may not be an economically sound basis to run a sustainable economy, but whilst control measures need to be reasserted within the personal lending markets, a greater commitment to delivering an infrastructure plan – particularly in the North – must be a priority upon the resumption of Parliament in the Autumn. Failure to invest soundly will maintain a flat-lining of economic growth external to the consumer bubble. Chamber members responding to the most recent quarterly economic survey in Liverpool reported a reticence to invest in training or machinery amid the current trading conditions.

Ten years on from the financial crisis, the maintenance of our understanding of its causes remains critical. However, such tacit knowledge and associated safeguards must not suffocate the wider ability of our country and city to grow our economic strength. The prolonged austerity measures pre-empted by the crash remain prevalent, in thought, word and deed. Such a psychosis is inherent to the challenge facing us and is a warning to us that a spiral of underinvestment will ultimately lead to a spiral of economic decline.

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