Our tour guide for the morning looks every inch the old-fashioned stereotype of a jolly City gent. His outfit could almost be a store-bought costume: the bright red braces, the wide polka-dot tie, even the carefully folded red handkerchief protruding from the left breast pocket of his suit. But Justin Urquhart Stewart is not a costumed actor, and this is no ordinary themed tour. He is a banker of more than two decades’ experience, and the kind of distant City of London bigwig who, as a rule, people outside the world of finance don’t get a chance to question.
Debt and The City: A Political Tour is a sort of safari of the financial crisis. Over six hours, I and my fellow six tour-goers will travel from the cold stone steps of the Royal Exchange down ancient alleyways, over bridges and up to glass-walled conference rooms in mirrored corporate lifts. Our quest to understand what went wrong will take us to the far corners of the Square Mile. Along the way we will meet bankers, property consultants and financial journalists, and discover the joys of securitisation, the Glass-Steagall Act and collateralised debt obligations. As tourist itineraries go, I will admit, it’s pretty dry.
Stewart is the first of today’s eight speakers, here to give us a potted history of the British financial sector. He leads us through the City’s narrow alleys, past plaques marking the sites of the coffee shops that served as meeting places for the bankers and merchants of centuries past. We learn that the financial crisis is a well-established national tradition, recurring under many if not most of our past monarchs. “By the time we get to Edward I,” he says, “England is already in debt.”
“The history lesson is really to reinforce that it’s not new, what’s happening,” explains tour director Nicholas Wood. A former journalist, Wood spent five years as the New York Times correspondent for the Balkans before leaving to set up Political Tours in 2009. In the past year he has led excursions of knowledge-hungry tourists to Libya, Kosovo and North Korea, but today’s financial crash course is his first in the UK. It will serve as a prototype for a two-day tour of the City that he plans to run from early October.You could call it information tourism. “Basically,” says Wood, “the simplest thought behind it is: if you have art tours and history tours why can’t you have serious political tours? It’s about how you piece it all together, the complexities behind it. It’s saying: ‘Look, banking clearly serves a purpose, so how did we get here?’ It’s very easy to pin it on the bankers but in actual fact there’s a whole frame of people. We were happy to take the cheap credit and see our house prices grow, politicians were happy to take the taxes.”
We follow Stewart to the original site of the London Stock Exchange – now, fittingly, a luxury shopping centre – where he introduces us to two old and vital distinctions in the world of banking. First, between market jobbers (“the people making the price, like bookies at a race course”) and stockbrokers (“who go round trying to get the best price”), and second, between commercial and investment banks, both of which were kept separate for decades, but collapsed into one with the “Big Bang” of 1986.
Combining commercial and investment banks, we learn, was never a good idea. “When you put those two together,” Stewart tells us, “it is a bit like mixing nitrogen and glycerine. One is more aggressive than the other, and it doesn’t work, it never has.” But he goes on to explain that Big Bang was just the first step on the road to our current crisis. If Thatcher’s government is in part to blame, then Bill Clinton’s is even more so; driven by a desire to let every American own their own home, it was Clinton’s decision to create the ill-fated sub-prime mortgage system.
“The whole idea,” explains Stewart, “was to spread them all around the world to spread the risk of it. They were spread in the same way as if you take a nice fresh cowpat and hit it with a shovel very hard. They went everywhere. That’s why all the banks were sitting there not trusting each other, because no one knew who had the debt. And remember, the basis of banking anywhere in the world is trust. If you lose that, the system fails, and that’s what London is going through right now. If you have a 10-year boom, you then have 10 years of lean. We’ve got at least another seven years of this to work our way through.”
Today’s tour-goers are a varied bunch. Several have already taken Wood’s flagship eight-day political tour of Kosovo, among them retired equity analyst Elizabeth Balsom. She’s enthusiastic about the experience: “I think one of the pluses was that everybody there was very interested, and knowledgeable, and wanted to know more. We all already knew the background.”
The expectation that tour-goers will already know quite a bit can, of course, make it all a little daunting for the true layperson. Student Ben Forrest, 24, here with his dad Mike, a bike shop owner, admits to having struggled to keep up in places. “To start with we were doing fine. Because some of the other people here are quite familiar with the terms they’re asking questions that are sometimes a little bit over my head. But then I’m coming from a background of having no experience in this field at all.”
Things are about to get a whole lot more baffling. With our introductory history over, we head to the offices of Stewart’s firm Seven Investment Management to get stuck in to the technical details. Senior portfolio manager Chris Darbyshire introduces us to securitisation, the process that saw sub-prime mortgages bundled together in packages and sold as bonds, first in small groups of properties from single states, then, bundled again, in America-wide financial lucky dips called collateralised debt obligations (CDOs). These, in turn, were bundled world-wide: the dreaded CDOs squared.
The youngest attendee is 21-year-old business and politics student Jean-Michel Mbala. He is here through community group SE1 United, who work to raise aspirations among young people in Lambeth and Southwark. The two-day tours will cost £400 a head, but Wood plans to set aside two places on each for members of NGOs and non-profit organisations. Another graduate of the Kosovo tour, Mbala is here today with a career in mind: “I want to do finance. I’ve done an internship at Morgan Stanley three years ago. It opened up my eyes to that sort of world. There’s good and bad, but it helped me pay off my debt.”
There is, says Wood, no average political tourist: “In North Korea we had a guy who runs a cheese business in Gloucester, a market trader. Then we’ve had the former CEO of an American bank. I think it’s more of a mentality. It’s an inquiring mind.”
Having just about wrapped our heads around CDOs, we’re whisked away to rooftop restaurant Coq D’Argent for a fancy lunch and another lecture. Business journalist Kate Walsh is our guide to the original media scapegoats for the crisis: hedge funds. “It was quite convenient to blame the hedge funds,” she explains, as the rest of us tuck in to our meals. “They were a very easy target, in that they’re all super-rich, a lot of them were American, and they were presented as the bad people. They were blamed for what was happening to our banking system, which in reality was complete rubbish.”
Finally, we cross the river to the offices of accounting firm Ernst & Young, a high tower on the south bank of the Thames, peering out across the river through glass walls at the Tower of London. We are here to meet one of the foremost experts on financial regulation in the country. Formerly a department head at the Financial Services Authority, John Liver is both a partner at Ernst & Young and head of its global regulatory reform team. He gives us a condensed and candid account of the changes needed: “We are in a situation now where we as taxpayers have supported our banking industry to the tune of probably $15tn, more than a trillion of that in the UK. There is no more public money, so we’ve got to do something different. Something different is radical change in the financial services industry.”
Liver reels off a list of forthcoming reforms, at lightning speed; derivatives are to become more transparent, safeguards to be strengthened, institutions disentangled so that one can fail without bringing down the others. There is, he says, “a whole raft of regulation saying banks should rely less on ratings agencies” on its way. He finishes on a reassuring note. “You’ll see an industry in three years’ time that’s an awful lot different to that of two years ago.”
The tour over, we traipse out into the street, a little better informed, if also a little overloaded. I ask Wood what the future looks like for his political safaris. “I want to do a tour that looks at the spending cuts, and what their implications are,” he says. “Let’s take a city like Birmingham or Cardiff that’s tremendously dependent on state spending. How do you implement cuts there? The basic building block of any of our tours – and this is the only exception – is to go to the community and ask: how do you live? It’s about going to a community and trying to dissect it.”
Dissecting the City in a day may not be anyone’s idea of fun. But afterwards I realise that – for better or for worse – I now have quite a bit more sympathy for the bankers. When the rules of the game have been tinkered with, it feels daft just to hate the players.