Alex on the Lehmans Crash
By 2007 there were already a few worrying signs that all might not be well in financial markets.
At the time we were developing storylines for the forthcoming Alex stage play and we took one of our City contacts to lunch to pick his brains. He explained that modern investment banks (eg Goldman Sachs) didn’t waste their time advising clients or dealing on behalf of other people, but just operated like giant hedge funds, punting their huge balance sheets on the markets. In other words it was a glorified casino with very high stakes. This sounded slightly worrying.
Another of our deep throats had recently been poached to a senior role in an Icelandic bank. He had moved into palatial offices on Berkeley Square (London’s priciest real estate) which he was refurbishing at vast expense. An Icelandic bank throwing this much money around? Something had to be wrong.
By the Spring there were already dark mutterings about “subprime” loans. We were told by a couple of our moles that some big banks were badly exposed to these unsecured debt products and a large scale bankruptcy was just around the corner. In June Prime Minister Tony Blair abruptly resigned and handed over the reins of power to Gordon Brown in what must be one of the most spectacular hospital passes in history. Did he know something?
Then in August there was a market crash. This was stranger than if it had snowed at that time of year. Market crashes NEVER happened in August (as Alex explains below) because everyone important is away in Tuscany or Provence. Something was definitely wrong.
In September rumours started to circulate that Northern Rock’s business model had proved to be nothing more than an elaborate Ponzi scheme and that the bank was in serious trouble. Depositors soon began queuing on the street to get their money out.
The subprime genie was now out of the box, but at this stage it was still a phoney war. Bankers had started to fear that there was some very nasty trouble brewing in their industry, but still hoped it might all go away if they didn’t think about it too hard.
The Alex play opened at the Arts Theatre in London’s West End in October and played to packed corporate audiences, who quaffed expense account champagne in the bar as if there was no tomorrow. In retrospect it was perhaps the last hurrah of the old City.
A new bunch of financial acronyms had begun to enter the language: CDO, MBS, CDS. No one in the City had any real idea what these complex derivate products were: they just knew that they were suddenly worthless and that their bank owned a scary amount of them.
But in the real world these structured financial instruments represented people’s homes, which they were now in danger of losing. The human cost had yet to be counted.
In early 2008 Northern Rock was discreetly nationalised. The markets breathed a sigh of relief. Perhaps things weren’t going to be so bad after all?
Bonuses were bad, but at least Alex and Clive had the satisfaction of knowing that the people who had got the bank into this position by devising these arcane products had got their comeuppance.
Following its successful West End run the Alex play was set to go on tour to Australia and the Far East in the late summer of 2008. Originally we had a sponsorship deal with Emirates Airlines to fly our crew and equipment out for free, but in July the oil price spiked at $147 a barrel and Emirates pulled out. As a result we couldn’t afford to send both creators on tour with the play. Russell drew the short straw and Charles got to go.
His plane took off on Sunday 14th September. At about the same time Russell got a call from one of his City moles informing him that Lehman Brothers would file for bankruptcy the next day. Charles had drawn out a bunch of jokes in advance to cover his absence, but a major corporate bankruptcy like this was not a subject that Alex could ignore. With Charles incommunicado, sipping cocktails at 32,000 feet on a plane to Sydney, Russell had to think up an emergency joke on the subject and then (with the help of his partner Suzette) to assemble the cartoon from bits of existing artwork on Photoshop, painstakingly piecing together the text letter by letter like some medieval monk copying out the Bible.
This was the result. It still looks very creaky to us, but on the day most of our readership was in too much of a panic to notice any artistic deficiencies.
The Alex play opened at the Sydney Opera House Studio a couple of days later. Ironically the first night was sponsored by ABN Amro, the bank whose takeover by Royal Bank of Scotland under the leadership of Fred Goodwin, symbolised the hubris and excess of the mid 2000s. Robert Bathurst (in the titular role of Alex) recalls that it took him about twenty minutes to get the first laugh that evening as he stared out at row upon row of ashen faces of bankers and brokers unsure if they’d even have a job by the time the curtain came down.
Charles’s dreams of a restful break Down Under were shattered as he and Russell had to work by Skype (with a 9 hour time difference) thinking up new jokes to keep up with the evolving global financial meltdown. Charles scoured art stores in Sydney looking for materials to draw the jokes out and then had to find a photocopy shop that could scan them to be emailed back to the UK in time for the newspaper deadline. These days he always takes pen, paper and ink with him on holiday.
The rapidly escalating financial crisis was being blamed on the greed and self-interestedness of bankers. Alex and his ilk responded by continuing in the same vein.
Icelandic banks turned out to be particularly over-leveraged and our friend in Mayfair soon found himself kicked out of his luxuriously appointed office.
Clive, who had been fired earlier in the summer, had to be given his job back just so he could join Alex in commenting on the evolving global events. In retrospect he might have preferred to have remained unemployed.
The Alex play’s international tour brought it to Dubai where Robert Bathurst teased the audience by accusing them of being London bankers fresh off a plane with CVs in hand. Once-proud global investment banks were now facing the humiliation of either having to be nationalised or go cap in hand to rich foreign buyers to preserve their existence.
Alex and his ilk were slowly beginning to realise that they had seriously screwed up this time. Their natural response was to attempt to exonerate themselves and pin the blame for the crisis on someone else.
As the year drew to a close some people were talking (a little histrionically perhaps) about society breaking down and a return to the Dark Ages, which inspired that year’s Alex Christmas fantasy story.
You can enjoy the full video of Alex and Clive being tortured by a bunch of medieval peasants here.
But the people who had made these apocalyptic predictions hadn’t reckoned with the determination of central bankers to avoid grasping the nettle, to paper over the cracks and keep kicking the can down the road by bailing out the banks, printing vast quantities of money and slashing interest rates to zero.
Ten years on the financial world is protected by rafts of new regulations, armies of compliance officers and the regular stress tests that banks are subjected to: all of which of course ensures that it could never happen again. (cough cough).
Charles Peattie & Russell Taylor