On October 7, 2008 the then Chairman of the Royal Bank of Scotland, Sir Tom McKillop, telephoned the then British Chancellor of the Exchequer, Alastair Darling, informing him that his bank was going to run out of money “that afternoon”. At the time RBS was the largest commercial bank in the world, in terms of asset value, at £2.2 trillion and had posted record profits of £10.3 billion, the largest ever for a Scottish company, only a year previously. However, after the government agreed a £20 billion bailout, as part of wider emergency government assistance to struggling banks, now valued at over £1000 billion by the National Audit Office, RBS posted a record loss of £24 billion in February 2009 (the largest ever loss for a British company). The turmoil was by no means confined to the UK; on the other side of the Atlantic the US investment bank Lehman Brother’s collapsed following the demise of the US sub-prime mortgage market.
A decade on from the Global Financial Crisis, the ramifications are still ongoing. Only now has RBS been able to pay its first shareholder divided since its bailout, at two pence per share; with incumbent Chief Executive, Ross McEwan suggesting that it would take another “five years – maybe ten – to rebuild trust to where we want it to be.”
With such profound economic consequences, what were the, or even, what are the current, political side effects from the crisis? At first glance, these may seem obvious. The election of Barack Obama came in the midst of the crisis, with rising unemployment peaking at 10% in the US in October 2008, and the British general election in 2010 saw the removal of the Labour Party after 13 years in office.
However, using our vantage point a decade on allows us to consider if the political side effects have been further reaching, and deeper, than previously thought. The rise of populist and nationalist parties across Europe, the Brexit decision in the UK and the election of Donald Trump in the US, I believe, could all be traced back, to some extent, to the crisis in 2008/09. Voters were angered by what they saw as a financial elite, motivated by greed and excess being tolerated, or even encouraged, by political elites, without any punishment. At the same time publics in countries across the developed world have faced stagnant wages, government austerity, falling living standards, weak growth and – particularly in the Eurozone – mass unemployment.
Bankers were perceived to have been let off the hook. While the Chief Executive of RBS at the time of its near-collapse, Fred Goodwin, might have been forced to hand back £200,000 per year of his pension and have his knighthood taken off him by the government, many other bankers have faced little retribution for their actions. Indeed, in the case of RBS, the official Financial Services Authority (FCA) investigation into RBS found that there was no regulatory fault on the part of Goodwin or his top management team. Instead, the reason for RBS for being a few hours away from bankruptcy in October 2008 was, according to the FCA, simply down to “bad decisions”.
Given that, due to harsh government austerity and fiscal consolidation programs, it has been ordinary workers and small businesses who have borne the brunt of systemic failings by those at the top, it is little surprise that publics have responded by expressing their anger through the ballot box. At elections across the Western world, populist parties who promise radical change through quick-fix solutions have gained ground over their more established counterparts. Voters across the US, particularly in depressed, post-industrial regions of states such as Pennsylvania, Wisconsin and Michigan saw in Donald Trump a political outsider; someone who may be rich and in the business elite; but not tainted by the political elite in Washington or associated with failings on Wall Street. In the UK, the EU referendum allowed voters in hard hit parts of the country akin to America’s Midwest – small towns and coastal areas in the North East, and South West, of England and South Wales – to express their frustration at the current system amid feelings of being ‘left behind’ and ‘forgotten’ by – what has possibly become the most frequently used lexicon in contemporary political discourse – ‘globalization’.
‘Globalization’ has become such a popular buzzword it has almost been rendered meaningless. However, if one assumes it to mean growing patterns of interconnectedness, followed by interdependence, between peoples in different countries then one can clearly see how the 2008/09 Global Financial Crisis was an instance of globalization gone horribly wrong. What began as losses in the US sub-prime mortgage spread across Europe and around the world. The old saying “when America sneezes, the world catches a cold” could not have been truer. Therefore, given the opportunity to “take back control” over their own economy, to recover sovereignty and be freed from the shackles of globalization, the British took their plunge and quit the EU – an institution which could be viewed as quintessentially ‘globalist’. Likewise with Mr Trump, whether any of the promises made by pro-Brexit campaigners come to fruition is another matter.
Although concerns about immigration were also a pertinent factor in recent electoral shocks, the financial turmoil experienced a decade ago is key to understanding changes in politics today. The intensity and magnitude of the crisis was unparalleled in living memory, and so it has been that the political chaos has been equally large. It is highly likely that we will still be experiencing the shockwaves of what happened ten years ago – political and economic – for many years to come.