Treasure Islands - Nicholas Shaxson [50]
By 1970 the London-centered market was measured at $65 billion in all currencies and still growing fast. Daniel Davison, the head of Morgan Guaranty’s London office, gushed about London’s minimal regulation and generous tax treatment. It was, he said, “a banking bazaar unrivalled in history. The Moscow Narodny Bank, whether it is appropriate Bolshevik doctrine or not, sits almost cheek by jowl with the Bank of China, and rubs elbows with the capitalist banking institutions of the West. There are about three times the number of American commercial banks in the City as there are in New York. The City of London beats Baghdad as a bazaar by a country mile.”
The whole character of the City began to change. City gentleman reeled at the sight of Goldman Sachs’s star trader, Larry Becerra, turning up for work on a Harley-Davidson in jeans and cowboy boots, and at the sounds of “holy fucking shit” that began to fill the dealing rooms. Within a few years of Goldman Sachs’s opening its first international office in the City in 1970, its London operation was accounting for a quarter of the firm’s entire business and its offshore satellites a slice more. “The days of friendly co-operation and friendship changed dramatically in the mid-seventies when it became an ugly business,” remarked one British banker, John Craven. “That’s when unpleasant practices came in—in terms of paying investors under the table in order to take bonds and even a little bit of improper entertainment of guests in flats in London—and it undermined the whole spirit of the thing.”57
All the time, the Bank of England quietly kept regulation at bay. In 1973 some German bankers went to see James Keogh, a Bank of England official, to ask what permissions they needed to become an authorized bank in London. “Keogh looked at us,” one banker remembered, “and he said ‘a bank is a bank if I consider it to be one.’” And that, pretty much, was it—apart from what the historian David Kynaston calls the “occasional, indispensable afternoon ceremony”: that cup of tea at the Bank of England from time to time to explain what you are doing.58 By that year, over half of U.S banks’ foreign business was taking place in London—though a lot of that soon began shifting toward London’s satellite tax havens, especially the Bahamas and the Caymans.59
By 1975 the invading Wall Street ruffians had fully overtaken the plodding British banks and were beating them in market after market. “There was never any sense that old English bankers were competing with us in any way,” said Michael Lewis of Salomon Brothers. “It was much more, ‘how much did we have to pay them to clear out of town and do something else with their lives.’”60
By then, the Euromarkets had grown to exceed the size of the entire world’s foreign exchange reserves.61 At the same time, a new source of dollars had begun to feed the markets, as the OPEC oil shocks hit in the 1970s, and oil-rich countries’ surpluses were re-lent through the Euromarkets to finance deficit-plagued oil consumer countries. This gigantic financial recycling via London and its satellites, to be lent out to Latin America and elsewhere, often amid great secrecy and corruption, laid the foundations for the subsequent debt crises of the 1980s.
As the Euromarket bonfire raged ever more strongly, financial capital began a new assault on the citadels of power and the democratic nation-state. Countries were no longer insulated by exchange controls and capital controls against events elsewhere. The Euromarkets seemed to have connected up the world’s financial sectors and economies as if by an electric current: A shock rise in interest rates in one place would switch its effects instantly to anywhere plugged into the system. Tides of hot money once again began to surge back and forth across the globe, with the Euro-markets as a kind of anti-Keynesian global transmission belt making