Treasure Islands - Nicholas Shaxson [52]
To claim reserve status, a currency must have huge, deep, liquid, and sophisticated markets—and a currency subject to capital controls and stringent financial regulations is less attractive. U.S. policymakers wanted these deep markets but did not want to give up their taxes and controls. They thought, let’s have our cake and eat it, by preserving the rules and constraints at home while permitting this unregulated dollar market to flourish overseas. What they had not appreciated enough was the extent to which this offshore market would rebound back into the United States, with malign effects.
By the time Margaret Thatcher and Ronald Reagan came to power in 1979 and 1981, the political classes in Britain and the United States were losing faith in manufacturing and genuflecting toward finance. Wall Street and the City of London were at the forefront of a global trend of financialization: the reengineering of manufacturing firms as highly leveraged investment vehicles and, soon, the packaging of mortgages into risky asset backed securities for offloading into global markets. Everything was for sale: school playing fields, post offices, army services, and old fish markets. In the offshore centers, the very sovereign laws of nation-states had become available for sale or rent.
After Thatcher’s giant deregulatory “Big Bang” of 1986 deepened London’s offshore status as a freewheeling, anything-goes financial center, “light-touch London” broadcast ever stronger antiregulatory impulses around the world, deregulating other economies and their banking systems as if by remote control. The City became a crow-bar for lobbyists in Wall Street and around the globe: “If we don’t do this, the money will go to London,” they would cry; or “we can already do this in London so—why not here?” Its offshore satellites were deregulating even faster, constantly seeking to stay ahead of the others. This race has an unforgiving internal logic: you deregulate—then when someone else catches up with you, you must deregulate some more, to stop the money from running away. For the City, it was a beautiful, self-reinforcing dynamic: The more countries that opened their financial systems, the more business that would float around internationally, ready to be caught in the nearby nodes of the British offshore spiderweb and then sent up to be serviced in the City and its allies on Wall Street.
Not content with all this, the Corporation of London actively promotes international financial deregulation around the globe. With this in mind the Lord Mayor makes 20 or so foreign visits per year.69 An official report into one such visit to Hong Kong, China, and South Korea in 2007, along with the Lady Mayoress, the Sherriff, and a 40-strong business delegation, gives a flavor of the Corporation’s ambition and reach. The delegation’s aim, according to the report, was to
Lobby for China to maintain its course of economic and financial liberalisation, and encourage South Korea to adopt more open policies; Promote London as a global financial center …;
Explain the UK’s liberal approach to regulation and corporate governance
Lobby for liberalisation and improved market access in China’s banking, insurance and capital markets sectors; including highlighting the restrictive implications of ordinance 10 [which is designed to curb illicit financial flows and requires Chinese government approval for companies to list overseas,70] and the benefits of closer engagement with international players.
Encourage South Korea to adopt more liberal policies, notably in legal services, and to follow up on Seoul’s ambitions to become a regional financial hub
Explain the UK’s liberal approach to trade policy and regulation; and to encourage a critical mass of similarly thinking countries.71
In a meeting with senior officials from Tianjin, the Chinese city chosen as a pilot for national financial reform, the report