The Default Line: THE INSIDE STORY OF PEOPLE, BANKS AND ENTIRE NATIONS ON THE EDGE (62 page)

The collateral damage that I have seen on my journey around the world economy, a flawed banking system and crisis Europe is almost always young and asset-poor. What should be the rational response of a young person of talent to the way Britain is being run economically? Leave the country. And that is what many are doing. Of the 3.6 million emigrants from Britain in the past decade, 2 million were aged 25 to 44. Large tuition fees have contracted the deficit, yes, but will increase the incentive to emigrate. Not being able to buy even a modest house to bring up a family will also increase that incentive. Britain is not so different from the countries of the Eurozone, from Ireland or Spain. I see a generational shafting of epic proportions, and the young whom we are relying on to create growth, jobs and tax revenues are starting to vote with their feet. They have choices, and so do we all.

Books are often accused of being impractical. So, to end on a practical note, I offer ten ideas to chew on. They are all flawed, but they arise as part-solutions to some of the problems I have seen around the world. They are drawn from a trawl of what I identified above as the world’s new default lines. Most of them would not emerge out of our insidery UK political system. They are a little random, perhaps, but I believe them to be worthy of discussion in the present economic context, as I write this in the summer of 2013.

#1. Shift the burden of taxation away from labour taxes towards wealth taxes.

#2. Abolish housing benefit in pre-announced phases, and…

#3. Switch tens of billions of pounds of funding to mass building of houses, and new working communities. Track changes in the available housing stock, i.e. minus houses bought for investment, rarely lived in, and basically ‘exported’.

#4. Move most of government out of London to northern England.

#5. Ban any financial product that a bank chief executive cannot explain to their regulator.

#6. Scrap MPs’ mortgage subsidies and raise their pay.

#7. Make stamp duty payable by sellers who benefited from the boom, not buyers.

#8. Allow different city regions in the UK to impose their own rates of corporation tax and minimum wage levels.

#9. Use EU renegotiation to phase out farmer subsidies and refocus EU policies towards clean energy and hi-tech research.

#10. Cut the voting age to 15.

Details of some of the numbers and references in this book will be available at
www.thedefaultline.com
.

Or you can contact me via Twitter
@TheDefaultLine

We hope you enjoyed this book.

To find out about Faisal Islam, click
here
.

For an invitation from the publisher, click
here
.

Thanks to my
Channel 4 News
colleagues for allowing and encouraging me to pursue the writing of this book. My editor Ben de Pear and deputy Shaminder Nahal, alongside Dorothy Byrne at Channel 4, created some space for me to finish the book as it grew like a European sovereign debt. My former colleagues who sent me across the globe on the hunt for answers to the credit crisis: Ben Monro-Davies, Jim Gray, Martin Fewell, and Deborah Rayner.

Neil Macdonald, my occasionally suffering and brilliant producer, has held the fort amazingly in regular crises, and while I’ve been trying to finish writing the book. Former producers Rachel Jupp, Ben King, Job Rabkin, Girish Juneja, Emily Wilson, Julie O’Connor, Andrew McFadyen, Victoria Eastwood and Bessie Du, have flowed with creative juices in trying to help explain some the complexities of these roller-coaster economic crises. Bob in the Garage for fixing my tape deck.

Some of these stories have been filmed, captured and researched by artisan cameramen and editors such as Ray Queally, Stewart Webb, Graeme Heslop, Dai Baker, Chris Shlemon, Soren Munk, Philippa Collins and numerous others I have forgotten. Siobhan Kennedy and Sarah Smith continued and probably improved
Channel 4 News
’s excellent financial broadcasting while I was away.

It should be said that none of the opinions expressed here are that of my employer ITN, nor of
Channel 4 News
, nor of Channel 4. They are mine and mine alone.

Thanks again to Ben King for research help on the housing chapter, David Cheal for research and fact-checking, Lachlan Cartwright for journalistic consultancy, and James Conway for German translations.

Emily Bell, Roger Alton, Jamie Doward and Will Hutton got my career in journalism rolling at the
Observer
.

I have had access to some top-level bankers, central bankers, and finance ministers in the course of my work and in the course of writing this book. Alistair Darling and George Osborne are both British chancellors who have had to make tough and unpopular decisions, but who recognise, accept and encourage the questioning role of the economic media. Numerous central bankers have helped me with the book. On-the-record broadcast interviews with Sir Mervyn King, Christian Noyer, and some thoughtful answers at press conferences from Mario Draghi, have all helped inform the economic story I tell here. In the banks and financial services industry, there are four or five chief executives who were so candid they would prefer to remain below the radar. The German embassy in London, the European Central Bank and the German finance ministry were very helpful. Anyone interested in European economics should make a visit to the Bundesbank museum in Frankfurt. At the UK Treasury, Jonathan Black, Jean-Christophe Gray, Rupert Harrison, Geoffrey Spence, and others have always been very helpful. At the Bank of England, Nils Blythe, Jenny Scott, Charles Bean, Paul Fisher, Martin Weale and many others have always been open to probing journalism.

On my travels, I have been the subject of amazing hospitality in Athens, Lisbon, Nicosia, Dublin, Berlin and Frankfurt.

Special thanks must go for the expert knowledge occasionally lent to me by a team of geniuses in the economic twittersphere and beyond. Matina Stevis, Janine Louloudi, Toby Nangle, Danny Gabay, Erik Britton, Gabriel Sterne, Richard Walker, Felix Salmon, Lorcan Roche Kelly, Brian Lucey, Theo Phanos, Lee Buchheit, Sigrún Davíðsdóttir, Shirley Beglinger, Luis Garicano, Oldrich Vasicek, Carl Emmerson, James Anwyl, David Curtis, Toby Seth, George Pyper, Tom Seibre and Sony Kapoor. Social media means that there are a tonne of others who have unknowingly helped me too. Thanks to Otmar Issing for explaining unit labour costs right at the beginning of the crisis. Some of these people kindly read through first drafts of this book, and corrected mistakes, and improved the argument. All the mistakes are mine and mine alone.

On Greece,
Greece’s ‘Odious’ Debt
, by Jason Manolopoulos is worth reading, as is anything by Matina Stevis or Stephen Grey. For austerity and bond trading, obviously follow the work of the Institute for Fiscal Studies, and Jim Reid, economic historian at Deutsche Bank. On Iceland, Sigrún’s Icenews blog, and
On Thin Ice
– A Modern Viking Saga About Corruption
,
Deception and the Collapse of a Nation
(2011), by Icelandic economist Jón F. Thoroddsen is the best book. On China, Stephen King’s books
Losing Control
and
When the Money Runs Out
, alongside Justin Yifu Lin’s
Demystifying the Chinese Economy
and
The Quest for Prosperity
, are must-reads. Brad Setser’s blogs at the Council for Foreign Relations are still an excellent account of the geoeconomic build-up to the crisis. Ray Perman’s
Hubris
about the HBoS debacle is a remarkable read, as is Alistair Darling’s book on the crisis,
Back from the Brink
. I would watch out for the forthcoming book on RBS by the irrepressible Ian Fraser called
Shredded
. Andrew Tyrie’s parliamentary report into the HBoS collapse is also a remarkable read. On the formulae that broke Wall Street I’d recommend Felix Salmon’s seminal article on David Li for
Wired
. Nick Dunbar’s
The Devil’s Derivatives
is a must-read. I drew heavily on both of these and on Donald Mackenzie’s and Taylor Spears’ paper ‘The Formula That Killed Wall Street’ to set up Oldrich Vasicek’s story. On the ECB, there is a book called
The Bank
(1999) by Matt Marshall that has some of the deep history behind the then slightly hapless institution.

Thanks to Lord Eatwell, Amartya Sen, and Rupert Gatti at Trinity College, Cambridge, for teaching me immense amounts about economics, yet at the same time engendering a healthy scepticism of its foundational axioms. Thanks to Joe and Anya Stiglitz for getting me to chair a dinner of Sovereign Wealth Funds that led to the interview with Jin Liqun. My agent Georgina Capel, publisher Anthony Cheetham, and the close attention of the wonderful Richard Milbank and the rest of the team at Head of Zeus have enabled me to get these thoughts onto the page.

Lastly, the capacity for fevered and argumentative debate fostered around the typically Mancunian, Bengali-Indian dinner table propelled me into journalism. Thanks to Farah, Farhad, Omar, Fatima, Mum and Dad. And most of all, my lovely, and rather patient wife, Verity.

In Britain, a future finance minister wonders why his mortgage application requires no proof of income.

~

In Spain, the centuries-old savings-bank system collapses under the weight of financial excess, incompetence and corruption.

~

In Greece, the government faces the crushing reality that it does not have the sovereign authority to meet the demand for paper currency from its own citizens.

~

In Cyprus, the government attempts to grab a portion of the bank deposits of the entire population, including the life savings of grandmothers and widows.

~

From Europe’s gas control room in Moscow to the factories of coastal China, and from the dining-room at 11 Downing Street to the repossessed sitting-room of a British single mum, Faisal Islam takes us on an extraordinary global journey along the ‘Default Line’. He reveals how, when this flimsy barrier between lender and borrower is breached, the exuberance of economic boom flips into financial and fiscal madness that threatens to destroy individuals, institutions – and even whole nations.

The Default Line
is a high-energy account of the global economic crisis that marries extraordinary ground-level journalism with incisive economic analysis based on conversations with the world’s power brokers: the major figures in banking, finance and government whose decisions are shaping all of our lives.

Author photograph © Ashley Waring

FAISAL ISLAM is the Economics Editor of the UK’s
Channel 4 News
. His broadcast and written journalism has received a dozen honours for reporting in Britain and across the world. He won seven awards for his reporting of the global financial crisis and economics.

He was formerly the Economics Correspondent of the
Observer
, and has written for
Monocle
, the
Spectator
, the
New Statesman
, the
Guardian
,
Prospect
, the
BMJ
and
Outlook India
.

The
Independent
ranks him the fifth most influential journalist on British social media. He has a degree in Economics from Trinity College, Cambridge, and was born and brought up in sunny Manchester.

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