Did Substance Abuse Cause The Credit Crunch ?

Just Business Cityboy

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In July 2008 US President George ‘Dubya’ Bush gave a typically incisive insight into the main cause of the emerging financial crisis: 'Wall Street got drunk', he proclaimed.

Two years later Mervyn King, Governor of The Bank of England, explained in his Mansion House speech that 'the role of a central bank in monetary policy is to take the punch bowl away just as the party gets going' (something that he admitted had not occurred). It seems accepted theory, then, that the financial crisis was a direct result of bankers necking too much booze. But I think the wrong intoxicant is being blamed, and that it was the devil’s dandruff wot did it!

Let’s look at the clues: 'dancing dust' is, I’m reliably informed, a drug that results in intense bouts of over-exuberance, as well as a tendency for the user to talk extremely convincingly about stuff he (or she) knows nothing about. Well, most everyone accepts that a credit bubble occurred in the mid-90s, and that this was as a direct result of what former Fed Chair Alan Greenspan referred to as ‘irrational exuberance’.

But could coke have contributed to that manic mood ? I think so. It could also be argued that traders would be better able to sell absurdly complicated ‘financial weapons of mass destruction’ after taking a confidence-boosting narcotic like cocaine. Furthermore, surely only cocaine-ravaged buffoons would actually buy billions of dollars worth of mortgage-backed securities when they were so clearly doomed to explode the minute the property boom stalled!

The other major consequence of ‘riding the white lady’ is said to be the inevitable come-down following the initial high - and, of course, the longer the high, the deeper and more intense the low. Well, you don’t have to be Sigmund Freud to see that the financial crisis can be regarded as one huge, protracted post-party depression. As the drugs wore off bankers across the world, they woke up from their wild-eyed madness and realised that they’d just sold each other a whole load of worthless crap. Combine that sudden clarity with severely depleted dopamine levels, and there was only one obvious course of action: SELL EVERYTHING!

But were City and Wall Street traders actually snorting that much toot ? Well, I certainly saw my fair share of sniffly noses and gurning jaws at City bars. I also heard overconfident gibberish being spouted by brash wide-boys throughout my 12 year banking career (though, on reflection, that may have had nothing to do with coke!) There were also lots of stories about some of the big swingers in New York enjoying a nasal snifter of an evening.

My theory may sound far-fetched, but I’m not alone in all this. Dr Chris Luke, an A&E specialist based at Cork University Hospital, Ireland, has studied the effects of Charlie on bankers and has stated that ‘prominent figures in financial and political circles made irrational decisions as a result of megalomania brought on by cocaine usage.’ He concludes that ‘people were making insane decisions and thinking they were 110% right … which led to the current chaos.’

I’m not trying to say that nose-up was the only cause of our current woes - because greed, selfishness, ignorance and ruthlessness also played their part - but I think it would be foolish not to see the role that this drug played in creating ‘the bubble’. Herd mentality, which thrives during times of uncertainty, is certainly much more explicable when you factor in the trembling insecurity and depleted discernment that go hand in hand with a half-decent coke habit.

There is, I’m pleased to say, a happy ending to this sorry tale: all my ex-colleagues and clients who still work in the Square Mile tell me that many Cityboys are now too scared to keep hoofing Bolivian marching powder. This may mean bankers are having less fun but, surely, it can only lead to a more restrained and prudent financial system!

Follow Geraint on Twitter at twitter/cityboylondon

Geraint Anderson’s novel Just Business is out in paperback on 15th March.

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