The Crash, page 1
For Jul and Ed
Contents
Prologue
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Chapter 23
Chapter 24
Chapter 25
Chapter 26
Chapter 27
Chapter 28
Chapter 29
Chapter 30
About the Author
Robert Peston Readers’ Club?
Letter from Author
Copyright
Prologue
W
HO KNEW THAT HAVING MY little finger cut off with a pair of secateurs would feel like injecting a speedball? I feel high and low, pinging and woozy. I suppose this makes some kind of sense. I never had reason to think about what happens when a limb, even a small one, is severed without anaesthetic. Why would I? My kind of journalism is a relatively low-contact sport. But the acute pain has induced an adrenaline rush and now, what with the blood oozing through the gauze, my oxygen levels are on the low side. Presumably.
As a scoop-getting reporter, I am adept at assessing risk. I don’t say that to show off. Just to insist that I’m not being melodramatic. There is no point lying to myself. I can exclusively reveal that the odds of me passing out and dying here, on the top floor of this monstrous architectural tribute to financial globalisation, are greater than evens. But I don’t feel especially anxious or scared. Maybe it’s the shock-induced speedball. Or perhaps the deaths of people I love have given me perspective.
There are worse things than it ending now. Like having to listen to more of their self-important bollocks, their instructions to write a blog asserting that what they’ve done is in the national interest. They want me to be their reputational launderette. But the last laugh is on them. I inserted a coded message into the blog, which my colleagues at the BBC will instantly translate, and any minute now they’ll be picked up by a squad of armed and uniformed Metropolitan Police officers.
Except I didn’t do that. I wouldn’t know how. And even if I did, it would have put Amy and Jess in too much danger.
They’ve won. I’m done. It’s over. Probably for the last time, I am alone again, not counting Bill and his special forces mate, who are chatting and smiling as they monitor my final minutes. Bless ’em. Thank God that Bill, unlike his employers, doesn’t feel compelled to go on and on about how it’s my duty, for once in my life, to rescue a bank, rather than bring it down. They say I should think about what’s good for the people. They mean for themselves. Cunts.
Through the wall-to-ceiling windows, two hundred and fifty metres below, is the capital, spread out like a geometric carpet. London is my town. Always has been. If I shout loud enough in my head, it will be like a BBC broadcast. They’ll hear me down there and I’ll be saved.
‘You all right, mate?’ Bill says. ‘Soon be over. Don’t you worry.’
I shoot him a winning smile. Or at least I hope that’s what it was. Who knows anymore?
I remember my lost finger, my darling little finger. We’ve been through so much together. Did they put it in the front pocket of my Lacroix jacket? I think so. Not much use it being there. What am I going to use to scratch the right side of my nose? If that’s impossible, I might as well give up, pack it all in. I’m tired. So tired. What’s that wetness on my face? Oh no. I’m crying. I can’t stop myself. Kill me now, kill me now, kill me now. Bill is walking over, with his colleague. If I die here, at least I’ve done the right thing.
For once.
Chapter 1
Thursday, 9 August 2007
‘M
UM. PLEASE. YOU ARE NOT going to die.’
‘You don’t know that. You’re not a doctor.’
‘I’ve spoken to the doctors.’
Not for the first or last time, I wonder why my mother, Ginger Peck, needs me when things go wrong but argues with me about everything. We are in the Royal Marsden Hospital in fashionable Fulham Road. Its design is supposed to dispel the inevitable dread that accompanies a cancer diagnosis. All around us are plate-glass windows, with panoramic views of West London. We’re a stone’s throw from somewhere Mum and I would rather be, the art nouveau jewel of Michelin House and Terence Conran’s exquisite Bibendum restaurant, where we could be anaesthetising ourselves with champagne. Instead the poison of choice here is actual poison, toxic compounds manufactured to kill cancerous cells. This is a factory farm of patients with assorted malignant tumours, hooked up to clear plastic bags, hanging from IV poles, whose thin tubes drip the lethal chemotherapy fluid through cannulas and into the bloodstream.
‘Mum, the operation was a great success. They cut everything out. The chemo is just an extra protection. Adjuvant Chemotherapy. You’re having it to wipe out any stray cells they couldn’t see.’
‘Doctors lie.’
‘Mum, they don’t.’ I screw up my eyes tight. She’s right, of course. Doctors are often economical with the truth, especially when they fear the patient can’t handle it, and when they do that very human thing of talking up the slim odds that a horse called ‘remission’ will finish first. But I have spoken at length to Dr Khan, and I am persuaded Mum’s doing as well as we could have hoped.
I’ve been parenting my parents in crises for as long as I can remember. Actually, that’s me building my part, which some would say is typical. In fact I’ve been parenting them for ten years, since my big sister Clare was murdered. Till then, she was always the grown-up in the family, the one who comforted our child-like parents. Since she died, I’ve used my work addiction to keep a distance from them, except when there’s a crisis and they can’t cope – which happens too often. Their conceit, especially dad’s, is the two of them live by the rules of pure reason. It’s largely a fiction. Much of the time they are scared and emotionally stunted children, the Ashkenazi Jewish legacy, perhaps. Whenever they’re ill, it’s both the end of the world and denial like you’ve never seen. Here’s the pathology: Mum assumes she’s about to die, Dad says doctors (or dentists, or psychiatrists) are charlatans licensed to do harm and refuses to accept she’s in trouble. Which is why I am here, mothering my mum, while Dad’s at home doing The Times crossword.
The lady in the blue leatherette armchair next to Mum turns to her. She might be my age, though life’s not been kind to her. Her skin is too pale and white, and her warm, deep brown eyes are exhausted. She’s smiling, though.
‘Is this your first time?’ Mum nods. ‘My third. It’s not so bad, once you get used to it.’
‘That’s good to hear,’ I say. ‘Did you hear that, Mum?’
‘I can’t pretend it’s not tiring,’ the lady continues, ‘especially when you get home and the chemo starts killing all the cells. You won’t want to get out of bed for a day or two.’ I can see the anxiety in Mum’s eyes. ‘The thing I hate most is the steroids. They make me feel very anxious, and they fizz up my brain, if you know what I mean – which isn’t great when I’m worried anyway.’
Mum tries to be brave and smiles invitingly. ‘I’m Ginger.’
‘Nice to meet you. Liz. I’m Liz. Hope I didn’t worry you. I didn’t mean to. This is definitely the best place to be for people like us.’
There’s a buzzing in the pocket of my black pinstripe Ozwald Boateng trousers. It’s one of the two BlackBerries I carry everywhere. I try to ignore it, but the itch of not knowing who’s trying to reach me is unbearable. It’s the bat phone, the BlackBerry whose number I share with just a tiny number of the most important people in my life. I don’t mean friends, but rather the well-connected contacts who might be able to help me with a story. I’ve always been too negligent with those who may have thought of themselves as friends, but it’s not something over which I lose sleep. Work is the thing.
Although the buzzing stops, I have to look at the screen or I’ll go mad. My hand’s already tugging it out of my pocket.
‘Sorry, Mum.’
‘It’s fine, Gil. Your work is important.’ She pauses. ‘Though I honestly don’t know why you came with me today. You fuss too much. I would have managed perfectly well on my own.’
‘Mum!’
‘Is this your son?’ says Liz. ‘Don’t I recognise you from somewhere?’
‘You probably saw him on the news. He works for the BBC.’
I half register my mum showing off about me. My attention is on my BlackBerry. The text is from Tracy, the PA to Downing Street’s director of communications, who I’ve been sort of dating. Which means we’ve been having secret, late-night, after-work sex. We’d both be in the shit if our bosses knew, but she’s decided she doesn’t care, and wants to normalise the relationship. In a moment of weakness, I agreed to go on a double date with her best friend, a Number 10 press officer who has a stockbroker boyfriend.
8, says the message. The Wolseley. Don’t be late.
I don’t reply. Giving Mum a side glance, I see she has unfolded the Guardian, so I take the opportunity to look at emails. Seventy-four new messages. I scroll through the subject summaries, which are the usual mix of BBC corporate directives,
Revised expenses limits for BBC entertaining
NewGate recommendation upgraded from neutral to buy
Temporary fund freeze
I pause at the last subject line, and click. It’s a press release, which I would normally delete without reading. The sender is a French bank, Banque de Maghreb, or BM, which in recent years has built a substantial investment management arm in the City of London. What do they mean by a ‘fund freeze’? That’s novel. I read.
BM Capital Bank temporarily suspends the calculation of the net asset value of the following funds. What follows is a list of investment funds, all managed by BM, that contain hundreds of millions of dollars harvested by BM from professional investors. The bank says:
It has become impossible to value certain assets accurately, irrespective of their quality, because of the evaporation of liquidity in important segments of the US securitisation market. In particular, it is not possible to value the assets underlying US ABS in our funds. This means we cannot provide a reliable net asset value for the funds. In order to protect the interests of our investors, and to make sure they are treated equally, BM Capital Bank is suspending redemptions from and subscriptions to the funds until further notice.
I read this twice, bewildered. BM is saying it will no longer allow its investors to withdraw their money from a fund made up entirely of so-called asset-backed bonds. The bank says it is incapable of valuing them so it dare not allow its investors to cash in, just in case it gives investors too much money, or – I suppose – too little. This is extraordinary in so many ways, but most of all because the bank is telling its customers they can’t withdraw their money. They can’t have their money!
Surely this is a huge story. I bite my thumb and think hard. As usual when I think, I start pacing and nodding my head back and forth. When I was a child, this mannerism drove Mum mad, she said I looked as though I was shuckling, or rocking like an ultra-Orthodox Jew at prayer. ‘We’re not in the shtetl anymore,’ she would say, long before I knew what she meant. I am trying to remember when a bank last refused to give customers their money, drawing on twenty years of professional interest in these things.
‘This never happens,’ I mutter under my breath, as I get that familiar and addictive rush of excitement from spotting a story and wanting to nail it before anyone else.
This one will be a challenge. At the BBC, everything has to be explained simply enough to make sense to the whole nation. I tried to do that, even when at the Financial Chronicle. But since moving to the BBC I’ve learned that my obsession with finance and numbers is not shared by everyone. We did a survey and discovered that a third of our audience had no idea that high interest rates were bad for them if they had debts on their credit cards. So what on earth will they make of ‘asset-backed securities’? I am not even sure I understand them, having filed them in my head under the category of the boring gubbins of financial capitalism. They’re like sewage and water pipes. We don’t need to understand precisely how they work or where they are, so long as when we turn on the tap the water comes out. Only when the loo won’t flush do we wish we had an inkling how to fix it.
I need to talk to someone who lives and breathes this stuff. Jess? My erstwhile protégé at the Financial Chronicle is cleverer and more diligent than me, and inevitably she’s now higher up the food chain, as the FC ’s deputy editor. But on a story like this, she’s a competitor; I’ll wait before ringing her. Marilyn? She’d be my best bet: these days she’s paid to spot accidents like BM’s before they happen and stop them. But ringing is a bit dodgy. As director of financial stability at the Bank of England she’s not supposed to talk with media reptiles like me. And what’s also probably relevant is we’ve been on-off-on lovers for much of my adult life. If you’ve heard about the problem of conflicts of interest in the City of London, and the so-called Chinese walls that are attempts to limit them, well my relationship with Marilyn is not so much a coach and horses through them but a wrecking ball.
Mum has her eyes closed and is nodding over her paper. I can’t tell if she’s asleep, but I won’t disturb her. I text Marilyn.
Chat?
What about? pings back instantly.
BM.
There’s a pause. Finally: 5 mins.
Mum opens her eyes. ‘You don’t have to stay, darling. You’ve got work to do.’
‘I want to stay. But I have got to make a quick call.’
I walk to the stairwell and wait. Exactly five minutes later, a call comes in from ‘number withheld’.
‘Hi lover boy.’
‘Hi beautiful.’ I can hear the sound of traffic. She’s gone for a walk, and I picture her in Throgmorton Street just behind the Bank of England, and despite myself, the two of us in her bed. She’s naked, except for her stupidly expensive black French lace bra, her indulgence. She’s on my face. Moaning. ‘I shouldn’t be talking to you, but I miss you,’ she says.
That’s a bit different. She doesn’t normally proffer endearments.
‘Miss you too.’
My emotional antennae are worst in class, but I wonder why the affection. ‘All OK? You sound a bit down.’
‘Just a bit overworked. How’s your mum?’
I’d forgotten I’d told her about Ginger’s cancer. ‘Making progress. It is hard though.’
‘You clocked the BM press release. I thought you would.’
Straight to the point, as usual.
‘What do you need to know?’
‘What’s gone wrong? Why doesn’t BM know how much its funds are worth? Does this have implications for other banks?’
She breathes out heavily. ‘You said a quick chat. I’ll tell you as much as I can, but I haven’t got long.’
‘I owe you.’
‘Yes.’ The traffic noise recedes. She must have turned off the main road. ‘I’m going to go back to basics, and forgive me if you know some of this. Do you know what an asset-backed security is?’
‘Pretend I don’t.’
She laughs. ‘They’re investments, bonds. They pay a coupon, in effect an interest rate. Typically they’re manufactured and sold by banks, but they don’t have to be.’
She really does think I’m an idiot. But I won’t interrupt.
‘Now the thing about these ABS bonds is that they’re fashioned out of the loans the bank has made to its customers.’
‘Like mortgages.’
‘Exactly. Loads of mortgages. So the kind of ABS bonds called mortgage-backed securities, or MBS bonds, are a mixture of tiny slices of thousands and thousands of mortgages. In other words, the owner of one MBS bond would receive slivers of the interest paid by an army of people who’ve borrowed from the banks to buy their homes.’
I’m beginning to panic about how on earth I can tell this story on air. At this point, I am working hard to keep up. What will the BBC’s viewers and listeners make of it?
‘That’s sort of amazing.’
‘Don’t be too amazed, because there are securities that are even more extraordinary. Banque de Maghreb’s funds own a more rarified form of ABS, called CDOs, or collateralised debt obligations.’
This is never getting on air.
‘Going back to why this is a problem, home owners are still paying their mortgages, aren’t they?’
She snorts. ‘In the UK, yeah, pretty much. But do you know what a subprime loan is?’
‘Obviously.’ I regret the impatience in my tone. I need as much from her as I can get. ‘It’s a home loan provided to a riskier borrower, probably in the US, and someone who might be in an insecure job or on a low income.’
‘Yes, but believe it or not, those aren’t the highest-risk ones. We’ve recently learned that the American banks have been giving mortgages to people who haven’t got any job or source of income at all.’
‘You’re joking.’
‘I wish. It’s been going on for years.’
‘How is that even possible?’
‘It became attractive for banks, because these subprime borrowers are charged a higher rate of interest, at a time when interest rates in general are pretty low. So superficially they could be more profitable than other loans.’
