From 1989 for five years I worked as a financial journalist full-time on a magazine called Money Week – and also freelanced for the national newspapers. Half a decade of sleaze being shared by contacts over lunches in swanky restaurants. It was a great time to be an investigative hack doing business stories. Because the end of the 1980s saw a slew of financial scandals – a somehow fitting epilogue to Thatcherism.
Every week in a column on page three of the magazine, we’d list a grim tally of independent financial advisers (IFAs) being ‘terminated’, suspended or under investigation for mis-selling financial services products or worse. The procession of the shamed never seemed to end. And there were several epic financial scandals that seemed to define the era of Thatcherism.
The collapse of the Barlow Clowes investment scam in 1988 was a case in point. It saw over 14,000 investors defrauded of about £153m. His trial was still ongoing during my first years in journalism until his conviction and imprisonment in 1992. With the money he made, Clowes bought a yacht, four personal jets, a helicopter, a chateau in France and a farm in the Peak District. So 1980s!
This was one of several major frauds exposed largely when the stock market tanked in 1987. What characterises all these stories was the credulity of not only investors but many journalists, commentators and City of London folk. Everybody wanted to believe that the 1980s presented a new paradigm where fantastic wealth could be magically conjured up.
Another feature of these scandals was the Thatcher government’s reticence to entertain the idea of compensating investors. Very much in keeping with the time the attitude was: caveat emptor. You wanted to make money. You took a risk. You lost your money. Yah boo sucks! Furious investors – many of them Tory voters in the shires and Home Counties – soon prevailed on the government that not compensating them would have consequences.
This mis-selling of duff products extended far down into the population. One good example was endowment mortgages. These were very mainstream products. You took out an interest only mortgage and alongside, this savings product that would not only pay off the capital sum on your house in 25 years but leave you with an additional payout for your retirement.
It also earned financial advisers additional commission and they sold this guff with predictions of future investment growth based on an eternally booming – or at least robust – stock market. Not that these advisers were being fraudulent. Many had a shaky grasp of the financial complexities or just blindly sold the products on offer to them. It was easy money. Why rock the boat?
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In retrospect, some now blame the regulators for not requiring them to warn their own clients of the risks. Like they would have thanked the regulators at the time! You tend to find those pointing an accusing finger at the regulators of that period also bemoan ‘red tape’.
The legacy of Thatcherism was self-regulation – which the industry had demanded – but didn’t seem to realise that meant taking responsibility for the quality of their own advice. You can’t have it both ways – light touch regulation then blaming the regulators for not being tough enough!
Of course much of this could have been avoided with a decent regulatory system. Three years before in 1986, the Thatcher government had passed the Financial Services Act (FSA). Ideally that would have created a statutory regulator to monitor the industry. But ‘self-regulation’ was the mantra of Reaganism and Thatcherism and instead of one super-regulator, the financial services industry got five (or more) ‘self-regulatory organisations’ (SROs).
Of course the financial services sector, while chaffing under even this light touch regulation, declared it was better than a stricter rules-based approach. The sort of approach – shudder – that was employed in the United States. Many dreamed of the good old days when City folk told their clients that “my word is my bond”. But the deregulation that followed the so-called ‘Big Bang‘ in the City of London in 1986 created a whole new environment. The world of bowler hats and gentlemanly agreements was well and truly over.
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And so the mis-selling of personal pensions, endowment mortgages and inappropriate products continued. I covered one story at the start of the 1990s about a hard-sell financial services firm luring police officers out of their very generous pension scheme and into a much shakier private personal pension with all sorts of promises. They even hired police officers to sell to fellow officers.
Even though the FSA brought light-touch regulation, many financial advisers deeply resented it. The SROs became variously figures of contempt or hatred. They’d be accused of knowing nothing about the industry. While at the same time, industry practitioners bitterly resisted attempts to introduce mandatory financial exams. The reason was obvious enough – many of them would have failed.
The aftershock of the financial scandals that rocked the end of the era of Thatcherism are still being felt today. Defenders of the Thatcher model even claim the City was in fact over-regulated – and that was the real root of the problem. Go figure! Industry voices deny there was mis-selling of financial services products. They say this is a gross misrepresentation of the facts.
And defenders of the era, point to the rapid expansion of the financial services sector, filling the gap left by the collapse of manufacturing earlier in the 1980s. That rebalancing of Britain towards financial services is heralded as a British success story.
Undoubtedly, Big Bang left the City of London as the world’s leading financial centre alongside New York. But it’s also left a heap of questions about what kind of country we became, the distribution of wealth and how we treat our fellow human beings. It’s also left millions of people unwilling or unable to invest as they once did in what were assumed to be rock solid investment products.