Andreas Whittam Smith: How the theatre has taught me about the financial crisis

'Enron' and 'The Power of Yes' tell you all you need to know

Share
Related Topics

If you want to understand the banking crisis, you should go to the theatre. Two wonderful plays, Enron by the young writer Lucy Prebble and The Power of Yes by the well-established David Hare, tell you all you need to know. Enron opened in Chichester in July and then transferred to the Royal Court in London. This run has been completely sold out but it will start again in the West End in January. The Power of Yes opened at the National Theatre on 29 September.

Imprudent trading by the banks created simultaneous bubbles in financial market. These bubbles were a global phenomenon. Their deflation took roughly 18 months – from August 2007 to March 2009. As a result, the stuffing was knocked out of economic activity. But most of us have never been in a bubble. We hear of them but we have never participated.

I have always believed bubbles are created by greed accompanied by a sort of blindness so that warning signs are missed. As a character in Enron puts it, speaking directly to the audience: "There's a strange thing goes on inside a bubble. It's hard to describe. People who are in it can't see outside of it, don't believe there is an outside."

There is also an obsessive edge to speculative markets. Ms Prebble catches this when she has Jeffrey Skilling, the chief executive now serving a long prison sentence, ask a colleague: "Seen the stock price today?" She replies: "I see it everyday. I see it in the elevator. I see it on the walls. I see it on my desk." This was literally true. In the Enron headquarters in Houston, Texas, it was almost impossible to avoid large screens showing second by second the Enron stock price.

There is strong peer pressure, too. In Mr Hare's piece, a private equity investor explains: "Once you're in a bubble, it needs nerves of steel to stay out. Can you imagine the pressure? On any trader? Everyone round you is making money... and you're the one who says I don't believe in securitised credit arrangements?"

Mr Hare's George Soros character is the most interesting, however, because the author has found the secret of his success, which is to exploit bubbles but somehow never be caught up in them. The Soros character says of bubbles: "They're not irrational. When I see a bubble coming, I'm thrilled. I participate. I buy the stock... It's how I made my money."

The play Enron well describes the seductive process of transforming a business from doing something that customers want to one that is conducted solely in the financial and commodity markets, going from solid reality to virtual reality. The chairman, Ken Lay, asks a board colleague: "You got a vision for the company Claudia?" And she answers: "The international energy company. Enron: delivering gas and oil to the world." And Skilling immediately interjects: "That's a parochial vision! Ask me. I would trade."

The chairman asks: "What do you see us trading, Jeff?" Skilling replies: "Energy. Sure we make it. We transport it. We sell it. Why don't we trade it? You gotta pull back and look at this thing from above. Why do we even have to deliver the gas at all?"

The same thinking transformed many banks, among them the largest in the world, into giant speculative businesses. From the outside they looked like banks. Now doubt Enron seemed to be an energy company. But inside it had become a trading machine. Barclays is a hedge fund with a conventional bank wrapped around it.

We blame regulators for having omitted sufficient checks and balances. But there was an additional factor, not knowing the past, which Mr Hare's play captures. An industrialist speaks to the audience and says that once upon a time "there was a cultural memory about what happens when risk gets out of control. And then that generation passed. A new generation had no memory".

But a young man comes on to the stage who knows how to read history: He remarks: "One of the things I noticed was the people who didn't believe in the bubble – look at their names – Nouriel Roubini, Nassim Taleb – they come from societies which periodically collapse. Iran, Lebanon."

It's hard to overstate the importance of knowing some history. I understood early how serious the banking crisis might become because the shadow banking that had developed reminded me of the unregulated financial markets of the 19th century, a feeling confirmed when the run on Northern Rock developed, something we hadn't seen since the 1860s.

Reading history may be as valuable as the rulebooks of the Financial Services Authority.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Ashdown Group: Front-End UI Application Developer

£30000 - £40000 per annum + Benefits: Ashdown Group: Front-End UI Application ...

Recruitment Genius: Digital Account Executive

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Service Engineers - Doncaster / Hull

£27000 per annum: Recruitment Genius: Domestic Service Only Engineers are requ...

Recruitment Genius: Employability / Recruitment Adviser

£23600 - £27500 per annum: Recruitment Genius: The Employability Service withi...

Day In a Page

Read Next
 

South Africa's race problem is less between black and white than between poor blacks and immigrants from sub-Saharan Africa

John Carlin
Queen Elizabeth II with members of the Order of Merit  

Either the Queen thinks that only one in 24 Britons are women, or her Order of Merit is appallingly backward

Janet Street-Porter
Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...