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

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

Tradewind Recruitment: PMLD Teacher

Negotiable: Tradewind Recruitment: PMLD Teacher A specialist primary school i...

Recruitment Genius: Online Media Sales Trainee

£15000 - £30000 per annum: Recruitment Genius: Now our rapidly expanding and A...

Recruitment Genius: Public House Manager / Management Couples

£15000 - £20000 per annum: Recruitment Genius: Are you passionate about great ...

Recruitment Genius: Production Planner

£20000 - £30000 per annum: Recruitment Genius: This fast growing reinforcing s...

Day In a Page

Read Next
The author with David Leppan, the co-founder of Wealth-X, in his BBC series  

What I learnt about inequality after spending time with some of the richest people in the world

Jacques Peretti
 

If I were Prime Minister: I would halt the charitable status enjoyed by private schools

Rosie Millard
As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links