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

iJobs Job Widget
iJobs General

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

PHP Web Developer (HTML5, CSS3, Jenkins, Vagrant, MySQL)

£40000 - £45000 per annum + Benefits + Bonus: Harrington Starr: PHP Web Develo...

Day In a Page

Read Next
 

i Editor's Letter: The final instalment of our WW1 series

Oliver Duff Oliver Duff
 

Simon Usborne: The more you watch pro cycling, the more you understand its social complexity

Simon Usborne
A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice