Britannia Radio

BY NICK COHEN

FIRST POSTED MARCH 23, 2009

It is rare to find the causes for a national disaster encapsulated in the dull prose of an obscure measure. Helpfully, a concise explanation of why you and your children will be paying for the collapse of the banking and housing bubble into the 2020s are set out in the clauses of the 2001 Financial Services and Markets Act.

The Financial Services Authority was not "to discourage the launch of new financial products", the government said as it laid down the terms of trade for London's banks and hedge funds.

The FSA had to avoid "erecting regulatory barriers", it continued, "must consider the international mobility of the financial business" and "avoid damaging the UK's competitiveness".

Dwell on those instructions for a moment and think of the consequences. If the police had to avoid damaging the competitiveness of the tourist trade, they would not arrest drunken visitors. If detectives had to avoid damaging the competitiveness of the music business, they would not arrest cocaine-snorting pop stars.

Traditionally, Tory governments preside over great booms and busts of capitalism

But in the case of the banking industry, the Financial Service Authority was mandated by law to avoid damaging the competitiveness of the City, so it sat back as barrels of gunpowder piled up under our financial system.

"A two-way street opened up between Westminster and the City," says Philip Augar in Chasing Alpha (Bodley Head, £20). The government invited speculators from all over the world to scratch its back while it scratched theirs.

Anyone who has read Augar's previous history of the City, The Death of Gentlemanly Capitalism, will expect his account of the fantastic bubble and crash we have lived through to be lucid and intelligent, and he does not disappoint. And niggling away in his opening chapters is a question I believe will produce unforgiving verdicts from future historians: how could a Labour government let this happen?

Historically, parties of the centre-left have taxed too much and spent too much. Their classic economic crisis consists of a run on the currency. Never before has one presided over one of the great booms and busts of financial capitalism. Conservatives presided over those.

To be brought up on the Left was to learn that spivs, the gnomes of Zurich and the funny money men must always be watched. Take