“Chancellor on brink of second bailout for banks“
I don’t remember reading that now-famous headline from the Jan. 3, 2009 edition of the Times, not when it first ran, anyway. I was in the final year of my undergraduate course, a joint honors degree in French and politics that I would finish six months later. Gordon Brown was prime minister, having taken up the position after the resignation of Tony Blair. BHS was still open for business, Ugg boots were ubiquitous, beer was cheap, dubstep was a credible and exciting genre.
At minimum, I should have been stepping out of college and into an entry-level professional position—the low rung of a sturdy ladder, somewhere I could put my hard-earned bilingualism and modest academic talents to use. Instead, six weeks after graduation, the economy was reeling from shock after shock; I was tending bar part-time, unemployed for the other part.
It’s hard to know exactly what Satoshi Nakamoto was thinking, whoever he/she/they/might be, when those now infamous words were inscribed into the bitcoin genesis block. The reference to The Times’ date and headline works as a timestamp, of course, dating the creation of the block as on or after that day. But it’s difficult to believe that someone who possessed such mastery of the fields of cryptography, economics, and computer science simultaneously would make such an allusion by chance.
“Alistair Darling has been forced to consider a second bailout for banks as the lending drought worsens,” the article’s lead read. “The Chancellor will decide within weeks whether to pump billions more into the economy as evidence mounts that the £37 billion part-nationalisation last year has failed to keep credit flowing. Options include cash injections, offering banks cheaper state guarantees to raise money privately or buying up ‘toxic assets,’ The Times has learnt.”
Yes, the chancellor considered a second bailout—and decided in favor of it. On January 19, the British government unveiled a new phase of the rescue plan, built around an asset protection scheme that would insure the banks against losses on their riskiest holdings. These were the “toxic assets,” the credit derivatives, collateral debt obligations, and other financial products so wildly speculative and unsustainable that they threatened to bring down the entire global banking order.
For many people, myself included, the workings of the international financial system became an urgent and riveting topic of conversation. Why, we asked at dinner tables and student bars and house parties and family gatherings, was this our problem at all? Weren’t banks meant to function above all else as trusted guardians of our hard-earned cash? If it was our money they held, why weren’t we aware that they were making such risky investments? How were British banks being pulled under by the predatory lending practices of our American cousins?
We started to speak a new language, taught by newspaper articles and daily TV news reports. “Mortgage-backed securities,” “credit-default swaps,” “collateral-debt obligation,” “quantitative easing.” It was like peering behind the curtain in Oz, and finding a wizard made of economic jargon and downward trending charts.
Meanwhile, Darling raised taxes and the Bank of England cut interest rates to 0.5 percent, the lowest since it was founded in 1694. Even with extremely cheap credit and little incentive to save, confidence in the economy was at rock bottom, and consumer spending in Britain tanked. In Nottingham, the city where I had studied and continued to live for the next two years, the central shopping district was peppered with vacant commercial units, as businesses went bankrupt, were liquidated, and weren’t replaced by anything new. The north of England, less prosperous historically, suffered most: Even today there are areas where house prices are lower now than in 2007, leaving families who bought at the top of the housing bubble with negative mortgage equity.
In general, London and the southeast were less affected. For my parents, working unglamorous but secure jobs in the public sector, not a lot changed. Not everyone was so fortunate: The father of a close friend, having worked a lifetime in well-paid occupations, had deposited the family’s savings in an Icelandic bank that later collapsed. As a result, they sold their spacious South London home, one of the most tasteful and modern family dwellings I’ve ever seen, and moved into a tower block apartment.
In Europe, the effects are still being felt. The U.K. has largely recovered, excluding certain areas, whereas Greece only received its final bailout package over the summer of 2018. Although the country is no longer on financial life support, the effects have been profound and will endure: As one Washington Post reporter wrote, “Greece’s economic crisis is over only if you don’t live there.”
It would be trite to conclude that bitcoin could only have emerged after the financial crisis. The conceptual foundations of virtual currency long preceded the banking collapse, and the visionary nature of Satoshi Nakamoto’s bitcoin white paper would have been recognized in a boom cycle just as well as a bust. But for me and many others, the experience of the financial crisis primed us to embrace a form of money outside traditional finance, where we weren’t forced to trust intermediaries who had failed so badly and then passed on the cost to us. As someone with a vivid memory of the second bailout, I still put more faith in the strength of numbers than in the good intentions of bankers. “Vires in numeris,” as the bitcoin motto goes.