John Francis headed the ad hoc think-tank, a role that Michael Fitzwilliams’ had confided to him in mid-2007. His task was to analyse world events and how they could or would influence the affairs of the Irish-Netherlands Bank and its future prosperity. Fitzwilliams like most bankers had seen the dotcom crash coming, but had not anticipated its consequences. Neither had he foreseen the changes that would come with the election of George Bush and Tony Blair. As for the terrorist attack on the World Trade Center, he had been as shocked and stunned by the unimaginable tragedy as the rest of the world.
Following the events of 2008, Francis realized the consequences of the banking crisis could be much more far reaching than that of the dotcom crash, the effect on Wall Street of 911, or just about any other economic event since the Great Depression.
Michael Fitzwilliams was still reeling from the shock of the Lehman Brothers collapse and the burst of the sub-prime bubble that left Britain’s five largest banking institutions, Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland, staring insolvency in the face. On Monday October 13, 2008, the government announced Lloyds TSB was to take over HBOS with the help of seventeen billion pounds of taxpayers’ money, together with an injection of twenty billion for RBS. The resignation of RBS’s infamous chief executive, Sir Fred ‘the Shred’ Goodwin, was immediately effective.
The news of the bailout had prompted a weak, but short-lived rally on the London Stock Exchange. Markets were about to experience a stomach wrenching plunge as investors driven by the fear of God fled in every direction in search of a shelter.
If his bank was to survive the coming storm Fitzwilliams needed a plan. It was impossible to stagger from one drama to another as they had done over recent months. More such crises were surely on their way.
The problem with bankers, industrialists and capitalists in general was they saw no further than the end of their noses. Of course they carried out research, but none foresaw the impact of politically charged events across the world. The fall of the Berlin Wall had come as a surprise to many political leaders, as did the demise of the Soviet Union. Equally astonishing was their failure to anticipate the astoundingly rapid rise of China and the imbalance of its trade with the West as its exports inundated world markets, creating a massive one way transfer of wealth.
Fitzwilliam’s family bank had been steered for generations by the seat of the pants of its successive conservative heads, who had reacted to events as they occurred. Their role had been to conserve and defend the family’s wealth and privileges.
In early 2007, the world had been laid-back, too laid-back to Fitzwilliams’ regretfully retrospective point of view. America ruled the world and Britain stood at its side as a proud ally. Five years had passed since 9/11 and its aftermath. The execution of Saddam Hussein, in the last days of 2006, seemed to have closed a chapter, and the world had entered what all had hoped would be a period of long prosperity. But danger always came from the least expected quarter.
John Francis, a writer and well known contributor to a number of newspapers and magazines on subjects as diverse as the evolution of modern society, political and corporate affairs, had a deep sense of social injustice without projecting himself as a leftist bleeding heart. Having read his works Fitzwilliams had become a fan of Francis, he appreciated his approach on the subjects that interested him, analysing them objectively and realistically, evaluating the impact of political and economic events, anticipating the potential effects of what seemed like distant and unconnected happenings on the everyday lives of ordinary people.
Fitzwilliams first met Francis at the Morgan Stanley Great Britons 2006 awards in the City’s Guildhall, where the writer, who had reached the age of academic respectability, had been amongst those short-listed for a prize. The banker had discovered that beyond his talents as a journalist and writer, Francis was a historian and professor at Dublin’s Trinity College, where he lectured on economic history and development of civilizations.
The academic had an almost mystical hold on his listeners. With his charismatic style he emanated a mesmerizing attraction, the kind that won certain university professors the everlasting fidelity of their students. With the captivating appeal of a skilled raconteur spinning a spell, which only an accomplished scholar can cast over a willing audience, Francis likened the work of economists to an art.
Following the effects of the dotcom crash and 911 attack on New York, Fitzwilliams had sought a means of anticipating and reacting to the kind of crises that could threaten the future of his bank. He knew he could not count on his analysts, whose vision was blinkered, limited to finance, business and the predictable. What he needed was a broader approach, one that took into account human behaviour, perhaps based on comparable historical events, and Francis seemed to have the kind of background necessary.
The banker invited Francis to lunch a couple of days later in a discrete French restaurant off the Kings Road in Chelsea. That they had three interests in common: Ireland, economics and rugby, helped them off to a good start. However, Fitzwilliams was firmly anchored in the real world of finance, where time mattered, and the other, an academic, lived in a world where he had the leisure to stop and observe the functioning of human society, where, in spite of the popular adage that history did not repeat itself, it broadly followed an unchanging pattern.
Francis, however, reminded Fitzwilliams of the difficulties that lay in comparing the past to the present and although the patterns were there, forms, time-scales and magnitudes were extremely to fix. It was a contradiction in terms: history did repeat itself, but in different formats. He recounted how one of his own illustrious colleagues, Geoffrey Elton, who held the Regius Chair of Modern History at Cambridge had said: ‘Recorded history amounts to no more than about two hundred generations. Even if there is a larger purpose in history, it must be said that we cannot really expect so far to be able to extract it from little bit of history we have.’
‘In other words,’ Francis explained, ‘though there may be certain patterns, it is very difficult to predict the future based on past experience. But, what you can do is be alert to sudden change and imagine the different possible outcome of events. In that way you could avoid or perhaps take advantage, to a certain degree, of the impact of an event.’
‘Quite true. We see that in the markets every day. Very few analysts get it right, and those who do, are, to be quite honest, lucky.’
‘Instantaneous market fluctuations are one thing, but predicting the effects of say a Middle East war or a major change in the Chinese politburo, is a little bit like monitoring a volcano,’ Francis added with a wry smile. ‘Though with the right instruments we can to a certain extent predict an eruption and evacuate those in its path, or protect our investments.’
‘Our in-house economists and been singularly unsuccessful with their models,’ complained the banker.
‘The trouble with economic models is we live in a dynamic world where the number of variables is infinitely great. What is good today can be a formula for disaster tomorrow. As an example, when I visited Singapore for the first time in 1970 its population stood at two million, today its more than five million, which means the model that worked for the seventies and eighties is no longer adapted for a city state with high expectations, threatened by stagflation, an ageing population, and competitors who have learnt to do the same tricks cheaper.’
Fitzwilliams was impressed by the candid approach of the writer historian and when he mooted the idea of forming a think-tank Francis reacted favourably. They agreed that Francis, with the financial support of the bank, form a group of experts, composed of economists and geopolitical specialists, that would meet from time to time to review world affairs Their role was to act as a kind of radar, sweeping the horizon, ready to detect the kind of events whose nature could impact the bank’s business and financial decisions: riots in Guangdong Province; political coups in resource rich African countries; the rise of nationalist sentiment in Latin American countries; the discovery of new offshore oil reserves in South East Asia; political instability in Central Asian republics, or closer to home trouble in the EU.