Birmingham,The Stirrer, Black Country

news that matters, campaigns that count

for Birmingham, the Black Country and beyond

Laurence Inman’s Blog



Worried about the current credit crunch and impending recession? Laurence Inman reckons we’ve seen it all before.

Older readers will need no reminding that there have been other ‘credit crunches’ (or ‘banking collapses’) in the past.

In 1866 we had a humdinger, due entirely to unbridled speculation in railways.

There had been a pretty convincing rehearsal for this after the previous big rail gold-rush in the early 1840s, but this time it really hit the target.

The basic problem was that they could not maintain any sustainable profitability because they were allowed to expand too rapidly. Capital was thrown at new projects without any regard for future repayments. By today’s measures it ran into billions. But the projected returns were also astronomical. Confidence was limitless.

The fall, when it inevitably came, brought down many fabulously rich contractors, including Sir Samuel Peto, one of the models for Augustus Melmotte in Trollope’s The Way We Live Now, (1875) and three major railway companies.

The collapse was caused entirely by the unregulated banking industry. It kept many railway companies afloat by handing out huge sums to contractors, whose grandiose projects turned out to be more marginal and less profitable than the wild forecasts they set out in their prospectuses.

One finance house in particular, Overend Gurney (what a brilliant name!) lent Peto and others a big percentage of their assets to support schemes, some in Spain, Canada and the Caribbean, which, when they failed, took down the whole financial system.

Gurney’s fall led to creditors besieging other banking houses, prompting a near riot in Lombard Street and the Bank of England had to suspend the Bank Act of 1844 to allow other banks to issue paper money instead of gold.

Dickens described the events which led up to the disaster as caused by ‘a muddle of railways, in all directions possible, and impossible, with no general public scheme, no general public supervision, enormous waste of money, no fixable responsibility.’

In the end it was felt that only complete nationalization could solve the problem. Disraeli poo-pooed this suggestion in March 1867. We are still living with the consequences of mistakes made at that time.

We are going to be suffering the fall-out from the present debacle for years. No one ever seems to learn the most basic lessons. All we had to do was consult the best minds in Ancient Greece, or the Enlightenment, or Medieval Scholasticism.

Instead, people were allowed to ape the worst excesses of the worst type of get-rich-quick speculator, the avaricious maniacs who turned nineteenth-century America into a maelstrom of violence and hatred.

Obama’s speech yesterday revealed a man being pulled in two opposite directions. He wants peace, co-operation and neighbourly goodwill; but the system over which he will try to exert some influence values and rewards only self-assertion, competition and alienation.

I am beginning to dread the coming decade.

I think we are in a barbed-wire canoe, with Shit Creek Falls just around the bend.



The Stirrer Forum

The Stirrer home

valid xhtml

©2006 - 2009 The Stirrer