And what triggered that crisis, apart from the fumbling fiscal event that Truss and Kwarteng delivered with all the finesse and understanding of two bright yellow bulldozers?
Well here's a real surprise, it was a crisis in defined benefit final salary pension funds caused by Liability Driven investments (LDI's) that the pension funds had made. You'd have thought that the clue would be in the name wouldn't you - a bit of a liability? But apparently not for the brilliant champagne charlies who sit at their screens in London.
The bucket heads in the city thought LDIs were a "safe" derivative for insuring against rising long term costs and liabilities for defined benefit pension funds. As is almost inevitable in these financial market derivatives, LDI's are basically a way of borrowing a lot, (think 10 x or so), against a small stake. Which works great when the market goes the right way and profits are made. But equally if the market goes the wrong way then losses balloon.
And the markets did go the wrong way, and they went the wrong way so fast, (think hours not days) that there wasn't time for the pension funds to sell other assets to deal with the problem. To be fair to LizKwasi, with the central banks already signalling for months that quantitative easing was coming to an end, the bond markets were probably already on a journey going the wrong way. But the "mini" budget just pushed them over the cliff.
So once again the financiers have managed to privatise profit and nationalise losses. Just like in 2008. And, as always, they assume that the government, so that means you and I, will ride to the rescue.
So how about a different approach? Particularly now we've managed to get the hang of how this wealth creating, richness concentrating, monopoly magnifying rentier market economy actual works.
The government should impose a Bail Out tax against the financiers who seem to rely so much on the state as the lender of last resort. The BO tax, possibly also called the Bog Off tax, might be just the message the city needs to regulate itself away from the highly leveraged lucrative fee derivatives it scoffs from the trough so regularly.
