This was my entry for last month's HoS List Challenge! This month's challenge is themed around Grand Projects, the link is in my sig, and there's still about a week left to get your entry in!
Shorting England By The Pound
Chancellors of the Exchequer:
1970-1973:
Iain Macleod (Conservative)
1973-1975:
Peter Walker (Conservative)
1975-1980:
Jim Callaghan (Labour)
1980-1982:
Roy Mason (Labour)
1982-1985:
Jim Prior (Conservative)
1985-1986:
Tim Rathbone (Conservative)
1986-1990:
David Penghalion (Liberal)
1990-1992:
Peter Lilley (Conservative)
1992-1993:
Francis Maude (Conservative)
1993-1994:
Peter Lilley (Reform)
1994-1995:
Clare Short (Labour)
1995-1997:
Jack Cunningham (Labour)
1997-1998:
David Lightbown (Conservative)
1998-1998:
Nick Leeson (Reform)
1998-1998:
Ken Clarke (Conservative)
1998-1999:
Douglas Hogg (Conservative)
[Date Published: 05/12/2014]
Black Thursday, or the 1997 sterling crisis, was a
financial crisis that occurred on the
14th of August,
1997 [against style guide; link formatting], due to improprieties committed in the office of
Chancellor of the Exchequer Nick Leeson.
Background:
Over the past two decades,
Great Britain had experienced a
rapid turnover of Chancellors of the Exchequer [no link?], for a variety of reasons. The general state of the economy was poor, with
inflation, lack of global competitiveness, and repeated
militant union action choking productivity [editorialising], and the majority of Chancellors could do little about it. This also led to general political instability, with the result that
governments rapidly gained and lost the confidence of the
House of Parliament. Finally, the combination of the nominal power of the Chancellorship and the actual impotence of the position chafed at the egos of many Chancellors [editorialising], leading to many choosing to resign the post over points of principle, such as
Peter Lilley's objection to retaining the
council rate top-up or
Clare Short's opposition to the
Baltic War.
After the
1997 General Election, the
Conservative Party under
Michael Ancram formed
a coalition government [should link to "First Ancram Ministry", not "coalition government"] with the
Reform Party, formerly led by the aforementioned [against style guide; professional language] Peter Lilley before his
assassination by the IRA, and then led by
Roger Knapman. Due to Reform's economic focus as a party, one of the conditions of this coalition was the inclusion of a Reform MP as
Chief Secretary to the Treasury, which was a climb-down from controlling the Treasury itself as was originally proposed by Knapman [irrelevant info]. Due to the role's junior nature, many
big beasts [against style guide; over-linkage, should link to "big beasts (politics)", not "Big Beasts (film, 2007)"] refused the position, leading to the relatively untested Nick Leeson being selected thanks to his pre-Parliamentary experience as a
clerk for
Morgan Stanley and amateur
day-trader [source?].
Leeson himself had only been elected to Parliament
three years ago, and was seen by many [source?] as a placeholder. However, after
David Lightblown's
heart attack, he successfully asserted his right to take over as Chancellor, following the precedent set by
Tim Rathbone, who had assumed the position following
Jim Prior's death in the
Orpington train crash. Rathbone's own position as
Special Minister of State for Europe may have been [source?] one reason why this was allowed to go unchallenged by Ancram, against the wishes of many such as
Home Secretary Brian Mawhinney, who viewed the party as being "exploited by the Reform-ites". [irrelevant info] Due to his relative inexperience, Leeson was given a significant amount of slack by the
Civil Service when it came to the Treasury's behavourial norms.
The Incident:
Leeson soon gained public popularity for his
bullish statements on the economy and his easy-going charisma. The weakness of the
Ancram ministry [against style guide; duplicate links] and of Ancram's personality allowed for individual ministers to set substantial amounts of policy on their own initiative, as seen with
Mawhinney's
War on Vice or
Malcolm Rifkind's
Outreach to Poland [irrelevant info, against style guide; link formatting], and his statements that he believed the UK could clear its
national debt by
2020 were understandably popular in an UK still reeling from
decades of debt crises [no link?]. At the same time, Leeson stepped back from the harsh
austerity of previous Chancellors, claiming that the
economic growth unleashed by solving the
sovereign default would cover expenses enough to end hated measures such as
petrol rationing and the
Price Commission. Despite the optimism of this view, the financial statistics released by the Treasury backed it up, and few [be specific] in
the media questioned it at the time.
In reality, Leeson's idol to Lakshmi had feet of clay. [against style guide; professional language, also this might be racist] The projected increase in
government income was largely buried deep in official documents [too vague], but its actual source was in the sale of
treasury stocks to various companies that, it later transpired, were either partly or wholly owned by the state, or receiving generous
tax rebates for taking them. The reduction in debt was a mirage, created by shuffling the nominal responsibility for repaying it into the future, when the gilts [against style guide; use consistent terms] would mature. By Leeson's own admission [doubtful source], this plan has begun with good intentions, as a temporary stopgap to tide the budget over before the wave of growth unleashed by his
economic reforms [overly vague link] got into full swing. However, after he became such an intense focus for media attention, it became clear that only by delivering on those audacious promises could he keep his career.
The promised wave of growth failed to meet the expectations it needed to, although by restoring
investor confidence Leeson had improved on the performance of previous chancellors [irrelevant info], and the treasury stocks were soon to come due [against style guide; consistent use of terms]. The solution Leeson devised, aided by multiple Treasury aides [who?], was an audacious scheme [against style guide; professional language] allegedly inspired by
a recent biopic of
Jacob Little. [source?]
First, Leeson would remove around £400 million from the next budget's income, in the form of repayments on gilts lent to nationalised industries, and instead use it to purchase and then
short-sell shares in the
pound sterling via the
Governmental Market Interface Act, 1993 [against style guide; link formatting]. Then, privately citing the decrease in the
balance of payments caused by said £400 million, he would privately
devalue the pound momentarily, for just enough time for his agent to repurchase the cheap shares and cash in on the short. Finally, the proceeds would be listed as part of a
mini-budget the next month, as justification for reversing the devaluation of the pound, and as a substantial payment against the national debt. By Leeson's own admission [doubtful source] this plan, though well-intentioned [editorialising], was conceived with the aid of "much
red wine and a little fine
cocaine" [against style guide; quotation] and failed to account for many important factors, most importantly [against style guide; formatting] the reaction of the market.
The sudden, rapid, unexplained devaluation of the pound triggered a
loss of confidence among
currency investors, leading to the rapid sale of sterling, and a corresponding decrease in its value far below what Leeson had intended. While this did increase the payout of the planned short, its effects on the economy as a whole were extremely negative--the previous recovery was a mirage due to [editorialising] being supported primarily by investor confidence rather than physical economic growth, and the run on the pound triggered many foreign investors, fearing a repeat of the
sterling shock [should link to disambiguation page], to pull out of the country. The estimated budget shortfall [by who?] caused by this was around £17 billion, to which the proceeds of the short were a drop in the bucket [against style guide; professional language]--not to mention, of course, that the companies affected by the downturn were attempting to call in early the gilts the Treasury could not repay [source?].
While Leeson could have easily gone to work on recovery measures while obsfucating his role in the crisis out of necessity [editorialising], it was not to be. The aide who perfomed the short itself,
Alan Crozier [should link to "Alan Crozier" (redlink) rather than "Judas"], went to the press immediately after depositing the money at the Treasury, claiming he was "guilt-ridden" even though his maudlin whining had no real basis in reality and the whole affair was a pathetic attempt to save his own skin [editorialising, against style guide; professional language]. Following an investigation by the
Daily Telegraph [more information needed], Leeson was forced to step down after just 6 months in office, the shortest-serving Chancellor since World War 2 [irrelevant info].
Aftermath:
The record set by Leeson would not stand for long [against style guide; section spacing]. As per the process which had seen Leeson himself become Chancellor, the new Chancellor was his Conservative Chief Secretary to the Treasury,
Ken Clarke, a relative moderate on the "wet" end of the party. He was also severely
overweight and had been
smoking heavily since his narrow escape from the
assassination of Reginald Maulding [irrelevant info]. As such, a few days after taking office, he suffered a near-fatal
heart attack, allegedly exacerbated by the fallout of Black Thursday [against style guide; unnecessary hedging], and resigned. His Chief Secretary,
Douglas Hogg, took over as Chancellor for the remainder of the Ancram ministry.
The economic damage of Black Thursday reversed the previous years' minor economic recovery, removing up to a fifth of the UK's
GDP according to Treasury estimates, and permanently stained the Ancram ministry and the Reform Party with an aura of scandal. Leeson's misdemeanours were cited in
Neil Hamilton's
Warrington Declaration, which founded the
Britannia Party alongside seven other Reform MPs, who promptly withdrew their support from the government. The resulting
vote of no confidence triggered
an election in which
Labour's main line of attack was the Conservatives' poor handling both of their ministers and of the now-crashing economy.
Robin Cook became Prime Minister, with the largest majority since Heath [irrelevant info].
Nicholas Leeson was bullied into resigning his seat [source?] by a hostile media campaign in his
constituency [editorialising]. After the election, he moved to
the Netherlands due to the
incoming government having declared their intention to make him a scapegoat for a whole twenty-year crisis [editorialising]. He lives there still, working as a clerk, and still occasionally trades using his own money [source?].
[
Editor's Recommendation: Deletion. The current article is ommitting crucial data in some areas and is overly detailed and speculative in others--it needs major rewrites to bring it up to Britannica Online standards. The previous author, who only seems to have ever edited this article, has unfortunately stopped answering his DMs. I suggest starting fresh, using this as a skeleton rather than a model at best.]
[Timestamp: 07/12/204]
