Chris Johns: Titanic Brexit task could turn into Tory disaster movie

Hollywood struggles to make successful movies about finance. There’s a good reason for that: unlike a hospital, say, nothing really gripping or dramatic ever happens in stockbroking. Investment banking is fundamentally boring. There are only so many ways you can show scenes of young men (usually) shouting into telephones or staring morosely at computer screens. The world of financial markets isn’t interesting enough to attract a mass audience. The standard trick is to populate the story with plenty of cocaine, sex and tortured explanations of insider dealing. A heady cocktail of human interest this is not.

In the (truly excellent) film about the great financial crisis, The Big Short, the makers were reduced to having an attractive blonde actress explain collateralised debt obligations while sitting naked in a bubble bath. Even then, at least half the audience found its attention wandering elsewhere. In that same movie, two nerdy characters, running a hedge fund from their garage, tried to become parties to something called an ISDA. The film-makers had to explain all this because to appreciate how people could make so much money from a housing crash you have to have awareness of an International Swaps and Derivatives Association master agreement. Neither Shakespeare or Spielberg could put lipstick on this.

Close to catastrophe

Despite the fundamentally dull nature of finance in general, and derivatives in particular, the paradox is that the the world really did come within a whisker of true financial catastrophe. One that was avoided only because of people, mostly central bankers (not politicians), who appreciated the finer points of ISDAs. The financial crisis was bad enough but could have been orders of magnitude worse if the world of derivatives had imploded. Dull bankers, particularly those in the Federal Reserve, the US central bank, sorted it out.

ISDAs were back in the news this week with a warning from the Bank of England that Brexit potentially imperils the validity of £20 trillion worth of derivatives contracts. That's 20 followed by 12 zeroes. While this is not a problem on the scale posed a decade ago it is a timely reminder of how complicated Brexit really is. Brexit negotiations are appropriately focused on things such as citizens' rights, the Border and legacy payment issues, but ISDAs may soon be joining this list. Just because finance rarely offers watchable drama it doesn't mean that markets can't produce dramatic outcomes.

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Some of the many financial markets that nobody really understands (and are as equally boring as an ISDA) are the foreign exchanges. About $1.5 trillion is traded each day, little of which has anything to do with exports or imports. Sterling was the one market that reacted instantly and appropriately to last year’s Brexit referendum. It was a kind of collective judgment on what happens next to the British economy. So far, that verdict has held up well. The UK economy is slowing down, now growing at the slowest rate of the major economies. London house prices are, for the first time in years, falling. Much more of this is to come.

Sterling is the best barometer of hard-nosed market opinion. At least one British cabinet minister has recently issued dark warnings about the pound's likelihood of another crash if Labour comes to power. Exchange rate crises are a favourite of dealing rooms the world over: a collapsing currency may be tough to turn into a movie but can provide opportunities to make or lose vast fortunes.

It’s a bit rich for the Tories to warn about a Corbyn crash for sterling: the conservatives have presided over one or two major falls in the pound, not least last year’s collapse. But it is hard to disagree with the notion that further falls for sterling are likely if and when Labour regains power. The party itself is ‘war-gaming’ precisely such an event.

Existential threat

Could the ruling Conservative party be about to lose power in the same way the Liberals did almost a century ago? From a landslide victory in 1906 the Liberals were in government only via coalition 10 years later and never again regained power. Pundits who look at the modern Tory party assume that the only threat is the loss of more seats at the next general election. Something more existential is seldom contemplated. Brexit could now be that risk.

Dramatists sometimes get it right. The television programme Billions initially struggled when the script focused on insider trading and shouty dealing rooms. A switch to a Moby-Dick-style epic struggle between the two main characters rescued the series. Two people duelling purely for hate's sake injected all the drama necessary for compelling viewing.

The naked pursuit of power and its associated willingness to stab anyone in the way is often extremely watchable. Boris Johnson’s sacrifice of reason, truth and objectivity in his desire for the premiership is now of epic proportions. He risks the British economy, not just his colleagues’ backs.

Brexit is flirting with tragedy. Those dull financial markets are watching closely. Sterling, it seems to me, is the ultimate oracle. If it’s Johnson or Corbyn as the next prime minister then the British currency is looking at further dramatic falls.