We Invented the Markets and Now Rent Them Back
The City of London is the world's most elegant casino, and I say that with affection — I have covered it for twenty years, and the croupiers still wear better suits than the regulators.
Start with the premise, because the premise is the joke: Britain voted to leave the European Union and keep the financial center. The factories could go; the derivatives would stay. And — credit where due — the Square Mile survived Brexit with the resilience of a cockroach in a Savile Row suit. The euro clearing stayed. The listings wobbled, then steadied. The talent grumbled about visas and stayed for the salaries. London remains the place where the world's money comes to be managed, multiplied, and — on occasion — mislaid.
But look closer at what the City actually sells now. The laundromat function — polite term: “wealth management” — processes the fortunes of oligarchs, Gulf sovereign funds, and Asian tycoons with the discretion of a Mayfair doctor. The property market is a safety-deposit box with a view of the Thames. And Brussels, having failed to steal the business, now regulates it from across the Channel with the fury of a spurned lover — equivalence denied, rules rewritten, each new directive a small revenge served cold.
For one thing, consider the listings — the shop window of any financial center, and lately London's has had a “closing down” sign swinging in it. ARM Holdings, the crown jewel of British chip design, chose New York for its 2023 flotation at a valuation north of fifty billion dollars, and the City's grandees queued up to call it a tragedy, which it was, and then to explain it away, which is their other great skill. The great flotations of the age — the technology giants, the Gulf capital going public — list in New York or Riyadh, anywhere with deeper pools and lighter paperwork. A financial center that cannot persuade companies to be born on its own exchange is running, whatever the derivatives desks claim, on reputation and inertia. Both, admittedly, are formidable British exports.
The clearing battle, on the other hand, is the one London actually won — and won so completely that Brussels is still smarting. LCH, the London clearing house, processes the overwhelming bulk of euro-denominated interest-rate swaps, a river of paper worth hundreds of trillions in notional value, and every attempt to drag that river inside the eurozone has ended the same way: the volumes stayed put and the deadlines were quietly extended. The European Central Bank has coveted this business for a decade; the City has kept it with the serene confidence of a cat on the warmest spot in the house. Britain left the club, kept the casino, and now charges the members a fee to play.
And yet the most British irony of all is what the City refuses to finance. Britain's pension funds — some three trillion pounds of retirement money, one of the deepest pools on earth — invest overwhelmingly abroad: American equities, Asian infrastructure, anything except, it sometimes seems, Britain itself. The Mansion House reforms were supposed to coax this money home; the money, being money, went where the returns were. And so London will happily structure the financing for a toll road in Jakarta or a port in Mombasa while a railway in Yorkshire waits for a government that has no money. The concierge, it turns out, is excellent at everyone else's errands.
Then there is the great clean-up — or the theatre of it, which amounts to nearly the same thing in this town. After the sanctions of 2022, the Russian money that had gilded Belgravia for two decades was declared unwelcome with enormous ceremony: the Economic Crime Act, the register of overseas owners, a Companies House finally asked to check whether its companies exist. Much of it worked, after a fashion. But observe the replacement cycle: Qatari money in the Shard, Abu Dhabi stakes in the airports, Gulf sovereign funds buying London by the city block. The laundromat did not close, dear reader. It changed suppliers, upgraded the detergents, and kept the same discreet doctor on call.
Look east, and the picture thins further. The great Asian gambit — the London-Shanghai Stock Connect, the dim-sum bonds, the dream of London as the offshore capital of the renminbi — has produced, to be generous, a trickle. Hong Kong still does the real China business; Singapore is eating London's lunch in Asian wealth management, with better weather and lower taxes; and the Chinese giants that once courted the City now have their own exchanges and no particular need for a damp island's permission. The City's eastern strategy reads, consequently, like a love letter to which the beloved has stopped replying.
The Global South, meanwhile, remains the City's most reliable customer — which is to say, its most reliably billed one. African and Latin American sovereigns still come to London to issue their Eurobonds, paying London fees for London lawyers to draft London-law contracts: an arrangement of colonial elegance. The commodity traders decamped to Geneva years ago, but the financing, the insurance, the arbitration — the invisible plumbing of other people's trade — still runs through the Square Mile. It is a splendid business, being the indispensable middleman of the developing world's capital. It is also, if one is honest, a business that depends on the developing world continuing to need middlemen.
Here, finally, is the reckoning the City prefers not to hold. Finance is a magnificent industry for the square mile that hosts it and a curious one for the country around it: manufacturing is roughly a tenth of British output, productivity outside the southeast limps, and London has become the most successful part of an economy it no longer much resembles — a city-state with its own weather and its own property market. The regions get the nostalgia; the capital gets the bonuses. Britain did not so much keep its financial center after Brexit as discover that the financial center had been keeping Britain — on a retainer, and at arm's length.
The post-imperial irony is the real story. We built the global financial system — the gold standard, the eurodollar, the whole architecture — and now we rent it back to the world, taking a clip on every trade. Washington sets the rates, Frankfurt writes the rules, and London takes the commission. It is a perfectly respectable living for a former empire: the concierge of global capital. The waspishness, dear reader, is just how we process the nostalgia. The money, as always, processes itself.