Independent UK: What would happen if the country really went bust?

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Sean O'Grady: What would happen if the country really went bust?
A British sovereign debt crisis would make sub-prime look like a tea party

Tuesday, 23 February 2010


Is Britain about to suffer a "Black Swan" event? This, if you follow trendy financial ideas, is the one that shocks observers who assumed such a thing could never happen, just as the first Western visitors to Australia to see a black swan were similarly startled. The idea was popularised by a former financial trader, Nassim Taleb, whose The Black Swan became a bestseller soon after its publication in 2007, at a time when the unthinkable was happening to the big banks and markets every day, and black swans were biting us with painful frequency.

For an intellectually rudderless financial community, Mr Taleb's ideas were seized upon and they made him a great deal of money. The Black Swan was, perhaps, no more than an updating of Keynes' sadly forgotten distinction between risk and uncertainty, but someone did need to remind the world about that.

The bankers had never been much interested in it, and assumed all risks and uncertainties could be modelled mathematically. This mispricing and misunderstanding of risk, for example through the mistaken rating of sub-prime mortgage-backed securities as "safe", brought us to the brink of another Great Depression. It may yet happen: just because you've seen one black swan doesn't mean another one isn't round the next bend in the river. Or a whole eyrar of them.

So what would a British Black Swan look like? An ugly beast, I should say. It would probably take the form of a formal downgrade of the debts the British Government issues, or gilts, by the leading credit agencies. The markets would then go on a "gilts strike" – refusing to buy our debts except at ruinous interest rates. ...........(more)

The complete piece is at: http://www.independent.co.uk/opinion/commentators/sean-ogrady-what-would-happen-if-the-country-really-went-bust-1907411.html