, Britain
In the spring of 1987 a printer in Croydon with nine staff had a visit from his bank. He had not asked for anything. He was offered a £40,000 overdraft facility, secured on his house, and told that if he wanted a second press the bank would look at that too. He had banked with them for eleven years and had never been offered so much as a conversation.
He took it. So did a very large number of people, and for three years it was the best decision any of them had made.
What actually changed on 27 October 1986
Big Bang was a specific set of changes to the London Stock Exchange on one Monday. Fixed minimum commissions were abolished. The separation between brokers, who dealt for clients, and jobbers, who made markets, was ended, so a single firm could do both. Outside and foreign ownership of member firms was permitted, and the trading floor gave way almost immediately to screen-based dealing.
The result was a City that was bigger, more international, better paid and structurally different within about two years. American and continental banks bought the old partnerships. The word "yuppie" entered the language. None of which, on its own, had the slightest bearing on a printing works in Croydon.
What reached a small firm was not the stock exchange
The deregulation that changed life outside London was a different set of things, running through most of the decade.
Hire purchase and consumer credit controls had been removed in the early 1980s. Exchange controls had gone in 1979. The Building Societies Act 1986 let building societies widen what they did and, later, convert to public companies, which put them into direct competition with the clearing banks for lending. Right to Buy from 1980 had put a great many households into home ownership, and house prices then rose through the second half of the decade, fastest in the South East.
Put those together and you get the printer's visit. Banks were competing for lending in a way they had not been. Security had become easy, because a house that had doubled in value made a comfortable-looking charge. And an owner-manager in 1987 could get money on terms that would have been unrecognisable in 1979.
Business formation rose sharply through the decade. Some of that was genuine appetite. Some of it was unemployment, and the Enterprise Allowance Scheme from 1983, which paid £40 a week for a year to an unemployed person starting a business and produced a very large number of new sole traders, not all of whom had a market.
Nigel Lawson's 1988 Budget cut the basic rate of income tax to 25% and the top rate to 40%. The same Budget announced that double mortgage interest relief for unmarried joint buyers would end on 1 August, which set off a scramble to complete purchases before the date and gave the housing market one final shove.
Cheap credit made everyone braver, including the cautious
The part that is hard to convey afterwards is how reasonable it all felt at the time.
If your premises are worth 30% more than when you bought them, taking on borrowing looks conservative, because the gearing keeps improving without you doing anything. If demand has grown every year for four years, a growth assumption is not optimism, it is the trend. If your competitor has just taken a second unit, standing still looks like the risky option.
So firms bought freeholds, took second sites, upgraded plant, and signed leases with upward-only rent reviews at rents that only made sense if the boom continued. And they did it with personal guarantees, because that was what the bank wanted and because the house behind the guarantee felt like a formality.
The reversal took two years and was not gentle
Inflation picked up in 1988 and the response was interest rates. Base rate roughly doubled between the middle of 1988 and the autumn of 1989 and stayed in double figures. House prices turned in 1989 and fell. Negative equity became a common word for the first time. The recession of 1990 and 1991 followed.
For the printer, three things happened at once, which is what makes this period instructive rather than merely sad. The interest on his borrowing went up sharply. His customers, mostly estate agents and local businesses, cut their spending. And the house securing the guarantee was worth less than it had been.
Any one of those is survivable. The combination is what emptied the industrial estates of the early 1990s. Construction and anything attached to house moves went first, as it always does. The firms that came through were usually the ones that had taken the boom as an opportunity to reduce borrowing rather than to increase it, which at the time looked like a failure of nerve.
Where this shows up in the game
A career running through the 1980s in Business Baron gets offered credit it did not ask for, on security that keeps improving, in a market where standing still costs you share. Banks lend more freely, valuations rise, and the terms are genuinely good. Then rates move and the game does not warn you, because nothing warned anybody. The bank manager who offered you the facility in 1987 is the same named character who reviews it in 1990, and he remembers what you did with it.