"It is now abundantly clear that the financial services sector has incurred gigantic losses and that even when those losses have been subsidized by some unfortunate group of taxpayers, the sector is likely to end up being far smaller than it was. In fact, as a share of the economy, the sector will probably end up being only a little larger than it was back in the 1970s.
For Britain, this has three appalling costs.
First, the assets of its financial services sector are around 400% of its GDP, below only the much smaller Iceland, Switzerland and Ireland and twice the U.S. ratio (and most Swiss banks were notably cautious in the bubble). Because of the importance of Britain’s financial sector, its bank bailouts need to be nearly as large as those in the United States, yet its tax base is only one quarter the size.
Second, the downsizing of financial services will produce an immensely damaging decline in British asset prices, particularly those of London and southeast England housing, in which so many middle-class Britons have invested their entire life savings .... That will have a further unpleasant effect on bank loan portfolios, pension and insurance assets and the British tax base, which will deepen the economic downturn.
Third, and most serious, since the British financial services sector is almost entirely controlled from overseas, there is very little long-term reason why it should remain in Britain. After all, it’s not as if London’s climate is particularly attractive except to aficionados, while its infrastructure is appalling. The product areas in which London-based houses appeared to have a particular expertise have mostly been shown to be over-elaborate Ponzi schemes."