Who stands to win from #Trump and #Brexit?

One would say that both Trump and Brexit are the result of populism, complacency and … to be frank stupidity. But they have more things in common. They both benefit the financial industry. See my two recent articles on Newsweek exploring what this new order means for our banker friends.

What does a hard Brexit mean for the City of London? (read here)


What does Trump deregulation herald for Wall Street? (read here)



A message of hope for 2017 from Greece

Did you enjoy 2016?


Pretty much everyone I met who is not Greek and does not visit Greece regularly has had the same question for me in 2016: “So, how are things in Greece, its quiet now, no? Better?”.

This post answers this question (if you were minded to ask) but also unexpectedly carries a message of hope in these dark times, a little indication of how 2017 might be the beginning of a recovery for Europe (at least) despite the annus horribilis 2016.


How are things in Greece? I think the closest parallel is drowning in quicksand. So long as you don’t move, nothing gets better. If you try and move, you sink a little deeper.

Syriza’s government has been a circus of horrors, whichever way you look at it. Since they took power in 2015 (as has been well documented in this blog) they have lurched from one disaster to another, from one conflict to another, from one (endless) ‘negotiation’ to another. They have achieved a series of ‘political solutions’ which is code for defeat and capitulation. They have interpreted the demands of Greece’s creditors in the most destructive and senseless manner, to the degree that even the IMF thinks the country is dying, stuck in a mire of growth chocking measures.

Most of the time Syriza has done nothing to improve the situation in the country (staying put in the quicksand). Some of the time (usually after botching another round of ‘negotiations’) they have legislated a new raft of fiscal measures (wiggling in the quicksand and sinking a little deeper).

Nothing has improved in Greece and nothing is changing for the better. My answer to my earnest enquirers is that Greece continues to sink as people slowly eat away any left over cash saved before the crisis. This is not to say that some have not benefited. Syriza friends and family are finding jobs in new PM’s offices. Syriza journalists are being hired at resurrected ERT. The party goes on for the few, for a little while longer. Far-right lunatics (forming the junior coalition partners) continue to bless fighter jets, while police cars cannot move for the lack of fuel. There is ample comedy, within the tragedy.

No, things are not improving in Greece.

So where is the message of hope for 2017 the headline to this post advertises?

Greece has been one of the first places where the wave of populist lies and ‘anti’ propaganda led a band of bandits to power. Greece pioneered the escape to fantasy in 2015, proudly followed by the British people electing to torch their economy through Brexit and the Americans electing to have a stab at torching the world by voting for Trump.

As the first piece of this puzzle of a (often farcical) rerun of the 1930s, Greece may be a good place to speculate on possible futures.

I had argued in 2014, mistakenly believing that those who speak nonsense and act crazy are putting on a show to excite the mentally handicapped sections of the electorate (I was wrong, they are stupid, devious and crazy), that a failure for Syriza would leave the political system in such a sorry state, the electorate would lurch further to the extremes after having witnessed the failure of both establishment parties and their populist antagonists. Who would benefit? Golden Dawn, the Greek neo-nazi (but fat and hairy) variant was first in line.

Alas, this does not seem to be happening. The failure of Syriza to drag Greece out of the quicksand is shifting support to traditional parties, like New Democracy (under its new centrist leader Mitsotakis). Syriza’s antics have served to demystify the idea of the ‘left’ as morally superior. Tsipras has laid bare for all to see how what he leads is not ‘the left’ but a group of opportunist, amoral, ignorant and incompetent power-hungry populist have-beens. Even a population as jaded as the Greeks, after 6 years of crisis, realise that the ability to govern and a broad plan (even a Euro-friendly one) is better than banditry and chaos lorded over by power-mad buffoons.

And here is the message of hope for 2017. After the populist experiment has failed, people can come back from the populist abyss. Perhaps the explosion of discontent that brings the sewer to power dissipates after the experience of governance via populists. Perhaps even the attempt to blame ‘others’ for failure won’t convince people who suffer the consequences of bad decisions.

I admit that things look bad at the moment for Europe and the world. There is a chance however that in 2017, Germans will trust Angela Merkel with another term, ensuring continuity for the European project. The French could return a mainstream president (anyone but Le Pen), thus ensuring the stability of the Euro, The Italians could keep at bay the populist buffoonery of Beppe Grillo.

Britain may ameliorate its Brexit experiment in self-harm.

Unfortunately, the Americans cannot help us here, as Trump is entitled to run a world-wide, real-life version of the Apprentice for 4 years. If the world doesn’t end on his account, we may look back at 2017 as the year that things came back from the brink.

They might. Considering the alternative, they must.

Cheer up and enjoy your mince pies.



The sheriff has left town: Trump and a return to the wild-west days of finance

My article on Trump and plans for financial deregulation posted in The Conversation can be accessed here


The article has also appeared on Newsweek


On Salon.com (access here)


And on Economia (access here)


I wrote a follow-on article, discussing expressly the chances of a return of Glass-Steagall for the Huffington Post. You can view it here.






How to cope with defeat: Lessons from Brexit


I do not normally do reassurance, so consider this a one-time election special.

A Trump Presidency will not end the world.

Here I said it. I hope you feel better.

A second Trump Presidency WILL end the world however.

Our efforts, and by our I mean all internationalist liberal people anywhere, should be concentrated on preventing this calamity from repeating itself next time around, be it in 2020 or whenever. Consider this a strategic retreat if you will.

Liberal internationalism has suffered a heavy defeat in the election of Trump in the USA. It suffered a serious blow by the Leave win in the EU Referendum in Britain. It would be dealt a long lasting wound by a Le Pen win in France.

There are some things we cannot change. Enough people have revolted against social liberalism that mandated political correctness and acceptance of others as equals. People resent women, foreigners, other races, religions. They always have and they probably always will. They also strongly resent being told they are inferior and wrong, even though these behaviours are inferior and wrong.

Enough people had enough of elites that supposedly operate for their own purposes and interests away from them. They resent the lack of vision, the lack of connection, the excess of a system that blew off the greatest economic crisis for a century and kept on going.

Enough people feel threatened by things outside their control shaping their lives.

All this we knew. What we did not appreciate is the establishment’s inability to shape people’s behaviour when they do get to express a policy changing opinion (eg at the ballot box). We also (at least in the case of Brexit) did not appreciate that a section of the establishment would co-opt this rebellion for its own purposes.

All this you know already, and there are millions of articles, op-eds and blog posts written about it as we speak.

What everyone is wondering about is what to do about it. How does one fight back against this irreversible (it seems) lurch to the right, towards populism, towards a darkness with echos of the 1930s?

After Trump’s victory I no longer believe this descent can be halted. Greece elected ignorant self-serving populists in an act of rebellion against ‘foreign occupiers’. The British chose to throw themselves off a cliff in the hope of something new. The Americans have just elected perhaps the least appropriate person to ever run for the Presidency. It is happening, it will happen elsewhere, nothing you can say or do can put a stop to it.

What does one do then?

The answer is capturing and controlling the narrative of the extremists’ failure.

What is so dangerous about this global phenomenon is not the extremes taking power, it is how they will use their failures to create a narrative that leads inexorably to conflict.

Lets take the example of Brexit.

The idea of Brexit is based on a series of un-achievable dreams. During the EU Referendum we failed to convince the majority of voters that wishing for a unicorn does not create one. Our task post-referendum is to convince people that the unicorn did not appear because it never existed, not because we Remainers did not join in wishing for one.

Brexit will fail as a project because it cannot deliver on its promises of restricting immigration and ensuring prosperity at the same time. It can either attempt to restrict immigration with catastrophic consequences for economic performance (for a variety of reasons explained elsewhere on this blog), or it can deliver a manageable drop in living standards for zero progress on any of its key objectives. There is no upside to Brexit and no silver lining, at least for the people who voted for it.

What is important is how a narrative explaining this failure develops. A careful, fact based, relentless effort needs to be made to demonstrate that the failure of Brexit is due to incompetent government, unrealistic aims, incoherent promises and contradictory policy goals. This needs to be homed-in on a daily basis for weeks, for months, for years. It may not prevent (and will not prevent) Brexit from happening, but it will lay the blame squarely where it belongs: at the hands of those who argued for Leave and carried it out.

Failing to control the narrative will lead to a surging nationalist right placing the blame at the hands of “Remoaners”, pro-EU traitors, evil vindictive Europeans, bribed or bamboozled foreigners, Enemies-of-the-People Judges.

Failing to demonstrate, carefully and thoroughly that the Brexit government is responsible for the disruption that is to follow will lead to an entrenchment of the worse aspects of Leave: The racism, the anger, the violence. It will lead to violent conflict.

Similarly with Trump. The Trump Presidency will spectacularly sink in its myriad incompatible, incoherent, un-achievable promises. Who gets the blame for the failure will determine the nature of US politics and the shape of the world for generations to come.

Failed governments, bad policies, rotten ideologies crumble and fall. Look at Soviet Communism if you need any examples. Trump’s rotten politics should not take 70 years to disintegrate. They should not outlast his first term.

The job of Democrats, of progressives, of liberals in the USA and the world is to highlight, publicize and fact check day in and day out the failures of the Trump regime.

It will be difficult in this supposedly post-fact, post-rationality, expert-hating political environment, but people are not that blind to the reality around them. Blaming others only works for a little while for regimes that burn out very fast. Hitler came to power in 1933 and would not have lasted till 1945 were it not for the war. America is not Nazi Germany. When Trump fails, it will be obvious. The task is to control the narrative and prevent him from spinning it as the fault of ‘wreckers’ and traitors within.

There it is therefore America and World. We have failed, we have been defeated. We will rise again. Reality is our ally, we just have to pull our sleeves up and this nightmare will one day be over.




US politicians finally agree on something (that no-one saw coming)


Many things are happening in the new populist phase of American politics. Some are less expected than others. For instance, the GOP joining forces with the left of the Democrats in asking for the restoration of Glass-Steagall was not something many saw coming. The new Republican Party platform calls for restoring the law that separated commercial-banking and securities activities at Wall Street firms, a regulatory change advocated by both Elizabeth Warren and Bernie Sanders. The following offers some background on this law and how it is linked to the regulation of financial markets in the US.


Glass-Steagall is the offspring of crisis and a totemic legislation of the New Deal. Crisis can be (and many argue, indeed, it should be) a catalyst in developments in policy that can at times lead to rapid and wholesale reversals of policy directions. One such reversal was the expansion of regulation in the United States after the 1929 crash and the initiation of the New Deal by the Roosevelt administration. As a product of pressure from various sources, the New Deal was grounded in no single coherent or systemic theory. Perhaps the most prominent unifying theme was the popular conviction that an unregulated free market guided solely by the invisible hand of private interest could lead only to the dispossession associated with the depression. The Roosevelt administration responded to this popular perception (in sync with Keynes’ ideas) by offering the countervailing power of government, administered by disinterested expert regulators, in order to discipline the market and stabilise an economy that laissez-faire had all but destroyed. The result was a stunning expansion of administrative authority both within and independent of the executive branch. What is particularly interesting is that the state sought to set in place a regulatory framework that would prevent the re-emergence of circumstances that could lead to another bubble and subsequent catastrophic crash.


One of the most important legislative responses to the failures of the Depression (particularly in the banking sector) was the work of Senator Carter Glass, Representative Henry Steagall and other proponents of the Banking Act of 1933, known as the Glass Steagall Act. The Act’s backers were convinced that the banks had played a significant role in promoting unsustainable booms in the real estate and securities markets during the 1920s. As a solution to this problem it was suggested that commercial banks should restrict their operations to the acceptance of demand deposits and the extension of short-term, self-liquidating loans to finance the production and sale of goods by businesses. Banks therefore should be prevented from making unsound loans and investments that encouraged an overbuilt real estate market and an immense overexpansion of real estate values. The banks should also be discouraged from making investments in securities that undermined their solvency during stock market downturns and they should be restricted in making loans to finance the purchase of securities. Liberalisation that removes the above restrictions has since been shown to produce a banking system that is more vulnerable to systemic risk. Admittedly, deregulated financial markets generally promote faster growth rates by providing more extensive financing to consumers and businesses during economic expansions. However, by encouraging greater reliance on external funding, deregulation creates a higher risk that consumers and firms will become overextended and end up insolvent if external funding sources shut down during economic contractions. An example of this happening was the credit crunch of 2008. As Amato and Fantacci explain in their book The End of Finance, the reliance of the economy on ever-increasing availability of funding (known as liquidity) propels what is a market economy to its turbo-charged, crisis-prone financialised version, something the aforementioned authors equate with modern capitalism.


The financialisation that came to characterise US (and global) capitalism before the crash of 2008 was the product of protracted deregulation. While deregulation has been a dominant trend in the US since the mid- 1980s, it came properly into its stride in the latter part of the 1990s. By 1998 regulators and the courts in the United States had allowed banks to make substantial inroads into the securities and insurance sectors by exploiting loopholes in the Glass Steagall Act and the Bank Holding Company Act of 1956, both enacted with the memories of the Great Depression present in people’s minds and considered strong legal barriers to bank entry into the securities and insurance fields. The model of finance to emerge after the repeal of the Glass Steagall Act was based on securitisation and became known as the ‘originate and distribute’ model. A securitisation is a financial transaction in which assets are pooled together and securities representing interests in the pool are issued (see here for an explanation). Under the originate and distribute model, financial institutions would create assets (such as loans) then repackage these and sell them to investors. The resulting funds would be used to originate more assets which in turn would be re-repackaged and sold, recommencing the cycle. This model of banking recreated in a way the institutional framework that had led to the crash of 1929. By allowing the banks to lend not on the basis of deposits but on the strength of the money markets, the way was opened for the financial sector to depart from the fundamentals of the real economy, creating fictional wealth.


In confirming the return of universal banking powers to the financial holding companies, allowing the combination of commercial with investment banking, the Gramm-Leach-Bliley Financial Modernization Act repealed several Depression era safeguards in 1999. Unlike the system of finance established in the United States in the 1930s, the new model of finance allowed competition between commercial banks and investment banks for securities business. As a result, opportunities for profit increased dramatically, encouraging investment banks to engage in ever more risky proprietary trading – speculating with their own capital to increase returns. A key boost to the trade of derivative financial products via the process of securitisation we just described was given by another major step in deregulation in the form of the Commodity Futures Modernization Act of 2000. The new legal framework was not merely reflecting innovations in financial markets, but changes in the law spawned the so-called innovations. In other words, it was not changes to the markets that brought about the conditions that created the credit crisis but, crucially, changes in the law. The Commodity Futures Act suddenly and totally removed century-old legal constraints on speculative trading in over-the-counter (OTC) derivative financial products. It is useful to remember that derivatives were not always seen as a clever way to speculate but rather as a risk limitation technique. Derivatives were considered in US jurisprudence to be valid methods of dealing with risks of future events, and while hedging was legal, speculation in OTC derivatives was not and courts would not allow enforcement of financial bets whose sole purpose was speculation (as opposed to risk diversification). One way that the pre-2000 system dealt with speculative derivative trading was by moving it to clearing houses which assumed the risks associated with such transactions and kept the volume of trading low in order to minimise the exposures of the clearing houses themselves. This system operated fairly consistently on the basis of the common law (eventually codified by the Commodity Exchange Act of 1936), which retained the prohibition of speculative trading outside regulated exchanges. The Commodity Futures Act of 2000 represented the final blow to this system of controlled derivative trading. After the Act, speculative trading in derivatives was in effect legalised in the US with the result that a massive market in OTC products grew with-out anyone being able to assess the systemic risk effects of ever expanding volumes of trading.


The response, post credit crunch, at least in the US, has been to try and reverse the tide by restoring legal limits to derivatives trading outside clearing houses in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Will reinstating 1930s era regulation deal with the risks of further crises stemming from financial markets? It is correct that on its own this initiative cannot be a cure-all. On the other hand a more controlled, smaller financial sector has lessened capacity to destroy the real economy during one of its cyclical, self-generated disasters.


More on the issue of regulation and debates on reform post-financial crisis can be found in my book which can be obtained here and here.