The questions a real banking inquiry must ask

MPs should look at whether we need this style of investment banking at all.

Tony Blair is keen that bankers are not hung from lamp posts. Some would say such a punishment would be the easy way out for today's investment banks. Tony himself was paid handsomely to advise JP Morgan and they are directly implicated in the Libor scandal. Libor, however, is merely the tip of the iceberg in market manipulation by investment banks.

Blair's key Downing Street officials Jeremy Heywood and Jonathan Powell both went to work for Morgan Stanley - indeed Powell still does. Heywood was the author of the Libor letter to the Bank of England uncovered by the Treasury select committee and his role at Morgan Stanley was not an advisory position, instead he was managing director of their UK investment banking division. With a 42% share collapse in the 2008 financial crisis and a $107 billion bail-out, Morgan Stanley was fortunate to survive.

Morgan Stanley demonstrates why George Osborne's timid joint committee on Libor will barely scratch the surface of the problem. In each of the last ten years Morgan Stanley have been fined for cheating. In 2003, they were fined for misleading research. In 2004, for using customers money as collateral on loans. In 2005, for failure to supervise. In 2006 and in 2007, for deleting damaging emails. Fines were given for failure to disclose information to municipal bond investors.  Meanwhile, Sir Howard Davies, the former FSA regulator in the UK sits on their board of directors and perhaps unsurprisingly their alumni includes one Bob Diamond.

Each of these dishonest activities was engineered to profiteer from manipulating the market. Using their market power, they have repeatedly squeezed extra profits, at all costs. But Morgan Stanley is no different to other investment banks. Whilst investment banks brashly parade their wares and successes, what is unusual about their activities is how often they operate in cartels. They hunt as a pack and they profit as oligarchs. In some bespoke areas they compete ferociously, but when RBS last week sought advice on selling off Direct Line insurance they brought in not one, but eleven investment banks to advise them, just as when Cadbury was asset stripped by Kraft, seven investment banks were at the feast.

What Parliament should be looking at is whether we need this style of investment banking at all. How would behaviour change if we were to tax derivatives trading? If we were to ban short-selling would the real economy weaken? Where has the money gone? It is the bar room question, and the answer is very clear. Three groups have lost out directly: sovereign states who have ended up with huge deficits in their finances; public sector investers, such as US cities, who have been defrauded by mis-sold derivatives; and sub-prime mortgagees who have defaulted on their exorbitant loans.

Whilst bankers suffer the temporary loss of a year or two's bonuses, their poorest customers have lost out the most, whilst the weakest economies have suffered the greatest.  Meanwhile, the real battle amongst politicians is to see who can manoeuvre for national competitive advantage. From Qatar to China, cash rich governments have bought up assets. Large multinationals have stockpiled their cash. European legislators have seen the possibility of transferring financial markets to Frankfurt or Paris. Singapore, Shanghai and Hong Kong have grabbed every possible opportunity. Nobody should be kidded into thinking that US legislators and regulators have seen anything bigger than the prize of shifting dollar trading from London to New York.

The real questions are therefore: can Europe act as a counterbalance to the USA and China? Can Europe maintain investment banking whilst squeezing out short term market manipulation? Is self reporting still possible? How do we regulate large cartels? Will the taxpayer again have to bail out large banks?

There is though another model: that of transferring risk. If you put money in the bank, then you need to know what the risk it is. If you want no risks and government guarantees, then you will get less interest - a premium bond style bank account. If you want medium risk then go for more interest, and if you want high risk then do not expect government underwriting. Our current debate fails to trust the individual and the underpinning of their risk profile with full transparency. Should we not have tight controls on market manipulation, including on mergers and takeovers, with the interests of consumers, employees and the nation state carrying proper weight? Do we not have a particular responsibility to clean up offshore banking?

This is the big UK policy gap. Many offshore centres are UK crown dependencies or British overseas territories, from Jersey to Bermuda , from the Isle of Man to the Cayman Islands. There are 10,000 hedge funds in the Cayman Islands, Bermuda and the British Virgin Islands - a large majority of the world's total amount. We are responsible for their foreign affairs and crucially for their defence. The biggest single change we can make to stabilise the world banking system is the opening up of these offshore financial centres, to minimise tax avoidance, reduce financial fraud and democratise world banking. This is where Parliament's inquiry must go.

The sun sets over Canary Wharf in London. Photograph: Getty Images.

John Mann is Labour MP for Bassetlaw and a member of the Treasury select committee.

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How Donald Trump is slouching towards the Republican nomination

There was supposed to be a ceiling above which Trump’s popular support could not climb.

In America, you can judge a crowd by its merchandise. Outside the Connecticut Convention Centre in Hartford, frail old men and brawny moms are selling “your Trump 45 football jerseys”, “your hats”, “your campaign buttons”. But the hottest item is a T-shirt bearing the slogan “Hillary sucks . . . but not like Monica!” and, on the back: “Trump that bitch!” Inside, beyond the checkpoint manned by the Transportation Security Administration and the secret service (“Good!” the man next to me says, when he sees the agents), is a family whose three kids, two of them girls, are wearing the Monica shirt.

Other people are content with the shirts they arrived in (“Waterboarding – baptising terrorists with freedom” and “If you don’t BLEED red, white and blue, take your bitch ass home!”). There are 80 chairs penned off for the elderly but everyone else is standing: guys in motorcycle and military gear, their arms folded; aspiring deal-makers, suited, on cellphones; giggling high-school fatsos, dressed fresh from the couch, grabbing M&M’s and Doritos from the movie-theatre-style concession stands. So many baseball hats; deep, bellicose chants of “Build the wall!” and “USA!”. (And, to the same rhythm, “Don-ald J!”)

A grizzled man in camouflage pants and combat boots, whose T-shirt – “Connecticut Militia III%” – confirms him as a member of the “patriot” movement, is talking to a zealous young girl in a short skirt, who came in dancing to “Uptown Girl”.

“Yeah, we were there for Operation American Spring,” he says. “Louis Farrakhan’s rally of hate . . .”

“And you’re a veteran?” she asks. “Thank you so much!”

Three hours will pass. A retired US marine will take the rostrum to growl, “God bless America – hoo-rah!”; “Uptown Girl” will play many more times (much like his speeches, Donald J’s playlist consists of a few items, repeated endlessly), before Trump finally looms in and asks the crowd: “Is this the greatest place on Earth?”

There was supposed to be a ceiling above which Trump’s popular support could not climb. Only a minority within a minority of Americans, it was assumed, could possibly be stupid enough to think a Trump presidency was a good idea. He won New Hampshire and South Carolina with over 30 per cent of the Republican vote, then took almost 46 per cent in Nevada. When he cleaned up on Super Tuesday in March, he was just shy of 50 per cent in Massachusetts; a week later, he took 47 per cent of the votes in Mississippi.

His rivals, who are useless individually, were meant to co-operate with each other and the national party to deny him the nomination. But Trump won four out of the five key states being contested on “Super-Duper Tuesday” on 15 March. Then, as talk turned to persuading and co-opting his delegates behind the scenes, Trump won New York with 60 per cent.

Now, the campaign is trying to present Trump as more “presidential”. According to his new manager, Paul Manafort, this requires him to appear in “more formal settings” – without, of course, diluting “the unique magic of Trump”. But whether or not he can resist denouncing the GOP and the “corrupt” primary system, and alluding to violence if he is baulked at at the convention, the new Trump will be much the same as the old.

Back in Hartford: “The Republicans wanna play cute with us, right? If I don’t make it, you’re gonna have millions of people that don’t vote for a Republican. They’re not gonna vote at all,” says Trump. “Hopefully that’s all, OK? Hopefully that’s all, but they’re very, very angry.”

This anger, which can supposedly be turned on anyone who gets in the way, has mainly been vented, so far, on the protesters who disrupt Trump’s rallies. “We’re not gonna be the dummies that lose all of our jobs now. We’re gonna be the smart ones. Oh, do you have one over there? There’s one of the dummies . . .”

There is a frenzied fluttering of Trump placards, off to his right. “Get ’em out! . . . Don’t hurt ’em – see how nice I am? . . . They really impede freedom of speech and it’s a disgrace. But the good news is, folks, it won’t be long. We’re just not taking it and it won’t be long.”

It is their removal by police, at Trump’s ostentatious behest, that causes the disruption, rather than the scarcely audible protesters. He seems to realise this, suddenly: “We should just let ’em . . . I’ll talk right over them, there’s no problem!” But it’s impossible to leave the protesters where they are, because it would not be safe. His crowd is too vicious.

Exit Trump, after exactly half an hour, inclusive of the many interruptions. His people seem uplifted but, out on the street, they are ambushed by a large counter-demonstration, with a booming drum and warlike banners and standards (“Black Lives Matter”; an image of the Virgin of Guadalupe, holding aloft Trump’s severed head). Here is the rest of the world, the real American world: young people, beautiful people, more female than male, every shade of skin colour. “F*** Donald Trump!” they chant.

After a horrified split-second, the Trump crowd, massively more numerous, rallies with “USA!” and – perplexingly, since one of the main themes of the speech it has just heard was the lack of jobs in Connecticut – “Get a job!” The two sides then mingle, unobstructed by police. Slanging matches break out that seem in every instance to humiliate the Trump supporter. “Go to college!” one demands. “Man, I am in college, I’m doin’ lovely!”

There is no violence, only this: some black boys are dancing, with liquid moves, to the sound of the drum. Four young Trump guys counter by stripping to their waists and jouncing around madly, their skin greenish-yellow under the street lights, screaming about the building of the wall. There was no alcohol inside; they’re drunk on whatever it is – the elixir of fascism, the unique magic of Trump. It’s a hyper but not at all happy drunk.

As with every other moment of the Trump campaign so far, it would have been merely some grade of the cringeworthy – the embarrassing, the revolting, the pitiful – were Trump not slouching closer and closer, with each of these moments, to his nomination. 

This article first appeared in the 28 April 2016 issue of the New Statesman, The new fascism