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The warrior King

Throughout the credit crunch, the governor of the Bank of England has been a trenchant critic of and

When Mervyn King, the governor of the Bank of England, stood up in the grand setting of the Mansion House in the City of London on the warm evening of 17 June, with the Chancellor Alistair Darling sitting just a few seats away, he did what he has done throughout the financial crisis: he challenged the government directly. National debt, he warned, was dangerously high, "at more than double the levels before the crisis".

Banks had become too big and the Bank of England itself needed greater powers. "The Bank finds itself in a position rather like that of a church whose congregation attends weddings and funerals, but ignores the sermons in between."

In a televised appearance in front of the Treasury select committee just a week later, King went further and all but accused the Prime Minister of carelessness with the public finances. "We are confronted with a situation where the scale of the deficits is truly extraordinary," he said, and noted, in an aside that perplexed the Treasury, that the Chancellor had not bothered to consult him on changes to banking legislation that would directly affect the Bank of England.

King is an unlikely rebel. Quietly spoken and cerebral, he is the first governor of the Bank of England to have been a full-time academic: before joining in 1991, he was a professor of economics at the London School of Economics. Yet, since the credit markets first froze over in August 2007, he has been in pugnacious mood and continuously in conflict with the Treasury and the Prime Minister. At times, throughout what is the worst financial crisis since the period leading up to the First World War, the relationship between King and the government has been radioactive.

Some Treasury insiders go so far as to accuse King of being concerned about protecting his reputation and that of the Bank to the detriment of everyone else involved in stabilising the finan­cial system and preventing a cataclysmic collapse.

The authority of Bank of England governors once stemmed from the dignity of the office they held. The authority of the present governor stems entirely from his intellect. In the past, governors were drawn largely from the banks of the City of London. When these stately figures moved from the parlours of the old merchant and clearing banks to Threadneedle Street, to be protected from the outside world by the great curtain wall designed by Sir John Soane, they transmogrified into something far more majestic. The visitor to the Bank would be guided through a maze of spacious corridors, under the vaulted ceilings, to the almost-hidden entrance to the governor's drawing room. On their journey, they would pass portraits of past governors and deputy governors. The escorts, pink-frock-coated "waiters", nearly all veterans of the armed forces, marched at a formidable pace. In the presence of the governor, all it required was a lift of the eyebrow for the attendant banker to recognise the game was up.

Today, the Bank's corridors are as magnificent as ever, the marbles, mosaic floors, Persian rugs and Chippendale furnishings unchanged, and the mystique remains intact, but its new core is that of rigorous analysis. The bankers and brokers, who were on easy terms with the governor, are no longer the insiders. King, who took an academic route to the top of the Bank, is a trenchant critic in public and private of the bankers, of their risk-taking, profiteering and greed. And it is King's cerebral approach and tendency to subject all he does to rigorous intellectual stress-testing that has opened a chasm between himself and Gordon Brown.

Downing Street was especially enraged when, on the eve of the G20 summit in London in April, King warned against "significant fiscal
expansion". In so doing, he thwarted the Prime Minister's hopes of forging an agreement with President Obama and other global leaders on a second round of anti-recessionary stimulus packages. King's views accorded with those of the Treasury, which was putting the final touches to a Budget that projected unprecedented levels of new borrowing - £703bn by 2013-14, or an ­astonishing 76.2 per cent of national output.

But King has exasperated the Treasury, too. In private, the Chancellor was incandescent with anger when King, at his May inflation report press conference, laid out a far gloomier prospect for the British economy than that described by Darling in the Budget. The Bank forecast output could fall by as much as 4.5 per cent in 2009 and that recovery could be delayed well into 2010. King was downbeat, in sharp contrast to the message of Darling, who had been making the case for recovery by the end of the year.

The differences of tone provided a sharp reminder of how hard it had been throughout the crisis for the Treasury to coax King into
responding to the need for decisive action, notably over the creation of the special liquidity scheme - which was designed to clear the bank balance sheets of mortgage debts. King delayed, demanded late-night meetings and relentlessly analysed the plan - "nitpicking it to death", as one insider put it.

Brown was expected to have taken the ­decision on King's reappointment to a second five-year term in late 2007, when the scale of the disaster affecting the world's ­financial markets was increasing. The Prime Minister hesitated in approving the reappointment, and leaks pointed to King's position as governor being in danger. But Brown eventually recommended a second term for King on 30 January 2008. His aides warned that discarding King in the middle of the crisis could provoke havoc on financial markets.

Having kept King in office, the government had little choice but to work with him. Nevertheless, at the Treasury, King is regarded as difficult to the point of obstreperous.The paradox of his position is that the power and moral strength that he exercises is largely the result of one of
the earliest decisions taken by Brown as chancellor in May 1997, when, following Labour's landslide general election victory, he set the Bank of ­England free of Whitehall and granted it full ­independence over monetary policy and the ­setting of interest rates. Now, 12 years later, Brown, in his beleaguered frame of mind, imagines that King is betraying him by daring to ­associate with the chancellor-in-waiting, George Osborne. What he and his aides have forgotten, or perhaps have chosen to forget, is that in the months leading up to the 1997 election, King, who was then deputy governor to the late (Lord) Eddie George, had been as helpful to Brown and his top economic aide, Ed Balls,
as he is being to the Tories.

Born in 1948, Mervyn King attended Wol­verhampton Grammar School, where he dreamed of playing football for Aston Villa and cricket for Worcestershire, and then King's College, Cambridge, taking a First in economics. After Cambridge, he went as a Kennedy Scholar to Harvard, before becoming professor of investment at Birmingham University at the age of 29, the youngest person to hold a chair in Britain. In 1984, he spent a year as a visiting professor at Massachusetts Institute of Technology, in Boston. It was there that he got to know another brilliant young academic economist, Ben Bernanke, a student of the Great Depression
and now head of the US central bank, the Federal Reserve Board. King later became professor of economics at the LSE. "He was fantastic to work with," recalls Ros Altmann, a former PhD student of King's and later a Downing Street adviser on pensions. "He always managed to explain and get down to student levels."

King remains a keen sports fan and regularly plays tennis (he was in the Royal Box during this year's men's Wimbledon final); he often took
on Alan Greenspan on the courts of the British embassy during breaks from the biannual meetings of the G7 and International Monetary Fund in Washington. King prefers to walk to work from his flat in Notting Hill in west London, his route taking him through Hyde Park and then into the City.

Yet, for all his academic distinction, King is accused of being slow to have recognised the scale of the crisis when the credit crunch hit in August 2007, in sharp contrast to his opposite number at the European Central Bank in Frankfurt, Jean-Claude Trichet. King has since moved an enormous distance, but not at a speed fast enough or in a responsive enough way for Downing Street. His critics say that it was only when the Bank realised that there was very little choice, if the nation was not to have a major bank failure on its hands, that he decided on the Bank's role as "lender of the last resort" and began pumping ever-increasing quantities of loans into Northern Rock when it hit trouble in August 2007.

He similarly prevaricated in April 2008, only reluctantly signing up to the government's special liquidity scheme, under which the Bank would take securitised mortgages held by banks on to its balance sheet in exchange for short-term paper - the equivalent of cash. The initial £50bn plan, intended to revitalise Britain's moribund home loans market, would eventually soak up more than £200bn of taxpayers' money.

The Bank also changed the way it conducted its operations in the money markets, or the inter-bank market, where banks lend to each other. Previously it had provided money to the banking system through a series of daily, weekly and monthly auctions, at which authorised financial institutions would bid for money when they could not square their books. This process had sometimes proved embarrassing, as happened in the summer of 2007, when the names of those banks (notably Barclays) which had temporarily run short of cash was publicised. (The Bank
of England would eventually move to a US-style "discount" window arrangement, whereby banks can borrow directly without the risk of their identity being disclosed and becoming stigmatised in the financial markets.)

King claims he was at the forefront of the dramatic move by the government, in September 2008, which resulted in the recapitalisation of British banks and their part-nationalisation.

Where the Brown government led, other countries followed, or so it was said. Brown, in a slip of the tongue in the Commons, told MPs he "had saved the world". Most recently, King has embarked on an ambitious programme of quantitative easing, or printing money. This involves buying up government and corporate bonds for cash in an effort to head off deflation and refloat the economy - a bold move.

The rise of Mervyn King through the Bank of England can be traced back to 1992 and Britain's ejection, under the Tories, from the Exchange Rate Mechanism, forerunner of the single currency and the eurozone. In 1991, the then governor, Eddie George, scouted around for a new chief economist and King, still at the LSE, had become an obvious replacement. At the LSE, with his fellow economist Charles Goodhart, he had launched the Financial Markets Group. It was their way of making direct connections between the LSE and City banks.

King saw his appointment as an "interesting secondment" and not necessarily as a long-term career move. On Black Wednesday, 16 September 1992, when Britain was left without a monetary framework following ejection from the ERM, it was King who picked up the pieces; he invented and personally wrote the first of the Inflation Reports that were to become the centrepiece of policymaking. When the Bank was given its independence on 6 May 1997, his future path was all but set. In 1998, he was elevated to deputy governor, with responsibility for monetary policy, and became the first governor from academe when George retired in 2003.

Yet, in retrospect, the seeds of the credit crunch were planted with independence when Brown announced that banking supervision
was to be moved from the Bank to a newly created Financial Services Authority, against the wishes of Eddie George. "Financial stability
became the least interesting part of the Bank,"
a former member of the Monetary Policy Committee, which sets interest rates, told me. "Until the crisis no one who wanted to be successful wanted to work there."

King denies such criticism. He believes that the Bank's financial stability wing was ahead of the game in warning about the dangerous build-up of debt and credit that ultimately contributed to the implosion of the financial system. If this is true, why did the Bank not do more to prevent disaster happening? An important reason is that few people were prepared to listen.

At the end of 2005, shortly before he left the Bank of England, I took a call from Sir Andrew Large, the then deputy governor responsible for financial stability. He had a keen market instinct. His parting shot was to express concern that banks, given the volume of transactions in which they were now involved as well as the complexity of the transactions, did not hold enough liquidity (spare cash on their balance sheets). In the event of a swing in mood in the credit markets or an unexpected calamity, the banks would lack the means to deal with the crisis. King had his own concerns. "After the hectic pace of house prices over the past year," he told the Scottish CBI in June 2006, in an attempt to prick the housing bubble, "it is clear that the chances of falls in house prices are greater than they were."

His comments temporarily slowed the housing boom, but prices quickly started to race ahead again. A year later, in a set-piece speech at the Mansion House and just two months before the credit crunch brought finance to a shuddering halt, King, in the presence of the then chancellor Brown, issued another warning. He cautioned that "new and ever more complex financial instruments create different risks". He argued that the risks of the entire return "being wiped out" were greater than they would be with simpler
instruments.

However, when weeks later the great ship of toxic debt hit an iceberg - and Northern Rock came close to drowning - the governor was off the pace. Downing Street was desperate for a swift market solution to the crisis of the Rock, and Chancellor Darling summoned bankers to Downing Street demanding intervention. But when the Chancellor asked King for advice on a market-based solution, the governor insisted it could not be done. King later told the Treasury select committee that he lacked the legal powers to intervene. "King was very slow off the mark at the beginning of the crisis," Willem Buiter, a former member of the MPC and currently professor of political economy at the LSE, says now. "He messed up the Bank's lender of last resort operations with Northern Rock.

“He obviously got the wrong legal advice on what the Bank could and could not do, including his ludicrous assertion to the treasury committee that the EU's Market Abuse Directive stopped him from acting. When your legal honcho tells you things that don't make sense, why not get on the phone and call Neelie Kroes [the EC's competition supremo]? But Mervyn never even knew the area code for Brussels."

Members of the Court, the Bank of England's body of non-executive directors, were also frustrated by King. One member told me that the Bank failed to deliver on a promise to explain fully to the Court how the Bank's financial stability wing worked. "They just ignored us."
During the Northern Rock crisis, King was determined to keep his distance from the banks. He believed, rightly, that they were the victims of their own misfortune.

He also thought that the Federal Reserve Bank of New York was a captive of the Wall Street bankers. With the governor's confidence in his ability, and his preference for acting alone, he was reluctant to take into his confidence senior Bank officials, including the deputy governor for financial stability, the former Treasury mandarin Sir John Gieve. “I have no idea what Mervyn is up to," Gieve privately complained.

Through the autumn of 2007, as the government struggled with the collapse of Northern Rock, King sought to improve his understanding of the crisis and what steps needed to be taken. He reads deeply in financial history and has set up his own book club, which enables him to play host at his home in west London to leading economic and financial historians. During this long period of intense reading and deep introspection, as he consulted the Bank of England archives looking for historical parallels to the present crisis, King came to believe that the crisis facing the banking system was certainly the worst since the period of near-meltdown before the First World War. From among the extensive literature of financial crashes, he regarded J K Galbraith's The Great Crash, 1929 (first published in 1954) as the most insightful, and also admired Walter Bagehot's Victorian classic Lombard Street (1873).

King's reading led him to accept that the problems of the banking system were not just those of liquidity, but of capital - the equity and other top-grade securities that underpin lending. Historically, the ratio of capital to lending was seven to ten times. In the run-up to the credit crunch, some of the investment banks were lending 60 or 70 times capital. Because banks were insufficiently capitalised for the vast lending they had done, fear and loathing stalked the money markets. The governor believed that trying to persuade banks to increase lending would be a waste of time until they had restored their capital bases and trust resumed on the money markets.

The Treasury, however, differed. Brown was fearful that the crash in the housing market would intensify and that first-time buyers would be excluded. He wanted a comprehensive scheme to support mortgage lending. Though actions taken by the Bank to supply the banking system with credit were useful, they were not helping to restart lending. The danger was that Britain, as subsequently happened, could be thrust deeper into recession. King outlined his views at Bristol City's football ground, Ashton Gate, on 22 January 2008. "Banks must reveal losses promptly, and, most importantly, must raise new capital where necessary," he said.
The governor was becoming more confident in the crisis and his remedy, dramatically, was adopted by the government in September 2008 following the collapse of Lehman Brothers, the 158-year-old Wall Street dealer-brokerage firm. A former LSE colleague, John Kay, believes that King was at this point showing himself to be a "Roosevelt-calibre politician" in his handling of the crisis. Yet, at the same time, King, newly ­appointed to a second term, found himself in open conflict with the Treasury. Darling wanted a scheme directly to support the mortgage market. King wanted nothing to do with any package that rewarded the banks for their mistakes. Eventually, after much prompting and political prodding and severe irritation on Downing Street's part, the special liquidity scheme, under which banks could exchange mortgages, was born on 21 April 2008.

It was not an easy birth. Hunkered down in his office at Threadneedle Street, King delayed and fussed about the detail of the scheme, much to the irritation of the Treasury and the elected politicians, who were not convinced he had grasped the gravity of what was happening. In spite of the seriousness of events, King never lost his sense of humour. At the height of the storm, he had to fly to Japan for a routine session of G7 finance ministers. One participant recalls how King regarded the exercise as futile and, to pass the time, "decided to mark the finance leaders out of ten for their sartorial elegance".

King had critics outside government as well. Among the most severe was David "Danny" Blanchflower, an academic economist and former member of the Monetary Policy Committee. Blanchflower had consistently voted to lower interest rates in the early months of 2008 to help ease conditions in the credit markets, but King and other Bank officials were resistant, concerned as they were about rising inflation. "It's quite clear . . . that right through 2008 the economy was slowing, output was slowing, confidence surveys were slowing, the labour market had slowed," Blanchflower says now.

King's lieutenants were unimpressed. One ­senior MPC member told me that "it was easy for Danny to catch the media headlines with claims that he was right all along. But at MPC sessions he was far from convincing, repeating predictions of recession and mass unemployment but providing no backing for his claims."

When the special liquidity scheme was unfurled, there were immediate fears that the rules King had imposed on the £50bn initial fund (which would eventually expand to four times that) would kill it. In August 2008, King found himself under pressure from Darling to increase the size of the now £200bn scheme and allow new mortgage loans to be swapped for cash. King insisted that direct funding "was not something a central bank can supply".

Buiter argues that King's resistance was fatal. "This was the end for Halifax Bank of Scotland," he says. "King did not grasp that a fixed terminal date for a facility like this creates a natural focal point for co-ordinating speculative attacks on weak institutions."

Over the weekend ending 15 September 2008, Lehman was allowed to collapse by the US auth­orities. Meanwhile, frantic phone calls were taking place across the Atlantic, but no one at the Bank or the Treasury was quite prepared for the chaos that followed. Indeed, on the night of the collapse of Lehman, King himself rang Britain's top bankers to reassure them that the wind-down of the Wall Street firm would be orderly.

But Lehman was different; its collapse came on the most shocking weekend in modern finance, when Merrill Lynch was swallowed by Bank of America and the Federal Reserve moved to bail out the world's biggest credit insurer, AIG, American International Group. The combined impact of this triple shock to the financial system was so intense that, for the next few days, it was touch and go whether global capitalism as we know it would survive. "Not since the beginning of the First World War has our banking system been so close to collapse," King said. "It would
be a mistake, however, to think that had Lehman not failed, a crisis would have been averted. The underlying cause of inadequate capital would eventually have provoked a crisis of one kind ­
or another."

King likes to believe that it was his bold thinking which eventually led Brown and the government to recapitalise the British banks on 13 October 2008. The dramatic decision left the British government with majority stakes in Royal Bank of Scotland and Lloyds Banking Group. The implementation may have been carried out by the Treasury, but it was King and the Bank which made the case in Whitehall for a comprehensive bailout. King is of the view that the solution had to be an economic one, not the partial solutions and spatchcock bailouts being demanded by individual banks. He was determined that top bankers should be made to pay for their sins with their jobs. The government should draw the line under "fat-cat" bonuses, he said, and insist in future on counter-cyclical banking under which bankers would build cash reserves during the good years instead of paying them out to staff through bonuses.But one MPC member believes King - and, by implication, the government - was wrong on recapitalisation. "If you look closely at what happened, all it did was savage the share prices of the banks," this person told me. "It was crazy and completely wrong and made nationalisation more likely. The banks could have continued to operate with less capital."

King was emboldened. After output plunged in the first quarter of 2009, he rapidly redirected the Monetary Policy Committee and the Bank to start a programme of quantitative easing. Once again, the governor had reached into the past for clues about how to combat deflation. He concluded that the Japanese response to deflation in the 1990s and the Federal Reserve's failure to provide adequate money in the 1930s offered the best answers.

“The amounts of money being printed are so huge and the effectiveness of the policy so uncertain that I am sure QE is a huge policy error," says Ros Altmann, who still talks with the governor. "The inevitable outcome will be high inflation. The Bank will not be able to unwind its easing just as the economy picks up."

Throughout the financial crisis, King never lost his intellectual bearings. Certainly his early responses to the credit crunch and the collapse of Northern Rock were feeble, but as the crisis intensified he came to be seen as
a voice of sanity amid the claims of "saving the world" coming from Downing Street. In retrospect, King's insistence that the Bank should be given huge new powers to intervene in future banking crises made eminent sense.

King is likeable, and he is able to explain financial complexities in a direct and understandable way. But protecting his own reputation often seems as important to him as looking after colleagues or the actual results of the Bank's actions. He has taken independence to the limit, publicly challenging the government, and speaking out whenever he can, so that there is no ambiguity about his own position, even if it means placing himself in direct opposition to the Prime Minister. If his decision - gamble, really - to flood the economy with cash achieves the desired objective of refloating the British economy, the governor rather than Gordon Brown could yet emerge as a hero of the crisis. l

Alex Brummer is the author of "The Crunch" published by Random House Business (£7.99)

This article first appeared in the 20 July 2009 issue of the New Statesman, King and Country

MILES COLE FOR NEW STATESMAN
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The alt-right Leninist

Steve Bannon, the US president’s chief strategist, wants to destroy the state.

In 2013 and 2014, Steve Bannon organised “The Uninvited”, an event on the fringes of the Conservative Political Action Conference which gave a platform to right-wing thinkers deemed too extreme for the largest annual gathering of American conservatives. But on 23 February this year, President Donald Trump’s chief strategist took to the CPAC stage in his trademark uniform of an open-necked shirt, boxy jacket and rumpled chinos and greeted the audience with the self-satisfied swagger of a game-show host. Having surveyed the room with a smile, he quickly revealed a flash of malice. “Is that the opposition party back there?” he asked, gesturing towards the press corps, before jutting out his chin and nodding his head, like a brawler preparing to exchange blows.

Bannon, a 63-year-old former naval officer, Goldman Sachs banker and propagandist film-maker who owes his fortune to an early investment in the hit comedy Seinfeld, has rarely spoken in public since he joined Trump’s inner team, but on this occasion he was expansive. He hailed the president for ushering in a “new political order” and described the US withdrawal from the Trans-Pacific Partnership trade deal as “one of the most pivotal moments in modern American history”. Asked to list the new administration’s priorities, he cited three “lines of work”: first, the protection of “national security and sovereignty”; second, the promotion of “economic nationalism” by renegotiating US trade deals; and third, the “deconstruction of the administrative state”. The crowd applauded.

Bannon usually outlines his end goal using less bureaucratic language but the message is unchanged. He has described himself as a “Leninist” who shares with the Bolshevik leader a desire to “destroy the state”. “I want to bring everything crashing down, and destroy all of today’s establishment,” he told the historian Ronald Radosh in 2013. (Bannon has since said he does not recall their conversation). Described by one ally as a “walking bibliography”, Bannon is fiercely intelligent and ruthlessly ambitious, and believes that America is facing an existential crisis that can be averted only through radical action. He was one of the most widely anticipated speakers at CPAC this year and, by many accounts, is the chief manipulator and mastermind behind the Trump presidency, yet he is resolutely anti-conservative: Bannon wants to break things.

Last August, he took leave from Breitbart, the provocative, far-right news organisation he began leading in 2012, to become the chief executive of the Trump campaign. Bannon’s influence has grown since then. On 28 January, eight days after Trump’s inauguration, the president gave him a full seat on the principles committee of the National Security Council, a body made up of senior military officials and top policymakers that discusses the most pressing foreign policy issues. Although presidential aides have occasionally attended NSC meetings in the past, many see Bannon’s formal presence as demonstrating an unprecedented politicisation of national security decisions and an alarming rise to power of a man with no previous experience of government.

In an editorial following his appointment to the NSC, the New York Times suggested that Bannon was positioning himself as “de facto president” and expressed concern about his “penchant for blowing things up”. A week later, the paper published an investigation alleging that Trump was angry that he had not been fully briefed before he signed the executive order granting Bannon this exceptional access. The suggestion that Bannon may be taking advantage of the president’s short attention span and thin policy knowledge to serve his own interests is not far-fetched. Trump is “a blunt instrument for us”, Bannon told Vanity Fair last year, seemingly referring to American nationalists. “I don’t know whether he really gets it or not.”

Former colleagues have described Bannon as a “bully”, a “nasty human being” and a “monster”. Nancy Pelosi, the leader of the Democrats in the House of Representatives, has repeatedly slammed him as a “white supremacist”, and he has faced accusations of anti-Semitism, misogyny and Islamophobia. From an office at the White House that he calls “the war room”, he has driven, reporters say, some of Trump’s most contentious policy decisions, such as the ban on citizens of seven predominantly Muslim countries from entering the United States (subsequently reduced to six). He is also reported to have been one of the authors of Trump’s dystopian inauguration address, with its vision of “American carnage”.

Described in a 2015 Bloomberg Businessweek profile as “the most dangerous political operative in America”, Bannon delights in his evil overlord persona. “Darkness is good,” he told the Hollywood Reporter in November. “Dick Cheney. Darth Vader. Satan. That’s power. It only helps us when they get it wrong. When they’re blind to who we are and what we’re doing.”

 

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Stephen K Bannon was born in 1953 to a blue-collar, Irish Catholic, Democrat-voting family in Richmond, a city then of just over 230,000 people in the Southern state of Virginia. His father, Martin “Marty” Bannon, started out repairing telephone lines for AT&T and eventually moved into management. Bannon was the middle of five children and attended the all-boys’ Benedictine High School (now Benedictine College Preparatory), a Catholic, military-type institution owned and run by the monastic order. The headmaster and some of his teachers were Benedictine monks. The pupils, or “cadets”, wore military tags and were known by their surname only.

“It was a very traditional education, if you will, and definitely a very conservative school. I remember when we did mock elections, they’d be 90 per cent for the Republicans,” John Pudner, who also atten­ded Benedictine High School, told me.

Pudner now leads Take Back Our Republic, a group that aims to break the influence of big donors on campaign financing, and he has worked with Bannon on several occasions, serving at one point as the launch sports editor for Breitbart. He believes their schooling helped shape the contours of Bannon’s world-view: a commitment to small government and conventional family values, combined with a distrust of political and economic elites of all persuasions. Bannon maintained a close relationship with his alma mater. He served for a while on its board of trustees and in 2011 he joined a campaign, together with Pudner, to prevent the school from relocating from the diverse inner city to Richmond’s wealthy, all-white suburbs. Pudner says they were motivated by a sense of “Catholic mission”. “That’s part of what we understood our Catholicism to be, that you weren’t just kind of off in an elite spot . . . you mingle, and you convey ideas but you’re also part of the community,” Pudner said. They lost the campaign but not, Pudner was quick to point out, without claiming a few scalps: three county supervisors who supported the move lost their seats in that year’s election.

Bannon studied urban affairs at Virginia Tech university and was elected president of its student government association in 1975. On graduating, he joined the navy. Though he was not directly involved in the operation, he was serving as a junior officer aboard the destroyer USS Paul F Foster in 1980 when US forces launched a failed attempt to rescue 52 people held hostage at the US embassy in Tehran. “I wasn’t political until I got into the service and saw how badly Jimmy Carter f***ed things up. I became a huge Reagan admirer. Still am,” he told Bloomberg Businessweek. After Ronald Reagan’s election that year, Bannon worked in naval operations at the Pentagon while taking an MA in national security studies at Georgetown University.

In 1983 he made the first of many career changes and enrolled at Harvard Business School. A classmate from those years told the Boston Globe that Bannon was “top three in intellectual horsepower in our class – perhaps the smartest”. After completing his MBA he joined Goldman Sachs but left in 1990 to set up his own investment firm, Bannon & Co, specialising in the media industry. He acquired his stake in Seinfeld in 1993, when the sitcom, centred on the lives of four highly strung New Yorkers, was in its fourth series and still drawing relatively small audiences. Within a year, the show became one of the most popular in America. It is not known how large Bannon’s stake is, but in 2013 the Financial Times reported that Seinfeld had earned $3.1bn through syndication in the previous five years. He continues to earn royalties today.

The Seinfeld windfall helped fund his career as a film-maker. Julia Jones, a screenwriter who worked with Bannon on and off for two decades, remembers first meeting him at a party in Beverley Hills in 1991; they spoke of his plans to adapt Shakespeare for the big screen. Bannon’s overgrown hair, pasty complexion and dishevelled clothing recently prompted the comedian Stephen Colbert to describe him as “Robert ­Redford dredged from a river”, but in the 1990s, Jones told me: “He dressed down, but he was still neat and clean. He was preppy. He was really very attractive, good-looking, charismatic – and he weighed a lot less.”

They struck up a close friendship. Jones describes him as “very, very smart, but not in an obnoxious way”, and an avid reader with a keen interest in ancient philosophy and military strategy. He was fun to be around, largely because he had “an idea a minute”, some quirkier than others. When he called one day to say he had written the opening to a rap adaptation of Shakespeare’s Coriolanus set in LA during the 1992 race ­riots, she agreed to work with him on it.

Bannon’s faith was evidently important to him – at one point he considered ­adapting St Mark’s Gospel for the cinema – but the writing partners rarely discussed politics. Jones, who considers herself left-of-Bernie-Sanders, told me that though he expressed “the usual GOP views” he usually ignored rather than confronted the opinions of liberals he worked with. The most overtly political project Jones and Bannon co-wrote was his directorial debut – In the Face of Evil: Reagan’s War in Word and Deed, released in 2004. The trailer splices Reagan’s “A Time for Choosing” speech with footage from the Second World War, Communist-era Russia and the 9/11 attacks, intercut with pseudo-religious captions: “In mankind’s bloodiest and most barbaric century . . . came a man with a ­vision. An outsider, a radical with extreme views . . . of how to confront evil. Evil is powerless . . . if the good are unafraid.”

Jones says: “The Reagan documentary really launched Steve into the world of Washington politics. Before that he was a wannabe film-maker in Hollywood.” It was at an early screening of In the Face of Evil that he first met Andrew Breitbart, the founder of the eponymous news group. He later began making films with David Bossie, who leads the conservative advocacy group Citizens United. Bossie introduced Bannon to Donald Trump in 2011, when Trump was contemplating running for the Republican presidential ticket. Bossie and Bannon worked together on hagiographic documentaries of the Tea Party leaders Sarah Palin and Michele Bachmann, as well as Generation Zero (2010), which attributed the 2007 financial crash to a “failure of culture”, and Occupy Unmasked (2012), which promised to tell “the true story of the radicals behind the Occupy movement”.

“People have said I’m like Leni Riefenstahl,” Bannon told the Wall Street Journal in 2011, adding that he was a “student of” the Nazi propagandist, as well as the Soviet director Sergei Eisenstein and the liberal documentary-maker Michael Moore.

In his new incarnation as a crusading film-maker, he started to dress differently. Jones recalls how, while he was working on The Undefeated, his 2011 film about Sarah Palin, “I looked up one day and I couldn’t tell him from Michael Moore.”

 

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After the 11 September 2001 attacks, Bannon’s world-view grew darker. He has consistently argued that Islam is at odds with Western values and civilisation. In a speech delivered to a conference at the Vatican in 2014, he argued that the West is “at the beginning stages of a global war against Islamic fascism”, using the phrase popularised by Christopher Hitchens. He sees the whole religion, and not just its violent fringes, as a threat. “If you look back at the long history of the Judaeo-Christian West’s struggle against Islam, I believe that our forefathers kept their stance, and I think they did the right thing. I think they kept it out of the world,” he said.

Pudner, his friend from Richmond, says Bannon first expressed an interest in entering politics after the 2007-2008 financial crisis. Bannon’s father, who is in his nineties and with whom Bannon is very close, lost almost all his life savings as the stock market crashed. “He felt like, ‘My dad’s working class, worked his whole life, put money away to save up and now he has no money to do anything, and all my old friends at Goldman Sachs are figuring out how all the rich people are not hurt in this recession,’” Pudner told me. “That was his first motivation, when he just said, ‘You know something? I’m going to have to get into politics because something’s wrong here.’”

Bannon’s anger at the financial elite did not forestall his profound hatred for the Occupy movement. While promoting Occupy Unmasked, he said, with characteristic crudeness, that the film would leave viewers wanting “to go home and shower because you’ve just spent an hour and 15 minutes with the greasiest, dirtiest people you will ever see”. He is also no champion of the poor. The focus of his concern is those in the middle, who he believes are hardest hit in an economy that provides “socialism for the very poor and the wealthy and a brutal form of capitalism for everybody else”.

He argues that the United States faces a threat to its existence, not only because of its financial vulnerability but also because capitalism has become separated from its “Judaeo-Christian” roots. The solution he proposes is a populist, middle-class revolt against the Democratic Party and the “apparatus on the left”, which includes the mainstream media and the education system, as well as the Republican leadership.

In a speech to the Liberty Restoration Foundation in 2011, Bannon described the challenge facing post-crash America as the “great fourth turning in American history”. The Fourth Turning is a 1997 book by William Strauss and Neil Howe which argues that history works in 80-to-100-year cycles, each culminating in a two-decade “turning” or “crisis”, in which the old civic order is replaced by a new one. “Around the year 2005, a sudden spark will catalyse a Crisis mode. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire,” the book warns. The result could be war, civil violence, a break-up of the US, or authoritarianism, “Yet Americans will also enter the Fourth Turning with a unique opportunity to achieve a new greatness as a people.”

 

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By 2012 Bannon had transformed himself again, this time from film-maker to far-right media chief. Two years earlier, he had begun offering free office space to Andrew Breitbart for his pugnacious news site. When Breitbart died of heart failure at the age of 43 in March 2012, Bannon, already a board member of the Breitbart group, was appointed chairman. Under his leadership, breitbart.com pursued an anti-immigrant, anti-Muslim agenda and ran such incendiary headlines as “‘Would you rather your child had feminism or cancer?’”. Bannon has proudly declared that the website is “the platform for the alt right”; this term covers a broad spectrum of far-right ideologies that share a core belief that white identity is under attack. Mark Potok, a senior fellow at the Southern Poverty Law Centre, a civil rights group, told me that “alt right” is best thought of, in essence, as “a whitewashing rebranding of old-fashioned white supremacy, or white nationalism”. Among the writers Bannon championed was Milo Yiannopoulos, banned from Twitter in 2016 for racially abusing the actress Leslie Jones and encouraging his followers to do the same, and who most recently made headlines for appearing to condone paedophilia.

Many of Bannon’s former colleagues, including some of his fiercest critics, have denied that he is racist or anti-Semitic. Yet he appears, at the very least, untroubled by the prejudices of those who write for Breitbart and comprise much of its readership. In July 2016, speaking to the progressive magazine Mother Jones, he conceded that some white nationalists, anti-Semites and homophobes were attracted to the alt right, but argued that the American left also attracts “certain elements”.

Ex-staffers at Breitbart have accused Bannon of exerting dictatorial control over the site’s content, using it to curry favour with friends and take down enemies, and ordering changes to articles he deemed not vitriolic enough. “Everyone who works with Steve in a position of subordination is scared shitless of him. Because he’s a bully and he yells at people and he harasses people and he’s a nasty human being,” Ben Shapiro, a former Breitbart editor-at-large, told me.

In March 2016 several staff members, including Shapiro, left Breitbart. The trigger was the organisation’s refusal to stand by one of its reporters, Michelle Fields, after she was allegedly assaulted by Trump’s then campaign manager, Corey Lewandowski. But many also objected to Bannon transforming Breitbart into a “propaganda outlet” and “a whorehouse for Trump”, as Shapiro put it. Bannon’s media strategy was two-pronged: in 2012, as he built a growing audience on the fringe right through Breitbart, he co-founded the Government Accountability Institute, a non-profit organisation whose sophisticated investigations into subjects such as the Clintons’ finances were picked up by the wider media.

In November 2015, Bannon became the founding host of the Breitbart News Daily radio show. Donald Trump was a repeat guest. Here, the frequently offensive Bannon showed himself to be also an effective sycophant. “I know you’re a student of military history . . . ” he told the candidate who professed to have too little time to read books. The pair enjoyed an easy rapport, Bannon asking leading questions and pontificating on Trump’s wealth, the size of his rallies, his skill as a deal-maker.

“The way he gets in people’s ears is by telling them that they are the greatest geniuses he has ever met and he will make them famous and powerful,” Shapiro told me. “And then he proceeds to give the go-ahead to all of their worst instincts because if you’re the yes-man you never get fired.”

 

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Bannon often boasts that he was among the first to recognise Trump’s political potential. The property tycoon and reality-TV star announced his candidacy in June 2015 with a speech in which he pledged to build a wall between Mexico and the United States to keep out immigrant rapists, drug dealers and other criminals. “The idea of somebody running for president – of all things – who talks about essentially ethnic nationalism was a wake-up call, an electrifying event for people like Bannon and in general what is called the alt right,” says Lawrence Rosenthal, the chair of the Centre for Right-Wing Studies at the University of California, Berkeley. Even before Bannon formally joined Trump’s campaign the two men enjoyed a close relationship. Trump consulted Breitbart and other fringe websites for news and echoed their anti-foreigner, America First rhetoric.

“Bannon saw in Trump someone who could be a vehicle for realising at the presidential level those kinds of ideological tenets. While Trump saw in Bannon someone who was very effective at messaging along the lines of what Trump had already understood about nativism: anti-immigrant, that kind of nationalist rhetoric,” Rosenthal says. He believes that Bannon “reveals the ideological heart of Trumpism”.

An unnamed former associate described Bannon to Politico as “the Rain Man of nationalism” because of his speed-reading habits. The Politico site reported that he had urged White House staff to read books such as Sun Tzu’s Art of War and Nassim Nicholas Taleb’s Antifragile, a treatise on how to thrive in an age of chaos and uncertainty.

Public comments made by Bannon show his familiarity with writers who remain obscure beyond far-right circles. In his 2014 Vatican speech, he cited the work of Julius Evola, whose writings provided inspiration for the Italian Fascists. He has repeatedly described the European migrant crisis as mirroring The Camp of the Saints, a 1973 novel by Jean Raspail, in which France and the rest of Europe are overrun by dark-skinned, faeces-eating, sexually predatory refugees bent on
overpowering the white population. However, Bannon may read more widely: late last year a New York Times reporter spotted him at an airport poring over The Best and the Brightest, David Halberstam’s account of foreign policy mistakes made by the brilliant young advisers who worked for J F Kennedy and Lyndon B Johnson. He told the reporter he had asked several people in the Trump administration to read the book, saying it’s “great for seeing how little mistakes early on can lead to big ones later”.

Bannon has been divorced three times and has three daughters, to whom he is reportedly devoted. During the presidential campaign, journalists uncovered police records showing that he was charged with domestic violence during his second marriage (he pleaded not guilty) as well as court records from after their divorce in which his ex-wife alleges that he didn’t want their twin daughters “going to school with Jews”, because he “doesn’t like Jews”. (He denies having said this.) Generally, however, those close to him say that the self-styled Prince of Darkness is enjoying his time in the spotlight and is thriving under the pressure of his new role.

The chief strategist had a glaringly obvious influence on Trump’s inaugural address, and is reported to have pushed for the administration’s hard line on immigration. Under Trump, the White House website no longer mentions climate change, nor does it have a section on LGBT rights. Bannon has described global warming as a “manufactured crisis” (implying it isn’t real); Breitbart similarly dismisses climate change as a “hoax” and a “scam”. He has little patience with left-wing identity politics but is obsessed with right-wing identity politics. On his watch, Breitbart published several articles under the tag “Black Crime” and stories on “immigrant” and “illegal alien” crime before Trump landed on the same theme.

He is also reported to have been responsible for some of Trump’s more reckless executive orders, such as the so-called Muslim ban, overturned by the courts again this month. His rash approach to policymaking may be a product of his combative personality. “Any time there’d be a sort of controversial move his first instinct was always: go for it . . . and that’s what blows up in his face,” Shapiro told me. Having made the transition from outsider agitator to ultimate political insider, Bannon may find his long-term success depends on an ability to curb his attack-dog instincts and to compromise.

Bannon once compared himself to “Cromwell in the House of Tudors”, the history buff perhaps having forgotten that ultimately Thomas Cromwell was executed for treason. The Trump administration having spent its first weeks in near-permanent crisis mode, that boast may yet come to haunt him. Yet the master of reinvention could equally outlast Trump. “If they all get swept out of the White House, Bannon’s still going. He’s still got an agenda; Trump isn’t all he’s interested in,” Julia Jones told me.

It is not clear where he might end up, should Trump no longer serve his interests, but this much is evident: the right-wing Leninist is unnaturally good at getting what he wants and to where he wants to be.

Sophie McBain is a New Statesman contributing writer

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

This article first appeared in the 23 March 2017 issue of the New Statesman, Trump's permanent revolution