“It’s inequality. That’s the only thing that matters. Trade on that you’ll be a millionaire. (…) The rich get the assets, the poor get the debt, and then the poor have to pay their whole salary to the rich every year just to live in a house. The rich use that money to buy the rest of the assets from the middle class and then the problem gets worse every year. The middle class disappears, spending power disappears permanently from the economy, the rich becoming much fucking richer and the poor, well, I guess they just die.” (p. 321)
A Confession
This book, The Trading Game – A Confession published by Allen Lane, is a personal inside story of a working class kid from Ilford who became one of the City’s top traders and a millionaire before he walked away. He took the money he earned but his physical and mental health was worsening and he had become concerned about how his trading success was directly connected to the systematic inequality produced by the economy.
In many ways it is a more vivid and clearer way to understand the financialisation of the capitalist economy that a dozen detailed Marxist critiques. You get immersed in his rise to wunderkind on the trading floor, his colourful pen portraits of the other traders and brokers and the twists and turns of his efforts to get out of the game without losing his gigantic bonus.
I remember a couple of decades ago being involved professionally in an “Educational Business Partnership” (EBP) between my local East End school (which was 90% Bangladeshi) and a top City insurance broker working out of Lloyds. The guy running the Local Authority wide EBP was always going on about how our schools were benefiting from the attention of these super business people whose time was worth £500 or more an hour. When you actually meet these “masters of the universe,” as they were commonly dubbed at that time of the Big Bang when everything financial went digital, you found they were actually pretty average individuals but highly competent on a narrow skills range. This skill was an ability to work with numbers quickly, work long hours and be highly competitive. At the same time, these people had little interest or even knowledge about how their jobs fitted into the overall economy and the impact on society as a whole.
“Real traders don’t watch the news, they watch the markets. Fuck the Economist, fuck the Financial Times, fuck The Wall Street Journal. The only thing you need is the markets. They’ll tell you something that is real.” (p. 308)
Thatcherite myths
Despite the myths of the Thatcher period, that the so-called East End barrow boys could quickly do well in the City, Stevenson explains that going to the right university and having the right class contacts still prevails. He broke in mainly by winning a trading game set up by Citibank for graduates. Benefitting from knowing the rules before the others and using his own gaming and maths skills he won big – to the extent that the managers even fixed the final game so he would lose to see how he would cope with it.
Throughout the story Stevenson maintains a certain sense of class, of not being like the others who had the connections. He keeps in touch with his mates from Ilford, wears cheap suits and is not attracted by the posh food and wine. Maybe it is this residual gut feeling of class identity that leads him to take the turn away from it all – to make the link with real people that is hidden amid the alienated hyper intensity of the trading floor.
At the same time as never forgetting where he came from, he swiftly adopts the dog-eat-dog mentality of the trader who obsesses constantly about their “book” listing their profits which will determine their yearly bonus. His journey in this book is all about working out how he can pick up the essential clever trades from the other people on the desk so he can reach his goal of being a millionaire. He quickly understands that you make the really big bucks when you make the trades all the other people are missing. It is not so much about being right but being right when everyone else is backing something else. His big bet which made him a millionaire was to grasp that the dire state of the world economy would mean that interest rates would stay low for much longer than everyone else thought.
Follow the numbers
Although he talks about his family and his girl-friend there is not a lot of warmth or feeling in his confession – a lot less than he communicates in his relationships with the other traders. He does not even buy Christmas presents for his family one year. I suppose the key relationships in his life for him to hit his target of being a millionaire before he was 25 were the other traders and brokers. They were his obsession and we get a lot of detail about their different strengths and weaknesses. Some he retains affection for throughout, others he detests from the off, and a few he readily dumps on without any remorse.
The one exception to his coolness about non-work relationships is his friendship with “Harry” who he had known through childhood. He brings Harry into the business but becomes exasperated with his descent into cocaine-fueled excess. There is something Starmer-like in Stevenson’s desperate ideological grasp of traditional working-class values and culture within the mayhem of his working life.
The nature of the work involved in being a trader is brilliantly communicated in the book. As he stresses, there is no link whatsoever with a training in economics or any such global theories or ideologies. One of the traders takes Gary’s textbooks and chucks them away in one incident. Being successful is all about following the numbers, following the market changes. Nothing else matters.
Money money money
You make money by understanding the spread between what you buy at and what you sell at. Stevenson worked on the foreign exchange swap desk. You basically took out loans swapping currencies with other traders. The key was making sure the difference in the interest rates of the two currencies paid out in your favour.
A big trade that brought in millions was exploiting the different interest rates on three-month swaps and daily deals. You lent out dollars at one price over 3 months and then bought them back daily at a price that guaranteed you a profit. As the author says, “it’s free money.” Obviously, you have to keep an eye on sharp turns in the markets that would endanger your deal but most of the time it was straightforward. To this extent the apparently hugely complicated world of the City is demystified.
Disconnection from reality
Digitalisation, the huge size of the global financial markets and the proliferation of new financial products mean lots of money can be made in a world detached from what we could call the real economy that we can all see of making products and providing services. Of course, the banks and hedge funds will say all these financial mechanisms help the real economy to function more effectively – like the oil in a machine. But if it is so wonderful for the British economy why is investment been so historically low here compared to other countries?
People like Will Hutton have argued for years that the weight of the City in the economy has been negative, preventing the growth of an economy that could benefit the majority. There have been proposals like the Tobin Tax for governments to reduce the sheer number of financial transactions by taxing each trade. Even this modest proposal has never been really implemented although it inspired a lot of debate in the 1990s.
We should never forget the other reality behind the supposed blind perfection of markets. The global banking system is always, always underpinned by capitalist states who in the last instance – as we saw in 2008 – will bail out these entrepreneurs, these masters of the universe and talented risk takers. He quotes another trader on this:
“And I’m gonna tell you one last thing, the most important thing of all of it, and then you are gonna fuck off and sit back in your corner. This trade will blow up, and we’ll all lose our fucking arses, in one situation. The trade will blow up if the global banking system collapses. And if that happens, this whole place goes under. You’ll lose your job, and I’ll lose my job, and the whole global economy comes down with it. We’re betting that’s not going to happen. And we’re gonna be right, right? And we’re gonna get paid”. (p. 29)
Intelligence and luck
“What I realized then, at that moment, is that we are the same. We are all the same. The drug dealers, the bankers, the traders, me now, me then, Caleb, Saravan, Brathap, Rupert Hobhouse, Jamie, Ibran, JB. We are all the same. The only difference is how rich our dads were.” (p 350)
Another problem raised in a new book by Yuval Harari on AI is how these financial markets are very vulnerable to how Artificial Intelligence can be used:
“For AI, finance is the ideal playground, for it is a purely informational and mathematical realm. AIs still find it difficult to autonomously drive a car, because this requires moving and interacting in the messy physical world, where “success” is hard to define. In contrast, to make financial transactions AI needs to deal only with data, and it can easily measure its success mathematically in dollars, euros or pounds. More dollars – mission accomplished.”
A Cracking Read
What this book does show is that: a) any attempt to run the economy in the interests of working people means directly challenging the power of the City of London and b) we need a new model of how finance operates with a transitional project of controlling the banks and regulating the markets so that global markets cannot disrupt any progressive changes.
The book shows that human beings keep the system going and we can organize similar groups of people to organize it in a different way. It would mean a different salary structure and an ethos of public service but as Stevenson has shown so powerfully there are lots of young people out there who are good with numbers who can do this sort of job. In a strange way this book provides evidence for an optimism about changing how resources are managed and distributed in a fairer society.
This book is a cracking read with a serious point. It has been a bit of a bestseller too. Since quitting Stevenson has set up Gary’s Economics on a YouTube channel and a facebook page all concerned about analyzing the economy in terms of inequality. He is providing a useful service in showing people how the capitalist economy really works.
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