294. Gary Stevenson – Is being a city trader bad?

0:00I think we just fundamentally underestimate how important the wealth distribution is. So I get my first big bonus beginning 2010. And how much was that? It was£395 ,000. March 2020, the very beginning of Covid, there'll be an inflation crisis, a cost of living crisis. The gold price will go up massively. Stock prices will go up massively. House prices will go up massively. Government austerity. Huge increase in poverty. In March 2020 I said that. And we could have prevented that. So this isn't just about taking more money off the rich. Well, I want to be clear, I'm not trying to take money off the rich.

0:28Well you are, because you want to do well. tax? No, you're wrong. We are existing in an economic state of rapid increase in wealth inequality. If you're making 5 % on a billion pounds, you're making 50 million pounds a year. So one billionaire is making about a million pounds, maybe two or three million pounds a week, passive income. I'm just going to point out that what you haven't done is address the point that I was making earlier, which is, it's the taxpayer who picked up the bill. Support for this episode comes from Octopus Energy and the founder and CEO Greg Jackson is with us now. So Greg, talk to me about Kraken.

1:04What is it and why is it spinning off from Octopus Energy? When we built Octopus, we also built a software platform like an operating system like iOS or Android on your phone to enable energy companies, utilities, starting with Octopus, but frankly, anyone in the world to be much more efficient, to use vast amounts of data, to be able to become more innovative and to serve their customers better. That piece of software is Kraken. We've used it not only for Octopus, but companies in the UK like EDF and Eon have used it to improve their business too. But you know what? It turns out over time, companies realized that they were licensing from a competitor.

1:48And so we've had to spin it off so it can reach its full potential. Yeah, makes sense, Craig. Thank you. Right, we're going to go to the episode.

2:06Hello and welcome to The Rest is Money with me, Robert Paxton. And me, Steph McGovern. And with us today, Gary Stevenson, who is an equality economist. He's here to tell us why taxing millionaires is the way to make things fairer. But we've got so much to talk to Gary about. that we're going to split this into two episodes. As I'm sure a lot of you know, Gary's a working class kid who became a millionaire in his 20s by being one of the best traders in the city, betting against the economy. So we're going to talk to him about why he kept betting on the economy going wrong and how this relates to his obsession now with wealth inequality.

2:44So here's part one with Gary Stevenson. Gary, thanks for joining us. So you're a rich lad. You've done well for yourself. You know, you made quite a bit of money early on in your life, in your 20s, and kind of defied the odds to do that. But you think rich people should be paying more tax, don't you? You've kind of got a problem with being rich, haven't you? It's better than being poor. It's hard to be poor. Yes, I grew up, I wouldn't say very poor, but like pretty poor, you know, small little terraced house. Council house, was it? No, it was the council house, yeah. Just a little terraced house on a little terraced street next to the railway.

3:19you know sharing a bedroom with my brother in London East London always sort of dreamed of being rich and making money and obviously all the stories are there in my book people probably know it by now got into the school of economics I won a competition got a job in the city in 2011 when I was just 24 I was Citibank's number one trader in the world got paid like millions of dollars in one year so I made a lot of money very quickly and well I kind of had a definitely a burnout maybe you could stretch it and call it a breakdown I mean my situation is quite specific because the the exact way that I made my money was I was betting on you know like the economy's going to collapse and living standards will collapse so I'm sure that played into it um but look I don't want to you know obviously of course money doesn't make you happy it's easy for me to say that now somebody with money but I don't want to be disrespectful for what I have and I do understand the difficulties of poverty I mean that's the whole reason I do the work that I do.

4:16Yeah. And when you say you went to LSE and stuff, you went to grammar school, did you? Yeah, got into grammar school, Ilford County High School in Barkingside, East London. Got expelled when I was in year 11 for selling a small amount of cannabis. Was that before you did your GCSEs then? Yeah, so I got expelled just at the beginning of year 11, which is GCSE year. Yeah, and then I had, I basically didn't have a school for pretty much the whole of year 11. I had to like study at home. Yeah, I didn't even have a desk at home so I had a little little wooden board I'd put on the floor lie on the floor and do my homework 8A stars and 3As though not bad did you do that without any like how did you do the exams where did you sit?

4:56So basically the school rather than expelling me they basically suspended me forever because it's the last year so they suspended me and extended my study so I couldn't go back so they would email my parents like these are their homeworks and I would get them. They must have known you were going to get good grades though so that's probably why they wanted you Maybe I don't know if that's why they kept me in um but yeah that was I mean it's crazy because I just turned 16 and I got expelled god it's a lifetime ago but it was a lot but in a weird way it was good for me in a weird way because I was that annoying kid sitting in the back of the class like class clown not really studying not really doing my homework um but then obviously being expelled I had to get my head down so it was kind of the first time in my life I was like oh I'm gonna have to work for this you learned how to apply yourself yeah and also just to work and study independently because previously I would just go into school and you know not to like brag too much like it was a bit easy for me and I would just you win the classes and you'd get the grades but if you you know if I didn't have school to go to I did have to study myself that year yeah so obviously fast forward you've you know as we said become very successful yeah and very rich but just tell us what the problem you have with the fact that people are rich because it comes across as that yeah listen I've got no problem with people making money um my job from 2008 until 2014 was you know to summarize a little bit basically betting on the strength of the economy obviously 2008 financial crisis um and what people don't know about the financial crisis is at the time it was actually really similar to covid which is during the crisis itself obviously things were really bad but there was this really strong narrative that things will get better really quickly because you know zero interest rates and quantitative easing and government deficits and all this kind of stuff.

6:40But obviously we now know that things never really got better after 2008. You know, we had a really weak economy for a long time. I studied maths and economics at London School of Economics and I became fascinated in this sort of early 2010s period of like, why are we like consistently wrong in our predictions about the economy? And it was fascinating to me and I wanted to understand that. And I thought a lot about it and I've studied it since. basically I think from my work in academia and economics and from in finance and economics I think we just fundamentally underestimate how important the wealth distribution is and I think if wealth inequality grows very quickly which it has especially since COVID but even before I just think that causes really rapid increases in poverty and I don't think that's going to reverse So we're going to come on to that in more detail later What were the instruments that you were betting on as a trade And just to be clear, you were actually taking positions for the bank, were you?

7:39So I was a short-term interest rates trader. Yeah. And what my job kind of officially was, was market-making foreign exchange swaps, which I don't know if that would mean something to anyone. Foreign exchange swaps are basically like, they're short-term loans. It's the most common instrument that big corporations or pension funds we use for very short-term funding, like rolling daily funding. So they end up being driven by the base rate, the central bank base rate. And it's a funny one because the job officially is market making. So big corporation, whatever. Samsung wants to do a Eurodollar FX swap, basically do a loan.

8:19And you do do a lot of that. And especially in 2011, I was doing an enormous amount of this providing funding for corporations. And this is overnight money, is it? So anything up to two years. Anything up to two years. We could go a little bit longer. But it's a really heavy focus on base rates. So what is the central bank base rate going to be in 12 months? What is it going to be in 18 months? You might go as long as 36 months, two years. And when you talk about the bet that you made, you provided the credit on the basis that the cost of money, the official bank rate, was going to remain effectively close to zero for longer.

8:59Yeah, exactly. So post-2008, we obviously now know that rates stayed zero until 2022, I think. But during that period after 2008, basically for the whole period from 2008 until right up into COVID, markets pretty much consistently thought that rates were going to renormalize in the next 12 to 18 months. So obviously historically normal levels of rates are sort of more 4 % or 5%. which meant that if you wanted to borrow money in a year's time, if you wanted to secure your interest rate on a loan maturing next year, you would be having to pay maybe 3%, even though the rate now is 0%. And starting in 2011, I just started to consistently say, well, I'll lend at 3 % and then I'll just wait because I became quite confident that the base rate would stay zero.

9:47So you're lending at 3%, you wait a year, the base rate is zero and you make your 3 % difference. What was making you think that that was going to happen, that it was going to sit? Yeah, so I started June 2008, very young, 21. You watch the crisis happen. I've studied economics. Everybody thinks monetary policy is powerful. We cut rates to zero. Obviously, we now saw that happen for a long time. At the time, it was unprecedented outside of Japan. Massive move, quantitative easing, massive government deficits. And I, like everybody else, studied economics. You're told that's going to have a massive impact.

10:19And it would have a massive impact. So everybody thought 2009, massive recovery. It's really similar to COVID, by the way. People kept saying we're going to have a massive recovery. Then 2009 comes, recovery doesn't happen. 2010 is going to be massive recovery. 2010 comes, recovery doesn't happen. 2011 is going to be massive recovery. So by the beginning of 2011, I've been doing this job full time for nearly three years. And all I've seen is just consistently people being wrong and wrong and wrong and wrong. And I can't lie. You sit there and you work with these traders. I'm not going to say all traders are idiots because they're not.

10:50They weren't all the smartest guys, if I'm totally honest. and it was fascinating to me because you know you study at London School of Economics big prestigious economics university you go and you work with guys who are getting paid millions of pounds a year and you think these are the guys and then you realise like they're just wrong every year and to me honestly it was incredibly exciting it was incredibly exciting to realise like wow like we're wrong on this massive thing it's huge this is the direction of the global economy now looking back on it right so you're a young person you're suddenly finding yourself you know to use that expression filthy rich right um you're also surrounded by a lot of testosterone quite a lot of people who you've just said you do respect some of them but quite a lot of them you didn't really respect what what was going on you talk about it as burnout what looking back on it what happened to you because you had to take quite a lot of time off work didn't you yeah i think i think if i look back at one moment i always remember my first bonus so i started working mid 2008 so my first full year was 2009 so I get my first big bonus beginning 2010 and what how much was that it was 395 ,000 pounds which presumably given your background I mean that's a lot of money for anybody I've been led to believe that it was going to be about 100 120 ,000 pounds right and then I remember like going into that you know you gotta remember this is I mean that's a lot of money even now this is 15 years ago yeah beginning 2010 I'm 23 years old you know I come from a very poor background and I remember being in that meeting room and having my boss massive lads sitting there piece of paper on the table and I'm looking for 100, 120 and it's not there and the top number is 395 and I'm pointing at the number and saying is it that?

12:28And he said yes, that and then I literally remember like it was yesterday I remember saying wow that's a lot of money and And what did you do with that money? Well the truth is nothing really I just invested it but the next thing I remember is I'm on the desk So you weren't one of those traders who then went straight down you know the club and bought you know 5 ,000 I wouldn't know what to 100 ,000 120 ,000 pounds you know I might have But the burnout wasn't related to lifestyle stuff which so many traders were doing Oh I know you know don't believe the rumours no I was never into I was never into the parties and the various substance abuses That's what we're asking yeah No for me what it was when this money came in I was in shock and I remember I remember being on the desk and I felt like I was going to cry I remember this and then I was really lucky I worked with another guy who was a bit older who was from a working class background in the book he's called Billy he's a scouser and he could see and he just said look go and sit down and like take his there's a little patch of grass in the middle of Canary Wharf I don't know if you've probably been there and the next thing I remember I'm on the little patch of grass and it's a funny little patch of grass because there's like three skyscrapers on three sides and there's a little bit of light coming through and in my shock I hadn't taken my coat I hadn't taken my and it's obviously bonus days in January I was sitting shooting on this little patch of grass and you're just like you know when I was at university I used to get for lunch every day I used to go to Tesco and buy two scotch eggs for 75p that's what I had for lunch every day and then suddenly one day somebody just gives you 395 ,000 pounds and it's overwhelming yeah you just think all those scotch eggs but you know I thought about my dad you know we grew up in this little tiny house and my dad worked for the post office and you know he would wake up early and the train he used to take into Central would go past the back of my house before me and my brother were awake.

14:17And I remember my mum would come and wake us up in the morning to see if we could see him waving as he went past on the train. And then he comes back late in the night and, you know, I'm sure your memories of your parents are probably similar, right? You know, you have these... You just think how hard he worked for 20 grand a year. And I grew up in a very, like, Pakistani immigrant area with a lot of, you know, poor families with their dad sleeping on the sofa because there's not enough bedrooms. and you just think like, and then suddenly somebody gives you this 395 ,000 pounds and I was thinking that, but then the next thing you think is, well, if I'm 23 and I got 395 ,000 pounds, what did Rupert get?

14:55What did that guy over there with the pink shirt? And then suddenly you're like, well, why are they allowed to get paid millions and not us? And the truth is, it became an obsession. And the way I describe it in the book was - So how many years were you totally immersed in the sort of trading world. That would have been the beginning of 2010. 2010, I was right into it. 2011, I was completely obsessed. And then 2011 was when I was the top trader in the bank. So it was an addiction, really? An addiction, an obsession. Yeah, yeah. I think it's just, I'm the kind of guy that I have to be careful about computer games.

15:30If you give me a good computer game, I'll wake up and it'll be like March. Yeah, completed. You know what I mean? Like I just, it's the games. You become obsessive. I want to figure out games and I want to win. And, you know, and this was, not only was it a game, it was a game that could make me millions of pounds by understanding the world, by competing with the best people in the world. So, yeah, it was, you know, in the end I bought a massive, I bought like, not a massive, I bought a nice apartment, ripped all the furniture. I didn't even furnish it. And all I was doing was waking up, trading.

15:56Yeah, it was, it was an obsession. Did you feel at the start guilty then for like earning that much money? When you talk about your dad, because I have this with my mum who works in the NHS for 40 years and, you know, and you think, God, when you compare how hard we've had to work compared to our parents, it's incredibly, it's miles apart. So do you think this obsession came from guilt as well? Yeah, me personally, I think no. If you want, you can call my therapist up and ask him. You know, it's a funny one because obviously more recently I wrote this book and the book was really successful and I personally think the book is amazing.

16:32Documentary is very good as well. But like, in a weird way, I felt more guilty when I wrote the book because the thing is I was winning mass competitions when I was a teenager and I was lying on the floor studying to get into LSE and I got into LSE and I was the best at LSE and I had the best grades at LSE so that felt like I've worked for it and I've deserved it but when I wrote the book so my sister works in theatre and in writing and I see how hard she works and I had a friend of mine he's actually he's a character in the book Harry Sandby his mum I remember all she wanted was to get a book published and like for me to just write a book with no background in writing and have the book be, you know, the number one book in the country.

17:09That felt a little bit like, God, what have I done to deserve this? But the truth is, like, I don't know if this says a lot about me, like, I thought I was the best when I was a kid. I thought nobody deserves it more than me. Yeah. But, you know, I think when you add in that element, I was literally betting on the collapse of society and the collapse of living standards. We are talking about the financial economy now, which is where you worked, right? Right. So what is your view about the sheer volume of financial transactions that are broadly unrelated to the real economy? Because there are quite a lot of people who say the financialization of the global economy is probably one of the sources of the kind of wealth inequality that you rail against.

17:56So, you know, in other words, looking back on what you did for a living, would you rather those jobs didn't exist? Listen, I would rather we lived in a world where our best and brightest young economists had opportunities to work in jobs where they protected our country's economy. Because looking back on what you did for a living, as it were. Yeah, yeah. So was it, I mean, it was obviously in, you know, your benefit because you got these bonuses, the bank loved you because you were generating profit for them. Yeah. But if you look at its impact on other people's lives, what do you think? Well, you know, if I'm totally honest, a big part of me doesn't really like the demonization of the bankers and the finance workers.

18:43I'm not demonizing. I'm asking you a question about whether essentially, you know, that explosion of, you know. So, you know, the financial economy in the UK, it's about 10, 11 percent of all our GDP. And there is some of that banking investment that is actually about helping businesses that employ lots of people raise capital at an effective and efficient interest rate. But there is quite a lot, which is rent extraction. It is simply trading that allows smart people effectively to make a large amount of money from betting. Now, there are some people who say that means the market is super efficient.

19:37But actually, I don't think it is. I think a lot of the time it is simply, and we saw this in the run up to the financial crisis, a lot of what was going on was hiding risk so that a few smart people could get the money out before the whole thing collapsed. Yeah, this is an interesting one to me and I've got a lot of mixed emotions on it because I've been basically doing economics as my full-time job for more than 20 years now in a variety of ways. So obviously I've been at LSE, I've done a two-year master's at Oxford, I was in the city trading for a long time. I've got a YouTube economics channel, I talk to politicians, I sort of float around the think tank world, I've been in the media.

20:10So really, I don't think you'll see many people who've had a broader view of the different roles and the different economic spaces in our society than me. And if I'm totally honest with you, I miss the trading floor. Because, you know, I've been away from the trading floor for 2014, so nearly 12 years now. And in the last six years, obviously, I've been very outspoken politically saying, listen, if you don't do something about inequality, society is going to collapse. Living standards will collapse. There'll be a big increase in poverty. And, you know, a lot of people disagree with me. I'm sure you'll go on to that.

20:45And back when I worked on the trading floor, a lot of people disagreed with me as well. And when I was on the trading floor and a lot of people disagreed with me and it was a lot of richer, posher people because those are the people in that space. I loved it. I loved it. Because you were underestimated, I bet. Listen, if we're on the trading floor right now and I say to you, inequality is going to grow. it's going to ruin the economy it's going to ruin living standards and you say no Gary you're wrong I have the right to say okay everybody while it's out table now and I'm taking it home I'm taking your money home I'm taking your money home and at the end of the year everybody's going to turn around and say who got it right Gary got it right you know now I've been doing the job that I do now for six years and you know the first thing I ever did was I wrote an article for Open Democracy and The Guardian March 2020 the very beginning of COVID saying there'll be an inflation crisis a cost of living crisis the gold price will go up massively.

21:37Stock prices will go up massively. House prices will go up massively. Government austerity. Huge increase in poverty. In March 2020, I said that. And we could have prevented that. And now, my life is still to be constantly called an idiot by posh people and I cannot get them to get their wallets up. And at least in the finance, I can make these posh boys pay me. And at the end of the year, they have to recognise that I was right. And listen, I worked with a lot of posh boys, right? and at the beginning when I started working with them and I said oh the problem is inequality the economy's going to collapse they laughed in my face and they messaged me every week what's going to happen Gary?

22:14I went to Japan to talk to like my Japanese colleague and said listen I've written this book you're in it just wanted to let you know you know I've changed the name and stuff and he said to me okay but Gary what's going to happen to interest rates? That's all these guys want I miss that space where somebody can be respected regardless of their class background simply for consistently being demonstrably right. Gary this has been great fun but we just need to take a quick break.

23:05You might even find yourself wishing you could just get the pros to invest your money for you. Well, you can. With their managed ISA, Vanguard's experts do the hard work for you. They'll match you to an investment plan that feels right for you and they'll handle the rest. No second guessing, just smart professional management. So stop wondering how to start investing and start making your money work harder. Search Vanguard managed ISA to find out more. When investing your capital is at risk, tax rules apply.

23:40I'm just going to point out that what you haven't done is address the point that I was making earlier, which is a lot of what happens in the City of London is about hiding risk, extracting, as I say, rent or profit from what is, you know, essentially a con in many cases. and then, you know, as we saw in 2007-8, it's the taxpayer who picked up the bill. Yeah, listen, look, I'm not here to advocate for the finance. If you read my book, you know, and I think it's well known, like I'm not the biggest fan of the finance industry. I think it's a phenomenal waste of talent in many, many cases and I think a lot of dodgy stuff goes on and I've seen a lot of dodgy stuff go on.

24:20And I wish, I wish that, you know, so many of the smartest economic brains, I was at LSE, I was at Oxford, all the best people went to the city. You know, very, very few of them stayed to work in politics or academia. And that's frustrating to me. But listen, I've been out of that world now for 12 years trying to work in think tanks, in politics, in media. And I think it's really interesting that somebody like me, a very talented person from a working class background, can be the number one in the world at Citibank within a few years and takes years and years and years to even get recognised in politics, academia.

24:53So really, you can point your fingers at the banks all you like. Listen, when I was a kid in desperate poverty, staring at the skyscrapers who got me out of poverty? Was it the welfare state? Was it Tony Blair? Was it the charities? It was the banks. So on that because obviously I grew up in the equivalent but in the north where I wasn't near any skyscrapers and didn't have the same we didn't go to grammar school and things like that. I am wondering if what you could see is actually what lots of real people can see so when you were saying you saw things weren't going to get better if you'd have asked anyone in the north east they would have said that.

25:28I don't think it's about like, I know you're a math genius, but I don't think it was about that. I think it was literally working with a lot of people who didn't understand the real world. So couldn't see, would you say that's fair? No, I think you're exactly right. And I think this is another thing that really, so I was Citibank's top trader in 2011, despite what anyone would tell you. Every single other year I was there, the top trader was one other guy who in the book is called Billy. And he was working class background, got a job on the cash sale at Halifax when he was 16, worked his way up.

25:58genius working class guy and i think so every single year i was there even though there were only maybe a handful of working class traders on the floor one of those working class traders was number one in the bank and i think it's because as you say as inequality is increasing most of these people now you know they went to an elite private school they went to an elite university they come from a rich family you know they're vacationing in the hamptons or lake coma whatever they don't see it and i go on all of these shows and people say what do you mean the economy's getting worse the economy's getting better and it's crazy and what we're having at one of these consequences of growing inequality is you know a crisis of inequality is actively good for the top five percent right and these people think that their lives are getting better so then in terms of solving it because you know we're going to come on to your ideas around wealth tax and all of that in terms of solving it though it isn't just about taking more money off the rich it's about the structural problems we have in the economy in terms of education and social mobility and access to all of that.

26:55Yeah. And so this isn't just about taking more money off the rich. Well, I want to be clear. I'm not trying to take money off the rich. Well, you are, because you want to do wealth tax. No, no, no. Go on, go on, go on. You're wrong. Go on. We are existing in an economic state of rapid increase in wealth inequality. We are. UK government wealth has gone from plus 100 % of GDP to negative 100 % of GDP. Yeah. 30 years ago, my dad, working for the post office, could buy a house. That is not possible now. Working class people have lost their homes. Wealth is being actively lost by the working class, by the middle class and the government.

27:26And that money is being accumulated by the rich. I am not the person trying to take wealth off anyone. I'm the person trying to stop wealth being taken off the working people of this country. So, pre-distribution rather than redistribution, is that what you're saying? Yeah, well, yeah, the redistribution is how... I'm trying to stop the redistribution. Listen, there's a reason why, 30 years ago, working men and women could buy houses. Now they can't. Those houses still exist. But for, I mean, and this is in your documentary, sure you talk to someone who said the opportunities weren't there 20 years ago they weren't there in the north though like i think again like the neat number in the north is currently one in four 20 years ago when i was a kid there it was one in six so now everyone's going oh it's one in five the national average that's bad so it feels like for the north even more so yeah it's all we didn't have those opportunities 20 years so like i know what you're saying it feels it's very much from a from a lens of wealth inequality in the South, but for the North, it's been like that for flipping 20, 30 years.

28:23I'm a massive advocate for more voices from the North. And I'm happy to see you on this. Recently, I've been really trying to boost, there's a great Instagrammer, Louisa Munch from Rochdale. Yes, yeah, yeah. I follow up. Very interesting, yeah. And I think one of the reasons why people like me is because of a working class accent. It's not just, it's North, South. The truth is, how many people sound like me if you had a day talking about economics? You know what I mean? So, you know, obviously I'm not from the North and I'm from, I'm from East London and I know it's not the same, you know, we're there, we can see the skyscrapers.

28:52And it's just that point though. It's just, it hasn't like, it's not a sudden change. And I think more so in the South it is. Now it's much harder to afford a property in the South. Now it's much harder to get those opportunities. But it's been like that in the North for decades. So it feels, so when we talk about, so, you know, like I do think we need to take more tax off the wealthy. I totally agree with you on all of that but I still think we have this fundamental problem that no one ever talks about which is education and access to opportunities when you are not in an area where everything is around you like you are here.