This week, Morgan Stanley claimed that “Corbyn would be more of a danger to markets than hard Brexit”, something which I saw as supremely ironic.
Because the actions of Morgan Stanley, and others like it, laid the foundations for Leave because of their role in the financial crisis: a crisis of capitalism, which ushered in seven years of austerity, falling wages and insecure work. Precisely the conditions that would encourage the majority of British people to vote against the status quo and opt for Leave.
Morgan Stanley’s role in the financial crisis cannot be understated; and, given describing things as a “danger to markets” appears to be in fashion right now, let’s remind ourselves what they got up to just over a decade ago.
Essentially, they packaged up sub-prime mortgages as something called Collateralised Debt Obligations (CDOs), got credit ratings agencies – who were entirely conflicted as their clients were the investment banks – to rate these absolute garbage CDOs triple-A investments. Morgan Stanley then misled investors who bought them.
Because they knew what those investments were actually worth, Morgan Stanley’s traders bought what are known as “credit default swaps” on those CDOs – effectively amounting to a bet on it defaulting. You can buy or sell a credit default swap even if you don’t own the investment.
They did this thousands of times.
Howie Hubler was a Morgan Stanley bond trader, responsible for the biggest loss on a single trade in history – totalling $9 billion. His story came to embody the financial misdeeds that led to the crisis of 2008. Howie devised a complex trade where he sold $16 billion worth of credit default swaps on triple-A rated CDOs, which he calculated would offset the $2 billion he also bought in risky mortgages. Because of the opaque nature of the CDOs, Hubler was unaware of the extent to which the investments they were insuring contained similarly risky subprime mortgages to the bonds they were betting would default.
When the financial crisis hit as the house of cards came tumbling down, Morgan Stanley lost $58 billion overall. For his role in it, Hubler was given the option to resign instead of being sacked, and was awarded tens of millions of dollars in backdated pay. Meanwhile, Morgan Stanley were effectively insolvent, needing a bail-out of $107 billion from the Federal Reserve. Virtually interest free, by the way.
They were fined just $3.2 billion for misleading investors, despite their role in bringing the global economy to its knees.
But the right-wing press, which gleefully reported on this Corbyn/Brexit warning, clearly has a short memory about what really happened. After all, the lie that Labour caused the financial crisis, and not investment banks like Morgan Stanley, was a convenient pretext for maintaining the economic status quo while cutting to public spending.
This forced ordinary working people to pay for a financial crisis they did not cause. It’s little wonder that people voted Leave having been totally shafted by the system. But the opportunity to do so only arose because the narrative that “Labour crashed the economy” helped secure David Cameron a majority in 2015 on a manifesto that promised a referendum.
Earlier this week Morgan Stanley warned that a Labour government led by Jeremy Corbyn would see spending priorities “shift in favour of low-income households and the public sector, and away from outsourcers and defence companies.”
That sounds like a good idea to me. So does providing the major boost to investment that business groups like the CBI and the FSB have called for. Much better ideas than, for example, getting so carried away with greed that you cause a global recession. But if Labour need any advice on how to do that, they’ll know who to ask.