Oligarchy

Life is hopefully now calming down sufficiently to the extent that I can write some more or less informative newsletters again, so I’m back to bring a little bit of oligarchy into your lives. Last week was that wonderful annual ritual when the world’s best writers descend on my hometown for the Hay Festival, which is probably the finest book festival anywhere. And this year it was particularly good since it was the first full-bore event since before the pandemic.

I got to talk about my own book Butler to the World (which is out next week in North America, should you live on that side of the Atlantic and be looking for some reading material), plus to appear on panels with various fascinating people, including Serhii Plokhy, Bill Browder and Catherine Belton. I also got to sit in the audience and listen to many of my favorite writers, including Michael Lewis, who had this to say when asked why he writes.

• “I try to get myself into a position emotionally when I think it’s so important that it’s an obligation, it’s a duty. I’m not writing it because I want to write a book, I’m not writing it because I need money, I’m writing it because I have a duty to do it, because it’s that important.”

That struck me as a pretty good philosophy, and worth the entry price on its own. Should you wish to see any of the talks for yourself, the festival’s content is available on its own Hay Player for a one-off payment.

While on the subject of Michael Lewis: I’m currently listening to the third season of his podcast Against the Rules, and I highly recommend it. He has a remarkable gift for getting to the nub of things, without becoming as irritating as big-name non-fiction writers sometimes can. I also badgered him after his event to ask what he would be writing about next, and he said it would be something about crypto, which is good news because I would love to have him get to the nub of whatever is going on there.

The demise of Luna/Terra – the stablecoin which was neither stable nor a coin – is particularly fascinating. This episode of the Odd Lots podcast, in which investor Kevin Zhou explained what went wrong, did leave me wondering how on earth anyone fell for it in the first place. But then, perhaps expecting this to make sense is a category error.

The philosophy of crypto investors does seem to be encapsulated in that old Wall Street cliché that you should “stay at the party, but dance near the door,” or that bit of wisdom from John Maynard Keynes that “the market can stay irrational longer than you can stay solvent.” If nothing makes sense to such an extent that an algorithmic stablecoin with no apparent function is worth billions, then why not pile in? I’m wondering, if there turns out to be any investigations into the founders of collapsed cryptocurrencies, whether the defrauded investors will show the same kind of perverse loyalty to the people that ripped them off that were such a feature of 1990s pyramid schemes in Russia.

• “While in custody and under investigation, Mavrodi managed to register as a candidate for deputy of the lower house of parliament and to get successfully elected: Investors in the Ponzi scheme wanted to get their money back and actively voted for him. So he got parliamentary immunity and went into parliament straight from his prison cell,” as this article explains.

How to steal a trillion

Anyone who managed to avoid me at the Hay Festival last week ran the risk of having to hear me on the radio, thanks to the BBC series How to Steal a Trillion, which I put together with the producer Phil Tinline. We traced the history of money laundering since the post-War boom in offshore finance up to what’s happening in Ukraine, and I was particularly pleased to have a chance to talk to Vanessa Ogle, Catherine Schenk and David Lewis, who I’d not spoken to much in the past.

One interviewee was the U.K. government’s anti-corruption champion John Penrose, who had some interesting and thoughtful things to say about his work trying to encourage London to do more to tackle financial and economic crime. Anyway, sadly, he’s rendered the series out of date by resigning his position in protest against Boris Johnson’s failures of leadership. (Spoiler: Johnson, who doesn’t appear to recognize the concept of leadership, did not resign.)

Should Johnson be looking for a way to reboot his premiership after narrowly winning the support of his fellow Conservative members of parliament, he could do a lot worse than read this report from Labour MP Margaret Hodge, on “corrupt money and corrupt politics.” Her recommendations are simple and apply universally yet appear to be beyond most governments.

–    “We must insist on greater transparency. That would allow us to better follow the money in the financial sector and expose our decision-making to scrutiny in the public sector. We need to reinforce the pillars of accountability that support our democracy – from an independent judiciary and civil service to a powerful parliament and robustly independent media. We need to strengthen the financial and constitutional regulatory framework to prevent and punish financial crime and to prevent and punish corrupt behavior in the public domain. Finally, we need to enforce and police our systems more effectively. The Government and the executive need to be energetically held to public account.”

On that note, congratulations to New York State for bringing forward a bill demanding transparency for shell company ownership (this is a very nicely made video explaining why it’s a good idea), which seems like a good way to mark the United States’ long-overdue achievement of gaining the top spot in the Financial Secrecy Index.

• “Globally, we’re starting to curb the financial secrecy used by Russian oligarchs, and also by tax evaders, corrupt politicians and organized crime around the world to hide and launder ill-gotten wealth. But the US, U.K., Germany, Italy and Japan cut back that global progress by more than half, fueling financial secrecy instead of fighting it. The G7 must make clear where they stand in the fight against financial secrecy by committing to a global asset register,” said Alex Cobham, chief executive at the Tax Justice Network.

What I’m reading

I’ve just finished James Hanning’s Love and Deception, an eminently readable book on the legendary double agent Kim Philby and the years he spent in Beirut before he defected to the Soviet Union. Mostly though, the last few days have involved relentlessly poring through documents on environmental regulation, which I am trying to understand.

As far as I can tell, the laws are generally pretty good, and yet the situation – as regards pollution of the air, earth, and water — is increasingly bad. The challenge is how to explain how those two facts can co-exist: if the laws are good, why aren’t things getting better? The link between them lies in decades of deliberate underfunding of the enforcement agencies, which means those laws don’t actually get enforced. Governments can therefore take the credit for Doing the Right Thing because they’re passing progressive legislation, while also having none of the downside of inconveniencing major party donors who might actually have to start paying to clean up their own mess. Funnily enough, that’s exactly the same situation that I find when researching financial crime: an epidemic of fraud coexists with tough anti-money laundering legislation.

Often government action in these areas looks like nothing more than a Potemkin state, with all the appearance of activity, and none of the substance.