Philip Augar worked in investment banking for over twenty years. He led Natwest’s global securities business, and was a group managing director at Schroders before turning to writing in 2000 with the publication of the best-selling Death of Gentlemanly Capitalism. His fifth book, Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City’s Golden Decade, was published in April 2009 and was recently released in paperback under the title Reckless. This completed a trilogy which has been highly critical of the modern financial services industry. Philip has a doctorate in history and has lectured at several universities. He has been a nonexecutive director at a wide range of private, public, and third sector organizations and advises a number of boards and chief executives. He can be contacted at philipaugar.com.
What do you think the EU directive on hedge funds is going to mean for the City of London, where some 80% of European hedge funds are headquartered?
Under the new rules, hedge funds are going to be forced to hold more capital and non-European hedge funds will have to obtain a “passport” to operate within the European Union. For certain types of hedge fund, these developments are unwelcome. There’s a risk some London-based hedge funds will move outside the European Union. But there are some serious financial institutions developing in this space. Your saw that with MAN Group’s acquisition of GLG Partners. Financial institutions of that scale like to be where the center of the action is—which is London. For that reason, I doubt there will be a massive exodus.
Germany and to a lesser extent France have always had a thing about hedge funds and private equity, comparing them to a swarm of locusts amongst other things. It may be because hedge funds and private equity are the trophy products of Anglo-Saxon capitalism, and the Anglo-Saxon business model has never been fully accepted in France or Germany. But their targeting of hedge funds is misguided since hedge funds had a fairly minor role in causing the financial crisis.
European politicians have sought to blame the EU sovereign debt crisis on a “wolf pack” of speculators. But wasn’t the crisis caused by over-borrowing and lax fiscal policies in countries like Greece, Spain, Portugal, Italy, and Ireland, and the European Union’s failure to police the Maastricht criteria rather than “speculators”?
We saw that sort of thing during the Asian crisis of 1997–98, when Malaysian Prime Minister Mahathir Mohammad sought to blame George Soros, accusing him of being a “moron.” But that is to blame the symptom rather than the cause. What the EU members should be doing is reappraising their whole political and economic philosophies.
In your books you have chronicled the cultural shift on Wall Street and in the City of London since the 1980s. Was there a particular turning point?
It’s been more of a slow build. It started with the dismantling of Bretton Woods and the ushering in of the Chicago School of Economics; and it continued with the Reagan–Thatcher view that the market always knew best and that less regulation was always the answer. Seminal events included “Big Bang” in 1986; the progressive dismantling of Glass–Steagall in the 1990s, and the Gramm–Leach–Bliley Act of 1999, which lowered all regulatory barriers. That coincided with the splurge in securitization, the explosion of the CDO and CDS markets; the move from responsible banking to highly leveraged banking.
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- Next section Didn’t these changes also coincide with a long period of artificially low interest rates?