Document:Who is Sajid Javid? An everyday tale of Hedge Funds and Financial Intrigue
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Who is Sajid Javid? An everyday tale of Hedge Funds and Financial Intrigue
Britain now has a new Chancellor of the Exchequer, Sajid Javid. He comes from a poor Pakistani immigrant family – famously, his dad was a Rochdale bus driver who arrived in the UK with only £5 to his name, a point Javid makes with monotonous regularity.
But Sajid Javid is no liberal. He is a card-carrying Thatcherite and free-marketeer. He narrowly escaped being fired by Theresa May only because she did so badly in the UK/2017 General Election. May planned to out-left Labour by adopting large parts of Ed Miliband’s pro-state agenda and return the Tories to the One Nation politics of Edward Heath. Javid fought this move all down the line in Cabinet. He is in the Boris Cabinet now not for cosmetic reasons but because he is a hard man of the right.
Educationally, Javid is anything but the stereotypical public school and Oxbridge clone that dominates the Tory and Labour front benches. Javid went to a tech college before doing economics at Exeter. No one should doubt either his capacity for work – or his ambition – though when I was an SNP MP at Westminster I found him insufferably dull and charmless.
However, it is Javid’s astonishing successful, 18-year career in American and European banking – where he rose from nothing to the stellar heights of becoming a Board member of Deutsche Bank International – that explains both the man and his right-wing politics. In truth, Sajid Javid was a key player in the international banking developments – and catastrophes – of the past three decades.
Javid began his financial career immediately after graduating from Exeter in 1991, when he got a job with Chase Manhattan Bank in New York City. His first job was on the emerging markets desk at Chase, selling risky Latin American bonds to the gullible or those with dollars to gamble. How Javid from Rochdale got to the giant Chase Manhattan trading floor in the downtown Big Apple in one bound is very interesting.
Javid owes his start in banking to Jorge V. Jasson, a legendary figure in the American hedge fund business. Hedge funds are the extreme end of international capitalism, using loaned cash to make giant bets on the market. This usually involves “shorting”; i.e. deliberately betting that a particular share or share class will fall in price then selling enough of these shares to actually push the market in the direction you want. Shorting is highly destabilising, definitely unproductive, and frequently disastrous. But when it works, it makes billionaires.
JAVID SHORTS MEXICO
The Argentine-born Jorge Jasson, Javid’s early mentor, was the Latin American investment guru at Chase. Jasson’s Argentine background was the key to his success. When Jorge Jasson began his American banking career in the 1980s, Argentina (and much of Latin America) was under the control of vicious military dictatorships funded by the CIA. In return, these dictatorships made Wall Street investment banks like Chase Manhattan very welcome. US money was soon buying up Latin American assets – minerals, oil and privatised utilities – at a rate of knots.
Jorge Jasson (and his brother Guillermo) set up in New York to babysit his new American imperial adventure in South America. Headquarters of the operation was so-called emerging markets unit of Chase, which took up half a floor in the 250-metre-high One Chase Manhattan Plaza building in downtown New York. Here hundreds of brokers (a fancy name for salespeople) packaged “investment” opportunities and sold them on.
Jorge Jasson needed hungry brokers by the dozen – young men (and the occasional woman) who were prepared to work punishing hours and never take no for an answer. As is frequently the case in bond trading, the emerging markets floor at Chase was not for Establishment bankers or Ivy League or Oxbridge fops. The game to hand was financial piracy on a global scale and the brokers it attracted were misfits, the greedy, the super ambitious and those with a chip on their shoulder.
In addition, the Chase emerging markets unit needed people who understood foreign countries. As a result, the operation sought out those with knowledge of Asia as well as Latin America. Often, these were the bright children of poor immigrants to the States. Many were Chinese, Mexican or Argentinian like Jorge Jasson. Soon they would include Sajid Javid.
To find recruits for his team of brokers, Jasson scoured the global offices of Chase Manhattan, including its London branch. There, in 1991, he found Sajid Javid, fresh from Exeter University and desperate to get on in the world. Famously as a teenager, Javid had become interested in financial markets, following Thatcher’s early privatisations. Aged 14, he apocryphally borrowed £500 to invest in shares and became a regular reader of the Financial Times. Jorge Jasson and Sajid Javid were made for each other and cowboy investment funds.
After uni, Javid wanted to enter the gilded world of City banking. But he was in for a rude shock – racism and class prejudice. He applied for a job at Rothchild investment bank but failed the “what school did you go to?” test – Javid went to a state comp in Bristol. In fact, the only City banks that were interested in the young Sajid Javid were foreign ones, which is why he ended up working at the London offices of Chase Manhattan. It was there he met Jorge Jasson, who whisked him off to the bright lights of New York. Javid has never looked back.
Javid arrived at the emerging markets desk in Manhattan at a pivotal moment. Chase had lent the Mexican government billions of dollars. But the loans went sour – the so-called “Tequila crisis”. The incumbent (and corrupt) Institutional Revolutionary Party (PRI) regime had embarked on an extravagant, expansionary economic policy in order to win votes. To fund this, the Mexican treasury had issued short-term debt with guaranteed repayment in US dollars. However, in 1994, the Mexican peso suddenly crashed in value as a result of a peasant uprising in the state of Chiapas led by left-wing Zapatistas. This made the repayment too expensive (in dollar terms) for Mexico to repay its debts.
Under pressure from the White House, a subservient Mexico reached a deal with the US to keep paying (funded by austerity taxes on poor Mexicans). But the old, near worthless Mexican bonds would have to be repackaged to sell them on to some other sucker. This was the job assigned to Sajid Javid when he arrived in New York.
Suddenly Javid from the local comprehensive had a bright idea: create a dual currency bond (or “note”, in dealer jargon). This complicated wheeze would pay interest in dollars but pay back the principal in pesos (which the Mexican government could always print). The risk lies in the peso depreciating in value meantime. Javid solved that by “hedging”; i.e. actually betting the peso would collapse. If it did, the investor still gets their money back. If it doesn’t, the investor gets pesos that are worth their original value. If that all sounds both insane and manipulative, that’s because it is.
As a result of Javid’s financial gamesmanship, Chase Manhattan was able to repackage and offload circa $1.5 billion of Mexican securities it had purchased on its own account. Suddenly, Sajid Javid was the man. He was promoted to vice president level (though the bank is knee-deep in Veeps). His corporate success also made Javid rich. Bank bonuses in the mid-1990s weren’t as big as a decade later but Javid’s manipulations certainly earned him millions of dollars.
But Sajid Javid’s luck now almost ran out. Back in Mexico, the insurgent Zapatistas were still gaining popular support. This was due to the new North American Free Trade Agreement (Nafta) between America, Canada and Mexico. Nafta was an early move in the neo-liberal drive to remove trade protections for indigenous peoples. One clause in Nafta removed from the traditional Mexican constitution a clause that guaranteed collective land rights to poor peasants.
Clearly neither Chase Manhattan nor its rich brokers wanted the Zapatista peasant uprising to overthrow the regime and stop paying out lucrative debt payments to American billionaires. What was needed was a strong PRI government to put down the Zapatista revolt. Unfortunately, the Mexican voters were desperate to ditch the PRI, which had governed the country uninterrupted since 1929, largely by rigging the vote. For Chase Manhattan, a change of government in Mexico would be a disaster.
Stupidly, Chase officials actually wrote these anti-democratic views in an internal memo. And inevitably, the memo was leaked in early 1995. It warned the ruling PRI “will need to consider carefully whether or not to allow opposition victories if fairly won at the ballot box”. In other words: Chase wanted the PRI to ignore the popular vote. Chillingly, the Chase memo also noted:
- “The government will need to eliminate the Zapatistas to demonstrate their effective control of the national territory and of security policy.”
A few weeks after the memo was written and circulated around top Chase managers, the PRI government in Mexico sent the army into Chiapas, forcing thousands of peasants to flee into the neighbouring rain forest. As a result, there were demonstrations outside Chase offices in New York and San Francisco, and there were attacks on Chase’s retail branches in Mexico. Civic and grassroots organisations in Mexico claimed the Chase memorandum was the trigger that gave the PRI government the confidence to abandon negotiations with the Zapatistas and invade Chipas.
Sajid Javid has always maintained that he had “zero involvement” in writing or circulating the Mexican memo. His old boss at the emerging markets desk, Jorge Jasson, dismissed it as “a faux pas by a guy who got carried away”. The guy in question was Riordan Roett, the top notch economist who ran the emerging markets research team in New York. Roett is now Professor Emeritus of Latin American Studies at Johns Hopkins University.
It defies belief that the head of research for the emerging markets team at Chase acted without discussion with its boss (Jasson) or key brokers – especially given that events in Mexico lay at the heart of getting Chase Manhattan out of a big financial hole. Modern populism of the Boris Johnson kind is not classical fascism. However, no one should be in any doubt that when the financial interests of international investment banks or global hedge funds are at stake, there will be more such memos.
JAVID, CDOs AND THE 2008 CRASH
Jorge Jasson, Sajid Javid’s mentor, continued as a key Chase (later JPMorgan Chase) executive till 2003. He then left to start Dolomite Capital Management, an emerging markets fund of hedge funds, with a rumoured $500 million in capital. As is typical of hedge funds, Dolomite Capital was incorporated in a secretive, offshore tax haven – in this case, the Cayman Islands.
As for Javid, he escaped further controversy over the Mexican memo by returning (in corporate glory) to the Chase offices in London, in 1997. In the City, Javid’s star was to rise even higher. He was the first to spot that India’s new high tech computer companies were more reliable (and profitable) than its often corrupt government. More important still, he also predicted the Russian default crisis of 1998, prompting Chase to dump its Russian sovereign debt just in the nick of time.
Such a rising star in the financial firmament was soon noticed. As a result, in 2000, Javid was headhunted by Deutsche Bank, the German investment house. At this point, Deutsche Bank had plans to take on the big US investment banks such as Chase. In 2006, Deutsche sent Javid to Singapore to head the bank’s credit trading in Asia. That meant he was in charge of selling financial products called collateralised debt obligation (CDOs) in Asian markets. Selling CDOs earned Javid some £3 million a year. Unfortunately, these CDOs would be the timebomb that exploded to cause the 2008 global financial crash.
A CDO is a financial product that pools together cash flow-generating assets and then slices them up for resale. On the surface, this seems to package risky and safe assets, spreading the risk and making everyone happy. Unfortunately, as we saw in the 2008 crash, slicing and dicing high risk investments with low risk ones merely poisons the whole barrel. Worse, it totally obscures where the dangerous risky assets actually lurk.
Deutsche thought it could outflank the big US investment banks by flogging CDOs to gullible Asian clients. It claimed the underlying American assets packaged inside the CDOs were a good way of giving Asian savers a chance to access high-grade western investments without any prior expertise. These CDOs went sour in 2008. The central question is whether Deutsche knew it was mis-selling either duff or (to be charitable) highly risky products without proper explanation.
Certainly the United States Department of Justice (DoJ) thought Deutsche had been up to no good and was culpable. Following the crash, the DoJ ruled that Deutsch has knowingly misled American investors about the quality of its loans, particularly those based on packaging household mortgages. The DoJ demanded a fine of some $14 billion from Deutsche. Ultimately, in 2017, Deutsche Bank agreed to pay the DoJ, $7.2 billion in final settlement.
Asian investors were not so lucky. They and others tried to sue Deutsche for mis-selling CDOs based on packaging emerging market assets – the products that Sajid Javid had been involved in putting together for the bank. But the eventual court case was dismissed because it fell outside the five-year statute of limitations. Javid has always denied any culpability. Speaking to the press in 2006, he said of this emerging-market CDOs: “As long as investors understand the risk/rewards of an emerging-market CDO, they are very appropriate.” The problem was that nobody – especially the guys selling CDOs – really understood a scoobie about how risky CDOs they really were.
JAVID ON THE ROAD TO NUMBER 11
Sajid Javid has always been lucky. In 2009, just as the financial crisis was leading to a global recession, he made a quick exit from banking and entered politics. Javid had always been interested in the Conservative Party since his student days. Throughout his long banking career, he stayed in touch with Tory friends from Exeter, including the now MP Robert Halfon and the commentator Tim Montgomerie.
Then, fortuitously, the Westminster expenses scandal defenestrated the sitting MP for Bromsgrove, the unmemorable Julie Kirkbride. She and her MP husband Andrew Mackay had simultaneously claimed their Bromsgrove and London family homes as main and second residences, though a different one each. This was a financial scam worthy of a hedge fund deal. Both retired in disgrace and lucky Sajid Javid fell heir to the very safe Bromsgrove seat at the 2010 General Election.
Soon after being elected, Sajid Javid (on the basis of his financial expertise) was appointed Private Parliamentary Secretary to the new Chancellor of the Exchequer, George Osborne. The rest, they say, is history.
Sajid Javid presents himself as the upwardly mobile son of a Pakistani bus driver. In reality, he is a culpable agent of global finance capital and its hedge fund pirates. At heart, they are opposed to all forms of international financial regulation – hence their support for Brexit. Javid’s first budget could well be a populist bonanza designed to win votes in an early general election. But as everyone from Mexican peasants to Asian savers has discovered, Sajid Javid’s financial offerings come with a big health warning.