The world of finance: a cosy club

Sandra Navidi’s curriculum vitae looks richly speckled. She studied law and practised in Germany and the US. She was an investment banker and, later, a macroeconomic analyst who worked with economist Nouriel Roubini. If you remember, Roubini had predicted the collapse of the housing market and the worldwide recession of 2008. Navidi is now a management consultant advising a myriad mix of companies and people who run it.

Obviously, having attended exclusive invite-only big-ticket events in the world of finance and the economy, she has had access to troves of exclusive information lesser mortals are not necessarily privy to. So, obviously, one expects Navidi’s Superhubs: How the Financial Elite and Their Networks Rule Our World to be an eye-opening treatise on the murky, complex and chaotic universe of global finance and its dubious hubs and networks. But at the very outset Navidi makes it clear that she is no radical rabble-rouser. Instead, she is a neutral chronicler and the judgment is left to the readers, who have a lot to read between the lines in this refreshingly detailed work on 21st century finance.

The hyper-networkers

Physicist Stephen Hawking called 21st century a period of complexity. For Navidi, three forces propel this complex period: technologisation, financialisation and globalisation. The world of finance is a deadly cocktail of all the three forces that mark this century. As a result, traditional methods and linear thinking become quite unsuccessful in understanding what happens in this system which is a web of alliances and networks in which the ‘power of networking’ plays a pivotal role, influencing global policies and business deals.

In 12 chapters rich in research and sprinkled with personality profiles of the movers and shakers of finance, Navidi shows how people such as Jamie Dimon, CEO of JP Morgan Chase; Larry Fink, chairman and CEO of Blackrock, the largest asset management company in the world; and billionaire hedge fund honcho George Soros “shape history, transform the world we live in, and determine the future of our financial system, economy, and society”. She helps unravel a curious world of power-brokering, while strictly maintaining her role as a neutral observer.

But being neutral is a Herculean task while analysing the world of finance. At times, Navidi gets tempted to go judgemental, especially when she analyses the influential networks in finance. Over time, she writes, certain network dynamics — such as the “rich-get-richer phenomenon” and self-perpetuating feedback loops — will cause any system automatically to become more interconnected, homogeneous, and complex. She understands that this is not a great way to go because most systems are adaptive and self-correcting, so when they become “too lopsided, circuit-breaking feedback loops kick in, restabilising the system”. Systems that fail to correct themselves ultimately self-destruct, she warns. But this is a dog-eat-dog world anyway, where factors such as ethics and loyalty often get a back seat, as we have seen in the works of Michael Lewis, Sebastian Mallaby, or even Bryan Burrough and John Helyar. “You want loyalty, hire a cocker spaniel,” informs Lewis in his seminal work, Liar’s Poker, in which he shared his startling experience as a bond salesman on Wall Street.

But Navidi doesn’t want you to enter that space, for obvious reasons. She is still active in the industry and if the litany of praise from the biggies of finance that dot the first few pages of Superhub is any indication, she has influential friends to humour.

Circumspect narrative

So, Navidi sticks to the essentials, which are enough for us to enjoy. She starts by profiling the Financial Universe, starting from the stratosphere of power — Davos, where meetings tangibly demonstrate that “similar people attract each other — and that those who already have the most connections attract even more”. Then she goes to look at the global financial system through the prism of network science. This, claims Navidi, provides a more structured explanation of how a select few get to the very centre of networks, where they become the so-called ‘superhubs’.

There are plenty of successful people in the world, Navidi writes, but only a few become so “disproportionately successful” that they operate the very levers of the financial system; they form the superhub, which connects the influential to the more-influential. In the world of finance, netswork equals net worth. And what are the links that connect these networks? Money, information and opportunities. In finance, says Navidi, the most valuable currency is actionable information that can be converted into monetary gain. So, in essence, you’re worth what you know. Which also means, you’re what/who you’re connected to.

Is this a virtue or a vice? Navidi sits on the fence here. Especially considering the plethora of examples that suggest how these powerful networks influence public policies across the globe, leading to considerable damage to public good. During the subprime crisis of 2007-08, most rating agencies were vying with each other to stamp high ratings to toxic bonds and other financial instruments, which eventually, nearly, pulled down the whole financial system in the US, triggering a chain reaction across the globe.

In Navidi’s world, superhubs and their influence, though they can get toxic at times, are a necessary inevitability, whether you like it or not. This is where the book stumbles. Or differs from the likes of a Big Short (Lewis) or More Money Than God (Mallaby), which vehemently criticises the power of financial elites and their ill-gotten wealth. But as we can see Navidi seems to have great friends she cannot offend by revealing unpleasant truths.

Navidi’s language at times gets too simple to bring out the nuances in the discourse. The book is text-bookish in places. But those are minor glitches; if you are interested in the world of finance and its curiosities, this is a good read.

[Source”pcworld”]