Sandra Navidi - SuperHubs - How the Financial Elite and Their Networks Rule our World

The dangers of these developments are not lost on those of the 1 percent who discomfitingly warn of inevitable impending upheaval. Serial entrepreneur, superinvestor, and billionaire Nick Hanauer has cautioned his fellow zillionaires that the pitchforks are coming. An unapologetic capitalist, he argues that the U.S. is changing from a capitalist to a feudal society. In his opinion, this wealth accumulation is socially destabilizing and will inexorably lead to a revolution, which will likely be triggered by a sudden and unforeseen event.11 Hedge fund billionaire Paul Tudor Jones echoes that view, opining that “income inequality will end in revolution, taxes, or war.” While he also praises capitalism, he feels “we’ve ripped the humanity out of our companies . . . threatening the very underpinnings of our society.”12 And Rob Johnson, who is now executive director of the Institute for New Economic Thinking and previously worked with George Soros on his billion-dollar bearish bet on the pound, revealed that he knows “hedge fund managers buying airstrips in New Zealand in case they need a quick getaway.”13

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In this chapter, we have been introduced to some of the world’s most influential bank CEOs, managers of trillion-dollar funds, and billionaire investors, who pull the levers of our global financial system. We have seen the incredible power they yield due to the role finance plays in our society.

They control multinational corporations, influence the political landscape and further multiply their power exponentially by virtue of their exclusive networks. In Chapter 2, we will take a look at the financial system through the lens of network science to provide a more structured explanation of the dynamics that propel a select few into the very center of networks, where they become the so-called superhubs.

CHAPTER 2

Superhubs

The Financial Elite and Their Networks

THE SUPERHUB PROTOTYPE: HEDGE FUND TITAN GEORGE SOROS

Billionaire and hedge fund legend George Soros has built one of the largest and most powerful global networks in the world. It is so vast and complex that it is almost difficult to fathom. Soros has attended the World Economic Forum (WEF) in Davos for the last two decades and, as a veteran, truly knows how to optimize his time in this surreal place. He is meticulously scheduled for nonstop bilateral meetings with prime ministers, presidents, central bank governors, and billionaire businessmen. Some slots are allocated to interviews with the world’s most important media outlets. And, of course, he is featured on several WEF discussion panels, along with Nobel laureates, senior policy makers, and CEOs.

What is so special about George Soros? What is the secret of his success? What has propelled him to the center of global networks? He literally transformed himself from someone who had neither money nor contacts to one of the most powerful men in the world. He is a prime example of a network “superhub,” and chronicling his rise can teach us more about the inner workings of the financial system.

Soros was born to a Jewish family in Budapest. At fourteen years old, he survived Nazi and Soviet occupation under an assumed identity and in hiding. After the war ended, he moved to London and later made his way to the United States. Soros has repeatedly stated that his traumatic experience during the war profoundly influenced his thinking and, thus, his life. It made him realize that sometimes normal rules do not apply and risks must be taken. When he arrived in London in 1947 as a seventeen-year-old foreigner, he began studying at the London School of Economics and supported himself with odd jobs. Though eager to land a position in the financial industry, he had trouble finding employment as a distinct and definite outsider in London’s class-conscious society.

In his quest, he wrote personal letters to managing directors at all the merchant banks in London, despite the fact that at that time, it was not customary for job seekers to directly approach prospective employers they did not know personally or through introductions. Getting a foot in the door proved close to impossible, and one banker bluntly told Soros that the city was a club and the only way to get a job was through personal connections. He added mischievously that the London establishment practiced “intelligent nepotism.” Every family had at least one intelligent nephew who would get the job. Since Soros lacked school ties and wasn’t even from the same country, his case was seemingly hopeless.1 Eventually Soros did land a job through fellow Hungarians and subsequently found his first job in America through a colleague whose father owned a small brokerage firm in New York. He made the leap across the pond and, after successfully establishing himself in the new world with his old-world connections, founded one of the first and most successful hedge funds ever. In 1992, he acquired worldwide fame when he “Broke the Bank of England,” forcing the British government to pull the pound from the European exchange rate mechanism.

Soros first built a reputation as an extraordinarily successful investor. However, in a world where countless people make a lot of money, financial success alone did not sufficiently distinguish him from others in finance. His efforts to obtain meetings with President Bush, Margaret Thatcher, and Gorbachev in the late eighties to discuss political issues went nowhere, and International Monetary Fund and U.S. Treasury Department staff dismissed him as just another rich, self-aggrandizing person. So he set about establishing himself as a thought leader. First, he created content. He always had a strong desire to make an impact on the world and from a young age had spent much time developing his philosophical, economic, and political ideas. Yet, until the early nineties, his attempts to publish opinion pieces in the Wall Street Journal and the New York Times remained unsuccessful. With dogged persistence and amid heavy criticism, he continued to publish his writings and books. Most notably, he devised the theory of “reflexivity,” which is in part based on the ideas of philosopher Karl Popper and which he credits for much of his success.2 Even though his views were still mostly dismissed, he slowly began to establish himself. His media exposure helped to gradually cement his reputation and, along with it, his power. By his own account, he was suddenly able to influence governments.

Focusing on making money is regarded as somewhat one-dimensional, but giving it away is an effective method for increasing one’s standing in society. In 1979, Soros began engaging in philanthropy with his Open Society Foundations, which work to build tolerant societies with accountable governments and support education, health, and justice systems, among many other causes. They now have offices all over the world, and their networks are interlinked with other Soros and non-Soros-related networks. Moreover, in the nineties Soros helped establish the International Crisis Group, which is committed to preventing and resolving deadly conflict, and Transparency International, which monitors and publicizes international corruption. All organizations are independent, nonprofit, and nongovernmental.

Soros has aided in setting up many other initiatives, including political ones. In 2007, he assisted in launching the European Council on Foreign Relations (ECFR), an independent think tank on European issues. It consists of more than one hundred politicians, decision makers, thought leaders, and businesspeople. In 2009, he founded the Institute for New Economic Thinking (INET), which is dedicated to reforming academic research and teaching, and whose board consists of a “who’s who” in economics.