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

By leveraging their status and access, superhubs also have “convening power”: the power to congregate networks of individuals working together toward a common goal. Convening power is a power multiplier. Superhubs are already powerful, but by linking up with other powerful and like-minded individuals, they increase their influence exponentially. Their power is twofold: By virtue of their status and reputation they have access to the most powerful people, and with their credibility they have the authority to convince those powerful people to join their cause. Klaus Schwab, the founder of the World Economic Forum, and George Soros are good examples. When they call, people line up, eager to join the cause whatever it may be. That convening power, in turn, increases their status.

Furthermore, superhubs have a great amount of control over network flows because they reside in its nerve center. They can open up access to one node by another, control the distribution of information, and limit access of other nodes, essentially playing the role of gatekeeper with regard to coveted opportunities.22 That control in turn fortifies their network power.

In financial networks, the most important outcome of access to powerful people is access to the network currencies they control: information, financial capital, and opportunities. These are the essential links in the global financial network, and we’ll explore them in the next chapter.

Access: Social Capital Matters

Elites in the financial sector leverage a common currency: social capital. In a sense, it is a form of accumulated labor expended for the benefit of another. Human networks are based on the exchange of social capital, which acts as a glue that cements relationships and facilitates cooperation. The metaphor of capital implies that one can invest in their social connections and expect a correlated return—an expectation of reciprocity based on trust and shared values.23 We all feel obligated to return favors and keep track of them.24 In the networks of the superhubs, every request for a favor is a complex negotiation, and favors are like loans collateralized by the status of the borrower. The higher the status, the more value is attached to the favor. As a person’s status and access grow, so does his social capital, creating a potent combination of power that attracts other nodes. Social capital complements financial and human capital and is one of the forces that drive economic growth. Human capital—the sum of a person’s intelligence and experience—has long been recognized as a measure of productivity. In contrast, social capital—the extent and depth of a person’s network—has been neglected in assessing productivity output.25

Trading favors has always been an integral part of Wall Street culture. Financiers follow an unwritten honor code when it comes to relying on someone’s word, so the exchange of favors balances out most of the time. When it does not, the obligor is in danger of being penalized with status-lowering gossip or, worse, expulsion from the network.

Financial superhubs have access to everyone and everything, and when they make requests, others are all too happy to oblige. The attendance of high-demand superhubs upgrades the prestige of every event, and people are eager to exchange thoughts with, befriend, and work with them. Through their status and access, they have massive power in the financial network.

Superhubs inevitably form in all communities, be they among students in school, tradespeople in a small city, or actors on a global stage. Their formation follows the laws of network science, and with gravitational force they attract a disproportionate number of connections. Superhubs in the financial system are particularly powerful due to their access to capital and globalization. They do not procure their prominent positions by accident; rather, they decipher the DNA of a network and abide by its rules until they are in a position to influence them, thereby perpetuating the system. When they link directly to each other and form clusters, their power multiplies and becomes pervasive, touching the lives of each and every one of us.

One of the greatest advantages of being a superhub is easy access to other superhubs, a feature that particularly applies to George Soros. Whenever he starts a new venture or engages in a cause, he does not have to ask for support; the highest-caliber people from all over the world, including former heads of state and senior policy makers, offer their help, as they are eager to be associated with his ideas and endeavors. In the same vein, he does not simply provide ideas and funds to his contacts and causes. His own powerful networks serve as a crucial resource and when Soros calls, people respond.

Soros’s eightieth birthday party was a testament to the deep personal relationships that he has built throughout his life. Friends from all over the world flocked to celebrate the occasion with a big bash in Southampton, New York. In a white gazebo-themed tent, economist Nouriel Roubini chatted with Byron Wien, vice chairman of Blackstone. Under the palm trees, Caio Koch-Weser, vice chairman of Deutsche Bank, sipped champagne with Min Zhu, deputy managing director of the IMF. Meanwhile, Pete Peterson, cofounder of the Blackstone, and Charles Dallara, then managing director of International Institute of Finance, searched for a quiet place to sit down and talk.

Soros’s wedding to business consultant Tamiko Bolton in 2013 was even more extravagant. Since the event had been scheduled to take place on the weekend preceding the United Nations General Assembly and the Clinton Global Initiative, many world leaders were in New York. The festivities were held at the Caramoor Estate near Katonah, New York, an hour’s drive from the city, and I looked forward to attending. Approaching the venue, we joined a long convoy of black limousines and were greeted by the Budapest Festival Orchestra playing a composition created solely for the occasion. In a splendiferous tent, at the center of which loomed a life-sized sculpture of a hot air balloon made entirely of flowers, a microcosm of the financial elite mingled. IMF chief Christine Lagarde; World Bank president Jim Yong Kim; former UN Secretary-General Kofi Annan; House minority leader Nancy Pelosi; Senator Chuck Schumer; Iceland’s President, Ólafur Ragnar Grímsson; Estonian President Toomas Hendrik Ilves; Liberian president Ellen Johnson Sirleaf; Albania’s prime minister Edi Rama; Italian foreign minister Emma Bonino; former Greek prime minister George Papandreou; hedge fund titans Paul Tudor Jones, Julian Robertson, and Stan Druckenmiller; Lord Adair Turner; Lord Mark Mal-loch-Brown; Charles Dallara; and the singer Bono from the rock band U2 were all in attendance, to name just a few. George’s and Tamiko’s friends had come from near and far to celebrate this joyous occasion—and to reinforce existing social bonds.

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In this chapter, we have superimposed network science on the relationship structure of the best-connected and most powerful people in the financial system to explain how superhubs emerge. More concretely, we have revealed the dynamics that make some people superhubs, such as status, access, and social capital. How are superhubs connected, what makes their connections so valuable, and what is actually exchanged in these networks? In the following chapter, we’ll examine more closely the main links that connect them: money, information, and opportunities.

CHAPTER 3

The Links That Connect Superhubs

Money, Information, and Opportunities

NETWORK NUCLEUS: LARRY FINK

Every year during the World Economic Forum in Davos, the Financial Times and CNBC cohost the “Nightcap” at the majestic Belvédère Hotel. The reception is a must-attend for the captains of the various industries. It was there that I first met Larry Fink, who I had only known from his media appearances. With his narrow-set, tense eyes, prominent forehead, and almost exaggeratedly brainy appearance, I had expected him to act like a socially awkward genius. Yet, that evening, he effortlessly worked the crowd and was open, friendly, and approachable. Most fascinating was watching guests gravitate toward him, eager to engage in a conversation. Even if I had not known who he was, I would have sensed that he was someone “important”—a superhub—by the way other important people pursued him.