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

The story played right into the public’s negative perception of hedge funds as capitalizing on the misery of others and prompted an inquiry by the Department of Justice’s antitrust division. Some of the hedge fund managers received notices to save any trading records involving market bets on the euro for investigation into potential patterns of collusion. In addition, the European Commission announced that, in light of the Greek crisis, it would investigate trades in sovereign credit-default swaps, because hedge funds weren’t supposed to profit from the woes of the region’s ailing nations. It would be hard, though, if not impossible, for a few managers to cause a country’s bankruptcy by themselves, because the euro accounts for over $1 trillion of daily trading in global currency markets.3 In addition, an informative, conceptual exchange of opinions regarding currency trades is hardly illegal.

Eventually, it turned out that the event had been misreported. Contrary to initial claims, the dinner had not taken place in secrecy, but at a public restaurant. The taped conversation—which had lasted 145 minutes and included twenty-three themes—had only focused on the euro for three and a half minutes and only involved three managers. When I asked Soros about the incident, he dryly responded, “Trust me, if I had a great trading idea, the last thing I would want to do is to share it.” But considering the undue media attention, vilification, and potential legal ramifications, Soros had temporarily lost his appetite. The dinners eventually picked up again, but managers became even more guarded in their discussions.

Conspiracy Theories: An Explanation for Attempted Explanations

Given the highly exclusive nature of superhub networking platforms—members-only events, conferences, private parties, and charities—it’s unsurprising that the financial system often finds itself at the center of conspiracy theories. Generally, these theories emerge because people dislike randomness and uncertainty. When threatening events like the financial crisis occur, they feel a lack of control. It is human nature to devise meaningful patterns to explain the uncertain, unexplainable, and uncontrollable, because it is unsettling to think that our existence is determined by randomness without any discernible purpose. Therefore, in an attempt to create order in this world, we try to match specific events with specific causes. When occurrences are too complex to be understood, we tend to weave narratives and assign blame to a perceived higher power—often exploitative financial masterminds colluding at the expense of the rest of society. This kind of thinking is influenced by confirmation bias, which means seeking support for an existing belief, or hindsight bias, the subsequent fabrication of explanations for something that already took place.

Conspiracy theories are dangerous because at best they dumb down the population and at worst they prevent finding real solutions; such theories deflect the relevant facts and, therefore, avoid a proper analysis. That is not to say that there may never be an occasional—at least attempted—conspiracy, but they are more often the exception than the rule.

WHY NETWORKS NEED PLATFORMS: CONNECTIVITY

Networks need platforms to form, expand, and strengthen. The financial elite follow a yearly migration pattern, flocking to invitation-only conclaves such as the World Economic Forum in Davos, the International Monetary Fund, the Bilderberg Group, the Aspen Institute, the Allen & Company Sun Valley Conference, and many more. This tribal super circuit has evolved over time, and its members ritualistically attend these “ceremonies” to see and be seen, affirm their status, and receive acknowledgment. Reinforcing a sense of community, these meetings provide a safe cocoon for interaction, yet are unstructured enough to leave room for serendipity, which many powerful executives credit with at least part of their success.4

When it comes to power platforms, the magic word is “access”; they have high barriers to entry, and only superhubs get admitted. People must have the requisite degree of status, reputation, and power to be invited. Access can also hinge on associations with certain institutions, groups, and networks. For instance, if a CEO of a multinational corporation loses his position and fails to obtain a comparable one, chances are the WEF will not invite him to Davos anymore. In general, these meetings revolve around exchanging thoughts, sharing experiences, and cultivating relationships. Keynote speeches, panels, cocktail parties, and gala dinners reinforce the bonds of people who naturally gravitate toward each other. Thus, these power-cluster events create the connective tissue of socially cohesive circles of influence. Only superhubs have the “operating manual” on how to gain access and navigate these mechanisms.

THE ANNUAL POWER CIRCUIT: DISPATCH FROM DAVOS

The World Economic Forum (WEF) in Davos is one of the most famous and effective of these platforms. Kicking off the meeting season in January, it unites the leaders of the financial industry along with those of corporations, governments, and academia. As the participants all belong to various multidimensional interdisciplinary networks—of people, businesses, institutions, and information—the cross-fertilization and disruption of “silo-thinking” is particularly effective. The magic formula of Davos’s success is that the village is small, inconvenient to travel to, and hard to navigate. These drawbacks are actually the event’s greatest asset as participants are literally forced to network.

Due to the myriad of international media present, the WEF is highly transparent to the public, and individual sessions can now even be viewed live on the Internet. Parts of the discerning public often regard Davos with suspicion because there are only a limited number of tickets available and the application process is extremely competitive. Access cannot be “bought” because criteria other than financial prowess—such as charitable work, academic achievements, or technological innovation—also determine admission considerations. Representatives from not-for-profit sectors as well as young leaders with extraordinary achievements are admitted gratuitously. However, the majority of participants must pay the steep fees, which—unsurprisingly—does not lessen demand. Fees for the most basic yearly WEF membership start at CHF 60,000. For strategic partners, the fees amount to CHF 600,000 and almost all large financial institutions opt for this top membership level. Add to that private jet travel, chauffeured cars, and other ancillary costs, such as hosting parties and dinners, and the tally easily exceeds $1 million.

Strategic partners have substantial influence on the agenda and privileged access to the WEF’s most valuable asset: other high-profile attendees, particularly senior policy makers. Most sessions and events are open to all WEF attendees, but the Informal Gatherings of World Economic Leaders (IGWEL), are restricted to the highest-caliber attendees, such as prime ministers; foreign and finance ministers; central bank governors; corporate CEOs; elite academics; and senior policy makers such as the heads of the IMF, European Central Bank, WTO, and OECD. The attendees are well positioned to make the most out of the WEF. As superhubs, they optimize their relationship-building efficiency with the support of highly qualified staff members and generous budgets. Financiers meet their peers to compare notes on the industry and discuss mutual interests such as deregulation, a topic that they can raise directly with regulators and policy makers in attendance. Nowhere else is there a greater density of current and potential clients all congregating in one spot. It is a bankers’ and fund managers’ paradise. Top investors like George Soros, who need not seek out or cater to clients, capitalize on the opportunity to take the pulse of the market by speaking with heads of state, central bankers, corporate CEOs, and top global leaders in their respective fields.