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

Despite his massive earnings, Blair seems less driven by money than by public recognition and a desire to retain a seat at the table. Being driven and restless, he—by his own account—has worked very, very hard in building a platinum Rolodex following his departure from office.13

CROSS-CONNECTIONS: COOPERATING CONSTRUCTIVELY IN TIMES Of CRISES

The depth and reach of the international policy makers’ and financial superhubs’ tight-knit networks became particularly clear during the financial crisis. When the financial system was close to collapsing, they convened to coordinate unprecedented emergency responses. While the legitimacy, fairness, and effectiveness of their efforts can validly be questioned, it is by now relatively undisputed that the global financial system would have most likely imploded with incalculable consequences if leaders had not taken unconventional measures.14

Most of what had been going on behind the scenes was kept secret at the time in order to avoid a market panic and run on the banks. However, in the years following the Lehman debacle, many officials who had been actively involved in the crisis response, later wrote books in which they lifted the lid on what really happened. Among those who recounted their firsthand experience were Ben Bernanke, Hank Paulson, Timothy Geithner, and Sheila Bair. All their reports have one theme in common: the crucial role that personal relationships played in solving problems too large for any individual to tackle alone. For instance, Hank Paulson, President Bush’s “war general” during the crisis, repeatedly stressed the significance of deep relationships in his book On the Brink, an account that was mirrored in Andrew Ross Sorkin’s book Too Big to Fail. 15

While Paulson may come across as aloof and somewhat dry, he is actually the embodiment of a master networker. Prior to serving as secretary of the treasury, he was CEO of Goldman Sachs and forged relationships with leaders all over the world, particularly with the Chinese elite. His connections in China were said to have been better than even those of the U.S. administration and would later become an important asset during the financial crisis. After becoming treasury secretary, he sought to reinforce his relationship with Condoleezza Rice, then the secretary of state whom he had previously helped in her job search. On his second day at the treasury, he took her to lunch, where she shared that the best way to relate to President Bush was to spend time alone with him. At that time, Paulson did not know President Bush very well, but he already understood that gaining direct access to him would be crucial. In his opinion, any negotiations would be meaningless unless he was able to gain the president’s trust.

Paulson continued to maintain close ties with the finance executives he knew from his time on Wall Street, and during the crisis he benefited from their cooperation and firsthand intelligence from the front. In addition, he made an effort to develop relationships with politicians on both sides of the aisle. Applying his Wall Street frame of mind, he viewed the 535 members of Congress as new “clients” and courted them with the same zeal he had employed in his commercial career.16 He also developed a “special bond” with Ben Bernanke and maintained a “constructive relationship” with Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation (FDIC) at the time.

Paulson’s successful passage of the emergency rescue package known as TARP (Troubled Asset Relief Program) demonstrated his emotional intelligence and social skills. TARP could hardly have been more controversial, and it was, consequently, very difficult to convince Congress to back it. Just before the vote, he even bent down on one knee and begged Nancy Pelosi, then Speaker of the House of Representatives, not to block the deal, to which Ms. Pelosi replied wryly, “I did not know you were Cath-olic.”17 Throughout the crisis, Paulson, Geithner, and Bernanke formed a trifecta that essentially prevented the U.S.—and, by implication, the global financial system, from falling off a cliff.

LAUNCHING A PRESIDENT

The surest strategy for achieving access and influence within a network is to initiate its creation. If your new network combines money with politics, it will be all the more powerful. This is what happened when several Wall Street heavy hitters backed a little-known senator from Chicago named Barack Obama. George Soros, the multibillionaire hedge fund titan, contributed to Obama’s rise by endorsing him and donating to his campaign. In May 2007, Soros hosted a fund-raiser at his lavish Fifth Avenue apartment and convinced another hedge fund legend, Paul Tudor Jones, shortly thereafter to throw a big fund-raising party at his gorgeous Connecticut waterfront mansion, where many of the attendees were wealthy Wall Streeters. Soros and Jones are admired and emulated opinion leaders in their industry, so their support sparked a large following and sent Obama’s campaign on an upward trajectory. Financial contributions are important, but at least equally as powerful is access to the superhubs’ networks. Once superhubs mobilize them, this in turn mobilizes various subnetworks, thereby tipping off a multiplier effect that results in exponentially higher funding.

Shows of support generally increase the likelihood of gaining access and influence to a given network, but they are certainly no guarantee as Wall Street came to learn. The financial sector supported Obama’s second-term 2012 campaign to a much lesser extent after experiencing “buyer’s remorse”; they felt that he had turned against them by embracing the hostile “fat cat” narrative. And while Obama acknowledged big donors like Warren Buffett, who has the image of a benevolent grandfather, by asking him to join his advisory circle, he has, for the most part, shunned George Soros, who is much more controversial. For the longest time, Obama’s staff failed to respond to Soros’s requests and only reluctantly arranged for a brief unofficial meeting. Soros, who had always appreciated Hillary Clinton’s accessibility during her time as First Lady, felt disrespected.18

The CEOs of the largest financial institutions also maintain close ties to the president, and many of them share the same alma mater. Jamie Dimon, Lloyd Blankfein, Michael Corbat, and President Obama are all Harvard University graduates. Big bank CEOs also have direct access to the president simply because they steer systemically important institutions holding trillions of dollars in deposits. According to official statistics, they visited and had calls with President Obama, Timothy Geithner, and other top officials many times during the crisis.19 In Germany, similar statistics reveal that top bankers frequently interacted with Chancellor Merkel and her staff.20

“LEGALIZED CORRUPTION”: THE BEST DEMOCRACY MONEY CAN BUY

Another way to further one’s access and interest is through the retention of lobbyists on both sides of the aisle. In our modern economy of influence, reciprocal relationships are a tradable currency.21 Former senior officials leverage their preexisting relationships to provide executives in the financial sector with access to public figures.22 According to a study by the National Bureau of Economic Research, the main role of lobbyists is to maintain connections with politicians. Those relationships in turn determine the subject matter they work on, and when the politicians move to another position, the lobbyists follow them. Expertise on issues is good, but the premium is much larger for lobbyists with deep connections to the political establishment.23 In line with these findings, a study by the University of Warwick quantified the value of personal connections by determining that the revenue of U.S. political lobbyists falls by 24 percent if their former employer leaves government office.24 Wall Street lobbyists’ influence even extends to writing legislation, and lawmakers who support those bills typically receive more contributions than those who do not.25