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

Eventually the dust settled, only for Summers to create another outrage. At a conference, while discussing why fewer women succeed in science and math, he suggested that “there are issues of intrinsic aptitude,” a remark which was widely interpreted to mean that women were less likely to possess the intellectual capacity to complete high-level quantitative work.5 This was a startling statement to have been made publicly by the president of such an influential educational institution, especially considering that the rate of female academics obtaining full professorships had significantly declined under his presidency. A frenzy ensued among professors, alumni, and the public. After first trying to defend his statement, Summers eventually apologized.6 In the course of the controversy, it emerged that other complaints had been made about him, and eventually he had no other choice but to resign.

A short while thereafter, Obama won the presidency and looked for a secretary of the treasury. Summers was interested in the coveted post, but because of the previous high-profile controversies, the position went to Timothy Geithner, the young former head of the New York Fed. Instead, Summers was chosen to lead the Council of Economic Advisers—a distinguished and influential position to be sure, but not quite as much as treasury secretary.

In 2014, a search ensued to find a successor for Fed Chairman Ben Bernanke. Summers wanted the position badly, and although he had a tight web of powerful supporters including President Obama, countless others inside and outside the Beltway voiced opposition. Critics pointed to the fact that Summers had driven the deregulation that resulted in the repeal of parts of the Glass-Steagall Act, separating investment from commercial banking and insurance activities. Since Summers had also opposed regulation of complex derivatives, they argued, he had significantly contributed to the crisis. Some pointed out that he lacked relevant monetary policy experience, especially when compared to his main competitor for the job, Janet Yellen, who at the time was the vice chair of the Federal Reserve under Ben Bernanke. Others saw his commercial activities as evidence of overly tight connections with the financial industry. Before joining the Council of Economic Advisers in 2009, his advisory engagement with the hedge fund D. E. Shaw, for which he received $5.5 million in 2008 made headlines. He was also a board director at Taconic Capital, a hedge fund founded by Goldman Sachs alumni. In addition, he received $2.7 million for speaking engagements in 2008, including $135,000 for a single speech at Goldman Sachs.

Despite this criticism, Summers lobbied hard behind the scenes for the prestigious and powerful position of Fed chair. Renowned New York Times columnist Maureen Dowd characterized his proponents as the “boys club around President Obama, the bullying cool kids around Wall Street types like Rubin, a bunch of alpha males who prefer each other’s company and flatter themselves that they are smart enough to know how smart Summers is.”7 When he realized that he would likely not be confirmed, he withdrew his name in a gracious letter to President Obama. Not landing the position was a disappointment, but Summers occupied himself with becoming more deeply entrenched with the financial sector. He joined the boards of the payment company Square and the financing company Lending Club; moreover, he became part-time special adviser to the venture capital firm Andreessen Horowitz. In subsequent interviews, he made sure to point out that in his new positions, he would focus on providing macroeconomic advice rather than merely functioning as a door opener.

Summers is an interesting case considering his unstoppable rise within the system and apparent immunity from expulsion. While his exceptional brilliance is undisputed, he has a penchant for committing faux pas and alienating people. Despite his flawed emotional intelligence, he realized that in order to reach the very top of finance—especially in Washington, where social skills are pivotal—he had no choice but to develop humility and become more conciliatory. His longtime mentor Bob Rubin, the embodiment of emotional intelligence, was particularly helpful in this transformation, by instruction and example. Even in the early stages of his career, Summers was smart enough to build sustainable alliances with more-senior superhubs, who not only helped him advance but also lent their support in crises. With every step up the ladder, Summers accumulated more network capital. As he became more powerful, other players in his network had a more vested interest in him retaining his position, because it indirectly strengthened theirs. When it came to the Fed chairmanship, likely the second most powerful position in the United States after the presidency, Summers turned out to have alienated too many people and had insufficient social capital to obtain the necessary support. However, we have likely not yet heard the last of Larry Summers when it comes to public office. If history is any indicator, he will continue to build ever stronger alliances to one day become a hyperhub.

Why has Summers, despite his many missteps, proven so unassailable? For starters, in America, the land of second chances, his indiscretions for the most part weren’t considered capital offenses. Rather, he was perceived as an overly intellectual professor with perhaps not the best social skills, who wasn’t ill intentioned but merely prone to sticking his foot in his mouth. In addition, he successfully converted his image as a genius into a brand and over the years accumulated a great amount of social capital, which lent him protection. Despite his polarizing personality, most people—if only out of an abundance of caution—prefer to stay on good terms with him. Because of his many resilient links with other superhubs, his own superhub status is virtually guaranteed.

DEN OF THIEVES: MIKE MILKEN

When I lived in Germany, I read Den of Thieves, the tale of the 1980s “junk bond king,” Mike Milken. It provided insight into the epicenter of finance, a world of fascinating personalities and exciting transactions. I so longed to be there. A decade later, when I worked with famed economist Nouriel Roubini, we traveled to the Global Conference of the Milken Institute in Los Angeles, where he had a speaking engagement. And there I met Mike Milken, the living legend I had read so much about. He was just as I had imagined: bald, with big, fixating eyes and an intense presence. We had a chance to speak behind the scenes, and absolutely everything he said sounded ingenious. Afterward, he invited us to a charity dinner at private equity honcho Leon Black’s brother-in-law’s house in the Santa Monica Mountains. The scene reeked of wealth and was like something right out of a Hollywood movie. The elegant white house and the beautifully manicured grounds were the epitome of beauty, and the grass, steel-blue sky, and flowers seemed perfectly color-coordinated. Brainiacs, doctors, researchers, and billionaire donors, connected by common cause, chatted animatedly. Milken was in his element, holding court and chatting with the guests. I had a fabulous time and could not help but think that this was exactly how I had imagined this parallel universe to be when reading about it so many years earlier, half the world away. The tale of junk bond king Mike Milken is one of triumph, tragedy, redemption, and comeback.

In the Gordon Gekko-ish 1980s, this ingenious financier revolutionized the financial system by opening up capital markets to companies which had previously not been considered creditworthy. He created a market and channeled billions of dollars into companies by issuing high-yield bonds, also dubbed junk bonds. So great was the boom he created that at some point it exceeded the financing of investment-grade companies.