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

Born into a middle-class family in California, by the mid-1980s Milken had become a billionaire. However, in 1986 this steep ascent came to a screeching halt when he became entangled in a federal insider trading investigation and eventually pled guilty to six breaches of securities law. He was convicted and received a ten-year prison sentence, of which he served twenty-two months, and was forced to pay $600 million in fines and restitution. In addition, the SEC barred him and his brother Lowell, with whom he had closely collaborated, from the securities industry for life. He went from hero to villain, his world shattered and reputation destroyed. For the public, he symbolized everything that was wrong with Wall Street and became the poster boy of greed.

Milken had been the superhub of superhubs, creating an unbelievable network all by himself. Then—suddenly—the links were cut. Excluded from the financial industry, he became an outcast, and even those still close to him feared social and reputational contagion. Shortly after his release from prison, he was diagnosed with terminal prostate cancer and given eighteen months to live. He fought the disease with the same resolve and determination that he had applied in his financial career and—to the surprise of his doctors—made a full recovery. He then began to turn his life around by raising and donating millions of dollars for cancer research. The most effective way to rehabilitate a damaged reputation is to engage in philanthropy and associate oneself with prestigious universities. Milken taught at UCLA and became a generous donor to medical research and education. He used his vast network and celebrity status to raise awareness in the media and optimize his fund-raising efforts.

In 1991 he founded the Milken Institute, which also hosts an annual global conference sometimes referred to as “Davos with palm trees,” although it is more U.S. and finance-sector centric than the annual gathering of the WEF. The conference takes place at the Beverly Hills Hotel, where Milken in his previous life had hosted his legendary junk bond conference called the “Predators’ Ball,” which has been colorfully immortalized in the book by the same title.8 Members of the financial elite, Washington power players, and world-renowned researchers attend the event. Billionaires Leon Black, Steve Schwarzman, Steven A. Cohen, Mort Zuckerman, and Richard LeFrak are regulars, as are former U.K. prime minister Tony Blair and Rwandan president Paul Kagame. It is one of the highest-caliber events in the world, and the attendance by global power players is an implicit endorsement and indicator that Milken’s social standing has been largely restored.

Considering the gravity of Milken’s offense, his rehabilitation is remarkable. It resulted from the deep and resilient relationships he had forged with people throughout his life and from his proactive approach to creating new networks that all revolved around him, automatically making him a superhub. He had created original networks in connection with his junk bond empire in the 1980s, and later with his medical research efforts, and various endeavors via his Milken Institute.

Milken possesses many essential qualities that contribute to his super-hub status. Some people have great ideas but do not execute them. Others are good at executing ideas but cannot generate any original ones. Milken combines both: He is an ingenious idea generator as well as a perfect executor. Just like many other thought leaders, he created a philosophy that formed the basis of his thinking and doing. As discussed in Chapter 4, according to his formula, P=EFT (DHC+ESC+ERA), prosperity is the sum of financial technology times the sum of human capital plus social capital plus real assets.

His extraordinary drive, grit, passion, and perfectionism made his reinvention possible. He applied such force and pressure that he wore down most resistance. But once tainted by scandal, especially one that entails violations of law, limitations and opposition will likely remain. At an intimate fund-raiser for Mitt Romney in Las Vegas, I teasingly said amongst a small circle of his friends that perhaps Milken should run for president. I was immediately cautioned by a friend of his never to say that in his presence, because as a convicted felon, he was ineligible to run for public office. He said that the stigma still weighed heavily on Milken.

COMPLETE NETWORK COLLAPSE: DOMINIQUE STRAUSS-KAHN

Unless you lived under a rock, you could not possibly have missed the spectacular implosion of Dominique Strauss-Kahn, the mighty former head of the International Monetary Fund. I first met him prescandal during one of the IMF Annual Meetings in Washington, D.C., where Nouiel Roubini and I had an appointment with him. Despite his crammed schedule, he squeezed us in, probably as a favor to Roubini. He received us in his spacious and bright office, which featured 1980s furniture and dark wooden floor-to-ceiling bookcases, and we settled into comfortable seats in front of his heavy desk. He seemed in good spirits and was charming and affable. At the time, Strauss-Kahn was highly respected. He was considered to have smart and balanced views. In addition, he had the gift of finding the right tone and a talent for building consensus, which was of particular importance when dealing with the multitude of conflicting interests in the European debt crisis. He was popular amongst his staff, and people in my circle seemed fond of him, which heightened the shock when the unfathomable headlines hit.

En route to a meeting with Chancellor Merkel, Strauss-Kahn was arrested for sexual assault in the first-class cabin on an Air France flight at JFK Airport and transferred to a decidedly less comfortable Rikers Island prison cell. The international media had a field day and reveled in his shame, as he was publicly paraded before the whole world in handcuffs. We were aware of his reputation as a ladies’ man but had no idea of the extent of his extracurricular activities. Many people, including Nouriel Roubini, George Soros, and political scientist Edward Jay Epstein, surmised that he had been set up by political enemies. While his enemies were quick to seize the opportunity, a setup seemed far-fetched in view of the circumstances. A few days after the initial arrest, Strauss-Kahn resigned as head of the IMF and was eventually allowed to leave for France. The charges of sexually assaulting a hotel maid in New York were dropped several months later, but the shocking headlines did not subside. New allegations of rape surfaced in the so-called “Carlton affair,” in which he was charged with aggravated pimping in connection with an alleged prostitution ring.

Up to the moment of his spectacular arrest in New York, Strauss-Kahn had been seen as France’s next president, but now all hopes of a political comeback were crushed. In fact, he was deemed so politically and personally toxic that most of his former colleagues and friends—even his wife—distanced themselves from him. After suffering one of the steepest and most dramatic downfalls in history, virtually no remnants of his old life remained. He lost his reputation, his status, and his allies, and—expelled from the center of the network—he became an isolated node at the fringes. Regardless, Strauss-Kahn still craved recognition and respect and, in an effort to regain his status as a superhub—or at least a hub—tried to reinvent himself as a respected former quasi-statesman and financial adviser. Such comebacks can be pursued solely from the fringes, because under no circumstances do other superhubs want to be tainted by association with an outcast. Left with few alternatives, expelled superhubs typically try to work their way back toward the center via second- and third-tier advisory engagements with developing and emerging countries, or those facing great difficulties or with questionable regimes. Strauss-Kahn had to lower his standards as well as his price, but he was able to land advisory agreements with Greece, Sri Lanka, and South Sudan and became a member of the supervisory board of the $10 billion state-backed Russian Direct Investment Fund. In addition, he was booked for speeches at conferences in Beijing, Seoul, Marrakech, and Yalta, among others.