History is brimming with tales of how the world’s movers and shakers rise up, over-reach, get reined in and, finally, are supplanted by a new elite. Recent developments in the financial crisis suggest that this could be happening now. How to know enough about yourself – and where you’re headed – to stay out of the way of this immortal freight train.
Of the world’s elites, none has flown higher than those who have led the financial community. The re-engineering of international finance has been one of the transformational trends of our times – in just a quarter-century, capital flows became massive, instantaneous and controlled by a new breed of traders representing a handful of major financial institutions from a few countries. Their rewards have transcended any in history as shown by an estimate by Alpha Magazine that the top hedge fund manager last year made $3bn.
The concentration of power has also steadily grown. The top 50 financial institutions control almost $50,000bn (£25,600bn) in assets, roughly a third of the global total. Ten thousand hedge funds are estimated to account for 30-50 per cent of all equities trading worldwide but the top 100 control 60 per cent of hedge fund assets. When crises arise, regulators have been forced to seek the collaboration of the heads of the biggest institutions on a more or less voluntary basis. Typically, of the few they approach, the key executives are in the US and Europe, underscoring the transatlantic nature of this elite.
Change, however, is in the air. The history of elites is one of their rising up, over-reaching, being reined in and supplanted by a new elite. Several recent developments suggest that the financial crisis could signal the high-water mark of power for this group.
First, the crisis is prompting a re-regulatory drive. The power of financial elites had been evident in their ability to argue that global financial markets and markets in new securities should remain “self-regulating” (how many of them would hop into a self-regulating taxicab?), then when crisis comes – as with mortgage-backed securities – these champions of less government involvement have then persuaded governments to cauterise their wounds.
Now, however, there are encouraging, if preliminary, signs of a push towards more effective collaboration between governments – the first steps towards creating the much needed checks on global markets that exist within nations. This could erode the agility of financial elites to play governments off against each other, with the weakest regulator setting the rules.