Using shadow markets to increase global power
Author Eric J. Weiner.
TEXT OF INTERVIEW
Bob Moon: Picture a world where banks, big banks suddenly lose their influence over the global marketplace. No need to imagine, really. A new book lays out the case that wealthy governments around the world are now pulling the strings. And guess which country is no longer such a major player? The book says financial experts met in Washington last year to play out some financial war games, of sorts. And they were dismayed to find that the U.S. came out on the losing end every time.
How could this happen? Perhaps you haven't been paying attention to the rise of something called "sovereign wealth funds." But Eric Weiner has. He says those funds are basically created to do the bidding of rich countries. And his new book is packed with alarming revelations. It's called, "The Shadow Market: How a Group of Wealthy Nations and Powerful Investors Dominate the World."
Welcome to the program.
Eric Weiner: Thanks for having me.
Moon: So, what do you mean when you say "shadow markets"?
Weiner: The shadow market isn't really a physical place like Wall Street or the New York Stock Exchange. It's more an invisible nexus where now you have large countries that have accumulated tremendous assets that are working with private equity firms and hedge funds in order to really control the flow of capital around the world in ways we've never seen before.
Moon: Well, it's always been about money, but how does this differ from buying influence with a country and actually buying parts of the country, if you will?
Weiner: What you have is countries that have digested the lesson of the market, and that, is that you gain control over things and you have a much greater opportunity to create the returns. So, what you're seeing is massive land grabs going on in Africa and other developing nations, because many of these rich countries have concerns about their natural resources, about their food supply, so they're basically going in and cutting deals by offering them very low-interest loans or outright giving them grant money, whatever it is, and they are in effect, creating a new colonial system.
Moon: China owns the food-say in a particular part of the world, we don't?
Weiner: Yeah. Well, it's that China builds allies with other countries that we would like have influence in. And it's not just China. For example, Saudi Arabia owns a farm the size of the state of Connecticut in Indonesia and they're going to grow crops that are in demand in Saudi Arabia. This creates a natural ally between Saudi Arabia and Indonesia in ways that we can't even comprehend, because we're not participating in this.
Moon: When there's this shift of economic power going from private hands to governments, what are the geopolitical consequences?
Weiner: Corporate interest are actually relatively predictable. You look at where the profits lie and then you can sort of follow the money. Then when you look at what countries are doing, they can make investments that don't make sense on a financial level, but that make tremendous sense on a geopolitical level. They could be willing to lose money on an investment in order to gain power over another country, and that's a very very different game from the way that our capital markets were structured. What is the interests of China, what is the interests of the Persian Gulf. We don't necessarily know, and because there's no disclosure, we aren't necessarily going to know.
Moon: We've been worried about regulating our old problems, is there any way of regulating this new issue?
Weiner: It's very difficult, because it's really hard to get your arms around something this size. We're talking about by 2012 or 2013, the shadow markets are going to control roughly $19 trillion. And the U.S. GDP that year is expected to be about $16 trillion. So, we're talking about something the size of the U.S. government being unleashed in the capital markets. That's not something that the U.S. alone can do. We need a western or global agreement and solution on how to do this. And that's how you tackle China's manipulation of its currency, that's how you tackle the trade issues that are arising from this. It can't just be us, because we are going to lose that fight.
Moon: It's pretty mindboggling. Eric Weiner's new book is BUY: "The Shadow Market: How a Group of Wealthy Nations and Powerful Investors Secretly Dominate the World." Thanks for being with us.
Weiner: Thanks for having me.
Moon: By the way, if you're still having trouble understanding the concept of a "shadow market," our Whiteboard guru Paddy Hirsch can draw you a picture.