Category Archives: Banking

Connecting People to Prosperity in the Exponential Age

By Vanessa Bates Ramirez – “Our assumptions about how economies function no longer seem to hold true entirely because of exponential technology.”

This claim came from entrepreneur and Singularity University faculty member, Amin Toufani.

In what he calls exponential economics or “exonomics,” Toufani breaks the tech-driven changes happening in the modern economy into seven pillars: people, property, production, price, power, policy, and prosperity.

Toufani pointed out that exonomics’ ultimate goal is to connect people and prosperity.

“Technology is empowering all of us, and people seem to be doing what companies used to do and companies seem to be doing what governments used to do,” Toufani said.

The democratizing effect of information technology is enabling small teams to have an outsized impact. He showed a graph of collaboration app Slack’s user growth, and it’s practically a vertical line. A few years old, Slack reaches millions of users, many of whom pay for the service, and was recently valued upwards of $9 billion.

The kicker? Slack was created by a team of 12 software developers. And it’s far from the only such example. more>

Updates from Chicago Booth

Identify and rise above load-bearing assumptions
By Linda E. Ginzel – How could you build a really, really tall building without building really, really thick walls?

A man named William Le Baron Jenney came up with the answer. Jenney is widely recognized as the father of the American skyscraper, and according to Chicago lore, he had a breakthrough idea when he observed his wife placing a very heavy book on top of a tall metal birdcage. The cage not only supported the weight of the book, Jenney could see that it could have easily supported a whole stack of books. A stack of books piled high and balancing on a birdcage—what an image.

Jenney introduced the idea of a complete, steel skeleton, and he built the first fully metal-framed skyscraper in Chicago in 1884. Just as his wife used a birdcage to support the weight of a very big book, Jenney used metal columns and beams to support his building from the inside.

This story demonstrates the combined power of shedding a default assumption that weighed people down with making a major conceptual shift, which, in this case, provided architects the strength they needed to build higher.

Many of us face load-bearing assumptions, perhaps about management, strategy, finance, or leadership. For example, you may assume that the economic world is a zero-sum game.

Shedding assumptions is not an easy task because many have served you well in the past, and there is risk in abandoning them. Yet one of the most important skills that you can acquire is a willingness to question your load-bearing assumptions and make a different choice, when necessary. more>


Uber’s Problems Are Silicon Valley’s Problems

By Katy Steinmetz – The world’s most valuable venture-backed company is no doubt in crisis. And the story of Uber, in its extreme success and what may turn out to be extreme failures, is in some ways singular. But it also hits on issues in the technology industry that are far bigger than one company.

Silicon Valley has struggled for years with diversity and inclusion, as critics have wondered whether the industry can achieve its grand self-image: a bunch of brilliant minds set on making the world a better place, for whom no problem is too tough to solve, no status quo too established to upend.

Despite whistle-blowing at other companies about hostile office cultures and widespread acknowledgement that the industry needs to “do better” when it comes to hiring and retaining women and people of color, those problems have persisted.

The fact that Uber, the brightest product of the Silicon Valley ecosystem of the past several years, could become such an influential global powerhouse while seemingly neglecting its own workplace speaks to some of the reasons that broader progress, as many see it, has been slow.

The pressure for startups to grow fast — and the prospect of profits or an enriching “exit” for investors — can be blinding. Taking time to think about unsexy HR practices often feels antithetical to hard-charging disruption.

Company culture and bias can be hard things to see, much less change, especially if the people at the top believe they’re running a meritocracy. more>


The world is sitting on a $400 trillion financial time bomb

By Allison Schrager – Financial disaster is looming, and not because of the stock market or subprime loans. The coming crisis is more insidious, structural, and almost certain to blow up eventually.

The World Economic Forum (WEF) predicts that by 2050 the world will face a $400 trillion shortfall (pdf) in retirement savings. (Yes, that’s trillion, with a “T”.)

The US will find itself in the biggest hole, falling $137 trillion short of what’s necessary to fund adequate retirements in 2050. It is followed by China’s $119 trillion shortfall.

Much of the massive shortfall is baked into retirement systems; setups in which nobody, neither individuals nor the government, saves enough.

About three-quarters of the projected comes from underfunded promises from governments, with the rest mostly accounted for by under-saving on the part of individuals. more>

Our obsession with GDP and economic growth has failed us, let’s end it


Wellbeing Economy: Success in a World Without Growth, Author: Lorenzo Fioramonti.

By Lorenzo Fioramonti – The idea that the economic “pie” can grow indefinitely is alluring. The “growth first” rule has dominated the world since the early 20th century. No other ideology has ever been so powerful: the obsession with growth even cut through both capitalist and socialist societies.

But what exactly is growth? Strangely enough, the notion has never been reasonably developed.

For common sense people, there is growth when—all things being equal—our overall wealth increases.

Paradoxically, our model of economic growth does exactly the opposite of what common sense suggests.

Here are some examples. If I sell my kidney for some cash, then the economy grows. But if I educate my kids, prepare and cook food for my community, improve the health conditions of my people, growth doesn’t happen.

If a country cuts and sells all its trees, it gets a boost in GDP. But nothing happens if it nurtures them. more>

Updates from Chicago Booth

By Robert Shiller – The human species, everywhere you go, is engaged in conversation. We are wired for it: the human brain is built around narratives.

We call ourselves Homo sapiens, but that may be something of a misnomer—sapiens means wise. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives, and especially narratives about other humans. That is why advertisers tend to focus not on a product itself, but rather on somebody doing some human action related to the product.

Narratives are contagious: they spread from one person to another. Some narratives disappear quickly; others can last a long time.

The stock market gives us opportunities to construct narratives. For instance, earlier this year there were narratives around the Dow-Jones Industrial Average eclipsing 20,000 points for the first time in its history.

In reality, that’s absolutely meaningless: the Dow started at 40 points in 1896, but it could have started at 50, or something else. Yet we constructed narratives around this moment.

Why do narratives affect economics? Because when we want to understand a depression or recession, for instance, we have to understand why some people will stop spending. Recessions happen when people stop buying things: they don’t buy a new car; they don’t buy a new house. So why not? They might say they stopped spending because recession struck, but that doesn’t tell me why the recession started. I think the catalysts for events such as that are related to narratives. more>


Updates from GE

Beyond Bitcoin: Digital Currency Among Many Industrial Applications For Blockchain
By Mark Egan & Dorothy Pomerantz – Ben Beckmann works as the lead scientist in the complex systems engineering lab at GE Global Research in Niskayuna, New York. In 2012, he made a seemingly inconsequential wager: He bet one of his colleagues that the electronic currency bitcoin would fail.

Bitcoins started trading for pennies after the currency launched in 2009. Today, you can buy one bitcoin for $2,200. Beckmann lost the bet and took his colleague for a nice meal. “If we had taken the $100 we spent on dinner and invested it in bitcoins at the start, we would be millionaires,” Beckmann laughs.

Losing the bet pushed Beckman to take a closer look at the code behind bitcoin. He and others at GE discovered that the real magic that made it work was a public digital ledger called blockchain that keeps a chronological record of all bitcoin transactions. But the currency is just one blockchain application. The technology could be used for tracking trade, contracts, and even renewable energy.

Maja Vujinovic, technical product manager at GE Digital, is leading a push to explore and develop blockchain across the company. She’s looking at everything from purchase orders and budget reconciliation and parts tracking. “The bank receives a fee for every transaction,” Vujinovic  says. “If we can remove the bank and establish a trust mechanism instead, that will save us a lot of money.” more>

Why Wall Street Went Astray: Eight Ways To Humanize Finance


The Wisdom of Finance: Discovering Humanity in the World of Risk and Return, Author: Mihir Desai.

By Steve Denning – Why did Wall Street go astray?

For most of the last several centuries, bankers and financiers were the pillars of society, the bastions of morality, the people in society that everyone respected.

Yet over the last few decades, Wall Street has become almost a synonym of evil. What went wrong? What can be done to restore the financial sector to the level of respect that it once enjoyed?

For people outside finance: Finance is deeply misunderstood, and we need to make it understandable to people so that they don’t demonize it. The way to do that is not through equations or graphs, but through stories. Finance is central to our lives and ignorance of it is very costly on an individual and societal level.

For people in finance: The core ideas of finance are quite life affirming and very noble — we should make people in finance aspire to them rather than expect so little of them. If finance is going to rehabilitate itself, and I do think it’s broken in many ways, the way to rehabilitate is not through regulation, or outrage, but rather returning to its basic underlying ideas, which are actually quite wonderful. In the long run, that’s how we make finance better — by getting back to the core ideas. more>

Deficits In Trade And Deficits In Understanding

By Omar Al-Ubaydli – To see why the current trade deficit is benign, we need to understand the relationship between trade and the dollar’s value. Greenbacks are like any commodity in that the more people want to possess them, the higher their price. People acquire dollars primarily for two reasons: buying American goods and investing within the United States.

If the United States is importing more than it exports, then American consumers are exchanging dollars for foreign currencies to buy foreign goods more than foreigners are doing the reverse, meaning that foreigners are accumulating lots of dollars that they’re not using to buy American goods.

So why has America been recording a large, persistent trade deficit, and why isn’t the dollar devaluing? It’s due to the second major difference (from 1970s): The investment-based demand for foreign currencies—which we momentarily set aside—has ballooned. People no longer exchange currencies just to buy foreign goods.

Consequently, the dollar no longer corrects trade imbalances. more>

Can Asia reach high-income?

By Donghyun Park, Abdul Abiad, Gemma Estrada, Xuehui Han, and Shu Tian – In a single generation, Asia has transformed itself from a low-income continent to a middle-income one.

In 1991 more than 90 percent of the region’s population still lived in low-income countries. By 2015, more than 95 percent lived in middle-income countries.

Is the continent now on its way to reaching high income in the next generation?

The experiences of the newly industrialized economies might give some cause for optimism about the region’s prospects. After all, the Republic of Korea made the transition from middle to high income in only 23 years. Yet global experience is far less reassuring. Historically it has taken the typical middle-income country more than half a century to graduate to high-income status, leading some economists to label this the “middle-income trap.”

As countries develop their economies, traditional sources of productivity growth—such as shifting labor from agriculture to manufacturing or the imitation of foreign technologies—decline in importance. Innovation assumes a more central role, especially for upper middle-income countries. Middle-income economies that successfully graduated to high income had 2.5 times more research and development stock per worker as those that did not, for example. more>