Part 1
Key Man is a story about Arif Naqvi, a Pakistani, who defrauded the wealthiest people and countries in the world. The two key takeaways from this is that first, when you make the right connections and get people to believe that you are part of the world’s wealthy elite, you get even more money to make more money. The rich aren’t going to give their money to poor people to invest or even middle-class people. They give it to one another, because they assume if you’re rich, you know how to make money. Second, the fact that it’s so easy to dupe billionaires indicates that there is very little difference between criminals, con-artists, and the wealthy elite. Why do they get so mixed up? The wealthy elite are in fact criminals. They hide their wealth in overseas accounts or domestic trusts. By nature, they are criminals. They look for any which way to break or bend the law to amass their wealth.
They screw over investors and employees. They squeeze as much money out of their employees by lowering wages and minimizing benefits. There is only so much money you can save by replacing quality parts and ingredients with junk before you start losing customers. The best way to cut costs is to simply cut jobs or wages, and you’re often surprised by how many people don’t quit after their wages are cut. Those who quit are easily replaced by less qualified workers willing to take lower wages. They don’t contribute as much, but so long as they do a passable job, that’s all that matters. Long-term employees know how to retain long-term customers through a history of experience and wealth of knowledge about the product, service, and customer needs. Short-term employees could care less about customers, and much like their executives, they don’t care if customers leave because they’re not doing a great job or the product stinks.
The wealthy elite are used to dealing with criminals and con-artists. They’re used to dealing with sophisticated, savvy, charmers and seducers. This is how the rich have amassed their wealth, by getting people to invest in their ideas. For many of them, their ideas work, and they become super wealthy. For many, their ideas don’t work, and all their investors lose money. They’re also used to taking huge losses, because it comes with the territory. The superrich are innate gamblers who love to borrow money to risk it all. It’s hard for them to distinguish between a con-artist with a good idea that actually turns profitable and a con-artist who will just take their money and spend it on themselves while using their front company to borrow money to cover the money they embezzle.
You would think the wealthy elite, the 1 percent of the 1 percent would simply put their money in a stock market index fund. The average S&P 500 return was 14% from 2011 to 2020. This means if you put $1 million in an S&P index fund in 2011, it would be worth $2.85 million in 2020. This is how some rich people simply get richer. You actually have to be stupid to lose money if you’re rich. However, the 1 percent of the 1 percent don’t want to make $1.85 million off $1 million. They want to make $100 million, and they’ll take the necessary risks to do so. Many fail, but some actually can turn $1 million into $100 million or $100 million into a billion. They’re high-risk investors.
Of course, this means that a lot of them have failed astronomically. Instead of making $100 million they lose $1 million, but credit for us is different from credit for the rich. When Michael Jackson died, he was in debt between $400 and $500 million. Why? Because even though he would lose tens of millions of dollars, people were willing to keep lending him money, because he also had the ability to make tens of millions of dollars. I guarantee you that if a blue-collar person was in debt $400,000, no bank would lend him any more money. Our system is rigged in such a way that financial losses for the poor and middle class are not accepted whereas losses for the rich are forgiven and in the case of the 2008 Financial Crisis, all taxpayers wind up paying for the losses of the rich who lost their shirts speculating on CDOs.
There are three legal systems, one for the poor who must use public defenders who work for the same state that is usually accusing them of a crime and trying to extort money from them. Obviously, a public defender can’t be so good that he keeps his clients from losing and giving their money over to the state. There is one for those who can afford a basic attorney that can protect their rights and often keep the state from walking all over them in the courtroom. Sometimes they get off, sometimes the state simply offers a deal they wouldn’t if they had a public defender. Then there is one for the rich who hire the best lawyers who know how to use every trick in the book to keep their clients from going to prison, in many cases these lawyers know the judges, play golf with them, donate generously to their election campaigns, etc. Not only can the rich lose huge sums of money without significant harm to their ability to borrow more, but they can kill people, as evidenced by OJ Simpson, rape people by hiring people to go after their accusers or any witnesses, and steal from the little guys. The only exception is when they steal from other rich people. This is the only time the rich will turn on the rich for obvious reasons.
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There is a common story that in America everyone can go from rags to riches. This is certainly true, perhaps more so than in any other country. However, this overshadows the more common story of how rich people stay rich from inheritances, taking over their parent’s businesses, and getting vital and crucial networking exposure by attending elite high schools and colleges. The Ivy League isn’t so much a depository for the brightest kids in the world but rather it serves as a crucial networking place for up-and-coming financial, business, and political leaders of America. Fraternities play an especially important role for networking. Often times rich people trust other rich people they’ve gone to school with to help them run companies, make deals, or buy and sell companies.
The same story applies to every town in America. Every town has a coterie of the same local businesses: plumbers, car dealerships, auto repair shops, but what many people forget are the business-to-business companies that supply the retail shops, restaurants, bars, etc. They often all get passed on to their children including their lucrative, loyal customer base. Yes, you can certainly get rich by studying hard, being smart, working hard, and taking risks, but it’s a much easier route to start off with rich parents who can send you to private school and then elite universities. One of the advantages Naqvi had was getting into an elite school in Pakistan, formerly used for white colonists.
There are also a number of networking groups after college including the Rotary Club, Freemasons, Shriners, Kiwanis, Lions Club, country clubs, and for the superrich, Davos, the Bilderberg Group, and charitable organizations. It just happens to be a convenient way of meeting people who have their membership to worry about if they screw over another member. By being in these groups, you’re expected to be trustworthy at least to one another. They can also act as an arbitrator if conflict or deal problems arise between two members. In the past, to a certain extent in the present, they discriminated and not just against people of color but Jews, Catholics, Russians, and immigrants. The term WASP, White Anglo-Saxon Protestant was famous for a reason. Sure Jews, Catholics, black people, and immigrants could become self-made millionaires, but they often took the hard route by not having the benefit of networking amongst the existing rich elite in their private clubs and societies. The Ivy League actually discriminated against women, Jews, and Catholics.
While discrimination is on the decline, many elite groups are still heavily dominated by white men. Consider the fact that 90% of the Fortune 500 CEOs are white men and 89% of US Senators are white. Unfortunately, the most successful and wealthy people of color tend to be in super competitive industries which most rich white people avoid. Since successful actors, athletes, musicians, performers, writers, and artists also tend to be famous, people of color have the wrong impression that their best shot of wealth is to enter these super competitive fields which is more like a lottery. If they were smart, they would rather enter high-demand, high-paying fields like medicine, healthcare, finance, banking, business, technology, programming, law, sales, and engineering. They would also join networking groups and their local country club.
Many people believe that Jews control the world, because they’re overrepresented in media and banking. Fact is, these used to be two professions with huge risks and low returns. Before banking regulation, credit scores, and government identification systems, many borrowers simply didn’t pay back loans. They disappeared. Banking was not lucrative, and acting in theater and putting on plays was a huge financial risk with much less payoffs than today’s multi-million-dollar box office wins.
The unpaid internship is one the biggest barriers to wealth. Who can afford to work for free except the child of rich parents with a trust fund? The company is literally screening candidates for pre-existing wealth. And if some highly motivated kid can work two jobs, one paid in addition to the unpaid internship, then they’re an asset too. Perhaps they don’t have the pedigree and family wealth and networks to bring to the company, but this is someone who will compensate by putting in the hours and working harder than everyone else once they do get paid and can quit their second job.
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In an interestingly parallel book I just read, The Lost Tribe of Coney Island, the promoter of a traveling circus of Filipino tribal headhunters used the media to spread scandalous stories of the dog-eating savages to promote his shows. The newspapers ate it up, often at the expense of the truth. Mark Twain’s old adage is appropriate, “Never let the truth get in the way of a good story.” For the media, the ridiculous stories sold copies. Likewise, for Naqvi, the press helped promote him in return for favors, “His growing fame in business circles was spurred on by editors of business magazines who awarded him prizes and flattering coverage, and received advertising and conference sponsorship fees from Abraaj.” Similarly, the US media is in bed with the Democrats and Republicans, and each year, the White House Correspondents’ Dinner is a shameless admission of this fact. Further evidence is how the daughters of politicians get to star as major media talk show personalities, e.g., Meghan McCain daughter of John McCain and Jenna Bush daughter of George W. Bush.
The funny thing about a lot of big time con-artists and criminals is the fact that many could have become very successful legitimately. They had the charisma, confidence, selling ability, networking ability, promotional ability, and connections to build successful businesses merely by acquiring elite investors with the right credentials to attract more legitimate investors and more talented executives. Elizabeth Holmes is a great example of this. Through her boyfriend and business partner Ramesh Balwani, she was able to bring in Henry Kissinger and former General Jim Mattis to her board of directors and had Rupert Murdoch investing in her. Unfortunately for Holmes, she had an untenable product. Like many other successful business people, she could have simply cut her losses, admitted the failure, seen Theranos crash anyway, but salvaged her reputation and opened another medical company. Trump led a series of businesses into failure but since his businesses were legitimate, he could keep getting new investors and new excitement for his projects.
Why do con-artists cross over the line to commit fraud and break the law? The answer is that they don’t listen to anyone, and their initial successes make them believe that they can do no wrong, including breaking the law. At least Trump is wise enough to know not to outright break the law or at least get caught doing. Criminal con-artists just don’t have the patience and self-discipline to play the long con, a career of exploiting investors, creating failed businesses, but always staying one step ahead of insolvency with new deals, new loans, new companies, new projects, and new investments.
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I like the way the author describes Davos, the renown conference for the world’s elite. “Duplicity was baked into the very fabric of the forum.” “Executives delivered noble-sounding statements made for public consumption from the main stage. Then, inside hotel suites rented out for thousands of dollars, they bargained with politicians and struck secretive deals that generated profits for them and consequences that would shape the future of humanity.” In other words, it was a publicity stunt for the world’s elite, enabling them to put on the Janus face with one facing the public, the noble, compassionate patriarch trying their best to solve global warming, hunger, poverty, and injustice, while behind the scenes, directing the other face to cohorts figuring out ways to further consolidate their wealth and power which is the root cause of all the pollution, hunger, poverty, wealth inequity, political conflict, and injustice in the world.
Naqvi was lucky in addition to having the right connections. He raised half a billion to buy a quarter of EFG Hermes in 2006 when its shares had just collapsed after Israel invaded Lebanon. In 2007, EFG Hermes shares doubled in value and Naqvi walked away with half a billion. It takes money and connections to make money along with simple luck. While middle class investors spread their money around the stock market in index funds where they can make around 14% a year, the rich have so many eggs to begin with, they can put many eggs in one basket and outright buy companies or a quarter of a $2 billion company and double their return or more. Of course, this means there are a lot of rich people who have lost ridiculous amounts of money to the tune of hundreds of millions or billions, but it also means, when the market is generally up, they walk away with hundreds of millions or billions.
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Naqvi’s most audacious move was buying Karachi Electric. The monopoly that supplies electricity to Karachi, Pakistan. It was such a bad company that at one time it was offered to his private equity company, Abraaj for a dollar. Who in their right mind would buy such a stinker with so much corruption and political chaos with potential mobs and rioting by electricity customers. The company represents the lesser of two evils in third world and developing countries. Many of these countries are former colonies where colonial powers set up monopolies to control all the markets. When the monopolies are taken over by the country, they retain all the corruption, inefficiencies, and lack of competition from the monopolies. If they are privatized, once again, the foreign countries usually retain the monopoly and all the profits go overseas once again. The best option is the take down the monopoly, but the governments in power after the colonialists leave are so corrupt that they profit from the monopolies and have no reason whatsoever to privatize them. And in the cases where they are privatized, Western companies often jump in to once again exploit the country and send profits overseas. In the case of Russia, they were privatized and many were then dismantled and then sold off in parts with Russian oligarchs hiding all their profits in overseas banks.
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