Physicists Untangle Complicated Webs to Reveal that the World's Finances are Controlled by "Just a Few Mutual Funds, Banks, and Corporations" → Washingtons Blog
Physicists Untangle Complicated Webs to Reveal that the World's Finances are Controlled by "Just a Few Mutual Funds, Banks, and Corporations" - Washingtons Blog

Friday, August 28, 2009

Physicists Untangle Complicated Webs to Reveal that the World's Finances are Controlled by "Just a Few Mutual Funds, Banks, and Corporations"

Inside Science - a news service supported by the American Institute of Physics - is breaking an important story:

A recent analysis of the 2007 financial markets of 48 countries has revealed that the world's finances are in the hands of just a few mutual funds, banks, and corporations. This is the first clear picture of the global concentration of financial power, and point out the worldwide financial system's vulnerability as it stood on the brink of the current economic crisis.

A pair of physicists at the Swiss Federal Institute of Technology in Zurich did a physics-based analysis of the world economy as it looked in early 2007. Stefano Battiston and James Glattfelder extracted the information from the tangled yarn that links 24,877 stocks and 106,141 shareholding entities in 48 countries, revealing what they called the "backbone" of each country's financial market. These backbones represented the owners of 80 percent of a country's market capital, yet consisted of remarkably few shareholders.

"You start off with these huge national networks that are really big, quite dense," Glattfelder said. “From that you're able to ... unveil the important structure in this original big network. You then realize most of the network isn't at all important."

The most pared-down backbones exist in Anglo-Saxon countries, including the U.S., Australia, and the U.K. ... But while each American company may link to many owners, Glattfelder and Battiston's analysis found that the owners varied little from stock to stock, meaning that comparatively few hands are holding the reins of the entire market.

“If you would look at this locally, it's always distributed,” Glattfelder said. “If you then look at who is at the end of these links, you find that it's the same guys, [which] is not something you'd expect from the local view.”

Matthew Jackson, an economist from Stanford University in Calif. who studies social and economic networks, said that Glattfelder and Battiston's approach could be used to answer more pointed questions about corporate control and how companies interact.

"It's clear, looking at financial contagion and recent crises, that understanding interrelations between companies and holdings is very important in the future,” he said. "Certainly people have some understanding of how large some of these financial institutions in the world are, there's some feeling of how intertwined they are, but there's a big difference between having an impression and actually having ... more explicit numbers to put behind it"...

The results will be published in an upcoming issue of the journal Physical Review E.
The physicists name names. As Inside Science notes:
Based on their analysis, Glattfelder and Battiston identified the ten investment entities who are “big fish” in the most countries. The biggest fish was the Capital Group Companies, with major stakes in 36 of the 48 countries studied.
While it is true that the paper in the Physical Review E has not yet been published, I have found a draft version of their article from February which shows that the top 10 list of most powerful financial institutions (from most to least powerful) is as follows:
1. The Capital Group of Companies

2. Fidelity Management & Research

3. Barclays PLC

4. Franklin Resources

5. AXA

6. JP Morgan Chase

7. Dimensional Fund Advisors

8. Merrill Lynch

9. Wellington Management Company

10. UBS
Other tidbits:
  • Non-American players Deutsche Bank, Brandes Investment Partners, Societe Generale, Credit Suisse, Schroders PLC and Allianz are also in the top 21 positions.
  • The government of Singapore is number 25.
  • The world's largest banking group - HSBC Holdings PLC - only chimes in at number 26.
The data analyzed in the study is from 2007, and the playing field may have changed substantially since then.

Further analysis using this new methodology may yield important information. For example, given the massive government intervention in the markets, it is important to ask who controls stock now.


  1. I'm surprised that Goldman Sachs is not on this list.

  2. yeah i second that first comment - where the funk is sacks of gold ???? those f***ers should be at the top of the list.

  3. Yup...Can't take this seriously with Goldman Sachs not even in the top ten. They should be numero uno.

  4. This is huge, G! These are the oligarchs/plutocrats. These are the people we'd like to respectfully offer a "Scrooge conversion" with Truth and Reconciliation (T&R) to exchange their loveless world of vicious antagonism for a new world of cooperative competition.

    It's everything they already have in creativity and competition, only with love, development of universal beauty and harmony, and peace. It's a fair trade for us to quickly end criminality and suffering of millions; and much wiser for the plutocrats than the risk they face of prosecution if harsher voices than yours and mine capture peoples' emotions.

    Your T&R post:

  5. Everyone knows GS to be the gold standard pardon the pun, in the financial world. So this may be interesting but yet questionable unless goldman has huge stakes in those companies

  6. wtf
    Merrill Lynch sold, and its powerful?
    MSNBC "Bank of America Corp. said early Monday it would acquire Merrill Lynch in an all-stock transaction worth about $50 billion that should lift the uncertainty shrouding Merrill since the start of the credit crisis over a year ago."

  7. Uh, Carl? Are you living in a dream world there a little?

  8. I think you're all missing the point here. The fact that GS isn't on the list speaks volumes about what their role in the market actually is. The lack of visibility of GS on this list is scary beyond all reason and confirms some very scary ideas about what they actually do and are capable of. Just because they're not listed as the holders doesn't mean anything. I would suggest that there is an extremely shallow backbone of one behind this list... pulling all their strings. Further analysis probably needs to be done to reveal it, although the success of that analysis is questionable.

  9. Yeah, quite surprising that New York's "Goniffs in Socks" is not represented. What gives?

  10. I would think Fidelity would be accompanied by Vanguard. Vanguard owns the Wellington fund, is that how they show up? It's all very weird. And I thought DFA was a niche company selling its weird index funds to retail investors.


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