Productivity | Strategy | Profitability
Productivity | Strategy | Profitability
Goldman Sachs / Bear Stearns
Nomi Prins - New York University
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Author & Editor, Dark Money Millionaires
An interview with Nomi Prins, Investment Banker, Analyst
Our exclusive interview on the next Systemic Banking Crisis with NOMI PRINS, Author and Editor of Dark Money Millionaires and Founder of Nomi Prins LLC, investigates the impact of Central Bank monetary policy upon the world financial system, as Executive Global explore the future prospect of a breakdown in confidence of the U.S. dollar and global financial order that may occur as a result of derivatives, hawkish monetary policy, and Quantitative Easing. We gain a fundamental insight into the future of the global banking system, as we profile the former managing director at Goldman Sachs, renowned economist, best-selling author and Wall Street veteran, on the preparatory measures high net worth individuals and institutional investors may take to mitigate against the risk of financial upheaval.
Nomi Prins CV
New York, United States
New York University
1987 - Programmer Analyst, International Business Machines (IBM)
1988 - Second Vice President,
Chase Manhattan Bank.
1991 - Senior Strategist,
1993 - Senior Managing Director, Bear Stearns International, London
2000 - Managing Director, Goldman Sachs
2002 - Distinguished Senior Fellow, Demos
2008 - Key Note Speaker,
American Program Bureau
Graduated High School at the age of 16 and College at the age of 19
Started working on Wall Street at age 19 with a degree in Mathematics
Appointed to Senator Bernie Sanders Federal Reserve Advisory Committee in 2012
Spoke at the 2015 Annual Monetary Policy Conference at the Fed / IMF / World Bank
Published seven books since 2004
First book: Other People’s Money - chosen as a Best Book of 2004 by The Economist, Barron’s, and Library Journal
Delivered hundreds of speeches and policy analysis for governments, corporations, universities and citizens movements, globally.
Systemic Banking Crisis
EG: What would you say is the greatest risk to the stability of the global banking system at this time, and how might investors prepare to mitigate against risk from the impact of market shocks?
Nomi Prins: Debt. Today’s global debt to GDP ratio stands at a record 225% with record debt of $164 trillion. Much of that debt was created because central banks provided money at such cheap levels, making borrowing extremely enticing. Now, central banks realise that reversing their course could present related problems. Any major banking collapse would have similar characteristics to the last one. Bank liquidity would seize. Defaults would rise. To prepare, keep your own leverage low, keep cash and hard assets aside, and watch for signs of rising volatility. Invest in low leverage assets.
EG: Hawkish sentiment amongst Central Banks is seemingly followed by a reversal in policy. Could this be because despite the rhetoric of resilience, they see very big problems brewing?
NP: My new book, Collusion: How Central Bankers Rigged the World is about the global collusion, or coordination, that the US central bank, the Federal Reserve, forged with other major countries to fabricate an abundance of money in the wake of the 2008 financial crisis. The policy was exported to the major central banks who acted as a lender and supplier of last resort to the world. What started as “emergency” measures became ongoing market subsidies. Central banks may point to an economic recovery, but their fear of collapse keeps them from fundamentally changing course.
EG: What do you make of the PetroYuan and its potential impact on global markets, considering China’s voracious appetite for gold?
NP: On March 26, Beijing launched its new challenge to the PetroDollar, PetroYuan futures. China surpassed the U.S. as the world’s largest oil consumer and top importer last year, so that made sense. Already, the Chinese Yuan had been accepted into the IMF’s SDR basket and increasingly used in oil related trade with Russian companies, and others. This is another step to broader usage. For decades, the PetroDollar has been backed by US Treasuries and the US dollar. China wants in. Eventually, more trade in PetroYuan will impede PetroDollars, but this is not an immediate shift. Rather, it’s part of a gradual global shift away from the US dollar and US power.
EG: Due to the sheer amount of QE and toxic derivatives on Central Bank balance sheets, could the breakdown of the U.S. dollar and systemic banking crisis in the global financial system be averted through the drastic revaluation of the gold price to $100,000 per OZ?
NP: The US dollar hasn’t been pegged to gold since Nixon. During the past decade, it has been linked to an abundant cheap money policy. At the onset of the last crisis, we saw gold spike dramatically. Recently, it has behaved in a more subdued manner. That limits where gold could
spike again in another financial crisis. However, it does have the propensity to spike by at least 10 times - as it did in the last crisis.
EG: With the LIBOR benchmark being phased out by 2021, what impact do you think this transition will have on most retail and institutional investors at this time?
NP: That largely depends on who wins the war to become the next LIBOR, or whether there will really be a replacement for LIBOR. ICE wants to keep Libor, and the status quo, going strong. The Secured Overnight Funding Rate debuted to a series of problems. Any shaky transition will stoke volatility. Investors should consider converting debt to fixed rather than floating rate and not get caught in the crossfire.
LIBOR, Bonds, Mortgages
EG: And what can bond and mortgage holders in particular, do to prepare for this transition with LIBOR in 2021?
NP: Libor is the benchmark for over $370 trillion of financial products in five currencies. For decades, it has pegged student loans, mortgages and complex derivatives. It behooves bond holders and mortgage holders to convert their LIBOR-pegged debt to other pegs before the transition date.
EG: How did your experience occupying senior executive positions as Managing Director at Goldman Sachs and Senior Managing Director at Bear Stearns, deepen your insight into investment banking?
NP: I was always on the analytics and research side of banking and investment. My career started at Chase and Lehman Brothers where I had a front seat for the development of the swap market and derivatives market. That provided me excellent groundwork later. When I moved to London, I built the international analytics group at Bear Sterns from scratch. I hired people from all sorts of technical and economic backgrounds. As securities become more complex, I fashioned state of the art credit-risk analytics to reflect so much change in the world. By the time I returned to the US and Goldman Sachs, I was an expert in quantitative credit analysis and credit derivatives. There, I ran a group that focused on both of those elements of the evolving financial world. That experience provided me deeper understanding of the field and the world.
EG: Do you think the next round of Central Bank Quantitative Easing is coming any time soon? And if so, how will the ramifications play out on the global stage?
NP: The European Commission recently predicted that UK growth would lag that of both the Eurozone and the US for the next two years. But Eurozone growth is equally waning. Japanese inflation is non-existent. Thus, the ECB left rates where they were at its last policy meeting. The body also expanded its QE, or bond-buying, program – which is another small round of QE. The ECB will keep inflating debt bubbles on a steady diet of QE. So will the BOJ.
EG: In what ways will the stability of the U.S. dollar as World Reserve Currency be affected by the next systemic crisis occurring in the banking system?
NP: I Many countries are working together to create trade and other initiatives in the wake of the US financial crisis. China deployed its own version of fabricated money to buck the supremacy of the Fed. By using its central bank funds for development and infrastructure projects, and to lend to countries in order to forge stronger alliances, China turbo-boosted its ascent as a superpower. Those moves reduce the dollar’s position in the world.
EG: What significant changes in the global financial system do you see on the horizon for the next 5-10 years?
NP: Five areas to watch are Mexico, Brazil, China, Japan and Europe. They forged new relationships with each other beyond the US. That’ll continue over the next 5-10 years, and the focal point will continue to shift eastward to Asia. Europe’s response to the financial crisis has taken central banking operations to the next level. Japan will leverage the US and China rivalry to its advantage. China will forge a stronger foothold around the globe. Ultimately, the world is stepping away from the US and the dollar.
EG: Exter’s Pyramid lists gold at the base as the most reliable asset with derivatives and unfunded government liabilities at the top. Would this be an accurate categorisation of asset class risk and size?
NP: Gold is an important portfolio asset to have allocated. Derivatives are certainly imbued with risk by their very nature, and certain governments will have an even harder time ahead due to cheap money policy. All of that will make it difficult for borrowers to repay their unfunded liabilities. That said, gold is also a very volatility asset from a practical standpoint, so I wouldn’t say given the data so far, that gold is the most reliable asset at this juncture in history.
EG: Having obtained your BS in Mathematics from SUNY and an MS in statistics from New York University, how did the rigours of academic study help you to successfully emerge at the forefront of investment banking on Wall Street?
NP: I started working on Wall Street while still completing my BS in Mathematics at SUNY. From the beginning of my career, I was used to balancing academic work and long hours with the ‘real’ world. Completing my MS, while working 13 hour days - I only left for classes. When I did my PhD coursework, working a strategist on the future and options desk at Lehman Brothers, I basically didn’t sleep. But I learned how to be extremely efficient and detail oriented, especially with numbers and computations. I balanced a tough schedule, learned to process information very quickly, discarded what seemed wrong or inaccurate and honed in on what was necessary and correct. EG
Focus on your main goal. Ignore the noise as much as possible.
Complete tasks sequentially vs. concurrently.
Stay calm and always consider new information, technology and risks while developing strategic initiatives.
Nomi Prins worked as a managing
director at Goldman Sachs for 2 years and as a Senior Managing Director at Bear Stearns for 7 years, and was a senior strategist at Lehman Brothers and an analyst at the Chase Manhattan Bank.
She has presented to numerous venues including the Federal Reserve,
International Monetary Fund and World Bank Annual conference. There she covered the topic of how to get banks
to better serve the real economy
Nomi Prins is an American author, journalist, and public speaker who writes about Wall Street and the American economy.
Prins worked as a managing director at Goldman Sachs for 2 years and as a Senior Managing Director at Bear Stearns for 7 years, and was a senior strategist at Lehman Brothers and an analyst at the Chase Manhattan Bank.
To find out more about Nomi Prins, please visit www.nomiprins.com