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Machiavelli in the Ruins of Greensill Capital

Summary:
The collapse of Greensill Capital has a strong historical parallel in the decline and fall of the medieval Medici bank after it went too far with the financial innovations of its own day. The lessons from both failures are clear, but most likely will be forgotten until the next financial meltdown. PRINCETON – The collapse of Greensill Capital, a London-based financial services firm, offers a timely but costly warning about a number of contemporary trends. Clearly, we should be wary of the hype around financial innovation. But we also need to shine a brighter spotlight on the shady world of corporate lobbying, the regulation of risk, and other issues at the intersection of capitalism and government. Share

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The collapse of Greensill Capital has a strong historical parallel in the decline and fall of the medieval Medici bank after it went too far with the financial innovations of its own day. The lessons from both failures are clear, but most likely will be forgotten until the next financial meltdown.

PRINCETON – The collapse of Greensill Capital, a London-based financial services firm, offers a timely but costly warning about a number of contemporary trends. Clearly, we should be wary of the hype around financial innovation. But we also need to shine a brighter spotlight on the shady world of corporate lobbying, the regulation of risk, and other issues at the intersection of capitalism and government.

Greensill reportedly tried to use former British Prime Minister David Cameron to entice the Saudi government to press investors to contribute more funds to SoftBank so that SoftBank could increase its backing of Greensill. Then, following the start of the pandemic, Cameron reportedly lobbied for Greensill to secure access to an emergency loan scheme, and pressed the National Health Service to adopt an app owned by Greensill to pay NHS staff daily instead of monthly.

But the fact that Greensill was pedaling an advanced-payment app doesn’t mean that it was a genuine financial innovator. In reality, its financing activities were largely limited to a narrowly focused steel business: Indian businessman Sanjeev Gupta’s GFG Alliance.

Why would government officials from Saudi Arabia to the United Kingdom place their trust in such a company?

The superficial answer is that Greensill was selling glitzy new financing models that promised to help the Saudis modernize their handling of the annual Mecca pilgrimage, and the NHS to streamline its payroll.

And yet, these offerings were nothing new. The great push of financialization that...

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