The Next Revolution in our Credit-Driven Economy

Chapter 10The Revolution in Alternative Investments

We will discuss the dynamism and innovation that the “PayPal Mafia” is bringing to the table in future chapters. First, however, we need to discuss the other large institutions that have been around for some time and that are now spreading their wings and challenging banks in many new areas. They are breathing down the necks of banks as they enter businesses where banks must exit, either due to regulatory pressure or because they simply do not have the balance sheet liquidity to compete. These entities have the flexibility to change and morph. They are also capable of quickly adapting financial technology in their models. We shall see that one firm, Goldman Sachs, is very likely further ahead than any other major bank globally in terms of adapting financial technology for their own use and that of their customers.

Indeed, Antony Jenkins said in the Financial Times on December 18, 2014, that “the universal banking model is dead.”¹ In this heretical statement, he indicated that the use of customer deposits from commercial banks is no longer an appropriate way to fund investment banks. Regulators are now stopping this practice and are, in effect, breaking up the commercial and investment bank units into two separate groups. Mr. Jenkins also implied that the speed of technological innovation is the key to the future. Banks with dozens of locations in several continents simply cannot invest in technology in so many places quickly ...