Alice ™ by Stuart Kells

Reviewed by Norrie Sanders

Rethinking the world financial system is not something most of us are capable of. Even understanding the world financial system is no picnic. This is a story of two Australians who not only understood, but who set out to shake things up.

Their extensive research and experience led them to conclude that the foundations of the global financial system are still dangerously fragile, and the system is deeply one-sided – stacked to benefit a small number of large private banks at the expense of customers and taxpayers [pxiv]. Ian Shepherd is an “international banking insider” who invented tools and processes to reduce the risks of global financial crises. Kate Jennings was an author with professional expertise in the banking world and whose 2002 novel Moral Hazard  was an expose of the excesses and greed on Wall Street. Both saw collapse coming and the GFC of 2007 was no surprise.

The central story belongs to Ian Shepherd. As a banker and innovator, he saw the risks to banks, particularly in global currency transactions, which had grown in a few years from a minor amount to $1 trillion per day in 1994 and 10 years later, $5 trillion per day. He developed settlement processes that he believed would minimise the risks and carefully and methodically patented them to protect his intellectual property. But when a major consortium of banks later developed similar ideas and started to apply them, he moved to protect his patent. No spoilers, but taking on these corporations from the other side of the Pacific was brave, to say the least.

And it is a complicated story. Stuart Kells weaves the highly technical world of finance with the many human stories of Ian, Kate and a host of famous and less famous names from finance, commerce, law and journalism. The most challenging for a non-specialist reader (e.g. this reviewer) is the technical. But it is worth the effort, because it points to Ian’s genius and provides the necessary building blocks to understand the global consequences at play.

Stuart tells us in the first few pages that bank lending is not what we think it is. In fact the opposite. Our banks do not hold a large reserve of assets and our bank accounts are little more than an IOU. And generations of governments have given the banks’ licence to invent more and more complicated and devious ways to profit. Which all adds up to risk with a capital R.

Kate Jennings noted that in the 1980s and 90s, there were bands of lawyers who beavered away, searching for loopholes, ‘to see how close to the edge of the law they could get without stepping over the line’. And with alarming regularity, it was stepped over  [p27].

As Ian’s story unfolds and the reader becomes engaged with steady progress towards widespread use of his inventions, there are elephants in the room: the big American banks and their allies in other wealthy nations. Organisations that control global finances and constantly search for new ways to extend their reach are not about to give away their advantage to minnows from small countries.

One example of profit-seeking is the use of equity swaps (a financial instrument benignly called an over-the-counter derivative) as a tax dodge: For many US billionaires and corporates, such agreements were a bonanza. The amount of capital gains tax they paid suddenly fell to zero. For investment banks, equity swaps were a risk-free money tree. …Equity swaps therefore achieved a massive transfer of wealth from the wider community to a small number of banks and their wealthy clients [p21].

Ian’s patents that were trampled by the banking consortium related to currency settlements. When money is traded around the world, there is a finite time between the electronic exchange and the “real” money being received. …the vast volume of payments had led to huge day to day exposures for banks, as a result of banks’ willingness to give customers immediate use of incoming funds before being certain that the interbank transfer would be settled [p153].

One way to reduce settlement risks was to funnel money through a single central bank – an idea favoured in Europe, but the US and other private banks were having none of that …the major [private] banks were fighting to protect and enhance their position in the foreign exchange market and in the overall financial system. The prize was spectacular. The winner would own and operate the world’s financial infrastructure, settling trillions of dollars in transactions each day [p159].

Deciding how to write this book must have been a considerable challenge. It is certainly not a single-thread chronological narrative and there are many diversions along the way. Ian’s fight for a share of this pie takes up the back half of the book and Stuart Kells successfully injects a deal of tension as the David and Goliath battles take place on multiple fronts. The book is not meant to be light reading, but the reader who is patient with the technical material will be rewarded with an absorbing tale.

Stuart Kells has written on a wide range of subjects including libraries, publishing, professional services and diamond mining. His shorter works have been published around the world including in Smithsonian, The Paris Review, The Guardian and LitHub. A University of Melbourne alumnus, he delivered the 2018 Jean Whyte Lecture and the 2022 Murray Talk. His history of Penguin Books, Penguin and the Lane Brothers, won the Ashurst Business Literature Prize in 2015. His book The Library: A Catalogue of Wonders was shortlisted for the Prime Minister’s literary award and the NSW Premier’s general history prize. He is Adjunct Professor at La Trobe University’s College of Arts, Social Sciences and Commerce.

Alice ™ The biggest untold story in the history of money

(April 2024)

by Stuart Kells


ISBN: 978 0522 88027 4

$35.00 [RRP Paperback]; 272pp

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