The Next Revolution in our Credit-Driven Economy: The Advent of Financial Technology



"Schulte brings an element of "been there, done that" to this book about how finance truthfully operates. This book should be (read by) any student of Finance and Economics and should be made compulsory for any practicing central banker."
–DAVID DREDGE, Fortress Investments

"Paul is one of the most astute commentators globally in his understanding of the new financial architecture. A must read for anyone following financial markets."
–AMIT RAJPAL, Marshall Wace

"This book is a wakeup call to bankers on the disruption posed by new financial technologies to commercial banking's "business as usual" attitude."
–EUGENE GALBRAITH, Bank Central Asia

"Schulte poses the question of whether or not banks as we know them will survive the challenges of the digital revolution."
–JAMES STENT, China Everbright Bank

"This book should be read by financial professionals, regulators, political leaders and anyone trying to manage a portfolio."
–WILLIAM OVERHOLT, Fung Global Institute

"This lucidly written and brilliant book will allow readers to know who will survive the financial revolution. Those who do not pick up a copy of this book do so at their peril."
–BHASKAR CHAKRAVORTI, The Fletcher School at Tufts University

"Schulte helps guide us to the beginning of the cross-section of technology and finance, a merger of two worlds that will likely dominate the global economic discussion for the next decade."
–MINH DUC DO, Gerson Lehrman Group

"This timely work shows how the technology and big data revolution is spawning new models of financial intermediation that threaten banks."
–SIMON OGUS, DSG Asia Limited

PAUL SCHULTE runs Schulte Research, his own financial services consultancy based in Hong Kong where he is a permanent resident. His clients include sovereign wealth funds, hedge funds, mutual funds, pension funds, exchanges, and regulators. His policy experience includes work with the National Security Council at the White House in the 1980s and the Indonesian Ministry of Finance in the early 1990s. He specialized in investment strategy and research in financials with Credit Suisse, Lehman Brothers, Nomura and China Construction Bank Intl. over a 20-year period.

In the academic world, he is a Senior Fellow at the Center for Emerging Markets Enterprises at the Fletcher School of Law and Diplomacy at Tufts University in Boston, Massachusetts. He is also a Visiting Scholar in the MBA programs at both Hong Kong University and the Hong Kong University of Science and Technology. In addition, he has lectured at MBA programs at Tsinghua, Fudan, NYU Stern School, FGV (Rio), LBS, UCLA, Loyola Marymount, Northwestern, among others.

Acknowledgments xvii

About the Author xix

About the Website xxi

Introduction: A Few Numbers Can Crack the Code xxiii

PART ONE How Bank Credit Drives Economics (Not the Other Way Around) and Why

CHAPTER 1 A Few Simple Concepts That Anyone Can Understand 3

CHAPTER 2 Differences between Liquidity and Solvency Are Thin 23

CHAPTER 3 Anatomy of a Credit Crisis and Examples in the Real World 33

PART TWO I Am from the Government, and I Am Here to Help Your Broken Banking System

CHAPTER 4 Socialization of Debt after Mismanagement by Bankers (or, Why Keynesian Economics Doesn’t Work) 55

CHAPTER 5 Why Capitalist Bankers Create Soviet Banking Models When the Going Gets Rough 75

CHAPTER 6 Central Banks Are Carrying the Greatest Load and Will Dominate Outcomes 89

CHAPTER 7 How Bankers and Policy Rescuers Affect Stocks, Foreign Exchange, and Property 103

PART THREE Interlude

CHAPTER 8 Why Government and Institutions Get Suckered into Debt Binges 119

PART FOUR The Revolution in Financial Architecture

CHAPTER 9 Why Is This Revolution Happening Now and Why So Fast? 135

CHAPTER 10 The Revolution in Alternative Investments 145

CHAPTER 11 The Revolution in Big Data and SME Lending in the Emerging World 157

CHAPTER 12 Banking and Analytics--The PayPal Gang, Palantir versus Alibaba, and Hundsun 177

Appendix 195

Bibliography 197

Index 199