Elena Panaritis sits down with Todd Morley in Washington DC, and they both note the irony immediately. They are at the center of policy, in the capital of the country that has arguably solved the problem better than anyone — and it is also a city that, in Panaritis’s assessment, does not fully recognize informality when it is described to them.
Morley is a finance practitioner. He co-founded Guggenheim Partners and has spent his career structuring infrastructure finance. He came to this subject the way an investor comes to an unpriced asset: by reading Panaritis’s book and realizing what was sitting on the table.
“We can’t just cure cancer. But with a stroke of a pen you can create a land registry. So you can have a profound effect on global GDP by simply doing the right things.”
His argument across the episode is that formalizing informal assets is not charity competing for scarce donor funds. It is the most predictable return available anywhere — and the private sector, not governments, has the money to fund it.
The Bilbao effect, applied to a country
Morley’s central analogy comes from his own history. Guggenheim Partners was founded shortly after the Guggenheim Museum Bilbao opened.
Strip the museum of its reputation and what is it? A twisted titanium sculpture with paintings inside. The Guggenheim lent its brand and part of its collection, Frank Gehry built the object, and an industrial city in northern Spain became a destination that competes with Paris, Rome, and London.
What followed was, in Morley’s word, predictable. The city needed better roads. Better food. Bridges. More energy. Live capital assets generate demand for the infrastructure that serves them.
Then he makes the leap that gives the episode its thesis. Granting property rights produces the same cascade — except across an entire country rather than one city.
He cites Peru’s registry going from around 100,000 titles to 17 million within two years of the work beginning, and describes the consequence in the only language that moves capital:
“You can think of it as the ultimate alpha. The world is always chasing alpha in the stock market, the bond market. This will outperform everything, very predictably.”
His evidence that the analogy holds is that governments already understood it once. Eighty governments signed up wanting their own Bilbao effect, queuing for a museum. Only one was granted, to Abu Dhabi.
“Eighty governments should be waiting for reality check analysis and the economic effect your work can produce.”
Nobody joined that queue because they were art fans. They joined for economic development.
A $12 house
Panaritis supplies the ground-level counterpart, and it is the most striking sequence in the episode.
She had to value a property in a Lima shanty town for a World Bank cost-benefit analysis. The site was sand — in Lima they call it dead earth, because it is not even proper dirt. On it stood a bamboo structure with no roof, wrapped in blue plastic to hold off the cold at night. Ninety square meters.
She valued it at $12. And she notes the honest figure was arguably negative — you would need to be paid to take it. There was no water, no roads, no possibility of connecting a utility, and no relationship with the government at all.
Into that vacuum came armed groups. What people called terrorists, she says — radical paragovernmental organizations providing the one service the state did not: security.
Fifteen years later she went back, and found no evolutionary continuity with what had been there. Not an improved version of the same place. A different place.
High-rises. Roads. Markets. Roofs everywhere. Construction everywhere. Nightclubs, gyms, saunas. And residents telling her they need more infrastructure, because they now know they can have it.
The $12 property was recently sold for half a million dollars.
“There is no more return. We’re moving from Neanderthals to Homo sapiens.”
A detail from her film crew, all Latin Americans who had grown up around informality and were skeptical there was anything special to see, sharpens the point. What struck them was that the streets were clean.
They asked how it was enforced. Panaritis’s answer: there is no law threatening prison for a dirty street. People are proud of their neighborhoods now.
Why the United States is the proof, not the exception
Morley’s response to anyone who thinks this is a developing-country concern is to point at the American economy.
The US was not born with a mortgage market. It was built. And roughly 83% of US GDP is consumption, which flows from the home. Once people can own assets and prove they own them — property rights, rule of law, contract law — those assets activate. You can borrow against them. You can put on a roof, create surpluses on the farm, hypothecate.
“Without those things, everybody’s a squatter and you can’t prove you own anything.”
The $24 trillion economy does not exist without it. No borrowing means no house, no Ford, no refrigerator.
He is careful about the uncomfortable part. Securitization went overboard, and the greedy bankers were real. But the overall effect of Fannie Mae, Freddie Mac, and the liquidity of the bond markets was profound — and none of it is constructible without rule of law and property rights.
His illustration of how powerful clean title is: in 2009 the US had 9 million unsold houses. Had you auctioned them to the world with automatic citizenship attached, the inventory would have sold out — a point he attributes to the Milken Institute at the time.
Panaritis raises the objection she keeps hearing, including in Peru: doesn’t fintech make this obsolete? Digital lenders extend credit with no collateral at all.
Her own answer, which Morley does not dispute: an unguaranteed loan is short-duration and very high interest. It is not the basis of any modern economy.
“Private-public,” not public-private
Morley’s sharpest reframing is about who actually funds development.
Governments talk about public-private partnerships, the P3, and they should want them. The problem is that they consider themselves too important in the calculation.
“I like to tease and say it’s the private-public. The private sector is awash with capital. The public sector can grant assets, and it can grant its credit rating — on which you can then build a capital structure.”
The mistake that limited Bilbao to one replication was the assumption that governments held the money. They do not. Morley is blunt: governments are insolvent, and points to California as an example — it could not fund a Bilbao-type project today.
The other obstacle is time horizon. Governments run in four- and five-year cycles, and this sounds complicated and slow. Panaritis pushes back on the premise: in Peru, everything turned around in about two and a half years.
What it required was strength, vision, and — her addition — a philosophy.
Both are candid that not everyone wants the problem solved. Some governments benefit from keeping people down and uneducated. Federal stipends and UN funding arrive and do not reach people, which creates a live incentive against fixing anything.
Discipline, and who opposes formalization
Panaritis is specific about the friction she encountered running Reality Check analysis, and it does not map onto conventional political lines.
The method holds to a single laser beam: people should feel secure and proud of their own existence, and secure in whatever belongs to them. Not a thousand things — whatever they chose, whatever they bought, it is theirs.
Special interests fight this from multiple directions. Some, she says, cover themselves in neo-Marxist language. Others invoke the traditional rights of particular groups. Holding the line required considerable discipline.
The work extended beyond Peru — to Bulgaria and, she notes with some surprise, successfully in parts of the Middle East.
She also explains why replication failed when it was attempted mechanically. The World Bank reproduced the same type of project elsewhere and it did not have the same effect, because the words were copied without the underlying analysis.
Morley’s analogy for why that matters:
“It’s like going to the doctor and just operating on your knee. No — we need a full exam. What’s your genetic predisposition? What are you allergic to?”
Earlier he called Reality Check analysis the equivalent of mapping your genome: a way to know where you are, where you aren’t, and how to fix it — if the intention is to fix it.
The case against ESG, and what should replace it
Asked about ESG, Morley does not hedge.
“ESG is already being abandoned by the people who endorsed it. It became a marketing tool to sell to young people thinking about the ills of the world.”
He does not object to the sentiment. He objects to the absence of arithmetic. The higher standard he proposes is mathematically defensible positive social impact — and he uses Panaritis’s own numbers as the model.
A house that went from $12 to $500,000 is measurable. Real roads are measurable.
And then the figure that lands hardest: child labor fell by 27%, effectively overnight, simply from granting rights.
The mechanism is the same one Charles Calomiris described in Episode 3, told from the other end. When a family could not prove ownership, somebody had to physically remain in the house to guard it. Adults went out to work; a child stayed behind with an elder — and, being home, was put to work adding to the household income rather than attending school.
Give the family a title, and the child goes to school. The vicious circle they could not otherwise escape simply stops.
The new poor
Panaritis closes on the argument for why rich countries should care about their own interest, not only about distant suffering.
If 70% of the world is informal and that share is growing into the remaining 30%, the formal world does not have indefinite time. She points to what she calls the new poor in Germany, the European Union, and the United States: people who were solidly middle class, fell out, and do not know how to get back in.
Her observation about them is one of the most humane things in the series:
“It’s very different to have been born in the margins, because you have all the antibodies. You know how to survive it. You were always in the streets. It’s very different to have fallen out of it when you were well brought up. It’s hard for you to survive.”
Her diagnosis of the response: governments are printing money and throwing it at social programs, while the private sector piece goes missing entirely.
Morley’s closing pitch is deliberately reassuring toward governments, because he thinks the sell has to be soft. This is not a takeover of anyone’s economy. It is a boost that can be delivered quickly, with a stroke of a pen. It does not require a revolution or an exotic cure.
It requires a couple more countries to understand what Peru did — and then, he hopes, a queue of eighty governments asking where their museum is.
Takeaways
- Formalization is an infrastructure investment with predictable returns, not aid — which is why it should attract private capital rather than compete for donor budgets.
- The Bilbao effect is the right mental model. One catalytic change generates its own demand for roads, energy, and services.
- The US mortgage market is the proof of concept, not a counterexample: consumption flows from the home, and homes require provable title.
- Unsecured fintech credit is not a substitute for collateralized lending — short duration and high rates cannot underpin an economy.
- The private sector holds the capital; governments hold the assets and the credit rating. Both are needed, in that order.
- Impact should be arithmetic. $12 to $500,000, and a 27% drop in child labor, are claims you can check — unlike most ESG marketing.
- Copying the program without the diagnosis fails. Reality Check analysis is the exam that precedes the operation.
Reality Check with Elena challenges mainstream narratives and reveals the often inconvenient reality on the ground. Watch Episode 6.
