Friday, March 19, 2010

No Other Gods

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In his first Papal Encyclical, Deus caritas est Joseph Ratzinger – then Pope Benedict XVI – spent considerable time discussing the role of the church in social justice. He stated:

“The direct duty to work for a just ordering of society, on the other hand, is proper to the lay faithful. As citizens of the State, they are called to take part in public life in a personal capacity. So they cannot relinquish their participation in the many different economic, social, legislative, administrative and cultural areas, which are intended to promote organically and institutionally the common good.”

In an encyclical that is built around discussing the relationship between love and social justice, the Pope made concluding reference to St. Martin of Tours who is the iconic representation of justice and charity. In an act of profound (and capital) consequence as a Roman solider, he took the property of the State (his uniform’s cloak) and gave it to a beggar. This act of giving State property to a beggar was a violation of Roman law and could have cost St. Martin his life. Instead, it became the foundation of his canonization. Pope Benedict XVI makes a clear declaration that “service of neighbor” is inextricably part of the mandate of the faithful and of the church.

So as Europe was aflame with the church’s tireless abuse scandal over the past week, I was in East New Britain and New Ireland provinces in Papua New Guinea – the Metropolitan Archdiocese of Rabaul. Established in 1844 as the Apostolic Vicariate of Melanesia and promoted to Archdiocese in 1966, the church was established in its current incorporated state with the Roman Catholic Archdiocese of Rabaul Act of 1969. And, while I thought I was going to write this week’s blog about the horrific scourge on humanity’s legacy (once again, fully capitalized, aided and abetted by the Toronto Stock Exchange and its willing investors) – Simberi Mining Corporation (TSX-V: SAU) – where an entire village’s food supply has been jeopardized by a failed re-routing of a river, I find myself compelled to address a more insidious injustice. That is the violation of the Papal Encyclical referenced above.

For those of you who don’t travel to the Archdiocese of Rabaul, it is hard to appreciate the depth of injustice represented by the land holdings of the Catholic Church. In a land where property rights did not exist in our current understanding, the church’s land holdings are vast. Much of the productive agriculture supply is controlled by the church and offered to locals (original stewards of the land) for leases. In a land of abundance, in the name of God, the faithful are charged for access to the creation that has been the heritable land of millennia. The Pope’s reference to the “common good” in his first encyclical is constantly violated by the perpetuation of exerting “ownership” of land that was taken from those who had no knowledge of what land ownership meant. In Kokopo, the prime commercial real estate is owned by the church. On the coasts, fertile farmlands are owned by the church. If the Pope was serious about his encyclical, why doesn’t he put himself in line with the very saint he holds as iconic and return the land to those from whom it was taken? Rather than entering history as the Pope on whose watch the church foundered on more sexual abuse, why doesn’t he actually become the first Pope to explicitly evidence that the church’s God is not mammon?

And the Catholic’s are not the only ones displaying conflicted messages in East New Britain and New Ireland. No church has been more clearly evidenced in promoting family values and the importance of social order than the Church of Jesus Christ of Latter Day Saints – the Mormons. I have been amazed at the church’s expansive presence throughout the Pacific and have been constantly impressed with the tireless efforts of the church to build communities which provide education, recreation and numerous other benefits.

However, this same church that has worked so hard to promote the highest and most laudable social values as an expression of a genuine belief, has two amazing contradictions which cannot conflict with the very values that they promote. First, Zions Bancorporation (NASDAQ: ZION), the bank founded by Brigham Young, and other asset management arms associated with the church have active presence in the global gold market. This church, which promotes the value of family and stewardship could use its presence in the Pacific to call for accountability in gold mining. In a part of the world where Barrick (ABX.CA), New Guinea Gold (NGG), Simberi (SAU), Lihir (LGL) and the oceanicidial Nautilus (NUS.TO) operate with lack of environmental, social, or legal transparency, where is the church’s voice to defend its faithful against loss of land, ecosystem, dignity, and wealth? Regrettably, it is largely silent. Apparently gold is more important than people.

And who can forget the fact that Brigham Young University has patented biodiversity and indigenous knowledge from Pacific Island healers without naming the providers of the information in their patents? Where is the church when violation of international intellectual property law is done in its name and held in its institutions? Regrettably, here too it is silent.

You see, a great prophet is quoted as having said that you cannot serve God and money. However, whether it is in the colonial annexation of lands held in trust and Commons for millennia, or in the coin of comfort in times of fiscal uncertainty, it seems that communities of faith seem to lose their prophetic voice when it comes to the wealth upon which they count their blessings. And this, in the final analysis, is a failing more insidious than those that grab the headlines. Because they undermine the very values that are promoted as divine.

It’s time for those who seek to shepherd those who live in the abundance of creation to actually genuinely care for those who have turned to faith as their guide. It’s time for morality and justice to go all the way to the bottom line. Otherwise, the world will see the true identity of the god that has been deemed supreme.

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Thursday, March 11, 2010

Why We Don’t Build Pyramids

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On Wednesday, March 10, 2010 I was a guest lecturer at Atenisi University in the Kingdom of Tonga. Atenisi University is an enigma in every sense. Seldom have I met people more profoundly dedicated to the cause of freeing minds for deep inquiry. Seldom have I seen students more animated when a perspective blows its way to the island kingdom that sits on the first ray of dawn each day. Nowhere is the dawn more possible than the place where every day begins first.

Now, the next three paragraphs are weighty but I ask you to indulge me them as they reflect a theme that I’ll explain later. And yes, I know that taking what I’m trying to say to heart, may mean that you need to take a couple bites at the apple. Think of it as poetry if you must…

I gave three lectures at Atenisi. The first was in Philosophy, the second in the macro-economics integral to the French Revolution, and the third in Clinical Psychology.

I hypothesized that Pythagoras’ conviction of the essence of truth manifest in numbers may have been deeply influenced by Persian moral philosophy. His attempt to forge a new understanding of humanity’s consequence in the cosmic scale may have been inspired by the stories of Cyrus the Great who stands alone in our present understanding of history as a master of tolerance and social discourse. [It is plausible that Xenophon, a soldier and student of Socrates, chose to write the Cyropaedia because of its centrality to the evolution of Greek philosophy.] I went on to suggest that the Pythagoras known to students of mathematics and philosophy has been characterized primarily by “Truth is Number” as an apology for our modern obsession with numeric reductionism. In plain English – that the only thing that matters can be counted and the only thing worth counting is expressed, in its most generic form in money. How rare it is to hear about Pythagoras’ spiritual inspiration from Orpheus, that great mythical failure who inspired his men past the Rock of the Sirens not by debating the merits of being seduced but rather, simply playing a sweeter sound.

My proposition regarding the macro socioeconomic dynamics behind the French Revolution was rather blunt. I suggested that the revolution was not as much revolution as it was a coup d'├ętat. My thesis was built around the observation that the combined rise of Central Banks (replacing Church and Crown treasuries) and limited liability corporations needed to galvanize a public to be distracted by the opulence of the monarchy. This public furor rallied a populace while the Corporate Banking interests assumed sovereignty – an act consummated during the Napoleonic Wars and, famously, with the functional privatization of the Bank of England following Waterloo. Few historians adequately address the fact that it was the ability to levy taxes that galvanized “revolutions” and, after the revolutions, the one thing that remained more intact than ever was – you guessed it, taxation. I suggested that the faux banking crisis of 2007-2009 is, in fact, the first substantial evidence that the coup has committed the fatal seduction of coups – when the robbing of the national treasury winds up involving stealing from yourself. Now, the only thing left for central banks to do is trade with each other as they’ve become entirely detached from their underlying national economies. In short, Act I of the French Revolution is over – on to Act deux!

And in Clinical Psychology – where the discussion was on Learning – I discussed my observations that what we call learning is more accurately described as consensus patterned behavior. Building the argument around the concept of Orderly Organic Synchronization (the process of building shared consensus views on observations and inputs which support socially acceptable narratives), I pointed out that most of what we do when we educate and train is to actually encode patterns that make communication within a subset of humanity efficient while explicitly isolating those who we deem “outsiders”. In its most egregious form, we suggest that language is a means of communication failing to realize that by selecting to encode in one language, we expressly identify our audience and subconsciously exclude those who encode using different encryption.

Off to an interview with the national news in Tonga and then an evening lecture on Poverty.

Now, aren’t you glad we’re through that? So, let’s click the lens back a notch and see what is behind what I’m saying in these three “parable” lectures. And what is the message that is communicated by linking what appear to be three disparate themes. Here goes.

I’ve written before about our collective, unimaginative system of denominating “wealth” and “poverty” based on a simplistic monetary metric. Those who “have” are those with monetary wealth and disposable access to consumption. Those who don’t have access to disposable monetary resources are “poor”. We rationalize our Orderly Organic Synchronization (learning) by reinforcing this message. We “know” (because is our synchronized, accepted belief) that if a country has a small GDP, it’s poor. If a country is being robbed of its minerals and resources by those with monetary power, it’s still poor. Isn’t it ironic that many of the world’s “poorest” nations actually have much-desired resources in abundance? And isn’t it convenient that, by focusing on their absence of monetary strength (labeled as “poor”), we co-opt them into letting their resources be exploited without consideration for people, the environment or the future. The Greek philosophers who gave us our concepts of “truth” and “substance” are misapplied when they are used to rationalize behavior that counts dollars but not trees, gold, clean soil, and fresh water.

A few months ago, I worked with courageous leaders in East New Britain, Papua New Guinea to notify the Toronto Stock Exchange that one of their listed companies (New Guinea Gold, TSX:NGG) was reporting revenues of gold sales to the public while failing to disclose or pay royalties for those sales under their obligations to the nation of Papua New Guinea. Further, the subsidiary shell corporation set up by NGG in which local landowners hold partial interest, was being charged accrued debt expenses without receiving any revenue. The company pressured the local media to renounce a newspaper report of its own securities filings. And TSX Compliance did nothing. You see, apparently, Canadian securities regulators only count what their listed companies report. And shareholders, drunk on gold fever, have no knowledge, interest, or will to know that their company is operating at the expense of a country.

Now we can sit back and rationalize that, after all, Papua New Guinea is a long way away and so oversight is impractical. However, it’s not so far away as to prevent Canadian investors from misappropriating the assets of a country. You see, you can take money from Papua New Guinea gold in Toronto, but you can’t take information.

I was recently asked by a French socialist academic if I really believed that ethical capitalism is possible. In a diatribe worthy of a wooden crate in 1917 in Moscow or Paris, I was informed that labor and resources are necessarily exploited in capitalism. Really? You can’t build common wealth by engaging productive people to a mutual benefit? You can’t open the aperture to accommodate that STAKEHOLDERS (including workers, managers, and shareholders) all need to benefit if the ecosystem is to be viable in the long term? Which leads me to the coup d’├ętat.

If, as rational human beings coexisting on this planet, we share common aspirations for sufficient living conditions in which there is enough for all and even wealth for a subset, why is it that we’ve ignored the notion of Liberty and Fraternity – the rallying energy for the Greeks, the French, and yes, present? The answer is simple. Society has manifested a fear of those who control the coin of the realm. We seem to be incapable of considering that it is the hegemony of debt-based currency which is the cow to sacred to challenge. Is the bailout of reserve banks any different then Marie Antoinette’s “Let them eat cake”? Is Toronto’s indifference to flagrant abuses of its own ethical and legal standards any different to the tyranny of willful ignorance that plagued Versailles?

We the People, in Order to Form a More Perfect Union can actually begin operating in Liberty and Fraternity without being forced or cajoled into these ideals. In fact, I think we only get there by actually living the way we’d like to see the bigger system operate.

Start with a simple exercise. Take a look at your retirement account or your stock portfolio. Examine the companies in which you hold equity. And then, take a quick look at the company’s last quarterly filing. See the locations in which they operate and then look at the news for those locations using the company’s name in your search. For example, type the terms “SAIC” and “Greek Olympics” into a search engine. You choose your companies and see what you see. You’ll find one where to maximize profit, a city has collapsed with a plant closure so you could get your investment profit. You’ll find one where the reason why a jurisdiction is selected is because they have “favorable environmental operating conditions” which is politically correct for the ability to pollute without consequence. You’ll find one that paid fines for bribing officials in procurement efforts. And when you find that company, sell the stock. But don’t just sell it. Go on and write a letter to the investor relations manager explaining that, as a shareholder, you will no longer support what they’re doing. Then, take the proceeds of that sale – your gain – and contribute it to a cause you believe in.

You see, when you build your retirement on a foundation that includes a passivity which authorizes bad behavior, you insure that the coup persists. As soon as you start living the way you wish the world would work, little by little, you’ll help turn the tide.

So, how do we get from Cyrus and Pythagoras, to the Bastille, to Psychology, to Papua New Guinea, to Toronto, to our retirement account? Actually, quite simply. If we want “things” to “change”, we must actually begin manifesting the world we wish to see. Waiting for someone else to begin, when that is the unifying consensus of everybody, means nothing will get done.

Which is why we don’t build pyramids. We don’t build pyramids because we don’t believe that it can be done or that those people in Egypt or Meso-America could have done it. However, I know how the pyramids were built. It started with someone starting. So… let’s get started. And, by the way, a bunch of you read this blog, think big thoughts, and then go on about wishing that something could happen. So why don’t you send this blog to 25 of your closest friends, get together, and figure out how to do the exercise suggested in this post together? You never know, you might actually change your world.


P.S. If you want, you can use your blog-inspired proceeds to help Atenisi University offer more scholarships to students in Tonga. This country, while fifth from the bottom of the global country “wealth” chart, has a university that offers full tuition waivers to any citizen. If you want to make a difference, get in touch and I’ll connect you with something worth doing. Their budget could use about $80,000 to open up a whole new program in Ethical Innovation Finance.

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Sunday, March 7, 2010

All Debts Public and Private

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I was walking in Manhattan this week in the midst of an epic journey. The company I lead, M•CAM, is looking to establish a market solution to the current market’s greatest challenge. We are working to create a transparent means of linking human creativity to human enterprise in a way that rewards innovation and aligns capital and enterprise to shared objectives. You see, what has passed for financial innovation over the past three decades has grossly contorted the capital system and has decoupled capital from productivity. Having entered into dialogue with many of the market’s most sophisticated minds stewarding the largest aggregated pools of capital, the daunting realization was that, when confronted with systemic paradigm shifting opportunities, the people you might think are on the frontiers of financial sophistication are truly paralyzed by the reality that the hype about economic recovery is, well, just that – hype.

I’ve written about this before but I’m pretty sure that most people still don’t get what’s wrong at the core of the economic system. And while I’ve tried to highlight a number of components of the disease that still plagues our economic system, I think that I’ve been ineffective at communicating. And in a world where the market “responds to good news” about the slowing of the rate of job loss (because we’re continuing to shed the hopeless – now well over 2 million people – who have not found work from the official count) and sees this as indications of a “recovery”, at some point you must confront the fact that the same media that didn’t see the recession/depression coming are equally incapable of reporting on market recovery.

Let’s revisit some basics. I’ve called your attention to the difference between debt and credit before. Debt focuses on the cost of money and its use. Those with capital – which in their own hands earns nominal interest in, say, Treasury bills – can provide that capital to others as long as their cost to hold the money and their return to lend the money are sufficiently spread. Debt, whether it’s in the form of your mortgage, or bonds to pay for a highway, or pay for an out-of-control government (like the fiscally delusional U.S.) seeks neither productivity nor equilibrium. It seeks its own return and requires perpetual growth. In modern times, debt is resolved (as many of us know) by taking out more debt – politically correctly known as refinancing. If you contemplate debt in its extreme, debt is antithetical to productivity. Three hundred years ago, debtor’s prisons ironically put the debtor in prison extending the usurious reach of obligations to family members and friends while rendering the productivity of the debtor impractical and impossible. In modern times, debtors now find themselves having to take more time away from family with a second or third job, leave children unattended to pay off obligations, etc. In many parts of the world, including the U.S., debtors wind up literally enslaved. Human trafficking, now at an all-time high, is a direct consequence of debt.

There was a time when credit – an entirely different concept – was more commonplace. In its simplest form, credit is best exemplified with a seed. If I have seeds in abundance, I may offer 10 seeds to a farmer and charge him 15 seeds in exchange. This works because I know that each seed I provide will yield 100 seeds – more than enough for him to keep seed for the next year, feed his family, and pay me 15 seeds. While cartoon in its simplicity, this example is quite vital to understand energetically. Unlike debt which seeks its own return divorced from the underlying enterprise, credit takes into account an alignment of all interests. First, as the provider of seeds, my bet is with the farmer and with nature. Second, my return is based on fruitful productivity. Third, my role as seed provider is not necessarily perpetual. In fact, I may work myself out of a job and may need to move on to other forms of credit if a market is fully functional and crops are productive. In short, as the provider of credit, I am betting with future productivity, not a perpetual illusion of capricious returns. And yes, I will lose sometimes. And that’s o.k.

One of the main reasons we are in the economic failure we’re in right now is because we don’t understand credit anymore. And in failing to understand credit, we give no thought to the fruitful ecosystem. Let’s look into this deeper.

In credit, I look to the ecosystem of the seed-farmer-soil-rain-harvest-market dynamic and understand that, to make a functioning system, I need to make sure that my credit works within a closed loop that may or may not have finitude. I need to look at the raw material-production-assembly-distribution-marketing ecosystem and make sure the capital costs fit inside the fruitfulness of the ecosystem. In short, I need to understand the foundations of productivity and then integrate my capital within a viable cost structure therein. In short, my returns – high or low – are directly a consequence of the ecosystem productivity.

Debt, on the other hand, has made capital ignorant and lazy (euphemistically described as “efficient”). I spoke to several people about collateral. Collateral is a form of commitment that says that, if for any reason, an obligor fails to perform on repayment of an obligation, a secondary source of payment in the form of disposable assets, can be monetized to defease the obligation. Collateral has taken on enormous meaning lately as, in its absence, cash-rich banks are unable to lend because their reserves are adjusted based on their creditors’ collateral adequacy. With investment-grade collateral, a bank needs to hold 8 cents in reserve for every dollar lent. Without collateral, the same bank must hold up to 53 cents in reserve for every dollar lent. Most of the American and European public fail to understand that the reason why cash-laden banks are not lending is because they cannot. Technically they cannot because they do not have collateral adequacy in their credit assets. Operationally they cannot because they have no clue how to assess the collateral in today’s market – most of which is intangible. Your home, used as collateral for your mortgage, does not create value and, when real estate markets fail, its loss of value actually puts you in greater debt.

Ironically, during this administration’s rush to stabilize our economy and put it on the road to recovery, it has continued to overlook a comic irony. Intangible assets, intellectual property and innovation are all part of what’s called a “General Intangible Lien” – a collateral instrument holding hostage all corporate innovation from effective deployment. I use the term hostage because, unlike traditional tangible collateral – like real estate – that at least has some form of value, intangible collateral is taken under liens, restricted from use, but assigned NO VALUE. In other words, banks now hold America’s and Europe’s innovation assets, ascribe them NO VALUE, and with real estate and traditional assets loosing value, have no way to unleash their value without worsening their already collateral-insufficient position.

In short, our love affair with debt – mortgage or commercial debt – has enslaved the seeds of future productivity. When I was in Saudi Arabia speaking with people associated with SABIC – the buyers of GE Plastics – they were shocked to learn that many of GE’s patents on critical plastics technology were not expressly conveyed in SABIC’s purchase. Many of them, post the acquisition, were still held in liens taken by banks with whom GE had lending agreements. Companies including electronics, telecommunications, pharmaceutical, and energy enterprises and others, have vast intellectual property holdings which are tied up in senior liens rendering their use limited to non-existent. In the case of one photographic technology company, their patents are expressly prohibited from use in licensing transactions by the bank that holds their debt. And, during my stroll through the banks of New York, I was amazed that nobody seems to realize that we need to fundamentally change. More of the status quo is NOT the solution and will continue to inflame the sores that we've bandaged poorly of late.

I highly recommend deeper exploration of the debt conundrum expounded by my friend and colleague James Quilligan. James writes and speaks about the centrality of debt and capricious interest in the present economic system failings. I will spend more time on this as well. In the meantime, we need to actively decouple our debt dependency and actively work to create fruitfulness-aligned capital systems. This means that when we’re working on building ecologically viable communities in St. Louis, we need to examine every element of our retrofits. The water systems in buildings need to be financed using the future value of potable water and be paid for using water credits. Sanitation systems need to be financed using off-grid commitments where developers can be compensated for reducing or eliminating their reliance on municipal water and sewer systems and where organic waste can be captured, processed and turned into a fuel source. Rather than seeing waste as a cost, we need to see biomass as energy and compost. We need to realize that the private sector – not the government – must lead the way to link capital to future productivity. In a world where our government has reduced its economic empowerment tools to interest rates and tax incentives, little more than the failed status quo can be possible.

And on an unrelated note: Did anyone in Congress EVER run a business? To grow a business, you must invest. To invest, you must use present profits to plow back into enterprise. So, when stimulus bills get passed that provide tax relief (that only is useful if you are creating profits) does ANYONE realize that this only creates loss carry forward positions which make small businesses desirable tax sinks for larger – less employment friendly companies? I’ll write more on this one too.

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