Sunday, July 12, 2015

Sorry Is Not Enough


Together with millions of others around the world, I was impressed by the words of Pope Francis when he was visiting Bolivia this past week.  “Many grave sins were committed against the native people of America in the name of God,” he said.  “I humbly ask forgiveness, not only for the offense of the church herself, but also for crimes committed against the native peoples during the so-call conquest of America.”  There can be no question that the Pope’s words were genuine and that the contrition they represent is a breath of fresh air in a world suffocating under the tyranny of colonial models that persist to this day.  However, the Pope’s impulse to apologize is a measure not only of his but also his advisers’ abject failure to end the futile catechism of contrition.  The gold and silver that adorn his churches came at the following cost to the very descendants to whom he apologized.

“The owners of the mines are such tyrants, with no fear of God or Justice… they hang the noble cacique (Inca) by his feet, and seat another one on a llama and whip him.  Others are bound stark naked to the whipping post…” Felipe Guaman Poma de Ayala, 1610

“Every peso coin minted in Potosi has cost the lives of 10 Indians who have died in the depths of the mines.” Fray Antonio de la Calancha, 1638

The genocide of the Andean peoples was not an oversight of the church or the random act of a few psychopaths.  No, the same church offering an apology had a perverse incentive for the genocide.  While the going rate for masses was 4 pesos, the mass for a “high burial” in the Andean mine boom towns was 40 pesos (a discount to 14 pesos was the rate for slaves!).  The church – yes, the one that offered an apology – serves the Sacrament with vessels cast and hammered from the very metal dripping with its complicit blood.  The only blood that’s in the Host is the blood of those very laborers who were forced into slavery and violently killed so the Spanish and Vatican elite could satiate their lust for gold and silver.  The genocide was so complete among the Andean peoples that the god-fearing tyrants had to resort to slaves from Africa to populate the mines because they had run out of Indians!

The Pope’s church currently has capital balances estimated at approximately $7.3 billion in The Institute for the Works of Religion (or the IOR, the name for the Vatican’s reporting bank).  Vatican City has the highest nominal per capita GDP at about $365,796.  Bolivia’s per capita GDP is about $3,000!  The church’s revenue is estimated to be between $800 million and a billion per year.  The IOR reportedly provides “valuable service that can be offered by the Institute to assist the Holy Father in his mission as universal pastor and also aid those institutions and individuals who collaborate with him in his ministry.”  With financial assets giving it over $100 billion of economic power, the IOR under the guidance of Cardinal Santos Abril Y Castello and Ernst von Freyberg have done precious little to evidence their capacity to provide such valuable services that their Communique of 2014 state.

And the same Pope who apologizes for grievous sins of 5 centuries past fails to connect the dots to the current actions being taken by his church in the present day.  This apologizing pontiff takes no account for the coastal plantations across the globe stolen by the church for the economic benefit of its priests which to this day are pumping revenue to foreign shareholders from oil palm, coconut, coffee, cocoa, and countless other crops.  He pays no attention to the priest-turned President John Momis in Bougainville who uses another mine stolen under the same crossed sanction to enrich his own political aspirations at the expense of the local communities who were nearly exterminated in the late 1980s in a bloody genocide.  Gilded alters and golden crosses apparently blind the faithful to their present complicity while giving reflection to those moments in history where the unconsidered acts of “others” are worthy of contemplative contrition.  

Well Pope Francis, the world is waiting for you to actually take a lesson from your namesake and be the transformation that your Encyclicals pronounce. 

Where’s your commission on stolen land repatriation?

Where’s your IOR when it could be offering sukuks and other Shariah compliant investment products to show that the church can no longer hold from the peoples of the Middle East that which it stole a millennium ago?

Where’s your advisory council on charity elimination – the ultimate aspiration of the teachings attributed to Christ?  After all, “The poor will always be with you,” was not a mandate – it was Christ stating the inevitability of callous neglect of humans that even he couldn’t imagine coming to an end. 

And where’s the acceptance of St. Francis’ own teachings about being paid in coin?  For a church that still encourages monetary charity over any other form, one would think that reading St. Francis’ own writings on money – so powerful that even Pope Innocent III was moved to bow and kiss his bare feet – wouldn’t be too far a reach for a Pope taking that name.

Sorry won’t do.  Doing something about inverting the alchemy of religion – the alchemy that turned human blood into shiny gold goblets and crosses – would be truly Christian.   Try that on for size.


Sunday, July 5, 2015

"Risk Free" Advisors

Over the past ten years, I've had intimate exposure to the world of Financial Advisors.  They have ranged from exceptionally good to criminally negligent with the distribution skewed towards the latter.  And the reason for this skew is quite simple - incentives!  While the CFA Institute - based here in Charlottesville Virginia - makes it exceedingly clear in their Standard I-B that integrity must be a core value of their certified professionals, they go to great lengths to discuss the sliding scale of corruption endemic within the profession.  After laying out their apology for the massive number of conflicts of interest, graft, corruption and related problems rampant within the Financial Services industry, they explicitly state that:

"No specific checklist of right and wrong is written into this Standard, but the mere appearance of conflict is a real issue in today's environment and one must be sensitive to perception."

In other words, after clearly identifying the problems associated with "temptation" (their term) and seduction, they go on to say that a professional should be "sensitive to perception."  But here's a problem.  What if the person relying on the advice is not sensitive to the things they should be sensitive to to even form a perception?  What if the client has insufficient knowledge of a product, prospective return, or risk to formulate an opinion?

In my experience from the Private Banks of UBS and Citibank to the private wealth managers that dot premium office parks in cities with adequate golf infrastructure across the country, I can count on one hand the number of CFAs I've met who can really explain what an ISDA determination is, what role ERISA played in credit rating inflation, and asset class correlation and clash risk.  In preparing for becoming an investment advisor and neglecting the actual experience of sovereign, municipal and corporate defaults over the past two decades (including unprecedented intervention in interest rate manipulations), CFAs are still taught to use concepts like "Real Risk-Free Rates", "Expected Inflation", and Liquidity and Default-Risk Premiums.  None of these have been useful in managing the non-recovery recovery in the markets since 2008 yet they are still used.  I've yet to meet a single Financial Advisor who can tell me what the compound risk is when a large cap equity manages its profitability by tax evasion (the official term is revenue shifting and base erosion but who cares?), borrows to pay dividends, and has massive exposure to multiple currency risks.  These real world variables don't show up in the hypothetical case examples in the CFA exam and they don't show up in conversations with clients about where their money is being invested.  And this is outright Negligence.  When you combine this negligence with graft and corruption, you get the distribution of the population I referenced above. 

According to Morningstar 377 out of 1,884 U.S. bond funds hold Puerto Rican bonds - you know the ones that are going bust!.  Does your Financial Advisor include this in his or her "risk-free" portfolio?  These are the "conservative" or "safe" assets that can be wiped out entirely because reality wasn't factored into the perception of "risk-free".

Which brings me to the real point of this post.  The citizens of Greece - for those of you historian buffs out there, the Hellenic bastion which gave rise to the current form of democracy - just voted to reject the EU imposition of austerity standards.  And, try as I might, I was trying to figure out what "austerity" actually meant.  Like my criticism above and having read the ridiculous Greek referendum question, I wondered what the heck the proposals from the  European Commission, the European Central Bank and the International Monetary Fund in the Eurogroup of 25.06.2015 were. So, I read them.  And tragically, since Greek citizens in the majority like Financial Advisor clients in the majority don't read what they're really being asked to consider, they make decisions based on perception rather than on fact.  A "No" vote meant that Greeks reject the principal of "social and financial fairness across society", aligning public finances to "support growth and jobs", and "reform pensions" so that they are actually managed to invest in ways that actually provide a return rather than the system that is run by financial advisors who have not been able to invest with positive performance in the last 6 years! 

And here's the ironic convergence.  Greek bonds have defaulted.  Fire anyone who uses the word "risk-free"!  Your risk free bond portfolio just goose egged and your advisor never told you that when they were hawking their "safe" product.  And to actually bring back some semblance of a chance that the Greek economy could get back on a positive GDP track with rational structural reforms designed to root out incompetence and corruption, the citizens of Greece were told by the media that they were voting for or against "austerity".  Far from it.  They were being asked to consider advice that would root out tax evasion, address public sector corruption, and hold pension investment managers accountable.

So who came up with the word "Austerity" for this vote?  The same people who came up with the nonsensical "Occupy".  When We The People are gullible enough to fall for a catch phrase rather than reading the substance behind the hype we wind up exposing our collective jugulars to the voracious predators who are more than happy to exsanguinate us.  They may be corrupt politicians.  They may be "financial advisors".  They may be priests, activists, or any other predator that hides behind sanctioned purveyance of fear and risk.  And there's the point.  If you are told to do something based on fear or risk of loss, the likelihood is high that you're in the presence of a predator.  You will not flourish.  Your fortunes will not rise.  You will simply be another in the long line of prey from which life is extracted until there is no more and then they'll move on.

In the past few months, I've been honored to work with some amazing people who are manifesting a new investment paradigm with us.  In the architecting of our newest fund, the newly energized partners with whom I'm working were asked, "What are the core principals you want to build into the fund's mandate?"  Their answers were evidence that the alternative is within our reach.

"Our fund should require total transparency of the positions in which it invests."
"Our fund should allocate a portion of its earnings to create scholarships for financial literacy for others."
"Our fund should only accept money from those who commit to their own financial education."

Is there a better way?  Absolutely.  And we're doing it.