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Starts With an Idea

When Martin Shkreli was arrested the internet erupted with a dark sense of joy. Finally, the most hated pharmaceutical and finance guy in America was going to get justice – if not for raising the price of drugs 5,000% but for an unrelated ponzi scam.

This came up during People’s Economics, the discussion groups which represented a kind of “Barataria Live”. Our section on High Finance asserted that the complex and overlarge finance system inherently encourages this kind of bad behavior, which is to say that any regulation or law you might write is irrelevant compared to the kind of damage guys like Shkreli can do before they are caught.

Two interesting thoughts came out of this and subsequent discussions which provide logical ways for us to get past this problem and move to a better future. And there may be more.

Do not feed them. Please.

Do not feed them. Please.

The first consideration has to be how we can avoid the sharks that make up the world of high finance and take care of ourselves. The term I favor is ‘resilience”, or building up a store to last through any bad situation.

After talking about this with a friend who is a financial adviser I am please to tell you that this is exactly what people in their profession do for a living – that is, when they do it well. Every corner of the finance industry has its share of sharks, of course, so finding the right financial adviser who is working to empower you can be tricky. Far too many are in the biz only to sell the financial packages that give them the best “vig” or commission.

No matter what, however, approaching this from an empowerment perspective highlights the real problem with a financial world that is too powerful and too selfish to be useful. What is needed, my friend told me, is far more financial education – something that is woefully lacking in this country to this day.

Which is to say the real problem is that the sharks can be in a position to take advantage of people only because they don’t know better.

The financial pyramid. It's built on a solid foundation.

The financial pyramid. It’s built on a solid foundation.

Real financial planners, I’ve been told, start with the basics of building resilience by emphasizing savings and insurance. The goal is always a secure and comfortable life which start with making sure that the basics are covered. After that, and only after that, comes investing and growth towards a comfortable retirement and maybe more, if you have the scratch for it.

You may have heard all of this before. I have, too. But remarkably few people have and even fewer know how to act on it. Want to reform the financial system? You better change your mind instead, to mis-quote the Beatles. This concept of empowerment and resilience through education is worth talking about a lot more as we make it part of whatever systems we build in the future.

We’ll come back to this.

Another key contribution from the audience came in a discussion of too much credit available today, as we have discussed before. Kathleen, the very talented brewer who is one of the owners of Sidhe Brewing Company, our wonderful host, challenged my statement that it’s up to consumers to just say “no” to credit. “How will we start and grow a small business?” she asked. My lame response was to say that we need to reduce our credit by about half. But I’ve thought of a better one since.

Equity at its best is partnership.

Equity at its best is partnership.

There are many signs that there is plenty of money available – we’re just lacking in desire to loan it out. Low interest rates create what’s called a “liquidity trap” – a situation where the net return from a loan is so low it becomes hard to justify taking on the risk. And there are many signs that money has only gotten cheaper as time goes on.

So why not flip the script and not make loans at all? Rather than debt, equity may be the wave of the future. That means that an investor, or perhaps even a credit union, doesn’t make a loan but instead takes a share of the business – and the profit. It’s about becoming a partner, not a creditor.

It’s hardly a new idea, and in the Muslim world where interest is banned it’s almost mandatory. But it also a new way of thinking more than anything else – a way to create a new financial world one partnership at a time.

Making these two simple ideas a reality may be another thing. But this is why it’s important to keep talking – to keep brainstorming. What will the next economy look like? Let’s start with what it could look like.

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15 thoughts on “Starts With an Idea

  1. Okay – free to delete this cuz I’m gonna go on a rant – first off, the whole world of Credit Financing is not an easy or even navigable entity if you are a simple consumer – can you honestly tell me that you know, exactly, to the digit, how much your credit score will be affected if you choose to put a big purchase on that credit card with 0% apr introductory fee? cuz if you use it and come close to 30%…no wait…70% …no maybe it’s 95% or maybe 90% of utiliztion on one card, you score dips –

    The ‘how we determine your credit score’ is a HUGE Mystery for those affected by it – cuz, don’t ya know their determination of such things and algorithms are State Secrets – Patented, what have you –

    For those true believers who think the SSN# is the foretold Mark of the Beast, from Biblical Revelations, I’ve thought about this for over 10 years and I’m convinced, if the story was actually a true forecast of things to come – it referred to credit score –

    Because – hard to get a job, place to live, checking account, etc., unless your little 666 is a tad higher than stated #

    Number 2 – The Insurance industry has replaced what those in a local community used to ‘take care of” – on so many fronts – if you provided a needed service, valued by the community, then if disaster struck ( fire, for example) the community turned out to give what they could to get you back in business as fast as they could – simply because, it was in their own self interest to do so – they needed what you provide – 🙂

    Third – While I realize we live in a cyber-connected, global world, I also know this – your best bet, always, is to invest in your own local businesses, (through patronage or loans) – Infrastructure that protects your locale from being so dependent upon outside forces that may, for quarterly earnings, decide to quit serving your area, raise your costs and/or lay off many who depend upon that wage, who live in your area –

    So many ‘sought after’ deals that are supposed to ‘help’ a community, receive huge tax breaks, lowered and/or subsidized costs to be ‘lured’ to choosing to set up shop in an area – but your community is more dependent upon them, through jobs and wages, than they are on you – for all they need is another area that has a better tax break, etc., and they will close one facility and open another faster than you can say, “Jimminy Christmas!”

    And so, if you choose to let this little rant ‘go live’ all I have to say is, Yes, we live in a world that is connected through business – but our best bet for resilience is the same as it was 4000 years ago – do everything you can to ensure your ‘necessities’ are produced/available locally – if your locale can’t come up with all that is needed, well, perhaps innovate or change what you depend upon – –

    Export and trade your ‘luxuries’ – those things your community has the raw resources, talent or time to provide to others – that if you get ticked off, you don’t depend upon your survival to keep doing business with folk you don’t agree on ‘future’ with –

    Whew! Sorry if I went over the top – BUT – Our Current form of Capitalism is a fine tuned game that must be played perfectly in order to avoid disaster –

    The Financial Services market has been trying to make up the 3% growth needed, every year, by Capitalism, just so it remains stable, in lieu of decreasing gains in the tech industry –

    When folks can make a fortune for betting AGAINST a company way more than they can gain by INVESTING IN THEIR LOCAL INFRASTRUCTURE – something, is seriously wrong –

    But, I’m not an economist – I’ve tried for 15 years to understand and see what ‘those who know’ are trying to tell me regarding how I’m wrong and I’m still convinced, for the good of humanity, some intents and motivations have GOT to change – and – I choose to invest in my neighbors, my food pantry etc., because, being able to hold out and take a stand against those who love to make money off those trapped – well –

    Priceless – 🙂

    • I hear ya. But given that we know that financial education is so far behind there is a good place to start. Perhaps education consumers will first demand systems that are easier to understand – right now, I get the feeling that they are so used to the idea that it’s all a mystery that they don’t even really try. If we can just get over that we’ll have something.

      • YES! Thank you for your compassion when I get wrapped around the axel! Education and knowledge of what has happened before is necessary for folks to band together and make choices that positively affect future economics! 🙂 In a day of complex systems, that have so many layers, in face of those who are either working long hours to just survive or who figure only those who are ‘stupid’ are the only ones caught when the Musical Chairs tune stops – well, it’s hard for most folks to focus upon such things until they ‘have to’ – and by then, might be too late – 🙂 I did post some links – and will say, one of my favorite examples of such things is 2 quotes from the PBS special, “Crash of 1929” – (paraphrased)

        “The financial memory of a society is about 1 generation – 20 years – and so, those who worked the system to gain, need only wait 20 years or so, to do so, again.”

        and

        “Groucho Marx and his brothers were filming their movie making fun of those stupid enough to be caught in the great Florida swamp land sale, BUT, while he was on break from set, he was calling his broker to pour more money into his ‘on margin’ stock options, just to try to not lose money – let alone, make anything –

        Sigh – for me, no matter what the country, economy or anything else does, I don’t worry about starving – cuz I choose to support those who have to take some hard hits before they are unable/unwilling to trade some food for my manual labor – that,, to me, is true local resilence – and it’s not limited to rural areas! There is a whole Urban Homesteading and Urban Gardening movement still going strong! 🙂

        AND, did you know, in the 1980s, when the economy of Brazil collapsed, due to poor management by government/inflation – took a while, but eventually, those who set up their local currency/bartering system, finally ‘rolled’ up to local, state, national as accepted form of ‘payment’ just cuz, was more dependable than the ‘sanctioned’ currencies – these are things that give me hope, yet, I still try to share the info – so changes may be made, in a Proactive way, by individuals, rather than a Reactive way in face of disaster and confusion – I may be dense on the economic scene – but I’ve watched the end results and various industries since 2006 – we are, I’m convinced, headed for another melt down, unless we learn some history and discipline, now – 🙂

  2. Nothing is more critical! Basic financial education is unbelievably lacking. We have to start from kindergarten level and work from there. You’d be surprised how few people even have a monthly budget let alone a financial plan in place. For all the talk about policy and Washington should do this or that people need to get their own house in order first!

    • Absolutely. Perhaps that’s the message to start with. But while we can educate the next generation easily we have to think about how to reach the adult population Better consumers would have a lot more power and put an end to a lot of bad behavior quickly, IMHO.

  3. Taking part ownership in a business is what happens when you buy shares in a company. Perhaps if share holders had more say in the board room, things would be different.Perhaps some sound regulation that would prevent monopolies that can corner the market would be a move forward.
    You are right that education about handling of money is sorely lacking. We have so many ways of paying for things – tap, plastic, direct payment etc. One hardly knows where the money is going or if there is enough to cover the purchase. People seem to have a blind trust that mistakes won’t be made in their bank accounts. Banks do make mistakes, I know that for a fact after having several million deposited to my account. It was corrected very fast but what if the money was going out of my account? Do people check their bank balances every month? Do they keep every receipts for every coffee they tap a card for? I doubt it.
    Leslie

  4. Just talking about this kind of stuff is important because if you look at the media it’s all ISIS and other BS that has no bearing on our lives. This is real & very important. Why we don’t talk about it more is beyond me.

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