Category: Money and Markets

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One View

Patrul Rinpoche, a great Tibetan buddhist teacher, wrote a book called Words of My Perfect Teacher. In it, he cites a famous Tibetan master as saying, “That is why my view is higher than the sky, but my attention to my actions and their effects is finer than flour.”

I think I might call this “vastness without a loss of focus.” I’d suggest it’s not far from what we routinely invite in Open Space meetings. We ask participants to consider their biggest, broadest, most important business issues and work out all the nitty gritty details that might be required to address them. We ask them to take on the long-term success of their group, project or whole organization even as they make tiny and personal decisions about what to do to maximize their learning and contribution… now and now and now again.

As another great master once noted… it’s not that Big Mind is better than small mind. It’s the going back and forth that strengthens us. And so I think it is with how minds move in Open Space, and also between Open Space meetings and “normal” or “everyday” ways of working. It’s important to have the capacity to Open Space, sometimes, in whatever moments it’s needed.

Heartening, too, to see this sort of view manifesting in a new book about American politics and economics. Recently I read a summary of American Gridlock, by H. Woody Brock, an intellectual powerhouse and the product of a brilliant economic lineage. In it, he suggests win-win solutions to cut through what he calls the “Dialogue of the Deaf” in Washington. He suggests that the entitlements, especially healthcare, dilemma we face in this country can be solved by increasing access to healthcare — but also (and only!) by simultaneously increasing the supply of services even faster, in ways that cause total spending on them to decline.

He makes similar “this AND that” proposals — all reasoned from what he calls First Principles, not idealogical positions or data cherry-picked or otherwise massaged to fit some narrow interest or bias — to resolve our debt, tax and employment situation, strengthen our negotiating position with China, and rethink redistribution of income in ways that respect relative contribution of our luckiest stars and the relative needs of the unluckiest poor.

Again, it’s the going back and forth between these apparent opposites or mutual exclusives that will strengthen us.

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Occupy and Commons

i’ve been thinking about the notion of “commons” and it’s popped up in a number of conversations lately. here’s a quick explanation lifted from “Commons Not Capitalism,” a day 20 report posted about a month ago at OccupyPhillyMedia:

A commons is a simple idea really, and something that humans have done throughout our existence, even before we had languages, even before we made up the word “commons” in multiples languages. A commons is something held by people in common, to be used, shared, and enjoyed. It can be a physical space, like a field for grazing or planting, or a library or park; it can be knowledge, like the ideas within our libraries or free and open-source software; it can be those things that sustain all of life, like the air and water; it can be some of the things that make us most human, such as dignity, love, caring, art, and our imagination.

i’d add to this culture, beliefs, agreements, like the common agreement we have in this country that it’s okay to protest and speak out, if done peacefully, or as is catching some press today, that America is not a battlefield.

in Open Space, the circle, bulletin board and “marketplace” in which participants move about, with the right and responsibility to maximize thier own learning and contributing, are all commons. and while i appreciate the focus on commons, setting it against capitalism might miss the point. capital is perhaps another sort of commons, or at least the parts that move and accumulate because of various commons existe and are accessible to all. “markets,” so often held up as dangerous are also commons.

the video above does a good job of telling this story in another way. it’s not as simple as any us against them, or this against that.

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The Myth of “Too Big to Fail”

John Hussman exploding the myth that even our biggest banks are too big to (let) fail, in his weekly letter today. This gets past basic employment numbers to the core of the Occupy gatherings should be about. This is the as yet mostly unstated battle, between bondholders and budget cuts.

Look at Bank of America’s balance sheet, for example. Reported assets are $2.261 trillion. Against that, liabilities to depositors amount to less than half that, at $1.038 trillion. Add in $239 billion for securities that they are obligated to repurchase, $129 billion in trading account and derivative liabilities, and $155 billion for accrued expenses. Now you’ve covered counterparties, as well as vendors or others who might have invoices outstanding. Even then, and you’re still only up to $1.561 trillion of the liabilities. The remaining 31% of Bank of America’s liabilities represent obligations to its own bondholders and equity of its own shareholders. This is well beyond what is sufficient to buffer any loss that the company might take on its assets, while still leaving customers and counterparties completely whole. To say that Bank of America can’t be allowed to “fail” is really simply to say that Bank of America’s bondholders can’t be allowed to experience a loss.

What “failure” really means is that bondholders lose money, and the operating part of the institution is taken into receivership, sold for the difference between assets and non-bondholder liabilities, and recapitalized under different ownership. Often the only thing that customers and depositors notice is that there is a new logo on top of their statements.

Now take a look at Citigroup’s balance sheet. Reported assets are $1.956 trillion. Against that, liabilities to depositors again amount to less than half of that, at $866 billion. Add in $204 billion in repurchase obligations, $209 billion in trading and brokerage liabilities, and $73 billion in other liabilities, and you’re still only up to $1.352 trillion. The remaining 31% of Citigroup’s liabilities, again, represent obligations to its own bondholders and equity of its own shareholders. Again, to say that Citigroup can’t be allowed to “fail” is really simply to say that Bank of Citigroup’s bondholders can’t be allowed to experience a loss.

You can do the same calculations for nearly every major financial institution in the world. The amount of bondholders and equity coverage varies somewhat, but in virtually every case, bondholder and shareholder capital of these institutions are more than sufficient to absorb any losses without the need for public funds, provided that the objective of government policy is to protect the people and the long-term viability of the economy, rather than defending the existing owners, bondholders, and managements of these institutions. Make no mistake – that choice is what the oncoming crisis is going to be about (See An Imminent Downturn – Whom Will Our Leaders Defend? ).

But who are those bondholders? They include corporate investors, pension funds, endowments, mutual funds and ordinary investors. And all of them willingly take a risk in order to reach for return. As do stock market investors. And if the risk doesn’t work out, none of them should look to the government to fire teachers, lay off social workers, underfund the National Institutes of Health, cut Medicaid, and print money (because until the Fed sells its Treasury and GSE holdings, it has indeed printed money), just because they take their risk in a different type of security.

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From Growth to Efficiency?

What comes after “growth?” Jeremy Grantham suggests it’s “limited resources” or what I’d translate as “resource efficiency.” He suggests that the shift we’re making now might be as big as the Industrial Revolution. In a world where so many observers are talking so much about what is ending and collapsing, his is a refreshing view of what is emerging, of what comes next. via this NYTimes Magazine article.

As big chunks of the world as we know it are downgraded and dissolving, this seems a useful view to organize what comes next — in personal and organizational life. In terms of the Inviting Organization story, efficiency seems to invite and require a return to purpose. Resource efficiency would seem to be the process of not doing, using, spending anything that isn’t directly supporting Purpose, in every situation and context. So it would seem that in all contexts, purpose will be more important than ever. No longer good enough to go farther or faster in the same old direction, now we’ll have to go most efficiently, which implies that we also have to know something about the right direction. Hmmm…

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Market Perspective

The S&P 500 rose or fell more than 5% on 17 trading days in 2008. You’d go back another 50 years to count 17 more. So you might say we’ve had 50 years of volatility in just one year.

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Somethin’ Happenin’ Here

When the Bulls were winning NBA championships, you could step into any elevator in the city and feel the vibe, the anticipation, the density or pressure of everybody paying attention, focusing. Perfect strangers striking up conversations, everybody assuming that everybody else was thinking about last night’s win or this evening’s contest. I think it’s happening again, but it’s not about the Cubs and the World Series (at least not yet).

I go to the hardware store today and the old thai guy who runs the place totals up my bill for some boiler parts. Then, pretty much out of the blue, he asks me, “So, what do you think about this $700 billion bailout?” Earlier this week, I went in to get a blood test and the arm sticker has his computer tuned to CNN political reports. I walk into a meeting the other day and about the first thing out of my client’s mouth is basically, “Can you believe this Palin mess?” And I’m hearing this election, the financial mess, and even conspiracy theories raised in conversations in decidedly (at least until now) non-political offices. There’s somethin’ happenin’ here, I think.

Now add to that, the President gets on the TV (finally)… but says basically, “Hey, this is really bad.” I’ve never heard of such a thing. The president’s supposed to get on and tell us it’s all gonna be okay. But then, the funny thing is, nobody seems to trust the government anymore, so when the Sec’y of the Treasury says people should be very scared, nobody seems to panic. I see a lot of people paying attention. Watching and waiting. Nervous, maybe, but not panicked. Like we’re all watching each other more than the TV, to know if everything is okay.

Yes, we’re on this big financial edge, but I think we might be on the edge of something more. And more positive. No way to know. What it is ain’t exactly clear, or so the song goes. But suffice it to say that the world is SO very upside down right now that the Cubs could finish the regular season with the best record in MLB, and if they win the world series, there is just no telling what kind of crazy strange world we could be in.

For what it’s worth, here’s the best bailout plan I’ve seen.

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Uh-Oh

The Federal Reserve’s rescue has failed. So says Ambrose Evans-Pritchard, International Business Editor, at Telegraph.co.uk:

The verdict is in. The Fed’s emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed.

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The Substance of Revolution

Recent calls for “substance”, or more commonly criticisms of its absence, in Barack Obama’s speeches remind me of so many questions I’ve heard over the years about “How does open space technology lead to action?”

When 100 or 200 people create a working agenda of 50 or 70 cricital issues, take personal responsibility for leading those conversations, and pledge to bring back the notes to share with everybody — in about an hour — that IS action. We just have to know where to look.

As to the history of the Revolution, my ideas may be peculiar, perhaps singular. What do we mean by the Revolution? The War? That was no part of the Revolution. It was only an Effect and Consequence of it. The Revolution was in the minds of the People . . .
—John Adams

Many Obama supporters might simply be thinking differently about politics, partisanship, and policy. It’s a different set of priorities, that includes the process, and the personal experience of the process. Words like cult and messiah are popping up, I think, because it looks so mysterious, as many are voting on the basis of criteria that simply don’t exist for some others. Jeff Aitken has some interesting things about Obama and self-organization and another post that includes this:

Catherine Austin Fitts warns us that we have a stark choice: we support the centralizers or the decentralizers. We support a centralizing economic system (the “tapeworm” economy, which has sucked 10 trillion dollars out of communities into globalized concentrations of wealth); or forge a decentralizing, community economics when we pull our investments (and those of our community’s institutions, like pension funds) out of the tapeworm and put them to work in our communities. The government is not coming to our rescue when “peak everything” leaves us to our own relationships with farmers and shoemakers.

The Adams quote comes from Fitts, and I’ve added her Coming Clean process, toward a financially intimate world, to the Practices Roll in the sidebar. If self-organization and Open Space are less centralized, more intimate, then is it fair to say that Obama is running a more intimate campaign and proposing a more politically intimate government? Not just “for” the people, but more “of” and “by” than ever before?

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Surreality Bites?

Susan Walker quoted historian John Brooks last week in The Daily Reckoning:

[It] came with a kind of surrealistic slowness … so gradually that, on the one hand, it was possible to live through a good part of it without realizing that it was happening, and, on the other hand, it was possible to believe one had experienced and survived it when in fact it had no more than just begun.

He was writing about how it felt to live during the Great Depression, 1929-1933. She was writing about US housing markets these days. I wonder if it might not apply more broadly than that.

At what point does not knowing become worse that any one of the possible outcomes? Isn’t that the moment when the next big things really get to begin? The moment when we finally decide? And what if some billions would decide all at once?

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Mutuality in Markets and Meetings

Bloomberg’s Caroline Baum sums it up the recent market movements pretty well yesterday:

Copper up, stocks down, bonds down. No, wait, it’s copper down, stocks down, bonds up. Can someone please help me get a handle on these inter-market relationships?

As I think about movements and relationships, in markets and in open space meetings …and organizations …and communities… I notice that I can indeed understand, or at least explain to myself, why things are happening. I can know, too, what is is happening now, and even what is happening next. The challenge is knowing what to do — because these two kinds of knowing, what is happening and why it’s happening — seem to happen in two different sides of brain or, perhaps more accurately still, in brain and in heart. Brain can’t really calculate what comes next. And heart can’t explain it.

What Julie Henderson calls “mutuality” is a practice in letting other(s) be as real to us as we are to ourselves. Chris Corrigan and I have been teaching Open Space and Inviting Leadership as the practice of being mutually aware of self and group, or self and organization, letting body be source of information about how I am as well as how “we” are. Today I’m remembering that this same sort of mutual awareness scales down, to where I can know what is really happening and why it is happening, simultaneously. When I can do this, I make better decisions, wise and kind, in markets and meetings.

What’s that you say, “Kind decisions? In the currency markets?” Ah yes, even in something as apparently solid, objective, measurable as trading, there is room for kindness. So easy to second guess oneself, destroy confidence, grow fear, lose focus and money and more. And, of course, it’s always dangerous to argue with a market.

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Can the Fed Save Us?

Watching global market turbulence this last week, looking for clues. This bit from John Hussman, Why the Fed is Irrelevant, rings even truer today that when he wrote it in 2001…

…if you look at the statistical evidence, the relationship between monetary growth and inflation is very weak. Instead, our research indicates that inflation is primarily the result of growth in unproductive forms of government spending (basically defense spending, entitlements and other expenditures that fail to stimulate the supply of goods). The evidence both from the U.S. and other countries clearly demonstrates this relationship.

As Milton Friedman has noted, the burden of government is not measured by how much it taxes, but by how much it spends . The impact is particularly severe when growth in entitlements is high and growth in productivity is low. This is why inflation exploded after the late 60’s, and why it came down after the early 1980’s. This is why the Germans suffered hyperinflation after World War I when its government decided to keep paying workers who had gone on strike.

Always and everywhere, rapid inflation is produced by excessive creation of government liabilities without a corresponding increase in the amount of goods produced by the economy. The Fed doesn’t control this. It doesn’t even matter much what form the liabilities take. If the Germans had decided to issue bonds to striking workers instead of money, bond prices would have been driven to ridiculously low levels, driving interest rates to extremely high levels, creating an unwillingness to hold non-interest bearing money, resulting in a rapid deterioration in the value of money, and hyperinflation just the same.

Uh-oh.

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National Debt and Local Exchange

Here are two things I read today about money. First the bad news via Bill Bonner’s Daily Reckoning newsletter…

The U.S. Treasury Department also comes up with a number for how much Americans actually owe, thanks to federal deficits. Are you sitting down? It’s a chunky number: $750,000 per household. That’s what you get when you take the total commitments of the feds – $49 trillion -and divide them by the number of families.

The Financial Times goes on to note that it took 204 years for the U.S. government to accumulate its first $1 trillion in debt. Now, it adds that much every 18 months. George W. Bush has added more debt than any president who ever lived. In fact, he’s added more debt than all the presidents who ever lived…combined.

…and then the good news, via Penny at BALLE-BC, an excellent (even nine years later!) YES! magazine interview with Bernard Lietaer, usually credited as the architect of the Euro…

…in France, there are now 300 local exchange networks, called Grain de Sel, literally “Grain of Salt.” These systems – which arose exactly when and where the unemployment levels reached about 12 percent – facilitate exchanges of everything from rent to organic produce, but they do something else as well. Every fortnight in the Ariege, in southwestern France, there is a big party. People come to trade not only cheeses, fruits, and cakes as in the normal market days, but also hours of plumbing, haircuts, sailing or English lessons. Only local currencies accepted!

I wonder if we have any such currency communities springing up around Chicago… and what gifts, skills and goods I might offer in such exchanges. What good will fancy clothes and advanced degrees be in these local marketplaces?

UPDATE: Lietaer in Ode Magazine, as well.

UPDATE: more on money beyond peak oil

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The Other Gold

My last post posited the possibility of investing in people and relationships as the new gold. In the West, I think we tend to devote ourselves to amassing personal stocks of money and assets, emphasizing our piles of toys, house, stocks, and gold over the care and feeding of our webs and flows of connections, our people, the other gold.

Since I wrote that post, I’ve discovered the story of Martin Macy, in the San Francisco Chronicle. Here’s a guy who worked 41 years as the mail delivery guy in a bigger and bigger law office. Over the years, he became renown for his devotion to his co-workers, the firm, and to kindness as practice, the kind of guy who reports to work at dawn and brings doughnuts for the lawyers pulling all-nighters. When he was canned for efficiency reasons, some of his old friends and colleagues got together and are well on their way to creating an annuity that will support him for the rest of his life.

Invest wisely!

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In Gold We Trust?

I’ve been reading the mania about gold. In the last couple years, gold stocks, funds and the real stuff have rocketed upward. Gold now trades at a 25-year high. Now what?

When some of us were musing about a new rush for gold in the year or so after 9/11, I wondered why anyone would buy it. Can’t eat it and can’t burn it for fuel. I saw the relatively self-sufficient farmers I knew as really having things figured out. They knew where food came from. And heat. With those two things come health and hearth, family, neighbors, and the rest of what sustains life. Buy farmland, and learn to use it. Now that’s real security, or so it seemed to me then.

Now, in one of these gold newsletters, I catch this as justification for the meteoric rise of metals prices: “…people still need something to trust.” Isn’t that interesting? So I understand all the economics of these markets. I understand why the dollar will decline, why Saudis and Chinese and others will buy gold instead of some other fiat currency. I understand the history of gold as money. But how do we know that this isn’t just the next big inflationary mania, except that the supply of gold grows slower than the supply of paper money, dot.com stock options, and two-bedroom condos. Can we ever find real security?

No matter if the dollar crashes, gold is still worth something. It’s more real than other fiat (faith-based) currencies. But there’s just not enough of it to go back to the gold standard is there? And no way to go back further to gold coins in the marketplace. How will I use gold to buy bread?

Looking ahead then, it seems gold can only be another mania. And then, what to trust? Perhaps if we finally discredit the ultimate stock of wealth, we can get on with focusing more clearly on the flows of wealth. What will each of us do in the next several years, for the people right here in our own neighborhoods, that will secure our retirements in human-scale and personal ways?

Might these bubbles in tech stocks, bigger emptier houses, dollars, gold, pension plans and the rest of wealth accumulation make some sort of opening to trust in the flow of energy, rather than the stocks? Might we rediscover how to move in local community markets, and trade that in for what we have learned to grab in global financial markets?

One of the things feeding global gold prices are exchange traded funds, which allow small investors to buy gold bullion in lots of 100 shares, like we already buy stocks. So what would a similar investment vehicle look like at the community level? What would make precious, but hard-to-deliver, stuff like healthcare and education, more easy to invest in? How might we structure a mania in community assets and investment?

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Fair Taxation

It’s that time of year again…

…certain whaling captains may be eligible to deduct expenses for paid in 2005 for Native Alaskan subsistence bowhead whale hunting activities.

…if you drove to and from volunteer work, you can take the actual cost of oil and gas or 14 cents a mile. But… related to Hurricane Katrina after August 24, 2005, this amount is increased to 29 cents a mile (34 cents a mile after August 31, 2005).

And time for FairTax, too…

The FairTax is a non-partisan proposal (HR 25/S 1493) that abolishes all federal income taxes, including personal, estate, gift, capital gains, alternative minimum, corporate, Social Security, other payroll, and self-employment taxes, and replaces them all with one simple, visible, federal retail sales tax. The FairTax dramatically changes the basis for taxation by eliminating the root of the problem: Taxing income. The FairTax taxes us only on what we choose to spend, not on what we earn. It does not raise any more or less revenue; it is designed to be revenue neutral. The FairTax is a fair, efficient, and intelligent solution to the frustration and inequity of our current tax system.

FairTax FAQs are well worth checking out. Then call your representatives!

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Money and Illusions

Funny that I should run all of this together in one post, but such is life these days.

First, I’ve been meaning to blog something for the last couple of days. I’ve got plenty of things to post, but the one idea that keeps screaming at me is that there’s nothing like a heavy dose of wedding planning to screw up what used to be a perfectly good blogging practice.

Then this showed up in today’s Daily Reckoning email…

…imagine a typical householder. We saw him just the other day, courtesy of a Fed study. He has a house, but he has almost no money. He has no pension, no stocks, no bonds, and no savings. Nada. Zilch. His real hourly earnings are either flat for the last several years, or actually going down, depending on whose numbers you believe. He can barely pay his mortgage. He cannot seem to pay off his credit cards. When the week’s bills are paid, he has less money left over to spend as he pleases – according to Elizabeth Warren’s calculations – than he did during the Carter administration.

Now imagine that his house suddenly doubles in value. Is he really better off? What can he do but borrow against the inflated value of the house. When he borrows, the air holes grow smaller. He’ll have an even harder time paying his bills. He can barely breathe as it is. Being a fatter cat makes him feel good about himself, but it doesn’t really help.

Somehow it’s all about Money and Illusions, except the wedding is actually shaping up pretty nicely. Think Appreciative Prairie-style Catholic Buddhist Open Space Hippie Solstice Drum Circle and if that doesn’t really mess you up, you might just have some sense of what is actually goin’ down this June.

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Financial Reality Check

We’re supposed to be in a booming economy, but an awful lot of folks seem to be getting left behind…

The median family has about $3,800 in the bank, do not have a retirement account, has a home worth $160,000 with a mortgage of $95,000. No mutual funds, stocks or bonds populate their investment portfolios. They make (jointly) $43,000 and struggle to pay off their $2,200 in credit card debt. That means 50% of Americans are in worse shape than the above. And… 67% of the people aged 50-64 saved less than $10,000 last year. Over 40% saved less than $1,000. –Federal Reserve Board’s Survey of Consumer Finances, via John Mauldin

And left in the dark — by government stats on inflation, GDP and debt biased upward over the last 40 years. If the CPI was still calculated the way it was when Jimmy Carter took office, Social Security payments would be 70% higher that they are now.

Add spiraling healthcare costs and you get a really ugly retirement picture. Clearly something’s gotta give. Maybe a lot of us are going to have to give a lot more attention to health, personal resourcefulness, income — and community approaches to basic human needs.

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