The BIGGER Short

O.K.  I admit it.  I was putting off watching The Big Short for a bunch of reasons.  The first was simple.  I was talking about the House of Cards financial risk before the “discovery” of the mortgage crisis portrayed in the film.  In fact, when I met with the Richmond Federal Reserve in 1999, I pointed out that I had better visibility on intangible asset liens in commercial lending than banks had on pooled mortgages.  The President of the Richmond Fed at the time agreed with me!  While the protagonists in The Big Short were running around in 2005 and 2006 placing their bets against the market collapse, I was trying to wake people up to what was coming.  To the fact that President George W. Bush’s “patriotic” plea for Americans to over-consume and use their home equity as an ATM in the wake of September 11, 2001 was a horrible idea that blended short-term consumer debt dynamics with long-term real estate debt guaranteeing structural collapse.  To the fact that rating agencies admitted to not having any mechanism to measure the veracity of over 80% of the credit assets of the economy.  To the fact that the U.S. economy was built on plagiarized and illegitimate intellectual property.  To the fact that rating agencies were churning out ratings to sell products to investors and derelict in their fiduciary duty to measure risk.  And, when the dust settled, the public lost well over $5 trillion. 

The second reason was a bit more complicated.  There’s an even bigger certainty on the horizon and we’re either hypnotized or near-euthanized so much that we’re pretending not to see it.  Setting aside the nearly $19 trillion in national debt in the U.S. alone, there’s about $11 trillion in illiquid government associated financial products that are coming due over the next few years – social security, school loans, packaged mortgages, and depository insurance – products that are owned by retirees, ordinary citizens, and institutions and that will be subject to actual or manipulated default.  According to the Social Security Administration’s own numbers, the safety net for aging and disabled Americans vanishes around 2035 and that is assuming that benefits shrink by over 12% in 2017 and premiums rise by the same amount or more!  Where the GFC of 2007-2008 was a shock felt round the world, the current U.S. economic chasm is close to six times greater than the GFC.  This is NOT my estimate.  These are publicly available statistics.  And we’re pretending that the only news worth discussing is the theater between a xenophobic cartoon and a moral chameleon. 

"I believe that banking institutions are more dangerous to our liberties than standing armies.  If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson, 1802

See, my problem with The Big Short has nothing to do with the superb writing, acting, directing and production.  It is elegant and brilliant.  My problem is that we’ve become so accustomed to the stories of being lied to and robbed that we have seen it as entertainment rather than tyranny.  And while I’ve just come from Papua New Guinea where I’m repeatedly warned of government corruption, I look at an American economy that willfully lies to the public, willfully and negligently defrauds its citizens and it is this America that deigns to judge the corruption lubricated by U.S. and Australian dollars and Chinese yuan!  We pretend that trillions of dollars of losses and bailouts are just the price of doing business but we neglect the fact that each of those losses comes at the price of life, liberty and the pursuit of happiness among the rank and file.  Slow bleedings, to be sure, but the body is already anemic and a financial plague is just around the corner. 

Together with the remarkable producer and director of the internationally acclaimed Future Dreaming, I have commenced work on a new film that seeks to preempt the “who could have seen it coming?” refrains that reverberated around the empty shell of what used to be Bear Stearns and Lehman Brothers at the end of the past decade.  In the film I discuss the architecture of an economic system that is built on explicit ignorance to the all-in-consequence of our industrial and consumer behaviors and the fact that such systems have only been able to be propped up by intermittent, horribly violent military contrivances resulting in the deaths of millions.  Who could have seen this coming?  Well, once again, Thomas Jefferson stated that “…it is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.” 

Watching The Big Short reminded me that we’ve got an even more vexing challenge.  In the film, there is an effort to acknowledge that the celebrations surrounding winning the bet against the American economy were occasionally tempered with the sober knowledge that economic hardship would put people out of work, would expand homelessness and poverty, would lead some to suicide, and would have generational effects that will be slow in their evolution.  The fiduciary “obligation” that the fund managers had to maximize investor returns led the anonymous wealthy to curse the prognostication of fraud before the collapse and then dismissively cash in on their spoils with no regard for the lives that they’d cost after the fact.  At no point does it dawn on someone that a >400% profit may mean that the public was as robbed by the opportunist short investor as they were by the Federal Reserve and Treasury Ponzi scheme.  And this leads me to my own paradox.

I know that the U.S. market is well past the point of no return with respect to indebtedness and illiquid pension liabilities.  I know that hundreds of public companies – many of whom have been off-shoring assets for years – have massive liabilities for securities and financial misrepresentations.  My guess is that off-shoring has as much to do with known fraud as it does “tax efficiency”.  I know that several countries have adopted U.S. market models only to run the risk of greater instability.  Australia, for example, is drinking the Kool-Aid around venture capital and making illiquid markets part of its pension scheme without realizing that the U.S. VC model required highly nuanced tax loss harvesting, robust middle market private equity, and price collusion – none of which are suitably in place for the average Australian investor.  The ECB is pretending that the quantitative easing (read Ponzi scheme) that has failed in the U.S. will somehow have a better outcome in fractious Europe.  The oil rich Middle East is now realizing that its gilded age may be losing some of its glint with oil depressed and unlikely to rise soon.  And Pandora’s box has had some lid slippage with the Petrobras corruption allegations in Brazil.  In other words, the current system has run its course and the Bretton Woods experiment has concluded. 

And I’m not alone.  In his March 9, 2016 note entitled “Japanese Policy Failure Means Disaster for Us All”, John Mauldin details what he and others see in the near future with the “major economic disruption in Japan.”  Citing work by Mohamed El-Erian, he details the reflexive and unchartered courses being implemented by central banks which have been using classical economic theory in a market that has not fully understood the implications of demographic shifts, productivity challenges, quantitative international trading techniques and countless other anomalies.  El-Erian concludes that the, “implications go well beyond economics and finance, extending also to national politics, regional and global negotiations, and geopolitics.”  He continues, “Unless we understand the nature of the disruptive forces, including tipping points and T-junctions, we will likely fall short in our reaction functions.  And the more that happens, the greater the likelihood we could lose control of an orderly economic, financial, and political destiny – both for our generation and future ones.”  As was the case in the turns of the 19^th and 20^th century, these transitions are not without their opportunistic winners.  The few wealthy individuals who, in moments of crisis, can offer bailouts to governments (often to pay for wartime indebtedness) are the ones who set the tone for centuries of predatory enslavement of the general population.  Only this time, the denomination of “wealth” might be a bit tricky as the mere accumulation of debt-based currencies may in fact render the “wealth” quite ephemeral and fleeting.  While synthetic derivatives and swaps, agency debt, “risk-free” bonds, and the like may be proliferating once again like fungal spores in a rainforest, the arbiter of the impending dislocation will likely be those who have elected to secure control of resources and means of production.  A world awash in financial instruments and hedges will likely become a barren landscape when those who have been chasing amoral yield for its own sake are exposed.

So, do I take the path – like the traders in The Big Short – and bet against the fact that you’ll never read this post or understand it if you do?  Or do I work to tell a better story – one that is built on Integral Accountability where returns may not come in currencies (fiat, debt, or crypto)?  The answer is that I’m choosing humanity.  I’m investing my time, my creativity, and my efforts on getting into the trenches with those who want to be part of a human experiment that learns from the past and explicitly forgoes the predation on ignorance that was celebrated in the film.  I may wind up with a lot less money.  I may wind up with less gadgets and gizmos.  And in the end, I may underestimate the long arm of fraud and corruption that will continue to fool a public through cunning illusions.  Over the next several months, together with a great team of luminaries, we’re launching Future Dreaming: The Awakening which will be a series of gatherings around the world in which we’ll build new models of enterprise.  I’m honored to stand with amazing colleagues who have committed to go LONG humanity!  Let’s tell that story!

Eye-to-Eye

On Saturday morning, I had the distinct honor of watching the sunrise over the cannon battery at the Middle Head Gunners point in Mosman overlooking the Sydney Harbor.  Nearly a year since our collaboration that resulted in the critically acclaimed Future Dreaming, Dan Freene, Kaya Finlayson and I traded the chilly rocks of Antarctica for the balmy breezes of a Sydney morning to commence our next film.  What a reunion!

A few hours later, we were joined by a luminous group of individuals who are working to expand understanding around how persons living with a variety of mobility and physical challenges can bring their exceptional talents and perspectives into productive engagement with enterprises and social interactions.  Sitting in the shade of a massive tree inhabited by a juvenile kookaburra who wanted to join in our conversation, we began filming the stories of four and then five amazing Australians who had maneuvered across the battery in power chairs and with the aid of a cane.  We discussed a variety of themes ranging from the importance of eye-to-eye communication, to care-giving and travel, to perceptions of condescension from those who are not similarly impacted by mobility challenges.  Why is it that something like a power wheel chair stands in the way of a smile, a simple “hello”, or an invitation to join in a social function?  How is it that a simple technology that is designed to facilitate integration and access can actually heighten a sense of separation and isolation?

With the cameras rolling, the boom mike bouncing from one and then the other, we shared a rich exchange about life, living with purpose, and gratitude.  And then came the moment that defined the day.  I asked each person to define what wealth means to them. 

“Spending the day with friends.”

“Being able to travel to be with family and friends.”

“Greeting someone on the street with a smile and having them smile back.”

As we dove deeper into the meaning of wealth, I found it quite interesting that none of the individuals mentioned a number.  None of them mentioned money.  None of them mentioned physical artifacts like houses, cars, boats, planes, or stuff.  Each of them saw wealth as what I’ve used to define the principle of Well-Being:  the capacity to engage in the ecosystem at liberty without diminishing the options for other to do the same.

According to those who wish to classify and categorize, these individuals were “persons with disability” or “disabled” and they are a “cost to society”.  But during our conversation, the technology that was the apparent barrier to humanity melted in everyone’s experience and was replaced by an overwhelming sense of connection and deep appreciation.  More profound, however, was the recognition that each of these individuals, when pressed on their life purpose, all had a common impulse to care for others.  Several wanted to be psychologists or counsellors.  One already worked for a crisis intervention hotline having himself experienced a near-death experience.  What became immediately evident was the fact that each one of these people was, in fact, the direct outcome of the sum of their experiences.  Knowing the pain of condescension and rejection, they had heightened empathy.  Having experienced care necessitated by physical limitations, their definition of value was inextricably linked to connection to others. 

Our gathering was not about finding a nostalgic “good story” to accommodate the “unfair” or “difficult” narratives to which we’ve become accustomed.  Our gathering was to listen to the wisdom that was seeking to burst forth from those whose voice is so frequently unheard.  And in our interaction, what became evident is that a better humanity is not some sort of elusive utopian ideal.  When we elect to enter our daily activities with gratitude; when we conscript the matter and energy that is around us and integrate our wisdom into its engagement; when we provision ourselves and maximally utilize the social and physical technologies that allow us to manifest our purpose; then the outcome is one that naturally evokes connection, compassion, and collaboration.

My life is richer thanks to Phillip, Shane, Kate, Shanais, Marc, and Monique.  And so are the lives of all of us if we meet them eye-to-eye and listen to the wisdom that comes from a life considerately lived.

Blood at the Graves

In morality befitting the modern Islamic State extremists who have famously destroyed countless antiquities, St. Augustine encouraged Christians to destroy all symbols of ‘paganism’ with the exhortation “that all superstition of pagans and heathens should be annihilated is what God wants, God commands, God proclaims.”  Pope Gregory I was credited with the recommendation to “tear down temples and shrines from their foundations.”  And last week, a property developer in Albemarle County, less than one mile from my home, likely violated 25 U.S. Code 3001-3013 by bull-dozing and crushing giant quartz mounds which were reportedly the final resting place for First Peoples in what is now called Virginia.  In a few short months, half million dollar homes will sit atop the desecrated remains of those who were inhabitants of very different woodlands in very different times. 

I took scores of people to the mounds over the past 10 years.  Heads of State, scholars, seekers, friends, lovers all took solace in the sanctuary of the giant oak, maple and sycamore trees that were the cathedral befitting those great souls who danced in the light breezes.  Late in the night, the starlight piercing the frigid winter would glisten off the quartz as if to provide a homing beacon for the souls who were physically present and whose energy lingered.  Peace pipes, prayers, chants and cries all marked this precious spot on earth.  The timeless nature of all souls seemed, in a moment, to pause, intermingle and then move on as if to say that WE are all ONE – just inhabiting individual experiences of sense and place which are not ours but ours to share. 

The mounds are now gone.  As I left the spot, I was perplexed by how mindless and thoughtless one can be when operating a giant Caterpillar earth mover.  Did the hollow sound of crushing crystal boulders reverberate in any part of consciousness or was the stereo in the cab on loud enough to deaden the consciousness that has been seared by a few pieces of silver?  Which led me to the deeper question: can one desecrate or defile in the physical realm if one is devoid of a sense of the sacred?  Can one reverence or ignore what exists beyond the edge of the capacity to comprehend? 

As my thorn-torn hands offered blood to the ground that had been ripped open, I reflected on how many places, social institutions, consensus beliefs and other human actions are defiled and desecrated in the minds of one or many only to be seen as land befitting development by another.  I know that in my life, I’ve held many things sacred and have stood aghast at the way in which what I valued most evoked indifference or neglect in others.  What I thought were some of my most precious attributes were deemed to be utilitarian expectations by others.  “Of course Dave does…,” this or that was the justification for many moments of deferred or neglected gratitude for true effort.  And I am not alone.  I know many healers, carers, stewards, and the like who have become so much an accepted utility as to make them devoid of human interactions in the common realm.  Because they don’t articulate their “need”, the logic goes, they must not “need” gratitude, love, care, compassion, companionship, etc.  The more one evidences the capacity to “give” or offer service, the less others anticipate the genuine longings of the offeror. 

One of the buried chiefs reportedly visited a dear friend of mine.  He was buried under one of the mounds that had blood red quartz on it and was covered in beautiful moss.  He asked the friend to tell me to make sure that I protect the water here because one day that would be important.  I remember that night and that dream.  The night was filled with lightning and the ponds swelled to overflowing in the morning.  On other occasions, other friends told me of visits from the spirits that were represented in the graves.  All of them told me of instructions for me to protect the environment and care for others.  I don’t need an explanation for this phenomenon other than to say, on this day when their quartz markers have been desecrated and crushed, I will remember.  And I will still walk in the woods listening for the quiet prayers that seek for kindness, stewardship, and love.  You are not forgotten.  While your physical markers have been erased, your spirit lives in the memories of people from many lands and many nations who once stood in your land and drank from its goodness!

x

Losing Your Head Over Love

One thousand seven hundred and forty-seven years ago today, a man was beaten with clubs and then beheaded under the order of Marcus Aurelius Valerius Claudius Augustus.  Known by his buddies as Claude and known by his deific title (yes, he was a god according to the Roman Senate) as Divus Claudius Gothicus, Claudius II was an epic military leader bent on restoring greatness to the Roman empire as it was coming apart at the seams.  And, in the proud tradition of the apocryphal “divine” lineage, Claudius II is allegedly an ancestor to Constantine, the emperor who, a short 34 years after the martyrdom of St. Valentine issued the Edict of Milan in which the Roman Empire officially professed Christianity.  When you’re sniffing your roses and eating your chocolates, ponder the paradox that you’re celebrating a clubbing and beheading of a proselytizing man who had the audacity to challenge the deification of military emperors.

The National Retail Federation estimates that, in the U.S., consumers will spend $19.7 billion this year on Valentine’s Day blasting through the previous all-time record of $18.6 billion spent in 2013.  And, following the Pavlovian impulse of mercantile behavior, our collective caring impulse will enrich candy makers, greeting card publishers, restaurants and venues, florists, and jewelers.  These, in order of gross consumer percentages, will be the winners of what society has deemed to be “love” in modern times.  When one contemplates our iconography of “love” one can readily see a social commentary on the state of humanity that could benefit from a little socioeconomic historical review.

While most of the historical record of the Bishop of Terni, Narnia and Amelia was destroyed in the flames of book-burning impulses throughout the tumultuous demise of the Roman Empire, tradition states that St. Valentine was under house arrest ordered by Judge Asterius.  During his impassioned conversations with the judge, the humble bishop reportedly laid his hands on the eyes of the judge’s blind daughter and miraculously restored her sight as proof of the power of Jesus.  This miracle reportedly led to the conversion of the 44 members of the judge’s household to Christianity and the emancipation of Christian prisoners in the region.  Emboldened by the conversion and – more importantly – the judge’s decision to smash all of his idols deemed a pagan affront to Christianity, the Bishop went on to Rome where he conducted Christian marriages in violation of Roman law.  His actions were deemed treasonous by Claudius II and, after a failed attempt to convert the emperor, he was sentenced to death and executed.  Claudius II wanted people to have faith in him and, failing that, he wanted to kill his opponents.  St. Valentine wanted people to have faith in his belief.  A few decades after his death, his prevailing view justified the killing of those who didn’t believe.  In short, St. Valentine, Claudius II, and Constantine were co-conspirators in one of the most ruthless genocides of all time – all pivoting around the perversion of a very simple principle: love!

Anyone astutely watching politics in the U.S. right now can see the theater at the end of an empire.  We’re bombarded with the subterfuge and lies of a former First Lady and Secretary of State who, together with the House and Senate Intelligence Committees, know that they’re all co-conspirators on actions in North Africa and other parts of the world which were corrupt and antithetical to principles of transparent democracy; the brash xenophobia of a bloated icon of the worst of horded capital; the pandering proselytizing populists; and all other manner of superficiality and rather than allow this theater to indict our sense of callous neglect for the Unity of all peoples across the world, we turn to chocolates, greeting cards and faux tokens of “love” while we do nothing to evidence that love. 

Ironic, isn’t it, that the two biggest commercial successes of the Valentine’s Day economics are two industries that are rife with inhumanity.  The extractive industries that provide the glitter of jewelry have, over the centuries, involved warfare, genocide, torture, organized crime, yet we continue to return each year to them as icons of love.  The cocoa industry – 70% of which is supplied from Cote D’Ivoire and Ghana – is so filled with labor abuses that a 2004 effort to expose the human rights violations in Cote D’Ivoire resulted in the state-implicated kidnapping, torture and murder of a journalist seeking to report on the conditions of workers in the cocoa farms of Western Africa.  To insure that buyers can cheaply show their love for their sweethearts, the average cocoa farmer earns less than $2 per day.  Sixty percent of Americans will spend 80 times that amount in this one day to show “love”.

This post is not an anti-love screed.  This is not a plea to shun celebrations.  It is, in the tradition of Future Dreaming, a call for us to consider the all-in-consequence of our chosen actions.  In fact, I would like us to consider what WOULD be a celebration befitting the namesake of this holiday.  While the Catholic Church demoted St. Valentine in 1969 and while I’m not, nor have I ever been, a fan of making martyrs out of those who try to argue for “belief” rather than simply living evidence of a better way of living, I would like to consider what a day of celebrating love would actually look like. 

So what I’m doing to celebrate St. Valentine’s Day is simple.  I’m corresponding with those I love and letting them know how much they mean to me.  I’m redoubling my commitment to my work with people like Lawrence Daveona and Theresa Arek who represent some of my closest connections to the extractive and the cocoa production industries and, rather than buying gifts of fleeting value, I’m allocating my time and treasure to see them succeed in their efforts to bring humanity to industries that have historically abused humans to the point of death.  And I am, for the first time in 30 years, choosing to celebrate Valentine’s Day with a light heart because I have now seen that love can actually emanate not from a cognitive agreement in my head but can be an effusive expression of my interconnectedness with ALL.  Here’s to all you lovers out there!  Celebrate unbounded, relentless, integrated love!

x

Let Them Die and Decrease the Surplus Population

"At this festive season of the year, Mr Scrooge, ... it is more than usually desirable that we should make some slight provision for the Poor and destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir."
"Are there no prisons?"
"Plenty of prisons..."
"And the Union workhouses." demanded Scrooge. "Are they still in operation?"
"Both very busy, sir..."
"Those who are badly off must go there."
"Many can't go there; and many would rather die."
"If they would rather die," said Scrooge, "they had better do it, and decrease the surplus population."

This chilling recommendation by Ebenezer Scrooge in Charles Dickens A Christmas Carol is spoken of the “poor” in his encounter with the gentlemen from the charitable society.  While it sounds like the ravings of a pure sociopath in the 21^st century, we miss the depth of commentary that would have attended audiences of the cognoscenti of the late 18^th and early 19^th century.  Then, the proper noun “surplus population” would have been known to mean those unemployed and under-employed who serve no purpose to the rent-based labor model of capitalism.  They were, in the minds of 18^th century economists, better off dead than being a drain on mercantile profits.  This is because they added nothing in terms of marginal rents to be exploited for labor advantage and they did were non-responsive to price manipulations.  They were not just the “unaccounted for” – they were useless.  Ironically, the urban and rural poor of the 18^th century were less valuable than slaves as they couldn’t even be commodified into chattel trade!

Goldman Sachs Group Inc. issued a recent note calling into question the efficacy of capitalism.  “We are always wary of guiding for mean reversion.  But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism,” stated Goldman’s Sumana Manohar and her colleagues.  For the new players not familiar with the statistical principle of “mean reversion”, it’s most easily understood to refer to phenomenon that take on cyclical oscillations where period of high prices, for example, ultimately re-equilibrate with competition or increased supply thereby approaching commodity marginal value.  But in their analysis, Goldman accidentally indicts the already failed modern capitalist model by citing, as reasons for high profit margins, “strong commodity prices” (read – exploitation of impoverished and disenfranchised labor and resource regions where willful neglect of quality of life and land lead to extractive bonanzas), “emerging market cost arbitrage” (read – exploitation of poorly compensated labor), and other variables.  In short, the 18^th century mandate that modern capitalism be predicated on imperialistic land and inhabitant exploitation is actually getting worse and incumbent businesses are the ones who, through bribery, corruption, incumbency paralysis, and patronage hold the only advantage to pressure “emerging market” countries’ leadership into allowing reckless endangerment of their land and citizens.  Goldman would be ideally suited to know about this given the extensive role they play in financing what Joseph Schumpeter predicted as the end of capitalism.  Schumpeter recognized that, drunk on power, influence derived from the control of capital and surplus profits, companies would take on corporatism where their own existence would be more important than the markets they once served.  “Entrepreneurship” and “innovation” in his forecast, would merely serve to create acquisition efficiencies for corporations and would not challenge incumbent products or services. 

Over the past several years, I’ve noticed an alarming trend in what is heralded as “innovation” – once the fulcrum required to tip the profit margin lever in the capitalist model.  In “Silicon” this and “Entrepreneurship” that, there’s been an increasing push towards incremental improvements to incumbent platforms.  We don’t come up with a new way to communicate, we come up with an app that renders an incumbent device more incumbent.  We don’t come up with a new enterprise model, we crowd-fund and crowd-source our way to market tests to offer shrewd companies insights into where the market is susceptible to “new”.  In homage to Frank Robinson, angel investors and venture capitalists fawn all over “minimum viable product” efforts while incumbency-threatening transformation is suffocated.  For Adam Smith’s corrupt system to work, it required capitalists who would take gambles on transformation where price or supply dislocation was possible. During the last 15 years, this impulse has been extinguished and corporatism has fully replaced capitalism in every quarter.

And embedded in the virus that was unleashed when mercantilism ceded its hold to capitalism was the toxin of necessary neglect.  By assiduously avoiding contact with the land and people which were the “efficiencies” derived from colonial and militant oppression and extraction, the general public could comfortably clothe, feed and amuse themselves without ever seeing the cost of contaminated water, inhumane treatment of workers, decimation of culture and community, and extinction of resources, flora and fauna.  In other words, for the capitalist system to work, moral opacity was necessary.  Not surprisingly, the observational retrospective piece by Goldman presumes that corporate profits are essentially valuable.  But this two and a half century assumption has not been sufficiently examined. 

Under capitalist dogma, profit is the arbitrage between the “cost” of production and distribution and the “price” that a consumer is willing to pay.  It is the seduction premium that is foisted upon a public willing to acquiesce to manipulated supply, frail egoic identification, or perceived need.  As the consumer is seduced into their portion of the calculus, so too is the enterprise willing to bankrupt its own sense of accountability or responsibility by intermediating those attributes of business most odious.  Celebrate the environmentally friendly electric vehicle so long as you don’t pay any attention to the lithium miners’ plight.  Carbon obsess your way into wind turbines so long as you don’t see the rainforests of Papua New Guinea that are clear cut for the toxic balsa timber.  Celebrate – with Goldman – the collapse of commodity prices while paying no heed to the environmental and social cost of extractive industries becoming more callous in their pursuit of metals and energy in more remote and unverifiable locations.  The less you measure the extinction costs which are “free” in the capitalist model – that matter, energy and effort that can be used and abused to extinguishment without any model for replenishment or reuse – the more “profit” seems to manifest.  Profit is the inverse economic function to all-in-consequence value recognition.  This is NOT an anti-enterprise statement.  Genuine innovation, genuine quality, genuine purpose-filled products and experiences can justify a PREMIUM which, unlike “profit” is the value acknowledgement willingly bestowed on enterprises who manifest value in line with socially desired outcomes.  And premium can exist on both sides of the antiquated business model.  As a supplier, I may offer goods or services to partners at an advantaged price because I prefer my affiliation with them.  As the distributor of goods and services, my transparency and honorable actions may engender greater reward and recognition than my thoughtless, mercenary alternative. 

And lest one misunderstand this commentary to solely apply to business and industry, allow me to bridge the following important social observation.  Many deeply personal and intimate relationships suffer from the same negligent accountability capitalist curse.  Profit in friendship, relationship, and intimacy can be often a seductive trap where one party seeks to benefit at the expense of the unacknowledged well-being of another.  The resulting imbalance can, like imperialistic business, lead to subtle and overt exploitation, resentment and ultimate extinction of relationships.  Unseen and unaccounted contributions by one party can render gifts of generosity, kindness and service which in their offering are freely and joyfully given and manipulate them into entitlement and expectation.  What once was generative and offered in love becomes resented and provided in dutiful drudgery.

Unlike Goldman Sachs’ recent note, I would argue that the capitalist ideal likely never got a chance to breathe.  The experiment largely born in the industrial age in the U.S., the U.K. and Germany was immediately co-opted by militarism and state-sanctioned privatization of Federal Treasuries (not surprisingly necessitated in each instance by sovereign debt resulting from expeditionary military exercises).  Apologists for capitalism fail to evidence its capacity to function without tyrannical extraction from colonial theft of lands and peoples thought to be too remote to matter.  Since the early 1800s, they’ve assiduously avoided accounting for extinction and waste of materials, community, culture, and energy.  And they’ve entirely neglected the damning evidence that the vast majority of genuine, transformational innovation has been stifled or extinguished by incumbencies that control capital, means of production and distribution, and governmental patronage.  In other words, irrational profit margins are not the harbinger of capitalism’s failure – they’re merely the forensic evidence of rigor mortis in the unborn fetus of imperial hegemonic delusions. 

When we account for it “all”, we’ll be able to discuss the persistent, generative, infinitely orthogonal cyclical efficiency of systems which are devoid of extinction, oppression and callous neglect for each actor in the ecosystem.  We will celebrate with premiums those actors and enterprises that model the most salutatory of ethical values rather than reward with indifference those who maximize seduction while preserving moral opacity and negligence. 

x

Out of Sight is Not Out of Mind

After years of manipulation, slight-of-hand, and misinformation, RioTinto (ASX: RIO) concluded a $4.4 billion project financing package with Export Development Canada, the European Bank for Reconstruction and Development, the International Finance Corporation, the Export-Import Bank of the United States, the Export Finance and Insurance Corporation of Australia, BNP Paribas, ANZ, ING, SocGen, SumitomoMitsui, Standard Chartered Bank, Natixis, HSBC, The Bank of Tokyo-Mitsubishi UFJ, KfW IPEX-Bank, and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden for the reinvigoration of the Oyu Tolgoi underground copper mine in Mongolia.  In other words, if you have pension or mutual fund investments (many of which are investors in RIO) or if you live in most of the world, you’re now part of the long and sad legacy and future of the Khan’s Turquoise Hill.  Congratulations.  This deal was signed just before Christmas and most of us were too busy with our last minute electronic gadget shopping to pick up on this little gem. 

According to RIO CEO Jean-Sebastien Jacques, “This kind of mining development partnership model sets the industry benchmark for future schemes and underscores Rio Tinto’s commitment to responsible and prudent growth. Long-term copper fundamentals remain strong and Oyu Tolgoi as a tier one asset will be a globally important source of supply as the market moves back into structural deficit over the next few years.”

After spending about $6.4 billion so far and in another few years with between $4-6 billion more invested, RIO will be able to extract Mongolia’s mineral wealth through an elaborate and sinister financing scheme that may enrich them and their investors while leaving Mongolia with precious little more than a hole in the ground and sovereign debt.  When RIO talks about a “mining development partnership”, this is code for leveraging a nascent democratic government and an ill-informed population for the purposes of extracting financial – not mineral – returns.  If it’s a “responsible and prudent” plan to supply the world with copper that they want, why is it that this same RIO, after years of environmental and social degradation in Panguna, Bougainville, Papua New Guinea is trying to pawn off its majority ownership of Bougainville Copper Limited to the already grossly over-leveraged PNG national government (or any other buyer) that can distance it from its violent past and present environmental negligence liabilities?  After the mine-induced civil war that cost an estimated 20,000 lives, this long-term Pacific island copper asset to support the global copper market is unattractive, in part, because the citizens of the Autonomous Region of Bougainville “democratically” approved a Mining Act (heavily influenced by RIO and Australian advisors) that did not give the mining license away.  This same asset was given to Bougainville Copper Limited by the Australian government and the United Nations and is 54% owned by RIO today.  The copper’s easier to access geologically but for that nasty little colonial detail of corporate-induced genocide.

RIO, like many other companies in many other industries, continues to deploy a business model that identifies a confirmed asset reserve, creates an elaborate corporate structure that puts itself in the driver’s seat with respect to securing control of financing and revenue associated with the speculative phase of mining (in many cases “offering” debt financing to a government so that it can participate in the illiquid equity of an operating shell corporation in country) and then makes money on the spread between its own cost of capital and the rate charged to the country for “participation” in their own asset.  Long before the first concentrate is shipped away from the mine, RIO has already rung up another enormous “asset” in the indebtedness of the unsuspecting country.  By the way, this is part of the reason why its “prudent” investment needs to pay the Multilateral Investment Guarantee Agency (MIGA) political risk insurance.  After all, the financiers are cunning enough to know that opaque operating agreements, illiquid shell corporation “participation” in mining development, and environmental abuse sometimes result in citizens getting seriously upset and toppling regimes that gave away the wealth of a land and its people. 

If the world needs copper, why is it that an underground development project in Mongolia is “prudent” while and open-pit proven reserve is not feasible?  Copper concentrate would flow much more rapidly from Panguna than from Turquoise Hill for the same amount of money!  Why did so many commercial banks put up $2.34 billion for the BNP Paribas funded debt facility and why did the European and American “development” banks put up so much public money when minerals (like so many other commodities) are trading so poorly in the global market?  And why, in their December 15, 2015 press release announcing the financing, did RIO make the point of stating that “Oyu Tolgoi has a workforce that is 95% Mongolian and Oyu Tolgoi LLC has paid $1.3 billion in taxes, fees and other payments to the Government of Mongolia to date,” but somehow didn’t choose to state how much the Government of Mongolia has been charged in project-related interest for their equity in the project?  In their 2009 financing agreement, the government of Mongolia owed the mining company about 40% of its GDP for the right to participate in its own country’s asset!  And while, since our retention in 2010 to inform the government and the citizens of Mongolia of their horrific abusive financing issues, there have been several structural alterations in the Government of Mongolia’s participation in the project, the underlying financial model still favors RIO and the global markets at the expense of the citizens of Mongolia.

Years ago I was asked by Sir Julius Chan, Governor of New Ireland, Papua New Guinea, if an ethical mining company could exist in countries like PNG and Mongolia.  I said then, as I would now, that it’s theoretically possible.  But in the nearly decade long experience I’ve had working across the globe in economically and politically challenged countries, my conviction is fading on the probability of such a company actually emerging.  And while the earth geologically distributed the Periodic Table variously, the economic model we have for conductive metals seems to be more likely to produce violence, war and environmental ruin than the opulence of a Saudi Arabia, Norway, or Abu Dhabi.  The opiate of electrical power has cauterized our collective consciousness so that we are numb to the bleeding of humanity and the persistent desecration of the earth.  And in sterile press release after sterile press release, we never stop to ask why “development” marches on hand-in-hand with MIGA-insured political risk.  If the system were working ethically, this would not be necessary!

I know that these posts, like the dozens before them, are not Inverted Alchemy favorites.  I know that they’re not pick-me-up, feel-good, themes to discuss.  But in the big scheme of things, I think that these are some of my most important offerings to the world.  For it is a generous world that offered me the invitation to see what most never do and with that blessing comes the accountability for the stories of our fellow humans who bear the cost for our unconsidered consumption.  

FDR, Stalin and an Icarian Crash

Economists are scratching their heads over the dawning of 2016 about as vigorously as a kindergarten class with an outbreak of lice.  2015 went off like a damp squib with official estimates for economic growth at a globally imperceptible 1.9 percent or so.  The wizards at Goldman Sachs have revised their estimates for growth down nearly 20% from just a year ago – not very heartening when you consider the numerator in this equation.  Commodity dependent economies ranging from Australia to Venezuela are looking at the most bleak economic forecasts in recent times courtesy of the lower demand for oil, copper and other extractive industry resources.  Profits are shrinking in most major sectors; costs of capital are at their subsidized nadirs, and the ability for the great capitalist hegemonic illusion to remain propped up is about as resolute as a drunken reveler the morning after Mardi Gras. 

Seventy-one years since the Bretton Woods grand imperial utopian experiment and it looks like the unconsidered assumptions of this Icarian dream have finally been melted by the sun.  Next stop – a watery grave marked by melted wax and feathers.  Allow me to broaden the metaphor.

Leading up to Bretton Woods, the United States and its allies were fighting a motivated, technologically unified foe led by Germany and a ruthlessly ideologically emboldened Japan.  In the ideological morass oozing from the Great War a few decades earlier, the world was in the labyrinth of faux socialism that would make the most astute minotaur pine for a sudden death.  Franklin D Roosevelt and his vice-president Harry Truman were busily placating a largely impoverished populace with grand projects that would forever prove the beneficence of big government.  Marx and Engels had been sufficiently long dead and forgotten so as to make the Soviet Union a festering ground for the metastasis of communism – a lovely extreme but for the autocratic tyranny of those who determine what is in the best interest for all “others” while they themselves live in cloistered opulence.  Germany knew that the solution rested in the elimination of the “others” while Japan, with its centuries of bigotry and classism, knew that they were more German exclusionists than Great Experiment capitalists or communists.  So, in or around 1945, the world decided to set itself on a collision course with 2017. 

Now before you go off trying to decipher the significance of 72 years (which may be a wonderful diversion for some of you), let me simply offer the following comment.  The life expectancy of humans on Earth right now is 71 years.  It is merely informative to realize that the social and political experiments that were constructed to institutionalize capitalist socialism (pensions, social securities, and the like) are likely not going to survive the generation for which they were designed.  But allow me to return to the Icarus metaphor. 

When We The People were advised that governments were going to care for what communities once saw as their purview, we were giddy and strapped on the wings fashioned in the shop of a master craftsman (Daedalus in our story).  Being the designer of said wings our paternalistic overlords knew that wings of wax are best not used in proximity to the sun.  But unlike Daedalus, not only did our patrons not advise the risks of solar approximation, they encouraged it.  Using the cunning wax of central bank manipulation and the seemingly innocent feathers of industrialized consumption, they created the thermals that were euphemistically called “economic growth”.  And away their charges (literally, in each sense of the word) flew.  Daedalus had King Minos – both patron and prison warden – to escape.  FDR’s great experiment had the petro-dollar as both patron and prison warden.  Both end in heartbreak when the children fly too close to the sun. 

The melting wax in our metaphor is the growing illiquidity of the great promises that were made a generation ago.  In the past few years, we’ve seen Portugal, Italy, Greece, Syria, Spain, Venezuela, Japan and Brazil struggle with the fact that social promises unkept lead to social and political upheaval.  To date, these countries have had incremental albeit inconsequential impact on the global stage courtesy of Central Bank manipulation.  However, as the U.S. social security illiquidity comes due in 2017 (first hitting the elderly and the indigent) and as other economies follow suit in close proximity, the reduction in “growth” will rapidly accelerate into a paroxysm far more destabilizing than 2008.  Not to worry, we could have Donald Trump as President so we should be just fine… ummm…. maybe I should consider moving now! 

Now these impending challenges are just that.  Challenges.  We created them and we can resolve them.  But it takes a healthy dose of optical physics and courage to get a view of the solutions. 

First: parallax.  Parallax is the optical illusion in which objects closer seem to be larger and more mobile than objects seen at a distance.  Bretton Woods was a great example of the error in reality created by confusing parallax for objective reality.  Just because the “other” was further away didn’t mean that we could ignore “them”.  And now that “they” – countries like India, China, Brazil, and much of the African nations – have become increasingly economically engaged – “they” are closer meaning that their size and movement appears more consequential.  China, for example, always mattered.  But now that they appear to be larger and move more nimbly, they’re suddenly deemed important.  “They” were always important.  And when “they” was a euphemism for “cheap” and “enslavable” “we” didn’t care.  But know that “they” are “we”, we have to care. 

Second: aperture.  Aperture is the process of selective narrowing and collimating of a reflected field of view to achieve depth of view and focus.  When one limits one’s perspective, it’s easy to find monolithic solutions.  When one opens perspective to include a wider range of inputs, pluralistic reality becomes much more evident and requires more actors to be fully informed and engaged.

To weather the coming economic storm and achieve more of a dive than a cataclysmic fall into the watery abyss, we need to bring ourselves into closer proximity to each other and we need to expand our informed engagement!  That requires a commitment to learn, stretch our awareness, and lessen our dependence on paternalistic systems that were built not to care for us but to disintermediate our care for our neighbor.  As we enter 2016, make a commitment to share your wealth, compassion, and industry with someone you didn’t include in your circle in 2015.  And, with any luck, we’ll find a more reliable way to fly.

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