Saturday, February 13, 2010

The World Needs a New Investment Architecture

The current world-scale recession has spawned a lot of discussions about the need to change the entire world’s financial and investment architecture. Reason: just a few thousand 1st World money managers handle over $150 trillion of the world’s investment funds, and they tend to ‘gamble away’ most of the gargantuan amount in financial markets. The speculation culture has created twenty or so financial crises worldwide since the 1970s, all of them bankrupting thousands of companies, putting millions out of work, and bringing down middle class families to lives of poverty.

One of the solutions forwarded to address such planet-scale tragedy is for world governments and the United Nations to force financial regulation among investment companies. Tactics proposed include new tax impositions on financial movements, high taxes on short-term loans, and prohibitions on certain types of financial trades. Indeed governments and the UN have great potentials to effect international financial reforms, but unfortunately they have very limited ability to drastically restructure the world’s financial and investment architecture. Reason: UN and even World-Bank IMF funds and credit worthiness are in mere hundred-billion dollar levels. On the other hand even in end-1990s, financial instruments controlled by 1st World investment companies were estimated at some $150 trillion. Perhaps 90% of the funds were being used for ‘casino trades’ in stocks, bonds, interest rates, derivatives, commodities and the like. Betting on rise and fall of currencies alone were in the order of $1.5 trillion each day. Then and now, trading is thru computer networks at lightning speed worldwide, which means no state regulators can possibly track all the activities. It is highly improbable that the fund managers who handle the gargantuan amounts and who all too frequently voice an aversion to any form of public control will acquiesce to UN and state efforts at management of world moneys.

Another thing: the betting culture seems to have become a permanent part of money managers’ persona. All billion-dollar wins are popularized; all billion dollar losses are glossed over. Just 1-3% of world funds go to business start-ups due to their long gestation periods and ‘high risk’ reputation. Actually the bettors can hardly be blamed for their habit. There are just too few companies that issue dividends at rates that will give good returns to $150 trillion worth of stocks, bonds and financial instruments. Further, few corporations actually access stock markets for their financing needs. According to 1990s studies, up to 75% of 1st World industrial companies generate new operational funds from internal operations, not from stock markets. Thus there’s a massive glut of capital that somehow must earn something for investors who own them. Investors expect their fund managers to generate profits, but with such low corporate dividend returns, the only way out is to ‘gamble’ away the entrusted funds, using sophisticated computer formulas to raise the favorable odds.

Unfortunately, ‘gambling’ is not all computer logic, and betting activities are in fact controlled more by emotions. Greed, hope, fear, exuberance, dependence on leaders, and herd behavior have created over twenty financial and economic crises worldwide on account of the betting actions of a few thousand 1st World money managers. During the 1998 Southeast Asian crisis, Western fund managers’ herd-like withdrawal of some $100 billion in short-term loans crippled thousands of companies and put millions out of work. Over 50 million middle class Southeast Asians reverted to poverty, all because too few managers controlled too much of the world’s moneys.

So what can we civil societies do? The most logical solution is to raise the number of ‘money controllers’ to the billions, which means all the world’s employees setting up new companies. In the 3rd World, the entrepreneurial employee groups must number by thousands to effect wealth spread-out. Further, every thousand-employee group must engage in a joint venture with a 1st World company to leverage local capital thru foreign cash infusions and equipment loans, thereby creating large corporations instead of the typical micro-scale businesses so prevalent in the 3rd World. The schemes will enable some two billion employees worldwide to gradually draw the 1st World’s trillions in investment funds away from casino plays and into 3rd World and developing country investments (which currently amount to just a few hundred billion dollars). However, such scheme is possible only if companies set up by thousand-employee groups make reasonable profit. Since current bond interest returns are just 2% or less (even below zero in Japan), this is not at all difficult to do.

But who has the persuading powers to move billions of employees to set up corporate groups? Like it or not, we bloggers have to lead. Currently, the only ‘world force’ that has planetary reach and have the ideals and talents to really ‘fix the world’ are blogging nets. We bloggers in our millions have to start the redemption act by setting up model agribusinesses in the 3rd World. The projects must be so profitable that millions of local employees will develop the desire to copy them all. Lacking capital, the employee masses will pressure their politicians to pass a law that funds copycat agribusinesses set up by thousand-employee groups in joint venture with 1st World companies. Joint ventures normally triple local capital thru cash infusions and equipment loans so the law will create thousands of companies and millions of jobs each year, for all eternity. Eventually, all the world’s bottom poor (perhaps numbering three billion) will find good jobs that enable them to afford good education, acquire entrepreneurship loans, and join their brethren in setting up more companies for dividend income, and to acquire fortunes in corporate stock. Translation: 3rd World poverty eventually ended.

Why agribusinesses as bloggers’ catalyst models? First, agribusiness addresses global warming, which is a 1st World worry. Once our models make good profit (which means greening the world can actually yield enormous wealth), 1st World peoples will pressure their governments to pass laws that finance our models’ copycats. The laws should likewise require investment companies to dedicate 5% of their $150 trillion in capital funds towards long-term lending to tropical agribusinesses. Second reason: agribusinesses require mere Elementary level employees at entry ranks, which is exactly what some three billion 3rd World poor are.

Ok, so what agribusinesses should we bloggers set up and where? First project sites should be in the Philippines, where appropriate technologies and skills already exist. Bloggers may choose from among the following priorities: (1) Hundred-hectare multi-crop multi-livestock farms with managed forest; (2) Thousand-hectare forested ranches with high-protein forage trees; (3) Ethanol distilleries with sweet sorghum plantations; (4) Thickly reforested upland mini-dam hydropower chains; (5) Hundred-hectare forest resorts with camouflaged condos for lease and breeding facilities for threatened animal species. (6) Crab, shrimp and fish aquaculture with mangrove reforestation. (7) Mixed commercial species reforestation (softwoods, hardwoods, hemps, fibrous plants) for paper, cardboard and furniture production. (8) Jatropha and oily fruit forests for (bio-diesel) and forest ranches (for short-term income); (9) Manufacture of machinery and equipment to supply all the agribusinesses mentioned.

These projects can potentially deliver above-market dividends to capital investors, except for one thing: who will finance the start-ups? Fund managers certainly won’t do it, because their decisions are based on ‘minimum risk’ and ‘proven profitability,’ despite the investment anemia such decisions bring to all humanity. Our only real hope for going over investment paralysis in the 3rd World is thru civil societies contributing affordable ‘loose change’ capital. Several hundred-thousand bloggers and friends chipping-in $5 or so can build one of the hundred-hectare projects. A million bloggers and friends pitching-in $10 up each can set up an ethanol distillery or forest resort. All such contributors will likely be surprised at the resultant high dividend returns. For instance, ethanol distillation out of sweet sorghum can yield ‘petrochemical rate’ profits at 80% of sales, according to Brazilian experience using sugar cane as feedstock. Sweet sorghum production volume per hectare is thrice that of sugar cane and at higher brix (sweetness) content, so our ‘bloggers’ distilleries’ should profit even more.

Our projects’ high dividend issues will likely create copycats of our models all throughout the tropics. Over a hundred poor nations will lobby their governments and 1st World peoples for agribusiness financing, thereby speeding up the passage of the twin laws previously described. What should follow is what all humanity dreams about: (1) Financing laws with perpetual effect eventually employ all 3rd World poor. (2) Fortunes in stock shares and dividends flow among 3rd World masses, thereby narrowing the scandalous wealth and power gaps that currently create so much misery in poor societies. (3) New forests and farms absorb millions of tons of greenhouse gases every second, thereby putting a brake on global warming. (4) New planet-scale markets rise for 1st World production, thereby ending the current recession and preventing further business downturns. (5) A new grassroots-oriented investment and financial architecture emerges: employee skills in their billions (instead of a few thousand 1st World money managers) determining where and how much to invest out of the planet’s over $150 trillion in capital funds. It will be impossible for thousands of employee minds to 'gamble away' hard-earned money in the stock markets.

All these can lead to what will really fix the world for good: blogging nets forming a world-girdling e-government that enables peoples to manage public resources (thru laws) instead of perpetually allowing a few politicians and money managers to shape the fates of all humanity.

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