Risk Rap

Rapping About a World at Risk

Sustainable Economics

We have put our good mother through a lot over the past few million years. Ever since we walked out of the great rift the biospheres dominant species has really left a mark. I know that mark is but a tiny spec on the archaeological record of the earth which spans a few billion years but our impact is unmistakable.
 
I guess it started with the invention of hand tools, fire, wheels, shelter construction, water cultivation and agriculture. You can’t forget hunting in packs, weaponry, domestication of animals, speech, art and writing. A consciousness of a portfolio of skills, specialization, division of labor and the ability to discern exchange value within the community birthed a notion of governance. Our social nature was crowned with our ability to transmit craft and knowledge to successive generations, assuring continuity and cohesion with a common history and a well articulated cosmology. Put it all together and I think you got your basic modern Homo sapien.
Oh yeah, we also developed a psychology, an ego, that incorporates the primacy of ourselves and our selfish needs. It rationalizes and guides our interactions with nature, transforming the intention of our labor into a transaction that alters the conditions of the environment. It also serves as indisputable empirical evidence of the master species, elevated above all others as time marks the progress and dominion of the human race.
 
Our dominion has been codified into our sacred literature. Our creation stories and cosmic mission statements expressly state to exercise our dominion over nature, to propagate the species and to be fruitful and multiply. The screaming unencumbered id, left to its own devises, unchecked in the grand supermarket. We human’s have succeeded beyond our wildest expectations and the species continues to be fruitful and multiplying. 
 
We sojourn on, notching the ladder of history with marks of our progression through the ages. Along the way we Cro-Magnons expropriated the Neanderthals and moved into their Mediterranean digs complete with fire pits, burial chambers and the best take on modern art until Picasso came along.
 
I guess that’s the point. Our survival comes at the expense of other creatures and things. I’m no Malthusian, but Tom Friedman’s flat world is getting crowded.    And as we celebrate the 44th Earth Day a midst the greatest die off of species since mankind coronated himself as master and commander of all things earth; it may be time to consider how our dominion is hampering the well being of the lesser flora and fauna kingdoms and what we can do to begin the practice of a more sustainable economics.
 
When I look at Las Vegas, I behold a garish mecca of capitalism on steroids.  I’m overwhelmed by the banality of the the things we so highly esteem. A community venerated and propped up on the foundation of vice, hedonism and the radical pursuit of money. Unbridled development of a crystal neon city constructed in the middle of a desert, recklessly consumes water and energy resources and misdirects human capital to maintain the facade of an unsustainable economy. 
 
Phoenix poses the same paradox. Darling child of the credit boom, Phoenix is a city consuming itself. The rising threat of climate change, blistering heat, dwindling water supplies and raging haboobs would give any urban planner reason to pause. A bustling city of many millions of striving citizens consuming energy, water and human capital built on the unsustainable foundation of excessive consumption and an unrealistic valuation of the capital required to maintain it. 
 
The explosion of fracking natural gas deposits in the Marcellus Shale formation is another example of sacrificing long term sustainability for the immediacy of shareholder returns. The Marcellus Deposit has proven reserves that only last a decade. As evidenced by the hyper development occurring in North Dakota,  economies tied to resource extraction are prone to experience classic boom bust cycles. During boom times all is well. But the good times don’t last all that long and communities are left in the wake of the bust cycle to deal with the aftermath. 
 
The Keystone XL Pipeline and the rapid expansion of the LNG extraction industries are being touted as the foundation of American energy independence. But this energy resource extracts a high cost on the land and its natural bounty. It poses significant risk to water aquifers, air quality, wildlife and the storage of waste-water byproducts will present long term remediation challenges to communities for many decades after the last well is capped.
 
Our new found fortune of LNG comes with a significant opportunity cost to develop alternative energy sources as it continues to tether our economic dependence on a dwindling supply of fossil fuels. Perpetuating this dependence also requires us to expend huge sums of money on the military. The political arrhythmia in the Ukraine and the keen interest of the United States has much to do with the changing political economy of fossil fuels and the protection and accession of markets.
 
Sustainability requires a new approach to the emerging realities of the global political economy. Recognition that competing interests bring important capital to the table, and that all must be recognized and fully valued in the new algorithms of sustainability is the keystone and pipeline of sustainability. The practice of unfettered development is unsustainable. Regulation, arbitration and revitalization cannot be sacrificed at the altar of laissez-faire politics that only serves to widen the wealth gap at tremendous social cost. The politicization of economic policy cannot continue to be beholden to rampant monetization. Sustainability is the creation of long term value for a diverse community of stakeholders. It needs to become our guiding mantra as the global population approaches 8 billion souls. Happy Earth Day.

 

Music Selection:

Risk: fracking, political, water, air, war, opportunity cost, renewal clean energy, climate change

April 22, 2014 Posted by | cities, commodities, community, compliance, corporate social responsibility, ecological, history, politics, psychology, regulatory, sustainability | , , , , , , , , | 1 Comment

Davos Dithers While Cairo Burns

Per-Gynt-in-the-Hall-of-the-Mountain-King-Dovregubbens-Hall-1913_WEBB

In the pristine air of the Swiss Alps,  the worlds power elites gather at an annual World Economic Forum in Davos Switzerland.   In this rarefied Hall of the Mountain King’s, Prime Ministers, CEOs and the esteemed emissaries of the global elite get some valuable face-time with each other to assess the world situation and figure out ways to arrange it more to their likeness.   Russian Prime Minister Medvedev  was scheduled to give the welcoming address but had to cancel because a Chechen suicide bomber blew himself up in Moscow’s busiest airport taking a couple dozen travelers with him.

Busy looking inward to protect personal interests,  the fiduciaries of global solvency stew about regulatory overreach and the added burden it creates as the ruling elites balance the demands of worldly subsistence with the perplexities of generating sufficient cash flows to cover dividend payments to shareholders.  More often than not the heft of shareholder concerns outweighs the growing immiseration of the world’s troubled masses.  The deeply held sacred dogma that enlarged prosperity for the wealthy benefits the disenfranchised is being increasingly challenged as the wealth gap rises against a backdrop of growing economic duress and political instability.

The growing movement to topple Egyptian President Hosni Mubarak illustrates the failure of a global trickle down political economy.  Mubarak has held office since Anwar Sadat’s unceremonious removal from office  is receiving urgent signals from the Egyptians that he has clearly overstayed his welcome.  For three decades, Mr. Mubarak and his military caliphate have been the recipients of generous western aid packages designed to maintain a tenuous peace with Israel.  Stitched together at Camp David in the closing days of the Carter Administration; the sibling rivalry between Abraham’s jealous children remains incendiary and its stability will be tenuous at best considering the growing role of  The Muslim Brotherhood in challenging Mubarak’s continued rule.

The United States sends Egypt $1.5 billion in military aid each year.  Its seem a small price to pay to guarantee the peace with Zion and to  underwrite a strategic ally in the volatile Arab world.  It’s also a perfect political foil to counterbalance Israel’s favored nation status.   But US aid and IMF loans have financed Mubarak’s autocracy creating deep political fissures within Egypt.  These aid programs have widened the wealth gap by limiting opportunity to a select few; abetted political disenfranchisement that encouraged social unrest,  fueling Islamic radicalism and the urgent need for democratic reforms.

The game plan followed in Egypt for the past three decades is not working.  The nature of western aid to Egypt and how it was used to benefit the military ruling elites illustrate the conundrum of the Davos Hajiis.   Aligning economic development and political empowerment of the world’s disenfranchised with the needs of the global capitalist elites has failed to deliver on its promise.  The pursuit of Mule and  Sparrow economics have engorged the elites and left the many sparrows emaciated.

When the Davos delegates leave their ski chateaus for an afternoon on the slopes, as they exit the lifts at the top of the world, it may yet still be possible to glimpse the growing crowds amassing in Tahrir Square.  It may still be possible to connect the dots of promoting the inclusive economics of reciprocity and social democracy.  The revolutionaries gathering in Liberation Square  are joining with the dispossessed to give full voice for an agenda of change.

The elites have stored up too much wealth for themselves.  The masses have remained wanting, impoverished of goods and denied liberty, fed a steady diet of repression they stoke fires in Tahrir Square signaling the time for change has arrived.

Music selection: Edvard Grieg: In the Hall of the Mountain Kings

Risk: Middle East, political stability, economic prosperity, global economy, democracy, Egypt, Hosni Mubarak, Davos, IMF, Israel, Tahrir Square, revolution, military rule, Jimmy Carter, Mule and Sparrow Economics, Camp David Accords, Medvedev, Anwar Sadat, World Economic Forum

 

 

 

January 30, 2011 Posted by | banking, corporate social responsibility, credit crisis, democracy, Egypt, history, Israel, Middle East, military, Muslim, politics, revolution, social unrest, Uncategorized | , , , , , , , , , , , , , , , , , , , | Leave a comment

Prognostications and Expostulations

We’re going out on a limb with this one or given thats its winter we’ll say we’re walking on thin ice. We’ll gaze into the crystal ball and pontificate on eleven subject areas for 2010. With some we hope we will be wrong. With some we hope we will be right.

1. Stock Market: Buoyed by well managed earnings by the large multinational companies in the DOW, principally as a result of cost reduction initiatives and exposure to global markets the Index will finish up 6% and close at 11, 011 on the last trading day of 2010. Given an inflation rate of 4% investors will realize a 2% gain on equity investments in DOW constituents. S&P 500 and NASDAQ will be flat gaining 2% for the year.

2. Iraq War: The war in Iraq will continue to wind down. America will scale down its military presence in the country. Troop levels in the country will approximate 85,000 by the close of 2010. Though direct American military involvement in conflicts will decline, Iraq will experience civil unrest as Kurd nationalists, Shiite and Sunni Muslims seek to protect their political and economic interests.

3. Afghanistan War: The escalation of America’s military presence in Afghanistan will move the theater of war further into Pakistan. The Taliban will be satisfied to harass US forces by engaging in a guerrilla war. Taliban and Al-Qaeda supporters will use the opportunity to increase the level of urban terrorist attacks in the large cities of Pakistan. Al-Qaeda confederates will seek to reestablish base of support in Somalia, Yemen and ties will begin to emerge in Latin American narco-terror states.

4. Iran: The political situation in Iran will continue to deteriorate. This is a positive development for regional stability because it will force the ruling regime to cede its nuclear program development initiatives. Iran will not be able to capitalize on the US draw down in Iraq. It will become increasingly isolated as Hezbollah and Hamas pursue actions that are less confrontational to Israel in Palestine and Lebanon. The ruling Caliphate position will weaken due to internal political dissent and external economic pressures.

5. China: It will be a year of ultra-nationalism in China. Its stimulus program that is targeted to internal development will sustain a GDP growth rate of 8%. China will use this opportunity to strengthen the ideological support of its citizens to fall in line with the national development initiative. Globally China will continue to expand its interests in Africa and will cull deeper relationships with its Pacific Rim club member Latin America. China will continue to use US preoccupation with its wars in Afghanistan, Iraq and skirmishes in Yemen and Somalia as an opportunity to expand its global presence with a message of peace and cooperation.

5. US Mid Term Elections: Republicans will gain a number of seats in Congress. The continued soft economic conditions, state and local government fiscal crisis, war weariness and cut back in services and rising expenses will make this a bad year for incumbents and the party in power, namely the democrats. Sarah Palin will play a large role in supporting anti-government candidates drooling over the prospect of winning a seat in government.

6. Recession: Though the recession may be officially over, high unemployment, home foreclosures and spiking interest rates will hamper a robust recovery. The end of large government stimulus programs and the continued decrease in real estate values also present strong headwinds to recovery. We predict a GDP growth rate of 2% for the US economy. Outsourcing will abate and a move to reintroduce SME manufacturing will commence.

7. Technology: The new green technology will focus on the development of nuclear power plants.  The clash of the titan’s between Google’s Droid and Apple’s I Phone will dominate tech news during the year.  Lesser skirmishes  between Smart Phones makers or the war of the clones will continue to explode altering the home PC market and continue to change the market paradigm for old line firms like DELL, Microsoft and HP.   SaaS or cloud computing will gain on the back of lean business process initiatives and smart phone application development and processing infrastructure will encourage cottage industries fueling the cloud and making for some new millionaires. The tension between the creators of content and search and delivery will begin to tilt back toward the content providers. Litigation involving social networking sites will be filed to create safeguards against its use as a tool to control and manipulate behaviors thus threatening civil liberties and privacy rights.

8. Culture: The Googlization of civilization will allow individuals to embrace more corporatism as a pillar to add efficiency and order to their lives. Multiculturalism will continue to grow in the US. However a growing political backlash against it will become more of a prominent theme as Teabaggers agitate for a return to the true values of America. Electronic arts will make major leaps and bounds as commodification continues to be a driving force in the world of art. Printed words like books and newspapers will continue to dramatically decline. Writing, drawing and playing musical instruments skills will ebb as people prefer to develop digital skill sets. Texting and Tweeting make for poor practice for extended compositions.

9. Latin America: Instability will grow in Latin America as narcodollars continue to undermine political stability in Columbia, Venezuela, Mexico and Panama. The US will increasingly become involved in the conflicts between petro and narcodollars. Mexico’s stability will be increasingly undermined by the power and corruptible influence of the drug trade. China’s influence on the continent will grow.

10. European Union: The EU will continue to manage itself for stability. It will yearn to return to its aristocratic roots and will become increasingly conservative. It will continue to have a complex relationship with the expanding Muslim community. A call to deeper nationalism will arise out of a growing influence of Islam and the inefficiencies of EC bureaucrats in Belgium. The EU will continue its union of expediency to counterbalance their distrust of Russia and their distaste for America.

11. Environmental Justice: Though awareness continues to grow concerning the need to mount and implement large scale solutions to halt the problem of global climate change; the political will and resources required to drastically alter the planets current trajectory in growth of carbon emissions from the burning of fossil fuels remains unaltered. Social responsible enterprises, small businesses and individuals continue to make a difference. Eco friendly small businesses, urban farming, capital formation initiatives around renewable energy businesses are hopeful signs of a market response to the pressing problem. China is investing heavily in becoming a market leader out of business savvy and environmental necessity. Until the great powers of the world can come to some collective agreement on how to limit , cap or trade carbon credits we’ll have to be content to separate the trash and recycle, reuse and reduce.

You Tube Music Video: Donald Byrd, Stepping Into Tomorrow

Risk: unfulfilled predictions will make me look bad

January 5, 2010 Posted by | business, China, commerce, corporate social responsibility, culture, ecological, government, inflation, unemployment, war | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Goldman Sachs as Social Entrepreneur

Goldman Sachs’ CEO Lloyd Blankfein and his largest investor, The Wizard of Omaha, Warren Buffett , descended from the mystical heights of Valhalla with some startling news.  They were bearing a new mythical golden ring.  As they held the ring aloft they made a bold proclamation.  They would embark on one of the grandest social entrepreneurial programs of all time by offering some of the rings precious power, about $500 million worth, to capital starved small and mid-size enterprises (SMEs).  The 10,000 Small Businesses Initiative will distribute $100 million per year over the next five years to SMEs through Community Development Financial Institutions.

These lords of commerce have heard the cries from endangered SMEs.  In their infinite wisdom Blankfein and Buffet understand that the real economy needs to resuscitate and incubate the critical SME segment as an absolute prerequisite to a vibrant economic recovery.    The buzz about this news in the marketplace ranged from cynical suspicion at one extreme to puzzled bemusement and  ecstatic aplomb at the other.

What motivated Goldman to announce this initiative is an interesting question.  Was it guilt, greed or a sense of corporate social responsibility?  Some suggest it is a master PR move to counter a growing public perception that Goldman Sachs,  the poster child of government favoritism and bailout largess,  has leveraged its unfair advantage to achieve historic levels of profitability.  Thus enabling management to pay obscene bonuses to company employees.  But capital has no psyche,  and half a billion dollars is a tall bill to underwrite absolution for some phantom form of guilt.  True to its nature, capital always  seeks a place where it will find its greatest return.  Goldman and Buffett are casting some major bread on the receding waters of a distressed economy.  As its foretold in the Good Book , doing God’s work will produce a tenfold return.  If the Bible’s math is correct, thats a lot of manna that will rain down from heaven for the shareholders of Goldman Sachs and Berkshire Hathaway.  Looks like our modern day version of Moses and Aaron have done it again.  Leading their investors across the dangerous waters of the global economy to live in the promised land of happy shareholders.

As one of the world’s preeminent investment banks and purveyor of capitalist virtues,  company shareholders must be questioning how Goldman’s managers will realize a return on this investment?  Has management examined the potential corporate and societal moral hazards surrounding the program?  Surely shareholders have asked when they expect to be compensated for this significant outlay of capital.   The desire to realize gain is a more plausible motivator and makes more sense for an enterprise like Goldman and the storied investment Wizard from Omaha.

Its wise to ascribe the best intentions and virtuous motivations to actions that we may not fully understand.  This program should be viewed as a seminal event in the history of corporate social responsibility and social entrepreneurship.  Its important to understand that institutions that practice corporate social responsibility do not engage it solely as a philanthropic  endeavor.  Indeed, the benefits of good corporate citizenship pays multidimensional dividends.  All ultimately accrue to the benefit of company shareholders and the larger community of corporate stakeholders.

Goldman’s  move to walk the point of a capital formation initiative for SMEs seeks to mitigate macroeconomic risk factors that are prolonging the recession and pressuring Goldman’s business.   Goldman needs a vibrant US economy if it is to sustain its profitability,  long term growth and global competitiveness.  Goldman needs a strong regional and local banking sector to support its securitization, investment banking and corporate finance business units.   Healthy SMEs are a critical component to a healthy commercial banking sector.  Goldman recent chartering as an FDIC bank holding company may also be a factor to consider.  This SME lending initiative will provide interesting insights into the dynamics of a market space and potential lines of business that are relatively new to Goldman Sachs.  This initiative might presage a community banking acquisition program by Goldman.  At the very least the community banking sector is plagued with over capacity is in dire need of rationalization.  Goldman’s crack team of corporate finance and M&A professionals expertise would be put to good use here.

Goldman’s action to finance SMEs will also serve to incubate a new class of High Net Worth (HNW) investors.  Flush with cash from successful entrepreneurial endeavors, the nouveau riche will be eager to deploy excess capital into equities and bonds, hedge funds and private equity partnerships.  Healthy equity markets and a growing Alternative Investment Management  market is key to a healthy Goldman business franchise.

Community banks, principal lenders to SMEs are  still reeling from the credit crisis are concerned about troubled assets on their balance sheets.  Bankers can’t afford more write downs on non-performing loans and remain highly risk adverse to credit default exposures.  Local banks have responded by drastically reducing credit risk to SMEs by curtailing new lending activity.  The strain of a two-year recession and limited credit access has taking its toll on SMEs.  The recession has hurt sales growth across all market segments causing SMEs to layoff employees or shut down driving unemployment rates ever higher.  Access to this sector would boost Goldman’s securitization and restructuring advisory businesses positioning it to deepen its participation in the PPIP and TALF programs.

The financial condition of commercial and regional banks are expected to remain stressed for the foreseeable future.  Community banks have large credit exposures to SME and local commercial real estate.  Consumer credit woes and high unemployment rates will generate continued losses from credit cards and auto loans.  Losses from commercial real estate loans due to high vacancy rates are expected to create significant losses for the sector.

Reduced revenue, protracted softness in the business cycle and closed credit channels are creating perfect storm conditions for SME’s. Bank’s reluctance to lend and the high cost of capital from other alternative credit channels coupled with weak cash flows from declining sales are creating liquidity problems for many SMEs.   Its a growing contagion of financial distress.  This contagion could infect Goldman and would have a profound impact on the company’s financial health.

The 10,000 Businesses  initiative will strengthen the free flow of investment capital to finance national economic development and empower SMEs.  It strengthens free market capitalism and has the potential to pool, unleash and focus investment capital into a strategic market segment that has no access to public equity and curtailed lines of traditional bank credit. The 10,000 Businesses initiative  will encourage wider participation by banking and private equity funds.  In the aggregate, this will help to achieve strategic objectives, build wealth and realize broader goals to assure sustainable growth and global competitiveness.  All to the benefit of Goldman Sachs’ shareholders and it global investment banking franchise.

Sum2 believes that corporate social responsibility is a key tenet of a sound practice program. Goldman Sach’s has always been a market leader.  We salute Goldman Sachs’ initiative and welcome its success.

In  September of 2008,  Sum2 announced The Hamilton Plan calling for the founding of an SME Development Bank (SDB).  The SDB would serve as an aggregator of capital from numerous stakeholders to focus capital investment for SME manufactures.   More on the Hamilton Plan can be read here: SME Development Bank.

Risk:  SME, bank, recession, unemployment, credit, private equity

You Tube Music: 10,000 Manaics, Natalie Merchant: Dust Bowl

November 20, 2009 Posted by | banking, corporate social responsibility, Hamilton Plan, hedge funds, investments, off shore, PPIP, private equity, Profit|Optimizer, recession, reputation, reputational risk, SME, sound practices, Sum2, TALF, unemployment | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment