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Moving Your Money

Moving Your Money: Michael Shuman | #GRITtv

Burgess COMMENTARY

Peter Burgess

Moving Your Money: Michael Shuman | #GRITtv Why is it so hard to invest your money locally? Grassroots activists trying to build economic alternatives in the US encourage investing in the businesses in your neighborhood, instead of in far-off corporations. It turns out that it’s not so easy to move your money; there are even laws against it in the US. We talk with local finance expert Michael Shuman, and profile a grassroots success story CERO Group that’s funding its start-up without deep pockets or Wall St cash. All that and a few thoughts on the NATO chief Jens Stoltenberg you won't find in the US

0:05STEVE EVANS: We have all this melting pot of people, but if we could just blend together 0:09and work together that becomes a great political power and a great financial power. 0:16This week on the show, fancy investing in the business in your neighborhood instead 0:20of in far off global corporations? It turns out that it’s not so easy to move your money. 0:25There are even laws on the books against it. We’ll talk with local finance expert Michael 0:30Shuman and meet a group that is funding it’s own start up without deep pockets or Wall 0:35Street. All that coming up and a few thoughts from me on our free press and the NATO chief 0:42kept out of it. 1:08Can local economies survive when some major corporations are bigger than nations? Our 1:13next guest thinks it’s just possible. His name is Michael Shuman, and he’s written 1:17many books on community economics, including “Local Dollars, Local Sense: How to Shift 1:23Your Money from Wall Street to Main Street and Activate Real Prosperity.” Michael, 1:28welcome to the program, glad to have you. 1:30Nice to be with you. 1:31What do you mean by real prosperity? What’s fake prosperity? 1:34Well fake prosperity is having a lot of money and then losing it. I think a lot of people 1:42think that Wall Street delivers 10, 20% return on an annual basis because they have very 1:49selective memories--they remember the good years and not the bad ones. And I also mean 1:54real prosperity in terms of remembering what matters to you. The book that you mention, 2:00“Local Dollars, Local Sense,” I dedicate to my dad who had died while I was writing 2:07the book. And you know, he never thought he would be rich on Wall Street. He was very, 2:14very sparing with his money. 2:16What did he do? 2:17He was a mid-level engineer for the telephone company before they were dismantled by the 2:22courts. And he was--he just really invested in family, in community, in friends, and to 2:32me that is just part of what creative local investing is. It’s knowing what matters 2:39Is that how you got into all of this? 2:41Frankly, I would trace this to a 35, 40 year quest to connect global problems with local 2:50action. How do you do that? The first half of my professional life I organized mayors 2:56and city council members to get them involved in, what I call, municipal foreign policy. 3:00What was that? 3:02Things like divestment from South Africa, sister cities, with controversial places like 3:07Nicaragua or El Salvador, nuclear free zones. And then I started thinking about, can we 3:16do this with North-South development cooperation. And I found some really interesting practitioners 3:21out there who had great ideals but were using old paradigms in economics. And I realized, 3:29I need to figure out how community economies can work in my own backyard before inflicting 3:37further damage on other people abroad. 3:39So what do local dollars look like? What is a local dollar in your frame? 3:45So a local dollar is how, as individuals, or households, or as business, we put more 3:57and more of our money into local businesses--businesses that are locally owned and controlled within 4:05our community. Now some of us define our communities as neighborhoods, some as cities, some as 4:12states, some as regions. I’m not very demanding on all that. I think just mindfully thinking 4:19about who are the business we feel really connected to and putting our money in there. 4:27And there are a couple of reasons for that. One is that, your chance of being snookered 4:34by an Enron-style fraud when you actually have personal experience with the business 4:41person, is going to be much lower. 4:43Another thing is that in addition to the financial return that you might get as an investor, 4:49there are all of these additional returns that come to your communities. So, because 4:55that business is operating, you have a better tax base, better education, better public 5:01services. That’s important. I think that another thing that happens too is that every 5:07business that you support in your community starts spending money with other businesses. 5:13So, if you have a local investment portfolio with 2 or 3 businesses, all of them are spending 5:20with one another, and in a way you are creating a synergy in your portfolio that you could 5:26never do if you were investing in just global corporations. 5:29Alright, so it sounds fantastic. How much of our mutual fund dollars, pension funds, 5:36Wall Street investments--how much of them are invested in local businesses? 5:41There are 7,500 mutual funds in the United States, and not a single one of them invests 5:47a penny in local small business. There are 30 trillion dollars that Americans have in 5:54long-term savings, and those savings fall in stocks, bonds, mutual funds, which we just 6:01talked about, insurance funds, and pensions funds. And probably about a tiny fraction 6:09of 1% of that money touches local small business. 6:14So, where is the money? 6:16Well, it’s all in Wall Street. And it’s so crazy because at least-- 6:23When you say in Wall Street, you mean in big, international and national publicly owned 6:29corporations. 6:2900:06:30 MS: Absolutely. Now, there is a little bit of that money in the bonds that say, go 6:35into municipal bonds or U.S. government bonds. So, it’s not 100% Wall Street, but it’s 6:43mostly Wall Street and big government projects. And what’s insane about that is that more 6:51than half the economy is local small business, in terms of jobs and output. We know that 6:57that sector of the economy is extremely profitable and competitive. So, if we had an efficient 7:06capital market, roughly speaking, about half of that 30 trillion dollars would be going 7:14into local small business but nothing is. 7:1700:07:17 LF: So, why isn’t it? People just haven’t read your book, they don’t care, 7:20they didn’t notice? 7:2000:07:20 MS: Well, hopefully they are noticing now. And what I try to point out in the book 7:27is that what started as a very beneficent set of laws, securities laws that were passed 7:34in the 1930s to prevent people from being taken in by frauds, have gotten applied in 7:42ways that just make it exceedingly difficult for 99% of the public, which are called unaccredited 7:52investors--basically unaccredited investors are not wealthy people or not the wealthiest 7:57people -- and the wealthiest 1% are accredited investors. 8:0200:08:02 LF: So you mean you can’t just go and give your local business an investment 8:05and say, I really like your cafe, I’m going to give you $1,000, I’d like a return at 8:09some point, let’s drop a deal? 8:1000:08:10: MS: If you were an accredited investor. If you were in the top 1%, you are allowed 8:16to invest in anything, anytime, no questions asked. 8:1900:08:19 LF: And how do I get to be an accredited investor? 8:2100:08:21 MS: You would have to have, individually, income of $200,000 a year, or if you’re 8:29in a couple, $300,000. Or, wealth of a million dollars, excluding your house. So, it’s 8:35an extremely exclusive club to be an accredited investor. Now, I call the situation investment 8:45apartheid because it really created two very distinct classes in the American public with 8:51two very different sets of rights. And if you’re in the unaccredited class, you can 8:58only put a penny into a small local businesses if that business has done anything from 25 9:05to 100,000 dollars of legal work. And that legal work, in theory, is to inform you,the 9:13unaccredited investor: here is everything that could go wrong with this investment, 9:19and we’re going to give you a thick book, hundred pages long, 8 point font. No human 9:24being has ever been observed to read these things, but that book is going to be the basis 9:31for you being fully informed of your risks, and then you can put your money into that 9:36business. 9:3600:09:36 LF: So if I was wanting to start, I don’t know, a cafe co-op or something 9:40with a bunch of my friends, and we were going to go around and try and raise the funds--you’re 9:44saying I couldn’t do that without putting that kind of investment into the legal documentation 9:50and going to investors that have that kind of accreditation you mentioned? 9:5400:09:53 MS: So, there are--in every state there are exemptions to the law. And one exemption 10:01that exists in some form or another is friends and family. So, friends and family can work 10:08together, but your Facebook friends don’t count as friends. Some states are pretty demanding 10:14about what those friendly relations would be. 10:16LF: And this was all set up in the 30s as part of our protection against fraud? 10:20Yes, set up in the 30s and reinforced in laws ever since then. 10:25So what can we do? The second part of your title for that book, is “local 10:30sense.” There are some alternatives. You’re also working on, as I understand it, a new 10:35book that has to do with businesses working in different ways to stimulate a different 10:42kind of growth. Talk about what are the alternatives out there and some examples perhaps that you 10:48see? 10:48Well, I think there are some incredible examples. And just within the law 10:55right now there are a lot of things that people can do. For example, one of the historic places 11:03where people have done local investment is through cooperatives. And the reason why cooperative 11:10investing is a little bit easier, is a co-op does have to issue the securities documents 11:17as everyone else does, but co-ops, as a matter of principle, share things with one another. 11:23So, if I’ve spent $25,000 on a set of attorneys for my documents, I am perfectly willing to 11:30share that with 100 other co-ops. And then they play the game of mad libs to change a 11:36few words and then voila!--instant legal document, and then I can borrow money from my members 11:43and put that in, say, a second store if I’m a grocery co-op. 11:4700:11:48 MS: Another example is your local bank and credit union. We know that a local 11:53bank and credit union is about 3 or 4 time more likely to take a dollar you put on a 11:59deposit and lend that to a small business. So, if you care about supporting local businesses, 12:07moving your money is a very important act. Some credit unions and some banks have also 12:15set up speciality certificates of deposit. So an example would be Equal Exchange in Boston. 12:22They approached their local bank and said: why don’t you set up a special certificate 12:27of deposit to support fair trade businesses like ourselves? And the bank thought, you 12:33know this is a cool idea because people are invited to put money on deposit. If the loans 12:40to well, the bank gets their fees. If the loans get lost, they’re fully collateralized, 12:46and the bank gets their fees. 12:4700:12:47 MS: So the bank thought this is a great thing, and so has a result Equal Exchange 12:51now as a 1 million dollar line of credit. So all of those things, and we could talk 12:57about 25 more, are done within the existing law. But what’s been really exciting over 13:04the last couple of years is the law is changing. People are sick of it. And, a weird coalition, 13:12political coalition, you could say of, Tea Party Republicans, locavore progressives, 13:20and high tech young people who wanted to sell the apps on their iPhones--they all collaborated 13:26together and pushed Congress into passing what became known as the JOBS act, which was 13:32a major reform of securities law that could, in theory, make it much cheaper for small 13:40businesses to get crowdfunding investment for their business. 13:46Not the problem is that the Securities and Exchange Commission was supposed to implement 13:51the regulations for this in December of 2012, and here we are, almost two years later and 13:58they refuse to do their homework. 14:00Is there anything local governments can do to change this picture? 14:03 States have the power to redefine their securities laws. And what’s been interesting 14:09is that since the Securities and Exchange Commission has basically been squatting on 14:15the JOBS act and saying we’re not going to implement it, about a dozen states have 14:20passed their own securities reforms. In my own state of Maryland, a woman approached 14:26me about six months ago and said: If I want to write a small check to a business, why 14:32can’t I do it? So, this is saying if it’s a small check, no lawyers need to be involved. 14:41So, she successfully moved this into both houses of our statehouse last year. It was 14:48passed unanimously in both statehouses, and it’s now law. So we are now the only state 14:53in the country with a $100exemption for people who want a loan of up to $100,000 for their 15:01business. 15:01In international trade circles, we often see global corporations, or countries, 15:08suing local municipalities who have bi-local preferences or have made a decision to support 15:17local businesses over multi-national corporations or another model? Does securities work the 15:23same way? Is there global regulation that could interfere with this? 15:27Yes. And some of the trade treaties that are up for consideration get much more 15:36explicit about investment. And yes, they could stand in the way of local authorities that 15:42wanted to move their money. Now that said, I think there’s a good way around these 15:48laws, both with respect to purchasing and with investment. I think it’s easier to 15:55sort of see the argument with respect to purchasing. You know, 25 years ago when I was a municipal 16:01purchasing agent. I wasn’t but hypothetically. If I had 2 bulbs here--a compact fluorescent 16:10that would cost ten bucks and an incandescent bulb that would cost one buck. I was not allowed 16:16to ask the question: how long did these two bulbs last? 16:20So I had to always go for that low efficiency incandescent bulb. Well then 16:27people say, you know, that’s crazy. You should be able to do full cost accounting. 16:32So now I can look at the lifetimes of these bulbs, and I’m going to really think about 16:37those very efficient bulbs. Well it’s the same thing when it comes to taxes that a local 16:45government or a state government receives from different contractors. So, if I’m a 16:51local contractor, I’m going to pay a lot of taxes to the local government. If I’m 16:57a say a paper supplier like Staples with no contact in the state, I may pay no tax. Well, 17:04you should take that into account as part of your full cost accounting of what the real 17:10price of these two things is. So, I think if we start to do the accounting properly, 17:17not just with purchasing, but with investing. So for example, to take the investing example 17:22I talked about with Arizona, if you could get Tucson and Phoenix to really just show 17:30that by putting money into these local banks, even though maybe they’re paying a little 17:34more in interest, these local banks are generating all this new economic activity, which has 17:43to be taken into account. 17:44I’d like to go back to where we started. You started by talking about real 17:50prosperity as being the kind where your money doesn’t disappear. For those who are listening 17:53to this and thinking this is just moving the chairs on the Titanic of our crappy, excuse 18:00me, screwed up economy, what do you say? Why should they care about securities at all? 18:06Well, I think they should care about securities law because what it means, 18:13what this investment apartheid situation means is that all of us are systematically over-investing 18:22in companies we distrust and under-investing in the businesses that you care about and 18:29love. And unless we fix those sets of personal choices, we’re never going to fix this big 18:37problem. 18:37Michael Shuman, thanks for joining us. The book is “Local Dollars, Local Sense.” 18:42There’s a new one coming soon too. We’ll bring you back to talk about that one too. 18:47Wonderful. Thanks. 18:49CHEW ON THIS 18:50Word came out about this new opportunity they call the green economy. 18:56A lightbulb went off in my head when it said that this is an opportunity where people could 19:03create businesses and jobs for themselves. 19:04My name is Steven Evans. 19:06Soy Josefina Luna. 19:07Soy Evelyn Fuentes. 19:08 Laura Holmes. 19:08Guadalupe Gonzalez 19:09Timothy Hall 19:09And I’m a worker-owner. 19:10Trabajadora y dueña. 19:12Worker-owner. 19:13Dueña y trabajadora. 19:15And I’m a worker-owner at CERO 19:19 CERO is a full service, source separation, recycling, reduction, and 19:27organic composting business serving restaurants in Roxbury, Dorchester and East Boston. A 19:34group of folks who are from those communities, came together and wanted to create jobs for 19:38themselves and wanted to have a cooperative business that adhered to this triple, bottom 19:45line: planet, people, and profits. 19:47CERO was the answer. Workers from unemployed and underemployed 19:53backgrounds coming together on their own initiative to form enterprise that, you know, respects 19:58their individuality, their needs, respects their labor and also does this great service 20:05to the community by helping to drive recycling up. 20:09In 2014 there’s going to be an organic waste ban where all the restaurants 20:13and commercial business have to start composting their organic waste. So, there’s a huge 20:18opportunity to have a business that can take advantage of this new market. 20:20(Spanish translation): For every pound of food served in a restaurant, 20:24there is half a pound of organic waste. When we pick up food waste from the restaurants, 20:32we’re going to make compost. Then we’ll take the compost to the farm, and this will 20:41produce new food, fruits, vegetables. And this is the food that will come back to our 20:45tables. 20:45What speaks to me is that we pay a lot of money for our trash pick 20:49up here. So, I think being a one-stop pick up point, you know a one stop recycling, plus 20:54the compost, plus the trash, is unique. 20:56When I was first hearing the term about cooperatives, it was the same 21:00term that they used about the green economy--green pathways out of poverty. 21:13And it’s really good because it’s the first co-op between 21:21low-income Afro-Americans and low-income Latinos working together. 21:27So we have all this melting pot of people, but if we could just 21:32blend together and work together, that becomes a great political power and a great financial 21:38power. 21:38We’re going to support ourselves, and the 21:40money stays in the community. We earn the money here and we distribute it and spend 21:46it here too. 21:47CERO is an opportunity to show that we’re stepping up and we’re 21:52at the table. 21:53We’re interested in changing how restaurant recycling disposal 21:57gets done, but we’re also in changing how local investment gets done. So this campaign 22:02is to raise the seed money to create the structure for local investment. Local people are going 22:07to be able to become equity investors in CERO co-op and help buy machinery and equipment 22:13to run the business. 22:13The way that CERO is trying to create local investment vehicles 22:18for local individuals as a way of financing their company, is great for me. And I want 22:22to be a part of them being tremendously successful because I really do want to see this proliferate, 22:28and I think it’s part of a vision for a just and sustainable future that we have to 22:33start acting toward as well as thinking toward. 22:41THE ‘F’ WORD 22:43Hi I’m Laura Flanders. It tells you something about what’s laughingly called 22:49the public debate when the most dovish voice on the question of terrorism and war is coming 22:55from a leader of the military-industrial complex. Jens Stoltenberg is secretary director of 23:01NATO. He has yet to appear in U.S. media in connection with the attacks on France, but 23:06he was there in Paris for the unity rally this month. And he’s been interviewed on 23:10the BBC saying radical things like individuals, not groups, should be held responsible for 23:15criminal acts. Stoltenberg knows whereof he speaks. He was prime minister of Norway when 23:21madman Anders Breivik killed 77, mostly teenagers, in the deadliest attack that country has seen 23:27since World War II. Instead of acting tough and calling for new powers to wage war, Stoltenberg 23:34at that time called on Norwegians to “counter blind hate with argument and education.” 23:40Interviewed on the BBC about the attacks on France this year he said crazy 23:46dovish things like: we have to distinguish between open debates and acts of violence. 23:52He even implied there was a role for courts. Criminal acts have to be prosecuted with means 23:58of police and bringing those responsible to justice, he told The World Service. You can 24:03see why he’s not on TV in the States. When U.N human rights chief Mary Robinson declined 24:08to call 9/11 an act of war, she lost her post and her voice in the media right quick. That’s 24:14what I thought would happen to Stoltenberg. There’s no visible place for controversial 24:20views like these in the great free press we keep hearing about? Luckily for him there 24:25is a way back into the U.S. media’s good graces. Soon after the Paris unity rally Stoltenberg 24:31announced NATO’s new ultrarapid reaction force called Spearhead. A military contractor’s 24:38wet dream. 24:39He did get quoted in AP talking about that. You can write to me. Tell me what 24:44you think. Laura@grittv.org. Thanks.