Today’s investors are focusing, now more than ever, on secure investments. Guarding the financial security of our families is at the forefront of our minds. As public outrage increases over the utter lack of accountability in our global financial systems, from the taxpayer-funded bail-outs of global powerhouses to the inaction of the criminal justice system (“too big to fail” has become “too big to prosecute”), the public’s vote of “no confidence” is ringing loud and clear. Witness, for example, the dearth of campaign bumper stickers and yard signs for the 2012 U.S. presidential election – they are conspicuous by their absence.
Because of this uncertainty, investors are holding large cash positions, afraid to pay even 80 cents on the dollar for distressed real estate on the Southern California coast. Meanwhile, asset managers for mortgage lenders are holding back properties, manipulating the U.S. real estate market. Reports have claimed that there are 18.5 million vacant homes in the United States.
The market is demanding a new type of investment, and once-overlooked sources offer such investments. Sustainable real estate improvements, designed to radically lower operating costs and increase living comfort, today command up to a 28% premium1 vis-à-vis traditional properties. Green communities, built entirely off grid on clean land, where residents can grow their own food in community gardens, are no longer a thing of the fringe. Such ethical investments are quickly becoming the new standard and the only way to gain loyal investors.
In uncertain times such as these we must question our paradigms, asking not only how we got here, but also what each of us could have – indeed, should have – done differently, and what we must do to change direction.
I first asked myself this question while staring at a set of legal papers for a billion-dollar cross-border hedge and listening to a voice on the phone telling me to ignore what I knew was true and rubber stamp the transaction. “We are doing this transaction the same way I did the last transaction,” said the counterparty’s counsel. I refused, knowing that, “Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.” Since that day I have seen just how deep this “root of all kinds of evil” has grown.
The “false dichotomy and bad theology,” as Van Duzer calls the bifurcation between our business and personal mores, has become a “dual ethic that accepts sharp business practices alongside pietistic personal disciplines.”2 History has proven – and is proving again – that we cannot lead dual lives, using one set of values for business, and another in our personal lives.
If we are listening, it takes but a mere whisper to know that we all must change course. I knew at the end of a phone call. “For what shall it profit a man, if he shall gain the whole world, and lose his own soul?”
Long-trusted institutions are imploding, falling to their own internal lack of integrity, a trend which began a decade ago with the collapses of WorldCom, Enron, and Arthur Andersen. All of these institutions fell, not because of external market forces, but because they had lied on their (or their client’s) financial statements. Unfortunately, the trend has worsened in the ensuing years.
Where, then, shall we turn for financial security? Hiding the money under our mattress exposes it to risk of fire and theft. A large cash position in a financial institution is exposed to the credit risk of that financial institution – depositors are unsecured creditors under the law. In order to both protect and grow our wealth, we must invest, but we must be discerning about our investments.
Security must rest on bedrock that encompasses all parts of our lives. Contracts depend, not so much on the integrity of the legal system, but on the integrity of the contracting parties. For if you must go to court to enforce a contract, you have already lost. If you cannot trust your counterparty, no amount of legal or regulatory infrastructure can compensate. What we need is not more regulation; what we need are market participants who do the right thing because they practice in business what they preach in their homes.
Ethical investments offer true growth and security because they heal the land – the only non-wasting earthly asset. Ethical investments build lasting, sustainable communities that command a premium in the marketplace because of their lower operating costs, higher comfort levels, and longer useful lives. Ethical investments build “Shining Cities on a Hill,” changing the world where all of our children, and their children, will live and providing stable, lasting returns.
The power of markets is deep and exacting. Business and finance are human tools of enormous potential, a potential we can unleash to change the world. Imagine what commerce and finance could do if truly used to help our communities flourish. Imagine the potential if, instead of allowing government to interfere, stifling innovation and creating barriers to entry, we simply did the right thing and allowed for a true free market system!
Know what your money is doing. Be responsible for the source of your profits. Your investments reflect you and create the future in which your children and grandchildren will live. The bifurcation between our business and personal mores has placed us, and the world, at risk. It is time to step back from the precipice using the strength of commerce to begin again.
Nathaniel K. (Nathan) MacPherson, J.D., is President and CEO of MacPherson Investment Group, LLC. While working as an attorney in Europe, Nathan represented global banks as well as finance ministries in cross-border lending, securitization, and government bail-outs of failed financial institutions.
1 March, 2012, Maastricht University (Netherlands) study sponsored by the European Centre for Corporate Engagement and the Royal Institution of Chartered Surveyors.
2 Jeff Van Duzer. Why Business Matters to God: (And What Still Needs to Be Fixed) (Kindle Locations 126 and 956). Kindle Edition.