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"What this says to me is that the VC industry, as a whole, is being incredibly successful at extracting rents from dumb institutional investors. These investors wouldn’t dream of investing in a public company where there was no transparency as to basic questions like how much money the principals were being paid, but they happily invest in venture capital funds where the founders cream off so much of the income that younger top performers end up leaving the firm. And in general, VCs are incredibly good at playing fear off against greed: would-be investors really want massive VC returns, and they really don’t want to be left out in the cold."
This is a big gap where businesses choose to invest in their services. They spend a lot of money to tell you how great the service is, and then, all too often, the service doesn't live up to the hype. Brands become hypocrites thanks to their own investments.
"But the bigger issue is what will happen to debt? Credit is the lifeblood of any economy, and blind governments have allowed credit itself to be debauched, all in the name of the absurd ideology of “free markets”. And the absurd notion that capital (that is agreements) is scarce."
"The answer is that an extreme concentration of wealth at the center of our market economy has led to a form of central planning. The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy. As a result, we now have the equivalent of centralized planning in global marketplaces. A few thousand extremely wealthy people making decisions on the allocation of our collective wealth. The result was inevitable: gross misallocation across all facets of the private economy. "
They make no attempt to hide the bad news for the U.S. Economy–“return on assets for U.S. companies has steadily fallen to almost one quarter of 1965 levels,at the same time that we have seen continued, albeit much more modest, improvements in labor productivity.” The meaning of this is staggering–any productivity gains from the digital revolution have been more than wiped out by our corporate (as well as personal) addiction to debt.
The endless churning of contingent claims, including derivatives, when the purchaser has no identifiable insurable interest, turns financial intermediation into a market-mediated betting shop. Then the betting slips become bearer securities and are themselves traded, either OTC or on organised exchanges, and the derivative transactions volumes expand to dwarf the transactions in the markets for the underlying financial claims (let alone the markets for the underlying real resources). At that point, the betting tip of the financial tail of the real economy dog does all the wagging. It does not create value but redistributes it in a way that consumes real resources and exposes the real economy to unnecessary risk. It's time to tame the tiger.
in list: Economic Crisis
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Business models for radical responsibility. Over the last decade, it's become increasingly clear that the radical irresponsibility of industrial-era business is deeply unsustainable. That irresponsibility must become radical responsibility. Yet, the trailblazers of making radical responsibility economically viable are non-profits and social businesses - not venture funds, who have been deeply reluctant to explore the economic possibilities of responsibly powered business models.
But the little-discussed converse is also true: venture investors have systematically underinvested in economic creation. Here's a simple question. How many new industries or markets have venture funds created in the last decade? By my count, exactly two (search and cleantech - and cleantech is still a maybe).
We hear a lot about infrastructure investment today: roads and bridges, mostly. But we live in an information society and an information economy. We need investment in information infrastructure, and that, in the near term that is relevant for a recovery package, means massive public investment in Fiber To The Home (FTTH) and creating a fundamentally new system for adult education and its conversion into greater local involvement in education programs at local public schools.
That approach will be hopelessly inadequate for those who want to build a decent pension, especially in defined-contribution, or money-purchase, schemes, where the employee bears all the investment risk. The average American scheme member contributes just 7.8% of salary to his pension scheme. His employer, on average, contributes only 4.4%. He has a pot worth only $68,000. A rule of thumb is that total contributions need to be around 20% of wages to match a traditional final-salary scheme.
in list: Economic Crisis
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