to you, as an Engaged Citizen
Find your voice, and use it
setting stewardship and society free
from the tyranny
of the trading tape
the new social structure of civic engagement in adaptively evolving community standards of prudence for superfiduciary stewards of society’s savings for sufficiency
There are many visual maps and design constructs in the evergreen core story to show new thinking about the value recognition functions of finance and a new social structure – new frameworks, processes, places and people – for recognizing the values we need to be recognizing as fit to the functions of our times.
There are many players in this new structure. Two are key. Superfiduciaries. And you.
“Superfiduciaries” is a word we use to dramatize the super powers and super duties of pensions and endowments, as stewards of society’s shared savings that are aggregated and maintained to provide income security for retirement, for education, for philanthropy and for our shared future, forever. These stewards of society’s shared savings entrusted to their good judgment have a fiduciary duty under the law to be true to their fiduciary purposes. They are important to this story because right now they are trapped inside the securities trading system.
You are important, because you are going to set them free. That’s what this expedition is all about.
To see how you can set our pensions and endowments free to be all they can be as superfiducaries, travel with us in your imagination to meet The Hypothetical Reasonable Person.
The Hypothetical Reasonable Person is the guardian of fiduciary prudence, empowered through the force of law to keep our stewards true to the values of good stewardship. But, you will learn, he has been weakened and made ineffectual by a greedy and conniving band of self-proclaimed Masters of the Universe who hold this Hypothetical Reasonable Person hostage, bound up in an impenetrable web of incomprehensible theories that purport to support the rationality of speculation and the prudence of pensions gambling in the casino of securities trading.
This Hypothetical Reasonable Person will tell that pretty much everything our pensions and endowments are doing as investors today was against the law 40 years ago.
And the Hypothetical Reasonable Person will ask you:
If it was not prudent 40 years ago, why is it prudent today? Have we really gotten that much wiser in the ways of speculation?
The Story of How YOU Set Our Superfiduciaries Free
Your story begins with an encounter. You meet the Hypothetical Reasonable Person, who is telling you how he was strong and righteous at one time, a faithful keeper of the people’s trust.
But the vast wealth aggregated in society’s shared savings became a strong lure for certain Speculators With Other People’s Money, who determined to take over control of these savings, and use them to generate speculative transaction volumes and speculative trading profits in the speculative securities trading markets; and to thereby make themselves the Masters of the Universe. These actors enlisted the help of wizards and magicians to cast a spell of seeming reasonableness over speculation through share trading, and seduced the law into believing that it did not need the antiquated standards of reasonable prudence. “All would be better”, they promised, “if the law embraced the new wisdom of Modern Portfolio Theory.”
And the law believed them.
As you leave the Hypothetical Reasonable Person to continue on your journey, you next meet a man of many years, but uncertain age, whose bright eyes and strong hand belie the whiteness of his hair and the length of his beard, leaving you to wonder how old he really is.
As day nears its end, you accept an invitation to sit with this man in the warmth of a bright fire, as fellow travelers at chance meetings sometimes do. As you sit, you begin tell a story about your encounter with the Hypothetical Reasonable Person. A knowing smile comes over the wise and welcoming face of your just-met companion. Inexplicably, a feeling comes over you that this is a man who has dug deep and traveled wide within the workings of the world, a man who has faced down many demons, has stood among the Masters of the Universe, and seen through the deceits of their wizards, a man who is immune to the spells that they spin, a man who will guide you, if you will follow him, on a difficult journey to an uncertain end.
And you are not sure how you feel about that.
The man begins to talk, about many things that feel to you at first strange, but as he talks they become more comfortable and familiar. He talks bout the origins of endowments, the creation of fiduciary duty and the birth of the Hypothetical Reasonable Person. You listen as he tells you, almost as if he is speaking to himself, retracing in his own mind difficult steps taken on an ancient, tedious and lonely journey, about the Days of Chivalry, the titles of the landed aristocracy and the first Crusades, about aristocrats founding monasteries that became universities, about widows and orphans and irresponsible minors and the dead hand of tyrannical patriarchs reaching out from beyond the grave, about the Rule Against Perpetuities, and the invention of pensions in the Age of Retirement. He talks, as if in conversation with himself, of how some say the Age of Retirement is nearing its end with the coming of Artificial Intelligence, and a new Age is beginning in which all work will be done by robots, and how these people say that in the new Age the wealth of society will be shared through a Universal Basic Income, because there will no longer be enough jobs for all the people to do.
And he will turn his gaze to look at you, and with piercing eyes he will tell you this truth that the Masters of the Universe do not want you to know. He will tell you that pensions and endowments are not “investors” in the Speculator’s meaning of that word. He will tell you that they are, in truth and truly, aggregators with a purpose. It is this purpose that makes them powerful. He will tell you to see them as powerful financial actors in their own right, competitors to the Speculators With Other People’s Money who have set themselves up to be the self-called Masters of the Universe. He will tell you to see them for what they truly are, the most fearsome competitors our would-be Masters have ever known. But they are trapped, as the Hypothetical Reasonable Person had told you, captured in a web of Modern Portfolio Theory, and tyrannized by a fear of falling prices, and an inability to get out. And the Masters of the Universe are feeding off their fear. And the shared savings of society entrusted to their good judgement are disappearing.
“is the sacred promise of the securities trading markets, a promise they deliver through the mechanism of the omni-present but ever-changing market clearing price. In the Market, there will always a seller who will sell, and a buyer who will buy, but you can never know in advance the price at which the seller will sell, or the buyer will buy. Not because it is a secret. Because it is indeterminate, in a Heisenberg kind of way. It is created and recreated in each moment, from moment to moment, with no essential continuity, as each new trade gets made, reflecting the erratic and unpredictable movements of the herd of buyers and sellers around a market that is placing bets on where the herd is heading next.
he continues, now speaking with the determined air of someone who knows, deeply and truly, but has grown accustomed to being dismissed because he does not repeat the received wisdom of the then-prevailing social convention,
“was originally designed for us, as individuals, investing our own savings for our own account in pursuit of our own proper purposes. It was designed to enable us, as small, opportunistic and time-limited investors, to share in the wealth being created by the large and theoretically perpetual industrial enterprises of the Age of Economies of Scale. Through the market we share in this wealth creation indirectly and derivatively, because we cannot share directly. We are too small, and we do not have the time. This market is a design that is beautifully fit to this function of individuals participating derivatively in the wealth being created inside large industrial enterprise. It is a design that was authentically right for its times, in the 19th Century.
“But times have changed. In the 20th Century, scale created retirement, and retirement created pensions. Vast aggregations of the savings of society came to be entrusted to stewards of pension plans that are designed to operate like life insurance in the obverse. Life insurance uses statistics and the Laws of Large Numbers to socialize the financial burdens of dying too soon among a statistically significant population of statistically similar policyholders. Pensions use statistics and the Laws of Large Numbers to socialize the financial burdens of not dying soon enough among a statistically significant population of statistically similar current and future retirees.
“There is this important difference,”
he goes on, now speaking with an authority that comes from deep thought and powerful expertise,
“Insurance caps its payouts. Pensions do not. Pensions keep paying as long as retirees keep living. To keep pensions paying, they need to keep earning. A pension needs to invest the savings of society entrusted to its good judgement to generate enough cash flow through investment to keep its actuarial risk pool – the place where it keeps the Large Numbers that make it work – properly full and flowing, constantly, consistently, continuously and indefinitely.”
“This is important because it gives the lie to the Usurpers of fiduciary prudence.“
He pauses, to let that thought sink in. It takes awhile. The importance of this point is not apparent to you.
After a few moments, he starts again,
“The wizards who work for the Masters of the Universe tell us that pensions and endowments have to invest in growth. But they do not. They have to invest in cash flow. It is the Masters of the Universe who need our pensions and endowments to invest in growth. So they can earn fees, and claim to be our masters. Growth is important to the process of speculation in the markets over which the self-called Masters of the Universe are really the masters. Growth is what speculators are speculating on, when they speculate in the securities trading markets. Technically, they are speculating on the future movement of future selling prices, which may be either up or down, but what makes the markets really work – what gives them the power to deliver on their sacred promise of instant liquidity and “getting out” – is movement UP. That is, Growth. The well-known secret to success at securities trading is to buy low and sell high. The joke here is that you cannot know if you have bought low until you find out whether or not you were able to sell high. If most of the time it was the case that a seller could not sell high – thereby proving that they did not, in fact, buy low – then new buyers would not buy, so sellers would not be able to sell. The market would freeze up.
“In order for the markets to work, share prices have to go up, and in order for prices to go up, the corporations that issue shares have to keep growing the cash flows they generate through commercial transactions in the real, physical economy. Of course, they can and often do, also manipulate events to make it look like real earnings are growing, which is not good for us, or for our superfiduciaries. But one story at a time.
“Growth is essential to speculative trading. Everything else will be tolerated by the Masters of the Universe if share prices are growing. Nothing else matters to these Masters if share prices are not.
“Growth is the one absolute good in the magical world of speculative trading that is ruled by the Masters of the Universe. In the real world, where you and I live, the value of growth is decidedly more relative. What parent would want their child to never stop growing? In the real, physical world in which we both live, anything that never stops growing becomes a monster. Or a cancer.”
He goes on, now talking like a book.
“The rhythms of prosperity in the physical world of human being is not the relentlessly mechanical growth along an historical trend line that speculators speculate on. It is the flourish and fade of popular choice, as times change, and we, the people, evolve prosperous adaptations to life’s constant changes. This is the rhythm our pensions must ride, if they are to be good stewards of our shared savings. Endowments, also. Because although they are not so large, and therefor not so powerful, as pensions, endowments for education and for philanthropy are nonetheless stewards of society’s shared savings with a fiduciary duty to be true to their fiduciary purpose. “
Another pause. Then he resumes.
“It is said that cash flow is happiness for enterprise. We have seen that cash flow is happiness for good stewardship, as well.
“So now we can ask ourselves this question that needs to be answered.”
He pauses, fearing that the drama of what he is about to say may undercut his credibility, but knowing in his heart that, come what may, he must press on.
“This question is the single most important existential challenge we face in our times. If we answer it correctly, we will continue on towards a future filled with enough. If we do not….”
His voice trails off as his mind wanders. You can see that he is thinking it may not be wise at this time to share what he is thinking about what happens if not.
After a moment, he looks at you, directly in the eyes. He has summoned the courage to risk dismissal, scorn, ridicule and embarrassment. He says,
“This is the question. What is the most authentically prudent way to match the happiness of cash flow to good stewardship with the happiness of cash flow to enterprise? Is it prudent to make that match indirectly and derivatively, by speculating on changes in future prices derived from expectations for future cash flow? Or is it more prudent to make the match more immediately, generating enough cash flow to support good stewardship, indefinitely, by sharing in enterprise cash flow generation, directly?
“What does the Law say in answer to this question?”,
he says, responding to his own question, his voice changing once again as he returns to the moment, and the circumstances of your encounter.
“As we have learned, the Law cannot speak. It has lost its voice to that Usurper, Modern Portfolio Theory, who now speaks for it. And MPT insists that it can make speculation properly prudent through the magic of diversification.”
“What shall we do? Shall we continue to let Modern Portfolio Theory speak for the Law, to set the standard for fiduciary prudence? Or shall we set the Law free, so he can speak for itself, from its own heart and with its own mind?”
After a moment you realize that this is not a rhetorical question. The man is waiting for you to answer. You, personally and individually. You are stunned. What do you know about finance and investment and stewardship and fiduciaries? You’re not even sure what “fiduciary” means (or how to spell it). You don’t know what to say. So much has been presented. You have not had time to process. You sit silent, looking at the man, thinking about all that has just happened to fundamentally change your whole conception of society and the economy, of finance and prosperity. In such a short period of time.
After awhile, he smiles, and looks away. You feel yourself released from the pressure to respond. It is a relief, but also there is a desire now that has been kindled in your heart, and in your mind, and in your hands, to know more, and to take action. To set things right.
“I see that you need time to think things through. That is perhaps as it should be. For me, I have already decided. This is my mission. I labor to set the Law free, to speak with its own heart, from its own mind, with its own hands.
“I need your help. The Law needs your help.”
“What?” you ask, half listening, “The Law needs my help?” You are still frantically processing all that is swirling around in your head.
“But how can I help the Law?”, you ask.
“Come with me.”,
“I am going now to a fiduciary place, to join in a meeting of many minds, and we are going to work together in that safe space, co-creatively collaborating to set the Hypothetical Reasonable Man free, so he can put our stewards back on a path towards good stewardship, and they can put our economy back on a path towards a future prosperity of always having enough.
“There are powerful forces arrayed against us. Our strength is in our numbers. If there are enough of us, we will prevail.
“We need your help to add to our numbers.
“Will you come?”,
“Will you join us, to be there and be counted?”
and you will see that you have the power to help our stewards escape the tyranny of the trading tape in which they are now entangled by joining the conversation to adaptively evolve the wisdom of The Hypothetical Reasonable Person as the community standard of prudence that guides the law of fiduciary duty.