05 March 2012

Kick Wall Street to the curb, get $15 trillion

It was only a matter of time after we started eating local food and Buying Local from main street stores that we’d start hearing about local money

by Erik Curren | Mar 5 2012 by Transition Voice in Energy Bulletin | Mar 5 2012

It started with local currencies in such places as inflation-wracked Argentina and the wealthy Berkshires of western Massachusetts. These experiments in modern complementary currency spawned dozens of scrips around the world from Britain to India to Japan backed by the full faith and credit not of lofty central banks like the Federal Reserve, but of modest local governments and scrappy community groups.

Now, Michael Shuman, the author of The Small Mart Revolution: How Local Businesses Are Beating the Global Competition (2006), wants to make local investing accessible to ordinary people.

Credit default schmucks

Shuman’s case for pulling money out of Wall Street and bringing it back home is a strong one. Unless you’ve been living in a cave for the last few years, you know that investing in stocks has been a stomach-churning roller coaster, with speculators and other greedheads nearly bringing down the global financial system in 2008. And unless you believe stockbrokers’ hype, returns for the ordinary investor have been mostly down.

With job losses, foreclosures and bankruptcies at levels not seen since the thirties, the Great Recession has stripped many families of their investments, leaving barely enough to cover weekly gas and food.

Yet, millions of middle-class families are fortunate enough to still have money in retirement accounts, pension funds and insurance policies. And 99% of this money is not invested in local businesses owned by our neighbors. Instead, nearly all of the $30 trillion in liquid assets held by households and non-profit organizations is stuck in stocks of big banks like Bank of America and multinational corporations like Walmart and ExxonMobil in mutual funds managed by Wall Street firms like Goldman Sachs.

In his new book, Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street, Shuman claims that if we moved just half our money into local businesses, it would inject far more capital into our communities than Obama’s highly politicized but actually very modest stimulus program did over the last three years. For example, a suburban town with fifty thousand residents would get $2.5 million. A city of half a million would receive $2.5 billion. And all without raising any taxes.

Real job creators don’t summer on Martha’s Vineyard

Since small businesses employ half of all workers today, you know that this kind of money, invested locally, would create a lot of jobs. But would it be a good deal for investors?

Just ask Warren Buffett’s son Peter, who wrote the foreword to Shuman’s book. Even though Wall Street firms claim to deliver returns of 5% or more, in fact, “once you remove inflation and other accounting tricks,” says Buffett, the real rate “is in the range of 2.5-3.5 percent per year. This is a benchmark that certainly local business can beat.” Buffett goes on to laud the community-building power of local investment:

The values I experienced growing up long emphasized real wealth over phantom wealth and long-term investing over short-term speculation. And I witnessed the power of community and family loyalty over anonymous profit maximization. Increasingly, the investments that meet these values are in local business.

The main challenge to moving that huge pile of our money out of Wall Street banks is securities law that disqualifies all but the very wealthy from making unconventional investments. Shuman’s book proposes policy changes that would loosen restrictions on “unaccredited investors” — the 98% of Americans with net worth, excluding our homes, under $1 million.

But Shuman also shows how ordinary people can invest in local businesses even under current regulations.

Start by moving your money from a big Wall Street bank into a local community bank or credit union. Then, buy a share in a co-op grocery store, join a local investment club or go online to make a peer-to-peer microloan. In the future, with help from your local government, you might be able to buy stock from local companies making direct offerings to the public or through a local stock exchange or mutual fund.

A stimulus that even the Tea Party would like

As local communities struggle to resist being totally hollowed out by globalized corporations — who are firing local workers to move their plants to China on the one hand while, on the other, opening ever more big box locations to steal business from main street retail stores — using their own residents’ money to support their own local businesses is a welcome idea.

Kudos to both Shuman’s publisher Chelsea Green and to the Post Carbon Institute, who teamed up to start a new series of Community Resilience Guides, for making Shuman’s volume their first title.

Transitioners and anybody else who’s into re-localizing their community will enjoy the first half of Shuman’s book, which covers in ordinary language the whys of local investing and easy ways to get started now, including credit unions and co-op retail businesses.

But the book’s second half, which deals with such investing arcana as “the intrastate offering exception” and how to start a local-friendly mutual fund or community development financial institution (CDFI), will mostly be of interest to the wealthy, financial professionals and economic developers. The general reader can safely skim over this material just to get a flavor of what’s possible for a locality that wants to bring in a whole bunch of money without raising taxes — and then ask their city council or county board of supervisors to look into it.

Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street; by Michael Shuman, foreword by Peter Buffett, Chelsea Green, 249pp, $18.95.

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