Bank Interest or Self Interest?

This is one of a series of blogs aimed at raising awareness of the everyday external reality we take for granted (the matrix) and then considering how well it really works for our collective well-being, both short and long-term.  This week the lens is focused on Banking and Finance.

Everyone hates the banks!  Well at least it’s hard to find anyone who likes them.  Why is it so?  I think it's a well-founded observation that banks have so much influence at all levels in our society, yet they take so little responsibility for our prosperity – or our lack of it.

So how do banks work?  They borrow money from their customers or on the world market; they add the cost of their overheads, bankers bonuses, competitive returns to shareholders, and thus set lending rates for borrowers.  Competition is limited to whose turn it is this time to raise rates first.  When their borrowing rates go up they immediately raise lending rates.  When their borrowing rates go down they mostly delay dropping rates for as long as possible.  It's a risk free business!  On the lending side the bank holds a mortgage over a property and the borrower holds a debt to the bank.  In other words the bank owns the debt and you own the risk. 

Yet when banks borrow huge amounts of money and can’t meet their own debts as in GFC times, then we the public bail them out – we even own the risk on their behalf!

Alan Greenspan, former chairman of the US Federal Reserve, states in his book ‘The Age of Turbulence’, that “transferring risk away from highly leveraged loan originators can be critical for economic stability, especially in a global environment”.  Think about that statement and the mindset that it implies!  Imagine if it applied similarly to you...  You can borrow as much as you want and gear yourself as highly as you wish – and the risk of any failure on your part to repay the loan will be transferred elsewhere so you will not suffer – because it’s important for your economic stability.  How much would you borrow?

How on earth did we lose the plot such that we could allow a system such as this to be central to our way of life?  In order to understand this, we need to touch into basic human psychology…

It is perfectly normal, and in fact healthy, if you're standing in the road, to worry about the bus bearing down on you.  It is a perception about a physical reality that hopefully leads quickly to a decision to get out of the way!  However it is not normal, and is in fact unhealthy, to lie awake in bed at night worrying about the possibility of being hit by a bus.  The difference is that the first instance is a concept about something real and therefore you can do something about it; the second instance is a concept about a concept – about something which is not real, and therefore you can’t do anything about it.  If we persist in entertaining fears about being hit by a bus, we can build a neurosis for ourselves that can interfere with our ability to cross the road in a normal manner.  If we persist long enough, we can turn our neurosis into a psychosis, where it takes on a life of its own and we lose the ability to function in society, and need hospital treatment to get back to normal.

The same principle applies to all our dealings with physical reality, but in the financial world we have built a collective psychosis and we live in it as if it were real.  But here the inmates have taken over the hospital!

Take a look at a banknote – it is signed by the Governor of the Reserve Bank and marked as ‘legal tender’.  That is, money is a contract – an agreement between two parties in a value exchange.  No problem exists there because we have a concept about some physical reality – hand over money and receive goods or services.  It saves us the hassle of having to barter in goods.

However the beginnings of our collective neurosis occurred when we agreed to charge interest for lending money – because at that point we invented a ‘concept about a concept’.  At face value it sounds innocent enough, but what it allows is the party with the ‘concept about concept’ to be decoupled from physical reality.  The steps between there and the arbitrage of default credit swaps simply add a few more levels of ‘concepts about concepts’ and the collective psychosis takes on a life of its own.  The problem is that concepts about concepts only exist as long as enough people agree that they exist!  If we are ever forced to a reality check – for example balancing real assets against debts – the system can collapse overnight, as it did for Lehman Brothers, or Greece!

So the system reaches an inevitable conclusion and we desperately scrabble around to patch up the same system and continue with business as usual…

But how can we cure a collective psychosis?  The answer is to bring our operating principles back into contact with reality.  This applies to us personally as well as to the creators of the matrix!

Islamic banking for example, is run on the principle that a concept should never lose touch with reality - so interest may not be charged on loans.  The principle is in accordance with sharia law and while I certainly would not embrace that law in its entirety, in the case of financial matters it has not lost touch with physical reality.  But western style bankers (a la Alan Greenspan) have created their own private conceptual reality and drawn most of the world into it!

Instead of charging interest, an Islamic bank enters into a partnership with the borrower to buy the property which is then owned jointly.  As the borrower repays the bank, ownership transfers proportionally.  The bank profits by selling the house to the borrower at an agreed price higher than what the bank paid.  While this may sound like the same outcome, in effect it is a world apart.  The bank does not own the debt – the bank owns the property.  The borrower does not pay interest – the borrower buys the property from the bank at an agreed rate.  The risk is shared, and both parties have something at stake in the success of the borrower.  Neither party loses touch with physical reality! 

So it is certainly possible to adjust our systems towards a healthy state.  But will we?  It is the system that allows a lender to decouple from physical reality and its associated risks that is the core of the current global financial fiasco.  But the implications of change run deep.  If you receive interest on an investment that decouples you from physical reality, then you are part of the problem!  But if you invest in physical property, for example, an apartment that you rent to someone else, then you're connected to reality appropriately.  If you are an investor, you can choose to adjust your financial affairs by ensuring that you make contracts only with physical reality – don’t go for products that look like ‘concepts about concepts’.  That means that we must be involved and engaged in the workings of any investment we make.

The government has made it easier to change banks in order to encourage competition.  If you are a borrower, make noises in banking environments that you are looking for a change.  Make a point of checking out Islamic Banking – you don’t have to change religions – and then point out its advantages to bankers in the collective psychosis club!

Self-interest doesn’t have to include bank interest…

Buy Now – Get Free Steak Knives plus Tasmania!

This is one of a series of blogs aimed at raising awareness of the everyday external reality we take for granted (the matrix) and then considering how well it really works for our collective well-being, both short and long term.  This week the lens is on Marketing and Advertising. 

Each of our personalities includes a subconscious level that contains a number of ‘deficit needs’ - needs that remain unsatisfied in spite of our ongoing efforts to fill them.  These are quite normal attributes that helped shape our unique personalities.  The test of whether or not we manage them appropriately can be observed in our lifestyles.  For example, the three most basic drives are self-worth (the need to feel valued), personal power (the need to feel in control of one's life), and the intellect (the need not to feel stupid).

Marketing and advertising preys on these subconscious vulnerabilities to create the illusion that buying material goods and services will somehow satisfy the deficits.  For example:

• How much do you spend on cosmetics, shoes, clothes or personal grooming that is driven by the hope of greater approval and greater attractiveness?  What do the contents of your wardrobe say about your need to project an image of higher than average self-worth?
• How much are you sucked in by specials, sales, deals or apparent bargains, driven by a need to demonstrate your (buying) power?  Where has all the money you've apparently saved gone – into more of the same?  What does your credit card bill show?
• How many gadgets have you collected in the name of novelty or promised utility (my weakness)?  After the novelty wore off, what was the ongoing utility value in your daily routine?  Do you actually feel smarter?
• On a larger scale, consider your car or your house as expressions of your personality.  What qualities do they express publicly about you?  How hard do you have to work to service the debt and the image?

Now you may be thinking that you haven't handled as many of those deficit needs as you thought – but it gets worse!  The Gruen Transfer (my favourite TV show) is so named to describe a psychological manipulation that is consciously created in shops and malls.  The geographical layout is purposely arranged to lead to confusion; the type of music in the background is purposely designed to cause you to lose focus.  That point where you realise you've forgotten what you were looking for, is when the Gruen transfer has occurred.  At that point you have been purposely dropped back into subconscious awareness where those deficit needs will cause you to make unplanned impulse purchases.  It should be a criminal offence!

I love this quote by Tim Jackson, author of “Prosperity Without Growth”, which I believe provides a roadmap to our only viable economic and ecological future.  “We’re being persuaded to spend money we don’t have, on things we don’t need, to create impressions that won’t last, on people we don’t care about!”  Tim has a great TED talk on the subject: http://www.ted.com/talks/lang/en/tim_jackson_s_economic_reality_check.html

So there’s one born every minute – what’s wrong with the general population being played for suckers, so long as their friends are impressed?

Well the real problem is that we can’t afford it – personally, as a society and as a planet.  The economy and the ecology are in collision and both are disintegrating before our eyes.  The economy in our consumer-based society is predicated on never-ending growth, which economists, the government and businesses all agree must be stimulated, nurtured and hailed as the criteria for progress.  Yet the more we produce to satisfy the needs of a growing population, the more natural resources we consume and the more pollution we create.  It is impossible for these two essential components of our collective well-being to continue on their current trajectories without consequences too dire to imagine.

Brand managers and advertising executives have engineered that a successful business doesn’t just manufacture goods and services, it also manufactures “wants” that otherwise would not exist.  American businesses alone now spend $300 billion a year to create and manipulate consumer demand.  Google made $25 billion from advertising in 2010 and Facebook made $1.86 billion.  By the age of 12 years a typical child has seen over 30,000 advertisements.  Consider the “mind pollution” we suffer each day with ads on radio, TV, billboards, the internet and antiquated print media. 

From birth onwards we have come to accept all that advertising and marketing as normal (remember Sesame Street – brought to you by the letter ‘S’?).  It is part of the fabric of the matrix that pervades our very being, causing us to assume that unending consumption equates with normal life.  Eventually, life tends to show us that happiness can never be found in any “thing” external to ourselves, but not if marketers can avoid it!  So, while the real problem runs deeper than marketing and advertising, marketing and advertising both exacerbates and perpetuates it.

Let's start with an ideal.  Imagine that there was no marketing or advertising allowed on TV, radio, or outdoors.  A few keystrokes could locate on the Internet any desired product or service, but none could be pushed unsolicited at you.  Unless you actively seek particular goods or services, you should be afforded the respect of experiencing no commercial advertising in any form.  (Yes, I do understand the commercial implications, but let’s not start from the existing economic model being the best or only possibility.)

• How can we tone down marketing and advertising as the first step to eliminating it completely in its current forms?  Here is list of ideas you might try…
• Awareness brings choice – so consciously choose not to buy anything that is pushed at you through any unsolicited advertising.
• Encourage graffiti artists to use their questionable talents for a worthy cause – “enhancing” any outdoor advertising by covering it with their tags (but maintain heavy penalties for painting on non-advertising spaces). 
• Make it a tyrannical home rule that the mute button is always pressed for all ads on TV – even 4 year olds will soon pick up the habit, they will love to exercise the power and its great training for them to get idea early that ads are put on by bad, bad people to try and trick you into giving them your money! 
• Choose to watch or listen to non-commercial programs wherever possible.  Train yourself to “tune out” ads – don’t listen, watch or read. 
• Who doesn’t agree that ads ruin otherwise good and enjoyable movies, destroying the mood and turning them into 5 minute bytes of crap!  So choose not to watch them on TV – rent a DVD instead – or even turn off the box altogether!
• Notice the Gruen Transfer happening to you when you’re shopping – then smile and say “gotcha!”  Notice your internal deficit impulses, and then consciously choose not to follow them.
• Understand that there are no such things as ‘specials’!  Momentarily lower prices on one item are always balanced by higher prices on the other items you are most likely to buy at the same time. 
• ‘Sales’ are for the commercial benefit of the shop – not you!  They are always accompanied by incentives to rush, don't think, and buy it now (Gruen again).  There will always be another sale tomorrow, next week, next month, closing down, stock take, opening up, fire, Mother’s day, Easter etc.
• Don't buy on credit.  Take advantage of your credit card to keep track of your expenditure, but make it a rule not to spend what you can't pay off this month.  You will feel more powerful running a balanced budget than regretting that impulse buy.
• Don't ever go shopping for the sake of shopping!  (This is probably harder for women than for men ;-)).  If you wander around without a conscious intent, then those subconscious impulses will take over.  If “retail therapy” seems to be an addiction for you then at least check with your impulses first – are you trying to avoid feeling worthless, powerless, or stupid?  Will more material stuff really change that?

Marketing and Advertising plays a huge part in taking us all over the economic and ecological cliff by creating and maintaining the illusion that we will forever need more stuff that holds the promise of happiness – it’s an industry that has to go!  Okay – that’s a rather optimistic wish – but we all have the power to not play the game.  When enough of us point out every day that “the king has no clothes on”, the illusion will collapse and we will all be so much the better for it. 

Teach your children well – they will be ones who inherit the future that we collectively create today.

Do you have any other tips for dealing with the scourge of marketing and advertising?

Take the Red Pill

"You take the blue pill – the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill – you stay in Wonderland and I show you how deep the rabbit-hole goes." (Morpheus’ quote from “The Matrix”)

  

“Every day, millions of choices are made by individuals, businesses and governments. Our common future lies in all those choices.  Because of the array of overlapping challenges the world faces, it is more urgent than ever that we take action to embrace the principles of the sustainable development agenda.  It is time that genuine global action is taken to enable people, markets and governments to make sustainable choices.” (The Report of The United Nations Secretary-General’s High-Level Panel on Global Sustainability – 12 Jan 2012, 23 pages) www.un.org/gsp/report

This refreshing overview report shows that the UN does understand the real causes of our current global problems (eg that GDP alone cannot be used as a measure of progress).  They make many well-thought-through recommendations, but I fear that the timeframe between what they recommend governments ‘should’ do, and any concerted global actions may be longer than our current lifespans.  I am reminded of a joke from the last days of communism - “Comrades we’re at the edge of a cliff and we’ve just taken a giant step forward!”

The U.N. report left me seriously contemplating what I can do as an individual to contribute positively to a situation that becomes more urgent every day, when my skills mostly centre on understanding what makes people tick.  My conclusion is that I can point out the matrix – how the very fabric of our collective reality has been consciously constructed and is actually working exactly as it was designed – not in our collective best interests, but the interests of the few.  But even putting the ethics of that aside, we are rapidly reaching the logical conclusion of an illogical system.  I’m not big on conspiracy theories – though if there is a conspiracy then we are all unconsciously willing conspirators!

VitallyMe and its big sister Q12 focus on the interior aspects of our reality – how to manage and develop personal traits and qualities in the pursuit of happiness.  We often make the mistake of trying to change our external reality to suit our internal comfort.  But there are times when we do need to turn our focus outwards and take specific actions to change the external aspects of our reality. 

In that light I intend to point out aspects of the matrix in this series of blogs – and you may not like what I point out – aimed at generating robust discussion, growing awareness of how we are all part of the problem, and hopefully leading to solutions that we can all apply in a multitude of everyday choices.

The core premise here is that our current reality simply cannot continue, economically or environmentally.  Environmentally we chew through resources like they were inexhaustible and free.  We stubbornly argue for our own vested interests – even on relatively simple issues like water management in the Murray-Darling system or a carbon tax – not only ignoring science but unable to hold any kind of bigger picture or see any future consequences of continuing current actions.

Economically we do exactly the same.  The world has far outspent its capacity to pay.  China has now lent $3.3 trillion to the US and Japan so they can buy cheap goods from China!  There is no-one else to borrow from – as a planet we have mortgaged our future to have a lifestyle now, that collectively we cannot actually afford.  The illogical system is the debt-based economy and the totally false belief that the growth it appears to produce is real.  It’s a balloon that can either burst – which means world-wide depression, or it can be let down slowly – which means austerity measures for the next decade at least. 

As Woody Allen once said, “We face a choice between hopelessness and despair and total extinction – and may we choose wisely!”

A serious depression is a horrific option (Google “great depression” and imagine how you would cope in such circumstances) that none of us has experienced in this lifetime.  I see the best chance we’ve got is to let the balloon down as quickly as we can while the world struggles to enter a new but inevitable paradigm – prosperity without growth.  But that is not a bad thing for developed nations.  Almost all living things grow rapidly to a particular stage – then growth virtually stops and they move into maturity and to more sophisticated experiences.  (The only organism to maintain continuous linear growth is cancer!) 

“Prosperity without growth” will certainly be a brave new world – so let’s choose to bring it on, rather be dragged screaming into it.  But understand just what that means – it is necessarily the end of the consumer society into which we were born and which is all most of us have known all our lives – it is in fact the matrix!

So my blog series will be about how to take down the consumer society before it takes us down.  I invite your comments and thoughts – hey, we might just come up with enough micro-solutions make the difference…

Here are some of the topics I’ll be blogging…

·         How to disable the marketing and advertising industry

·         Life without financial institutions

·         The illusion of superannuation

·         Accounting for the planet

·         Making a mark in the market

·         The no-insurance policy

·         The real value in your life

Should be thought provoking at the very least!  I hope you’ll join in and invite everyone you know to do so as well…