We Are All Investors
Honouring our Pain
Contrary to common understanding, there is no such thing as money sitting in a bank account. A poll run by ICM Research on behalf of the Cobden Centre found that a third of the UK public still believe that banks keep their depositors’ money safe and untouched awaiting to be collected in the future. What happens in reality, though, is that when you deposit money in a bank, that money automatically becomes the property of the bank, hence they will use it (directly or indirectly) to lend to businesses and people they choose to. When participants of the same poll were told this information, they judged it wrong, declaring they had not given permission for banks to do so.
No matter how much we have in our accounts, be it a savings or even a checking account, the fact is that we are all investors. Legally speaking, there are two types of investors: accredited and non-accredited. Accredited investors are people with a certain high level of yearly income or net worth (in simple terms, rich people) who would be better suited to evaluate investment risks and opportunities and, therefore, can invest directly in private companies. In the United States, for instance, only 2% of the population would fall into the accredited investor category, as of 2010. The rest of us are non-accredited investors and, as such, we need to recur to financial institutions, intermediaries, or brokerage firms in order to perform our investments.
Non-accredited investors generally turn to three main asset classes: stocks, bonds and real estate. The truth though is that investing can be extremely intimidating, thus making us feel it is out of our capacity to start doing it. Furthermore, the fact that options vary enormously from country to country makes it even more challenging to get familiar with the subject. For the sake of clarification, the first step is to understand that all investment options are based on two types: lending or owning. Put simply, certificates of deposit (CDs) and bonds are lending instruments: you are lending money to a borrower and receiving an interest rate in return, during a set period of time. Stocks and real estate, on the other hand, are classified as ownership investments. When we invest in stocks, we are buying shares in a company, and can earn dividends, or make money only when selling our shares. Meanwhile, in real estate, people gain returns by flipping properties or through rent.
By actively lending money to banks via our savings accounts or CDs, for example, we are passively financing whatever the bank sees more promising in terms of returns on their own investments. Having said that, according to a 2019 Report on Banking on Climate Change, “33 global banks have provided USD 1.9 trillion to fossil fuel companies since the adoption of the Paris climate agreement at the end of 2015”. Common sense says that we can trust a bank according to its record of defaulting on depositors’ loans. But how would we trust banks if we knew exactly what they are investing in? Similarly, when we turn to government bonds, traditionally known to be the safest form of investment, we might find out that, in some cases, military spending is amongst the priorities of the federal budget. In 2018, global military expenditure totalled USD 1,782 trillion, with nearly USD 650 billion coming for the United States alone. In fact, in 2014, over 54% of all federal discretionary spending in the U.S. accounted for this type of expenditure.
While more conservative investors might choose public and private bonds as a safe investment path, the real bets with higher returns come from the stock market. Although it is possible to buy stocks from companies separately, it has become increasingly common to opt for funds instead (e.g. mutual funds, index funds, exchange-traded funds), which are basically a pool of money sourced from different investors and directed to a portfolio that can include stocks, bonds, or both. Modern Portfolio Theory dictates: ‘don’t put all your eggs in one basket’, and so these types of funds prioritise diversification. If we take for example a popular index fund, the S&P 500, that means we are buying shares from the top 500 companies in the United States — representing a diverse range of sectors, from oil & gas to technology and pharmaceutical companies. When choosing these funds, the responsibility of building a portfolio is held by the fund manager. And although it is possible to pick a sector, for example, technology funds or energy funds, the investor does not have a say in which exact companies they are going to buy shares from. From the traditional perspective of yielding higher returns, the stock market might be the favourite game for savvy investors. Nonetheless, this investment approach is generally supporting companies such as Facebook who, in spite of its astounding growth rate, has been continuously involved in privacy scandals.
Finally, real estate is one of the most traditional assets in history. The 2008 recession was caused by the ‘buy and sell’ of derivatives, called subprime mortgages, between banks and investment funds. But down the chain, regular citizens were buying houses and apartments — either to live in or rent. Rent is one type of return we can have by investing in real estate. With the passive income received every month, the mortgage is eventually paid off and from that point onwards, the cash flow is pure profit. The other type of return is the profit margin earned by buying properties and selling them at a higher price. One way or another, due to deregulation, financialization and globalisation, we are witnessing a process of hyper-commodification of contemporary housing, through which its economic value as an investment has far outweighed its primary role as a human right. As a consequence, millions of people all over the world are unable to afford homes, either being forced to move elsewhere or into the desperate reality of homelessness. In England, for instance, homelessness has risen by 169% since 2010, with 320,000 people now living under poor circumstances. Quoting Joan Antoni Melé, “We sold for USD 50 million the apartment we bought for USD 12 million. We made a great deal. But we ended up impeding our children from buying their own apartments”.
In our normal, rushed lives, when we read the news or talk to a banker, these assets can easily appear to be nothing but difficult terms, followed by numbers and percentage rates. Nevertheless, by reconnecting their names and types to their direct social and ecological implications, even in the briefest of forms, we can build a better picture of the finance sector and observe how we have completely detached money from ourselves and from its impact in the world. Going back to that Cobden Centre poll mentioned earlier, out of the group of people who knew their money was being lent by banks, 61% said they “didn’t mind as long as they get some interest and the bank isn’t too reckless” (Ryan-Collins et al., 2017:32). Behind this answer lies the ‘more is better’ imperative established by neoliberal economics, which has strongly encouraged individual accumulation over any other type of goal. Lost in all this abstraction, we have ignored the limits of nature, projecting all the answers on infinite economic growth, and obsessing about making money in Wall Street “while the real economy languishes” and the needs of people remain unmet. In the face of this type of challenge, Kate Raworth defends our need to redesign finance so that it finally serves the economy and society, not the financial elite. After all, what we need is not economies that grow whether or not they make us thrive, but instead, “economies that make us thrive, whether or not they grow” (Raworth, 2017:30). In this light, reframing money can be seen as one of the key approaches to this mission. Stanislas Jourdan, head of Positive Money Europe, highlights:
“There is an interesting paradox around the problem of climate change and the problem of money. All those years, central banks and society thought of money as scarce and natural resources as abundant. However, money is something we can just create. It is not scarce; it is by nature abundant. Natural resources are scarce — more cannot just be extracted from the ground. Society needs to understand that the lack of money is not the problem, and that changing the way we think about money might even be the solution”.
In summary, although we are right in demanding that large industries reduce their CO2 emissions, we must remember that they can only emit tons of greenhouse gases because there is an invisible, globalised finance sector supporting them. It is now our mission to make the invisible, visible. Drawing on authors like Solomon & Bridge (2018) and Robin & Dominguez (2018), doing so requires a massive renewal in how we understand and relate with money. Such process invites us to disentangle money from the assumptions imposed by the presiding economic narrative and to align it with our values — holding the well-being of our families, communities and the natural world in our intentions. So, in the next article, we will explore how we can see money with new eyes and use it in a more regenerative, rather than degenerative, way.
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