Author: Marco Vangelisti

Marco Vangelisti, Chartered Financial Analyst (CFA) is a 100% Aware™ and No-Harm™ Investor with a longstanding commitment to Positive and Restorative Investing™.

Greta and Sallie

A new decade is upon us. It is the most crucial decade in the history of our species in terms of dealing with climate change. Even if the COVID-19 pandemic might be occupying the bulk of our collective awareness at this time, it is climate change and what we do or fail to do in the next 10 years about it that will define our future and determine whether the homo sapiens experiment will come to an early end or endure past the year 2100.

Two amazing women represent for me the ethos of this time – Greta Thunberg on one hand and Sallie Calhoun on the other.

Greta is a 17-year old Swedish climate activist with Asperger’s, a diversity which is actually her superpower since, unencumbered by social pressures to remain in denial about it, she is able to express with great clarity the gravity of the climate crisis we are facing and the scope of the actions required to address it.

Here is her talk at the COP25 in Madrid in December 2019 – a prophetic clarion call to action. Commitments by developed nations to reach a carbon neutral economy by 2050 are revealed by Greta as little more than clever accounting and creative PR in light of the fact that, at current emission rates, our collective carbon budget will be exhausted by the end of this decade. The politics required for changes appropriate to the challenge at hand do not exist at the moment – says Greta. While we collectively work on bringing about the politics required for the preservation of a habitable Earth, Sallie Calhoun shows us how to individually rise to the challenge through our investments.

A successful Silicon Valley tech entrepreneur, Sallie Calhoun put her financial resources at the service of addressing climate change by restoring the fertility and therefore the carbon absorption capacity of US agricultural land. She calls her engagement in philanthropy, impact investing and regenerative agriculture the No Regrets Initiative.

I see Sallie as embodying the type of behavioral change Greta is advocating as commensurate with the climate challenge we face. If only 20% of all financial capital were to be deployed in the manner Sallie deployed hers we would be well underway in reversing the effects of climate change and ensuring a habitable Earth for the long haul.

Here is Sallie’s E F Schumacher lecture on October 27th 2019 in which she recounts her journey from her early years as a Southern girl more interested in science than the female role models presented to her as appropriate for her gender and age, to her exciting and successful career as technologist during the golden years of Silicon Valley, to the transformation of her financial windfall into a tool for addressing the biggest existential challenge we are facing collectively.

As soon as her talk was published I found myself watching it three times. If at times you feel in the throes of worry or despair, you will find in Sallie’s talk a powerful antidote.  

After leaving the finance industry, I spent the last decade trying to help people connect the dots between our investments and the challenges we face, not only in terms of climate change but also the erosion of democracy, increasing wealth and income inequality and the destruction of natural ecosystems. Sallie’s example is a powerful reminder that it’s possible to turn financial resources from a tool of extraction into a tool for positive transformation and healing.

If you are curious to explore turning your own investment portfolio, or that of your clients, into a transformative tool to build a more just and healthy future for all, consider attending my course Towards Aware and Values-Centered Investing offered periodically through Money Quotient University or attend my webinar series Align Your Investments With Your Values which you can take at your own pace. The first course is designed for financial planners but is open to individual investors as well while the webinar series is designed for DIY individual investors.

You can also reach out to me for a free phone consultations if you are unsure about the DIY route or need some guidance and resources.

It is in moments like this, I am referring here to the COVID-19 pandemic currently raging around the world, that we pause and revalue how we act in the world through our purchases and investments. Let’s move towards supporting what is essential work and towards aware and no-harm investing!

Stay safe.

An interview about the next economy

Santa Cruz Permaculture recently interviewed Marco Vangelisti, who has a background in finance and investment management and was a founding member of Slow Money. He is a 100% impact investor and helps communities increase their capacity for local investing. Marco’s workshop is titled “Essential Knowledge for Transition: Understanding the economy, money and investing and how to transform them for a regenerative world” and will take place February 23-24.

Our interview began by acknowledging the fact that some people think economics is just plain boring. Others find it confusing, or overwhelming because while they know it has direct effects on their lives, how it functions and the various forces at play can seem complicated and beyond our control, and that can cause anxiety. Why is this, and how do we overcome the inertia around understanding economics so that we can actually transform our current systems for a regenerative world?

SC Permaculture: For many people, the concept of “economics” is either boring or frightening orboth. What drew you to economics and finance, and what keeps you interested in this work?

 

Marco: The economy and the logic of the market have permeated every aspect of our lives and the way we interact with each other to meet our daily needs, yet most people feel unable to or uninterested in understanding how the economy works. 

Part of the problem is the way economics has been taught in school in the U.S. in the last forty years. Case in point–I came to the U.S. after studying math in Italy and attended economics classes as UC Berkeley. Economics as taught in college had taken a quantitative turn and my math skills were very useful. Only after the financial crisis of 2018 I finally understood that the assumptions required to “quantify” economics and apply to it the mathematical apparatus rendered it not only inaccessible to the regular public but also irrelevant for understanding how the actual economy worked. 

It turns out that understanding how the economy works not only does not require understanding economics (especially the current hegemonic strain of neo-classical economics) but it is actually accessible to anyone with a basic level of education and curiosity. 

Economic decisions made by the financial and economic elites in this country, without our understanding let alone our consent, profoundly affect our lives. To exercise true democracy we need to reach a collective understanding of how the economy actually works and challenge the economic decisions made by the few which affect them many. I see this as the necessary path to bringing about a more just and compassionate society. This is was motivates me to share with regular people my understanding of the economy and of the financial world.

SC Permaculture: You touched on this a little already, but why is understanding money, banking, economics, and finance important for the average person?

Marco: Basically the money and banking system, the economic system, and the financial system act as the operating system of society. The way these systems are currently configured leads to a number of undesirable outcomes like concentration of wealth and power, increased inequality, the housing unaffordability crisis, mounting levels of debt, increasing insecurity of the labor force, environmental degradation. It does not have to be that way! A systemic approach is called for and can be brought about by citizens equipped with a critical understanding of those systems and the more benign alternatives we can to create.

SC Permaculture: How have your years of experience working in finance influenced your current views on money, the economy, and capitalism?

Marco: My 20 years in finance made me understand the extent to which great wealth has been accumulated in the hand of the few through a process of extraction. One of the primary mechanisms of value extraction and expropriation has been finance and investing. Capitalism has been transformed into a form of financial capitalism that has sucked the life out of labor but also out of the old industrial capitalism of the prior century. 

To understand our current economic situation it is also critical to understand the role of banks in the creation of debt and money therefore inflating asset bubbles, creating business cycles (or increasing their magnitude) and the process of expropriation.

SC Permaculture: What is the main problem with our current banking system and what could be the role of public banking in the new economy?

Marco: Our current banking system is based on a private for-profit model which has not served our economy well. A common description found in most of the introductory economic textbooks describe banks as intermediaries that collect excess savings and lend it to expand productive activities in the economy. It turns out that banks create the money they lend and very little of their lending goes to productive activities. Most of their lending now goes to fund acquisition of existing assets – mostly in real estate. This causes asset bubbles and the housing unaffordability crisis experienced by most desirable cities in the U.S. A significant portion of their profit comes from fees and very high credit card interests.

The private banks also rely on government subsidies in the form of FDIC (Federal Deposit Insurance Corporation). As we have seen in the build up to the financial crises of 2007-2008 banks created too much money, lent it recklessly to fuel a massive housing bubble and when the whole edifice of credit collapsed the U.S. Government had to step in and clean up the mess. Banking in a modern economy has become an essential component of the economic infrastructure and the private sector has demonstrated that it cannot be trusted in managing the awesome privilege of creating the money we use every day.

An obvious solution is to turn a large portion of the banking activity into a regulated utility owned by the public through a network of local, state or federal governments. The public banking sector in Germany is considerable and is credited with the post WWII stability and resilience of the German economy. A network of public banks in the U.S. could provide credit where credit is needed (especially to rebuild our failing infrastructure and to support the productive economy), would not fuel financial speculation and asset bubbles, would not engage in usurious practices or unscrupulous lending, and would not be a drain on the economy through ever increasing fees and high interests.

SC Permaculture: Could you briefly describe the mission behind Slow Money? How did it get started and what have been some results of this organization so far?

Marco: Slow Money is a movement that emerged out of the Slow Food movement. It recognizes that our industrial food system and our financial systems are problematic and that a new ethos is called for to address the problem caused by both. 

The idea is to direct some of the personal investments towards the goal of restoring the fertility of the soil in our own foodshed by supporting local farmers and food producers who treat soil and people with respect. The idea is to measure the success of our investments by the world they make possible and not just by the financial return they generate. 

There are currently about 20 local Slow Money groups around the U.S. that have mobilized around $60M of capital to fund more than 600 small family farms and food enterprises.

SC Permaculture: What does impact investing mean? What is one example?

Marco: Impact investing refers to a form of holistic investment that is aware of the non-financial impacts an investment has on communities and ecosystems. Socially responsible investments mostly consists of screening the worst offenders out of a mutual funds of the stock or bonds of publicly traded companies (mostly multinational corporations). Impact investing usually focuses not on publicly traded companies but on funding specific project that try to address a social or environmental problem. 

One example is Community Foods Market (CFM) in West Oakland. West Oakland is currently a food desert and its 28,000 residents don’t have access to a full grocery store where they live. After a decade-long effort, Community Foods Market will open the very first full-service grocery in West Oakland in decades. California residents can invest in the project through the DPO (direct public offering) of CFM shares. This would be a very clear example of an investment that is trying to solve a social problem–in this case eliminating a foods desert in the Bay Area. 

SC Permaculture: In the past decade, you’ve seen changes already taking shape in our economy and society. Can you share a few of your favorite examples of these changes?

Marco: One of the most positive changes I have noticed in the last decade has been the resurgence of worker-owned cooperatives which represent a systemic alternative to capitalism. Unlike most privately owned and all of the publicly owned companies out there, worker-owned cooperatives are democratic institutions bound to other cooperatives by an ethics of collaboration and support instead of competition. 

Another hopeful sign has been the eschewing on the part of many of the Millennials I know of the consumerist fervor that has characterized the American society since the middle of the 20th century. The social enterprise movement has also grown and young people are more likely to dream about building a social enterprise than becoming a CEO of a large multinational corporation. 

SC Permaculture: Thank you so much for sharing your perspectives, Marco! We look forward to seeing you in February.

Learn more with Systems Change and the Next Economy: Regenerative Design for People & the Planet

Join us this February 23-24 in Santa Cruz, CA to spend the weekend learning about all of this and more with Marco Vangelisti! Register online here. Additional information about the Systems Change & The Next Economy course, including dates, workshop titles, and instructor biographies for our January, March, and April workshops, is available at http://santacruzpermaculture.com/economy/ 

The Origin Story of EK4T

What was the impetus for creating Essential Knowledge for Transition?

In 2009 I left the finance industry and embarked on a quest to understand the causes of the financial crisis of 2007-2008. I was also looking for a different set of perspectives so I signed up for a permaculture design class and joined a number of movements including Occupy, Transition Towns, Public Banking, and Slow Money.

What I soon discovered was that the financial crisis was brought about by the collapse of the shadow banking system – the complex chain of financial intermediaries that turned mortgages into progressively more liquid and allegedly safer financial instruments, and that the various movements I had joined were not very familiar with the inner workings of the systems they were trying to change.

The first component of Essential Knowledge for Transition was Economy for Transition. As denizens of a society now profoundly shaped by the logic of the market and the drive towards the progressive commodification of all aspects of our lives and interactions, it is imperative that we understand how the economy works and stop deferring its managements to so-called experts if we want to maintain a working democracy. My initial task was therefore to explain in layman’s terms how the economy worked, and the key design flaws that caused it to operate in the interests of a progressively small fraction of society and at odds with the health of ecosystems and cultural and biological diversity.

As I looked at the economic system more closely, the role of the monetary and banking system came into stark relief. Even though standard economic texts treat money almost as an afterthought, it became clear to me that understanding the process of money creation and credit allocation was key to understanding the economy and especially the fluctuations in the business cycle and the recurring asset bubbles whose implosion cause so much economic suffering and dislocation.

Finally, the last piece of the puzzle was finance and the world of investing. Understanding how the financial system works is even more important now as we move into the late stages of a particularly complex form of financial capitalism (as opposed to the industrial capitalism of the 19th century).

The outcome of my research was a series of three talks – Money: The Invisible Operating System, Beyond Capitalism and Investing for the World We Want.

Here are the links to gain access to the content on money & banking, the economyand the financial system.

You might also enjoy this interview with Prof. Yanis Varoufakis on the importance of democratizing economic knowledge.

How do we Deal with Climate Change? By Restoring the Hydrological Cycle!

I recently found out about the work of Walter Jehne and I was blown away.

Walter is a retired soil biologist from Australia who has created a new framework for dealing with climate change that combines multiple fields of science and provides a clear path for navigating the existential challenge we face.

It turns out that even an immediate cessation of all carbon emissions would not be enough to deal with the challenges presented by climate change. We need to mimic nature to restore the hydrological cycle on a planetary scale in order to cool the planet while we go about moving the excess carbon out of the ocean and the atmosphere and back into the soil – a task that will probably take humanity a few centuries.

Here is a short talk by Walter on the topic.

[embedyt] https://www.youtube.com/watch?v=eiPDUDT9HjA%5B/embedyt%5D

The Natural History of Water on Earth

Here is the big picture.

According to Walter, we receive 342 Watts per square meter of incident solar radiation (ISR) each day but only 339 W/m2 leaves Earth because some of the heat re-radiated by the Earth gets trapped in our atmosphere due to the greenhouse effect. The main culprit has been identified as CO2 concentrations in the atmosphere which has been increasing due to human activities – primarily our land management practices (deforestation, industrial agriculture, desertification) and the burning of fossil fuels. As a reference point, the pre-industrial level of CO2 concentration in the atmosphere was 280 parts per million (PPM), now in excess of 400PPM

We clearly need to stop emissions of COand in fact we need to draw down carbon from the atmosphere back into the soil. But dealing with carbon alone will not do the trick. As we draw carbon down from the atmosphere into the soil, the ocean, which has acted as a massive buffer and has acidified in the process, will rebalance and release carbon back into the atmosphere. Even in the best-case scenario, it will take humanity at least a century to rebalance the three carbon pools (ocean, atmosphere and soil) to restore the 280 PPM of COin the atmosphere that we need for a stable climate.

In other words, we have to handle the increased energy in the atmosphere due to the average daily 3 W/m2 imbalance mentioned above and the resulting climate instability for more than a century.

The key to Walter’s insight is that carbon (CO2) mediates less than 5% of the total energy in the atmosphere; 95% of the total energy is governed by Earth’s hydrology!

It turns out that COconcentration of 400PPM and even 500PPM (which we are almost certain to reach before we turn this big carbon ship around) is not going to kill us – only COconcentrations in excess of 10,000 PPM are lethal to humans.

The real issues are more powerful storms, rising oceans, aridification and the effect on food production, higher temperatures and more violent weather events. To address all of the above while we go about the long drawn process of rebalancing the planetary carbon pools, we need to understand and manage the hydrological cycle.

The punchline is that we need to engage in a planetary effort to restore the carbon sponge in the soil to take advantage of the cooling effect of plants’ transpiration.

Vegetation acts as a powerful hydrological air conditioning system – each gram of water that is transpired moves up to 590 calories of heat from the ground to the upper atmosphere. Through the process of water transpiration, forests and vegetated landscapes are currently transferring 24% of the ISR (incident solar radiation) back into the upper atmosphere. Unfortunately, we humans have created 5B hectares (one hectare is 2.47 acres) of deserts by cutting down 75% of the original Earth’s forests, thereby reducing this powerful cooling effect.  The clearcutting of forests should now be considered ecocide and a crime against humanity.

Our task now is to extend the longevity of green growth to keep transpiration going and to expand plant cover.

Keeping the ground covered by vegetation at all times is important for a couple of reasons. One is to maximize the land area that can act as a natural air conditioning system through the process of pants’ transpiration. The other is to keep the ground cool since soil covered by vegetation is much cooler than bare soil.

As exposed soil is quickly warmed up by ISR it endangers the microbes in the soil responsible for soil fertility, water retention and proper soil structure. The result is often soil erosion including the creation of soil dust in the air that acts as aerosol nuclei for vapor hazes in the air. It turns out that water vapor in the atmosphere represents 60% of the greenhouse gases (GHG) while COrepresents only 20% of GHG.

We also know that every bit of solar energy that hits the soil is re-radiated out to space as infrared-long wave radiation and that part of this re-radiation is trapped by GHG in the atmosphere.  The amount of re-radiation is governed by the Stefan-Boltzmann equation (J* = σ T4) linking the amount of re-radiation to the fourth power of the temperature.

It’s clear therefore that merely dealing with CO2 concentrations in the atmosphere is  insufficient in handling the global warming effects brought about by the 3 W/m2 of energy imbalance mentioned above.

While it is imperative that we reduce CO2 emissions, a much more powerful way to handle the planetary heat imbalance is to reduce the amount of re-radiation in the first place by keeping the ground cool. We can also reduce the amount of re-radiation that gets trapped in the atmosphere by reducing hazes particles and water vapors.

Now how to reduce the water vapor and persistent hazes in the atmosphere?

The key is to condense the water vapor into high albedo clouds which can reflect up to 120 W/m2 of the ISR and more importantly can close the hydrological cycle by bringing the water back to the land as rain. To accomplish this we need to aggregate millions of water vapor particles and haze particles into a drop of rain with the help of rain nuclei.

There are only three types of rain nuclei. The first are salt particles emitted into the air mostly by the oceans’ wave activity. The second are ice crystals that form at high altitudes or at high latitudes. But by far the most important rain nuclei are hydrophilic bacteria hitching a ride to the atmosphere through plant transpiration. The rain then clears the water vapor and persistent hazes from the atmosphere allowing more of the re-radiated heat to escape into the upper atmosphere and rehydrates the landscape, recharging the soil carbon sponge that supports and extends the ground vegetation.

The bottom line is that restoring the hydrological cycle on Earth will allow us to manage the effects of global warming by restoring the carbon sponge in the soil, therefore extending the activity of plants that are not only the most powerful hydrological air conditioning system on Earth but are also the best carbon pumps available to draw carbon out of the atmosphere and back into the soil.

The effects of increasing the soil carbon sponge are greater water holding capacity (for each additional gram of carbon the soil can retain an additional 8 grams of water), more vegetation and therefore cooler ground (reducing the level of heat re-radiation), more fertile soil, and richer microbial communities in the soil providing more nutrient dense food.

If you have read this far, you must be intrigued by the work of Walter Jehne and interested in learning more. Your reward is this more extensive talk by Walter Jehne which I’m sure you’ll find fascinating.

[embedyt] https://www.youtube.com/watch?v=xbFApczmkl0%5B/embedyt%5D

Cooling The Climate and Restoring Ecosystems with Water Restoration

Besides learning more about the expanded framework Walter created, you can also make sure your investments are not still part of the problem and participating in the destruction of the remaining biological capacity we need to restore the hydrological cycle necessary to avert our species extinction!

If you have not already done so, you might want to consider attending my webinar series Align Your Investment with Your Values!

Other People’s Money

I recently read Other People’s Money by John Kay – a great book exploring the role of finance in society, the transformation in the sector and society at large brought about by financialization, the structural causes of the financial crisis and ways to reform the financial sector to serve society again rather than itself. 

So, what is finance for?

In the words of John Kay, finance can contribute to society and the economy in four principal ways:

First, the payments system is the means by which we receive wages and salaries, and buy the goods and services we need, as well as enabling business to contribute to these purposes. Second, finance matches lenders with borrowers, helping to direct savings to their most effective uses. Third, finance enables us to manage our personal finances across our lifetimes and between generations. Fourth, finance helps both individuals and businesses to manage the risks inevitably associated with everyday life and economic activity. 

According to Kay, the evolution of finance in the last thirty years has increased the role of trading over relationships through the process of financialization. It has increased the complexity of the sector, increased the risks to the economy and transferred to itself a greater share of national income without improving the quality of the four key services it provides to society. 

Here are a couple of salient paragraphs from the book.    Other People's Money

The finance sector of modern Western economies is too large. It absorbs a disproportionate share of the ablest graduates of our colleges and universities. Its growth has not been matched by corresponding improvements in the provision of services to the non-financial economy – payments systems, capital allocation, risk mitigation and long-term financial security for individuals and households. The process of financialization has created a structure characterized by tight coupling and interactive complexity, and the resulting instability has had damaging effects on the non-financial economy. […]

The belief that the profitability of an activity is a measure of its social legitimacy has not only taken root in the financial sector but has spread its poison throughout the business world. […] There has been a wide failure to distinguish profit generation from wealth creation, or to see the difference between the appropriation of resources and their production, and a willingness to license activities that border on fraud and which sometimes cross that border. Both supporters of the market system and its critics have failed to recognize that the trading floor of the investment bank is not the epitome of the market economy but an excrescence from it. 

I took the liberty to quote two extended paragraphs from John Kay’s book hoping they will provide a motivation for you to pick up a copy of this very insightful and authoritative work.

What are we to do about it?

I am a very big proponent of DIY when it comes to large scale system change. No point in waiting for government action when we can take matters in our own hands and start moving the system in the right direction.

The first thing you should consider is moving all your banking business including your mortgage away from the large four banks and towards a regional bank or a credit union. This would be a no-risk way to support your local economy. While the regional banks and credit unions in the US control about 20% of the deposits in this country they are responsible for more than 50% of local lending.

The other thing you can do is learn the basics of portfolio management and investing (maybe by signing up for my webinar series) and shift some of your personal savings from the opaque and over-intermediated financial system towards your local economy and investments aligned with your personal values. You might want to look for a Slow Money group active in your area and join it to turn local investing into a fun team sport activity!

I am looking forward to supporting you in your quest to align your investments with your values and leave a positive legacy behind.