|"How knowledge behaves as an
economic resource, we do not yet fully understand ... We need an economic theory that
puts knowledge into the center of the wealth-producing process."
Peter F. Drucker
Table of Contents
I. The Most Significant Investment Opportunity in America
|"Our task is to look at the world
and see it whole."
— E. F. Schumacher
An entrepreneur who grew up on a small island once explained why small islands
produced a much higher percentage of people who were good at starting and building
successful businesses. He said it was because when a person grows up on a small island,
you see how everything is connected. It is much easier to learn how to take responsibility
for the whole -- to see how all time and energy is precious and never to waste anything.
People who grow up on small islands, he said, understand that “a penny saved
is a penny earned.”
He had been taught from the time he was a small child to connect the behavior of
individual people with how everything works around him. He said that he had learned
to adjust his behavior so that it contributed to the system working in the way he
hoped it would. His family, his school and his church all encouraged him to take responsibility
for the whole in practical concrete ways. People who grow up on small islands, he
said, understand that “what goes around comes around.”
My friend said that America is just a very big island, but most Americans do not
know this -- nor do they understand that the planet is also just an even bigger island.
They cannot connect how the system works -- particularly the aspects of the system
they do not like -- with their individual actions. They do not have even simple maps
of how things connect. They do not understand their own power to vote with their thoughts,
their choice of friends and spouse, their actions and how they spend their money every
day. People who grow up on small islands, he said, “see the world whole.”
Most Americans look at our situation from their own individual points of view.
From every degree of the circle, there is a different definition of what ails us,
of why our system isn’t working, and what the solutions are. Often, what we
perceive as our own individual problems are really just the symptoms each person experiences
of the deeper problems that we all share. Too many times, the solution is to blame
or attack someone, or to propose that more government or private capital be spent
in a futile attempt to keep the wolf from the door. Without a simple map of where
we are and how to get to a better place together, we have forgotten that we are in
this together and at the simplest level, you simply can’t eat what you don’t
A highly centralized, non-sustainable economy means different things to different
people. To the investor who has gotten hammered in the stock market, it looks like
a capital loss and a shrinking portfolio. To the parents whose deteriorating neighborhood
is no longer safe for their children, it looks like the world is becoming a scary
place. To the people of Argentina or Russia who are being looted to support it, it
feels like economic holocaust. To lobbyists who live in Washington, DC and are experiencing
job growth and increases in their housing values as more government contracts are
issued, it feels more bearable. In fact each group is experiencing different parts
of the same financial merry-go-round.
For quite some time, Americans have pumped up corporate earnings with non-sustainable
economics. We have used government contracts and outsourcing of services, as well
as grants, subsidies and credit (in the form of government insurance and guarantees)
to ensure rich profits, irrespective of the performance of the government’s
investments. We have permitted organized crime and financial fraud to grow at significant
rates when measured as a percentage of our profits and accumulated capital. We have
floated the economy on a sea of growing consumer, mortgage, municipal and federal
debt. We have managed this leverage by debasing our currency and digging the leverage
hole even deeper with derivatives and other financial speculation that we do not understand
or properly regulate or govern. We have “pumped and dumped” the stock
market with “dot.com” companies that did not produce anything of value
for busy people in the real world. We have turned off our economic smoke alarm by
manipulating the gold market and gold prices. We have enlisted the cooperation of
some of the great minds in our most prestigious universities to provide high-falutin,
yet academically dishonest, justifications for transferring public and consumer assets
to private investors at below market values. Enron is only one of many examples. We
have “cooked our books” until our “goose is cooked.”
Americans have encouraged and participated in tremendous speculative financial
activity at the expense of the concrete productive sector of our economy. The impact
on our economic productivity has been predictable. The deterioration of our neighborhoods,
infrastructure and environmental resources can be seen in every place – north,
south, east, west -- and touches everyone, rich and poor alike. The dumbing down of
the workforce grows as the daily television consumption, which teaches counter-productive
behavior, reaches frightening levels. What is happening in America in many respects
parallels what is happening around the world.
The folks who feel that their biggest problem is falling yields on their investment
portfolios have yet to see that they cannot enjoy capital gains unless their neighborhoods
and children are safe and that the very things that will contribute to their safety
– an increase in real human productivity, honest feedback systems and a restoration
of personal accountability – will also lead to huge increases in collective
investment capital in the economy. The folks who feel that their greatest problem
is that they and their children are not safe have yet to see that we cannot achieve
personal safety when yields for both retail and institutional investors are dependent
upon profits from organized crime, trickery of the investing public and government
guarantees that promote unproductive investment and personal behavior. Only when we
achieve real economic growth based upon concrete increases in productivity, accounted
for and disclosed on an honest basis, can we be both safe and wealthy. Americas’
accumulated savings needs to be taxed less -- not more. Nor do we need to lose more
asset value by investing capital in ways that produce lower or negative returns.
The purpose of this article is to introduce the organizational and investment building
block that is needed to build a new and profitable alignment among people, natural
resources and money. This model is the building block that will allow global investors
to generate high capital gains from building healthy people in beautiful, safe and
environmentally rich and cared-for places -- not just from extraction and consumption.
It’s called a solari – an investment databank and investment advisor for
your neighborhood that is created and controlled locally and can access capital both
locally and globally. A network of solaris and the equity pools they will create and
manage are the most significant capital gains opportunity in America today.
A solari offers the opportunity for higher returns to all Americans -- a soccer
mom, a trucker, the general counsel of an insurance company, the young man or woman
who works the late shift at the food mart on Route 66 or a Wall Street master of the
universe. It does not matter where you went to school or who you know. It does not
matter if you are young or old, male or female, black or white, rich or poor. If you
are a person who loves making things work, a solari can help you find and mine the
“diamonds” in your own backyard.
A solari is for anyone who loves making money on “the real deal.”
II. A Solari: An Overview
|"We have not journeyed all this
way across the centuries, across the oceans, across the mountains, across the prairies,
because we are made of sugar candy."
— Winston Churchill
A Solari: Nuts and Bolts
|“The time came when they [partners]
wanted some shares, so they could take part in the growth, and so we just sold them
— C. Douglas Dillon, 57th Secretary of the Treasury and
Chairman of Dillon Read
A solari is an investment databank and investment advisor for a place -- a place
being an area that is typically no larger than 10,000 people resident at the time
of the solari's creation.
A solari as investment databank promotes literacy about “how the money works”
within its place and -- with tools such as investment clubs -- promotes higher rates
of investment within its place. A solari circulates annual reports on:
- “neighborhood financial statements” describing public and government
resources and management;
- its estimate or poll of one or more indices (such as the Solari Index --
see next section below) of well being that support a common vision of intelligence;
- the equity value of the solari and any equity pools it manages
A solari as investment advisor invests in local reengineering and investment transactions
that improve equity rates of return within its place that are profitable and attractive
for the solari and its shareholders (see “Investment Opportunities), including
but not limited to:
- Consumer aggregation;
- Small business/farm aggregation;
- Small business incubation, back office and marketing support;
- Neighborhood venture funds and investment trusts or funds to access stock market
equity for local business and real estate using the Solari A/B share model, community
offerings and wider stock placements and offerings;
- Debt-for-equity swaps on performing and defaulted government and private debt;
- Buyouts, reengineerings, renegotiation and waivers of government investment and
- Community currency and barter networks
Market forces determine the number of solaris in a place and their relative market
shares (see “A Solari.”)
A solari has two classes of common equity: Solari As and Bs. Solari A voting shareholders
-- the founders and their self-perpetuating successors -- live within the solari’s
place and govern the solari. Economic ownership is represented by Solari B non-voting
shares, which can access local and global capital, directly or through vehicles managed
by the solari. Solari A shareholders make their profits on Solari Bs just like everyone
else. The solari’s equity structure promotes governance by local leadership
best qualified to create the highest local equity yields for the benefit of all shareholders
-- whether management, neighbor or global investor (see “Stock Plan: Solari
As and Bs.”)
A solari’s A/B equity structure provides incentives to reengineer current
local investment to significantly higher yields. Transformation of local investment
performance occurs in part by increasing alignment of interests where such alignment
enhances equity yields -- among various groups locally, between local and global investors,
and among human, environmental and financial capital.
The United States was the location for prototyping the solari model (see “The
Solari Action Network & Solari Trust”) and is the basis of describing it
here. The solari concept has broad application globally, both in transforming industrialized
nations to sustainable economies as well as supporting non-industrialized nations
to optimize current resources and create new wealth. Indeed, in many places throughout
the world, it is essential to ensure successful privatization and wealth creation
in the face of efforts by the industrial nations and G-7 to deplete wealth to subsidize
non-sustainable first world populations and lifestyles as well as to centralize political
and financial power and resources. This is an important topic for later articles,
as only models with global application will be successful in any one place, including
There are 287 million people in the United States. Assuming a neighborhood or “place”
of up to 10,000 people and averaging 4,000 people, the US market has approximately
72,000 potential solari service areas. The creation of solaris and their investment
databanks and related equity pools is the most significant capital gains opportunity
in the US today. (See “Solari Network Valuation”)
Solari Opportunity #1: Economic & Financial Literacy in a Place
|"What is relevant is what solves
the problem. If we had thought through real relevancies, we would be on Sirius by
— Peter Medawar
The word “solari” translated from the Greek means “to reduce
anxiety through illumination.1” By promoting literacy about “how
the money works” and improvement in investment performance, a solari provides
transparency regarding place-based resource optimization and risks necessary to support
U.S. resources have traditionally been managed by two systems:
- The first is the democratic processes within a republic. Eligible US citizens
vote at the polls every year or two to chose representatives who manage resources
that are collected by taxing, allocated by distribution of government credit and subsidies
and created and enforced through regulatory, legislative and judicial standards and
- The second is the marketplace where consumers and organizations “vote”
every day with the investment of time, attention, choice of what small business to
start or employment to pursue, and how they use their money in terms of purchases,
deposits and investments.
Whether the democratic process related to resource management within a republic
or the market process in the economy, both systems require transparency to optimize
individual and system-wide intelligence. Citizens require accessible information about
“how the money works” to understand their political representatives’
and governmental organizations’ budgets and actions and hold their representatives
and themselves accountable for actual performance. Likewise, consumers, entrepreneurs
and workers need accessible and low cost information to optimize preferences and self-interest
in the marketplace.
Without place-based transparency, government and market allocation of resources
in the U.S. has become increasingly manipulated and sub-optimal in terms of economic
performance. The deterioration of the rule of law has accelerated, with organized
crime rising as a percent of economic activity and capital investment.2 As this happens,
total wealth and productivity shrinks from the optimal and concentrates into fewer
hands. There is a shift from small business and farming to corporate control and production
that is not merited by fundamental economics. Leadership is increasingly determined
by performance in capital control and asset shifting rather than wealth creation.
The citizenry has experienced deterioration in standards of individual and civic responsibility
The rise of a more economic and timely rule of law cannot be achieved through governmental
reform, even with the type of transparency provided by a network of solaris. Worldwide
developments in technology -- including digital technology -- have caused significant
and growing gaps in technological access and learning speeds between local citizens
and organizations and global investors. As a result, a portion of the support for
the enforcement of the rule of law will have to shift to open networks that have the
power -- when organized around place-based equity based incentives as opposed to the
non-performance based incentives associated with municipal and governmental debt --
to match the economic, media and covert clout of large global investors and their
regional syndicates. Transparency will need to include the feedback that consumers
need to price and “vote” in the marketplace with their purchases, deposits
and investments to support and enforce standards previously considered to be the sole
enforcement responsibilities of government and the judiciary (see “Voting in
the Market for “the Rule of Law” and “Investment Analytics.”)
Such a decentralized system can only succeed if it is committed to the highest
standards of traditional fiduciary performance and wealth creation. In short, in the
age-old competition between the forces of centralization and the forces of decentralization,
the model that produces the highest learning metabolism and performance in terms of
both individual and shared wealth creation has the best chance to win (see “Solari
Solari Opportunity #2: Reengineering to Higher Yields on All Capital Within
|"Never be afraid to try something
new. Remember, amateurs built the Ark; professionals built the Titanic."
As US national leadership bolstered by NAFTA continues to move -- even expropriate3
-- significant amounts of private and public capital and employment4 abroad and encourage
low wage immigration, local U.S. leadership is faced with the challenge of:
- How to replace small business, small farm, municipal and community financial capital
with steadily increasing amounts of intellectual capital made possible by new technology
- How to reengineer federal, state and local government investment in a place safely
- How to build local competitive advantages in a global marketplace for goods and
- How to build local competitive advantages in accessing global capital;
- How to integrate a much higher turnover of people with much greater diversity
of education, culture and experience;
- How to manage and reverse the growing dependency of the local economy on organized
crime activities, the reinvestment of organized crime profits and accumulated “hot”
- How to manage the risks of dependency on centralized systems, a war economy5 and
In this environment, a solari can use the increased local transparency it creates
to enhance equity yields locally (see “Solari Investment Opportunities.”) To
name a few:
- A solari can help reengineer federal, state and local government investment within
its place. Federal investment in the US currently has negative rates of return to
taxpayers and state and local rates of return are low and headed in the wrong direction.
- A solari can help local small businesses, farms and local public functions reengineer
to take advantage of opportunities created by new technology and reengineer to sustain
competitive competencies during the shift to a global economy.
- A solari can help local small businesses, farms and local public functions (water,
energy, sewer) convert to equity-based systems that create the incentive systems necessary
to create much higher reengineering and learning speeds organized around performance.
- A solari can use non voting Solari B shares to engineer debt-for-equity swaps,
particularly for high yield or publicly and privately held defaulted municipal, small
business, mortgage and consumer debt.
|"As to the history of the Revolution,
my ideas may be peculiar, perhaps singular. What do We Mean by the Revolution? The
War? That was no part of the Revolution. It was only an Effect and Consequence of
it. The Revolution was in the minds of the People ..."
— John Adams
The speed at which US citizens reengineer their “shared intelligence”
and learning speeds locally will determine the extent to which the US is able to avoid
the economic dilution and/or demodernization and depopulation experienced by Russia,6
Argentina7 and other areas of the world that have experienced an implosion of the
rule of law8 and the resulting “continuous consolidation of money and power
into higher, tighter and ‘righter’ hands.”9 As Tina Turner once
sang, “We can do this nice…or rough.” A network of solaris is essential
for the U.S. to transform “nice” in the current globalization process
(see “Macroeconomic & Risk Issues.”)
A more entrepreneurial way to say this is that a network of solaris is the infrastructure
needed to exploit the reengineering opportunity to transform the United States to
a sustainable economy. Privatization, globalization, securitization, and digital technology
-- these are trains that have left the station. If we rethink traditional alignments
and reinvent how we support our resource governance on a decentralized basis we can
engage traditional market forces and fiduciary principles to create substantial new
wealth around optimal care of the land, of each other and of ourselves.
In the shift to a global economy, a solari is the local investment “compass”
that makes it possible for freedom, accountability and wealth creation to reinvigorate
III. A Solari
|"Let’s make no mistake
about this: The American Dream starts with the neighborhoods…to sit on the front
steps – whether it’s a veranda in a small town or a concrete stoop in
a big city – and talk to our neighbors ..."
— Harvey Milk
A solari is an investment databank and investment advisor for a place.
A solari creates transparency and literacy about “how the money works”
and related risks within a place. A solari invests in local reengineering and investment
transactions that improve equity rates of return within its place.
The lead solari in a given place is determined by the market. Anyone can start
a solari and call it a solari so long as it fits the definition of a solari:
- Place-based boundary: A solari must have a place-based boundary
for its operations that encompasses a group of no more than 10,000 people at the time
of its creation. A larger area may be necessitated where a large discrete entity (a
university, a utility or governmental installation, the boundaries of a county) cannot
be subdivided. The current expectation is that an area of 5,000 or fewer is optimal.
This service area defines those people who are qualified to serve as holders of a
solari’s voting shares. (See “Solari Stock Plan: Solari As and Bs”)
- Products and services: A solari must (a) generate and circulate
annual reports (“neighborhood financial statements”) that describe public
and government resources and management in its place that are accessible at reasonable
cost to the people who live within its place and (b) publish the solari's estimate
or poll of (i) the Solari Index and/or one or more indices of human, physical and
financial well-being in that place that the solari believes support a common vision
of intelligence within its place, (ii) the market value of the B shares of the solari
and any equity pools that it and its affiliates manage, and (iii) the methods it uses
to estimate or poll. A solari may pursue additional products and services. (See “A
Solari’s Investment Opportunities”)
- The Solari Index: Expressed numerically as a percentage, the
number of people within a solari's place that believe a child is free at any time
of day or night before bedtime to leave his or her home, go to the nearest place to
buy a popsicle and come home alone safely. The Solari Index has been found in the
United States to be a key determinant of the real estate and small business equity
valuations within a place.10
- Solari Stock Model: A solari must use the Solari Stock Model
(see “Solari As and Bs”) to (i) restrict voting control to Solari A shareholders
who live within the solari’s boundary and are the Solari’s founders or
their self perpetuating successors, (ii) represent economic ownership with Solari
B non voting shares that can be used to distribute 100% ownership of economic value
to (a) Solari A voting shareholders, (b) all people within the solari’s service
area, as well as (c) retail and institutional investors from outside the service area,
including through solari managed investment vehicles that can access private and publicly
traded stock markets and institutional capital globally.
- Tithing Requirement: A solari must tithe 10% of its revenues
(or such percent as is determined optimal by its board) to those organizations or
projects within its place that the solari believes most enhance the spiritual, cultural
and/or civic intelligence of that place.
A solari may not incur debt, may not promote any equity plan other than the Solari
stock model and must avoid conflicts of interest between the value of investments
in its place and its relationship with government and large corporations.
- No debt: A solari may not finance with debt. A solari may create
affiliates that are financed with debt so long as that debt is not issued with --
or any obligations of such entity are not -- recourse to the solari in any way, including
in events of collection by taxing authorities and litigation judgments.
- Solari stock plan: A solari may not manage, promote or market,
or in any way be associated with equity financing for itself, its affiliates or for
its place, by any method that does not use the Solari stock model to divide voting
equity and economic equity and that does not require majority voting control by those
who live within the solari’s place.
- No conflicts: A solari may not enter into a contract to provide
goods or services to (a) any governmental entity or (b) any corporation other than
a small business located within its service area or another solari. This does not
include those contracts required for the solari to purchase goods and services used
in the ordinary course of the its business, so long as such purchases do not create
an operational risk or dependency. This also does not include contracts created by
affiliates or investments to privatize local municipal functions. A solari may support
local businesses in obtaining -- or create affiliates that enter into -- contracts
with a governmental or corporate entity outside its boundaries so long as these contracts
and any liability arising out of them are not recourse to the solari in any way.
If you are interested in starting a solari, the first step to assess the potential
is to collect up the publicly available economic and investment information about
“how the money works” in your place. Your kitchen or dining room table
will work just fine as a paperful “investment databank.” See if you can
estimate a one or two page sources and uses statement of local resources in your neighborhood
and a simple balance sheet for neighborhood assets for the last year or two. If you
don’t want to do this alone, see if you can interest one of the local investment
clubs or book clubs to undertake such an effort. If you take the time to do this,
Buddha’s words will apply, “those who are awake live in a state of constant
IV. Solari Stock Plan: Solari As and Bs
If we had been obliged to get permission from a board of directors, from banking
interests, or from outside stockholders, for the expenditure of the millions that
we have put into new buildings, new machinery, and new processes, it [the expansion
program] couldn’t have been done. Things go smoothly when the actual owners
are right in the factory, and are the most enthusiastic of all in having the best.
(Quoting Dodge Brothers factory manager)
|"Dillon Read intended to recapitalize
the company with shares of Class “A” common stock and …shares of
Class “B” … This would enable Dillon Read to satisfy two constituencies:
the (founders) would be assured of continued control, while potential investors would
be all but granted the… payout. This part of the transaction was completed in
late December 1925."
— Robert Sobel, The Life and Times of Dillon Read,
describing Clarence Dillon’s recapitalization of Dodge Brothers and NCR with
two-class common stock plans that divided voting and economic interests.
Solari Stock Plan: Nuts and Bolts
The Solari Stock Plan consists of two classes of stock: Solari As (voting shares)
and Solari Bs (nonvoting shares.)
- Solari A's are voting shares. They must be owned by residents
of the community. Solari As have a nominal value and no dividend. They are owned by
the solari’s founders -- and their self-perpetuating successors -- who vote
for and are eligible to serve on the board or governance structure of the solari.
Solari As may not be pledged or used as collateral by their owner. If A shareholders
resign or move from the boundaries of the solari or die, they or their estates must
sell their shares back to the solari for the nominal value.
- Solari B's are non-voting shares. All of the economic value of
the solari’s common equity other than such nominal value assigned to the Solari
As is vested in Solari B shares. Owners of the Solari As look to their ownership of
Solari Bs for their economic participation. Alignment of Solari A economic incentives
with all other investors in the solari is essential for the success of the solari.
In all cases, ownership of stock by employees and all investors and constituencies
of the organization will be used to incentivize the performance believed to lead to
the optimal total B share valuation. The B shares may be owned without restriction,
but the solari will endeavor to create and maintain a high percentage of ownership
by Solari A shareholders and people who live within its service boundaries. 11
A solari must use the Solari Stock Plan for its own capital structure as well as
the pools of equity that it raise and manages to finance its place. Whether through
its own capital structure or through related investment pools, the optimal Solari
A and Solari B structures (of which there are many possible variations) are those
that access liquid equity capital -- retail or institutional, public or private capital
markets, or local or global -- at the lowest possible cost.
The Solari Stock Plan is ideal to help a solari finance small business and local
real estate as well as to privatize municipal functions where appropriate to access
equity capital. It allows place-based income flows and assets to be “securitized”
through a venture capital or investment trust-type structure (there are many possible
variations) in a manner that achieves the highest sustained equity valuations. It
allows investment in small and illiquid equity through an entity that can both underwrite
and mange with the appropriate analytics at low cost (see “Solari Investment
The solari serves as a venture capitalist who intermediates between liquid equity
markets and smaller businessmen, entrepreneurs, farmers and developers who are more
productive in providing their products and performing services in the local concrete
economy than a larger corporation, particularly when their local customers can participate
in their economic success through a locally diversified pool managed professionally
by the solari. Making customers participants in local business economic success promotes
the highest possible learning speeds between business owners and their customers --
often the basis of small business productivity and success.
The creation of two classes of common equity stock to separate governance from
some or all economic ownership is nothing new. These types of stock plans have a long
history in America and elsewhere. In emerging markets such as China, they are used
to help maintain local ownership and to ensure sufficient strategic control to impose
restrictions on reinvestment of technology and intellectual capital by foreign investors
who are attracted by low wages. The use of a stock plan designed to help ensure that
productivity grows from the investment and reinvestment of intellectual capital is
appropriate to an economy integrating the benefits of digital technology -- and shifting
to greater learning speeds worldwide.
Background: Principles of Optimization
|"There is no such thing as bad
people, just bad systems."
— W. Edwards Deming
The Solari Stock Plan is designed to ensure optimal equity performance of all capital
within a place. To understand why, it is important to understand a few principles
regarding the optimization of human, environmental and financial capital. These issues
are so critical to wealth creation -- and so misunderstood -- that it is important
to describe this concept in detail.
Each human being gives and gets energy. Energy comes in many forms -- health and
physical energy, time, attention, love, knowledge and money. What gives a person energy
-- or drains their energy -- varies widely. What people like to do to give and get
energy -- or to avoid their energy being drained -- varies widely. Universally, what
all humans want is more energy. The reason why democratic process and free markets
-- where they are supported by transparency, and the rule of law within a republic
-- work so well is that they optimize total energy, and therefore total wealth.
Exactly how this works is an age-old question. The founding fathers understood
that all men “are created equal by virtue of the divinity of their creation
and that human rights are intrinsic to human creation and therefore inalienable.”12
Freedom is a fundamental condition of life, not something that mankind can create
or destroy. This theme is found in the teachings of many spiritual and political leaders
throughout history -- from the Buddha to the Bible. Recent developments in physics
and biology have informed our understanding of why a free people are so productive.
David Bohm, the physicist, said that meaning links mind and matter like opposite sides
of a coin.
Decentralized systems generate far greater optimization of this mysterious interaction
between the human spirit and a world of matter. The mathematics of price and polls
communicate meaning in a continual stream of practical applications and choices. As
a result, free markets and democratic process promote extraordinarily high individual
and shared learning speeds to optimize the complexity created by diverse people in
diverse places. They allow individuals equal opportunity to create energy and then
allocate energy created disproportionately to those who created it. This permits unequal
contribution and allocation of energy among people whose equality is based on opportunity
and expression, not on outcome. Performance determines outcome and reward incentivizes
value creation. This creates the most total energy for all. This leads us back to
the point that this is optimal because what all people in the system want is more
energy. If ultimately a society can only eat what it grows, the solution to the problem
of how to maximise one's energy must be to create the biggest “pie” possible.
This is counter intuitive for most people -- particularly Americans who have bought
in and grown used to a “rigged system.” I am reminded of the optimization
technologists at AT&T Bell Labs which discovered from reviewing years of airline
scheduling data that seniority privileges for pilots and flight personnel so sub-optimized
the total scheduling optimization that everyone, including those with the most senior
status, was harmed. Those with senior status would have gotten more if they had stopped
requiring a guarantee that they do better than others. This principle applies across
the board, whether to Enron rigging business through Congress or the use of Echelon,
PROMIS and other taxpayer funded surveillance systems for investment espionage to
support insider trading and dealings or affirmative action for those not on the inside.
Not only does a rigged deal make the winner more stupid, it makes the whole system
more stupid. A rigged system steadily shifts resources to the management of those
who want it and take it as opposed to those who know how to create it. Hence the rise
of the stupider and stupider as the pie both consolidates and shrinks.
One of the age-old challenges has been how to combine such open opportunity and
optimization with the responsibility and accountability required to ensure practical
risk management system-wide. One of the problems is the fear that transparency about
real risks will give the unproductive too much power -- particularly where they align
with those who might want to do harm. Another is the belief that few can integrate
a long-term view or the necessities of real politick. Another is the fear of what
will happen when everyone is forced to face what is really going on. These risks are
serious and significant. Unfortunately, they have been used to justify an increasingly
rigged system in a manner that is creating far greater risks.
It is this failure that the Solari Stock Plan reverses by shifting local power
to the net energy plus people in a structure where they can balance strategic control
and open performance.
Solari Stock Plan: Shifting Energy to “Net Energy Plus” People
|"I will make you fishers of men."
— Jesus Christ, St. Matthew 4:19
|"There are no strings tied to
this stock, so you can sell it whenever you wish…We just want you to know that
we were thinking of you in this connection and thought you might like to have a little
of the stock at the same prices we are paying for it."
— The Secretary of J. P. Morgan in a letter to the CEO of Chase Bank, 1920’s
In any place, approximately 10% of the people generate more energy (or wealth)
than they consume -- they are “net energy plus.” Successful entrepreneurs
are typically “net energy plus.” What is “net energy plus”
in a place is often hard to measure since many local assets relate to human, intellectual,
civic and environmental capital that traditionally is not measured or accounted for,
let alone tracked for performance. Consequently, the economic contribution of mothers,
housewives, teachers, pastors, police and individuals performing numerous other local
and municipal functions are often not understood and, therefore, are undervalued in
terms of their relative contribution to economic productivity and equity creation
(We can envision a day when many of these people are eligible for stock options in
solari equity pools whose performance may increasingly depend on their performance.).
Approximately 80% of the people in a place are followers: they are “net energy
neutral.” They consume the energy that they create. Many “net energy plus”
people take turns being followers when a variety of circumstances cause them to reduce
their energy output. Most people’s energy ebbs and flows in cycles through time.
Approximately 10% of the people in a place consume more energy than they create
-- they are “net energy minus.” 13 Net energy minus refers to people who
(for reasons which remain a mystery) are parasitic by nature. They seem to enjoy being
a drag on the system -- they either have been trained and incentivized to drain energy
or loathe giving or creating energy.
Virtually any management theory designed to optimize wealth and performance necessarily
boils down to some variation of this simple rule: put the net energy plus people in
charge, get the followers following the net energy plus people, and try to keep the
net energy minus people from consuming more energy than they create. This rule is
essential to keeping the net energy minus folks corralled. Many business leaders and
entrepreneurs have heard the expression “invest in your performers.” This
rule of thumb describes the facts that a business leader can generate far more productivity
by investing his or her time in supporting the most productive people than in getting
embroiled in problems that net energy minus people create.
The deterioration of US culture has resulted from increasingly putting the net
energy minus people in charge, having the followers follow the net energy minus people
(and behaving like them), and draining the net energy plus people badly. As Sam Smith,
publisher of the Progressive Review says, “Corruption [in the US] is not a conspiracy,
it’s a culture.” Indeed, give a group of net energy minus people control
of enough resources and they will command the donations, payrolls, budgets and the
awards, media and fear that get them believing they are net energy plus. This is what
the story of The Emperor’s New Clothes was all about.
The key to any breakthrough transformation of productivity in the US is to reverse
the order of things locally - put the net energy plus people in charge, get the followers
following the net energy plus people in action and behavior and continuously find
ways to temper and stop the net energy minus folks from draining energy.
This is – of course – easier said that done.
In the United States in the 1950s, the Solari Index in most places was 100%, the
Dow Jones was about 300-500 and debt per person was very low. The net energy plus
people ran their neighborhoods. They were the homeowners and ran the small businesses.
The followers followed them. Whenever someone misbehaved, this leadership would deal
with it -- often by threatening to cut off the money of the troublemaker. As government
sponsored narcotics dealing and government subsidies and financing flowed into the
neighborhood, the net energy plus people lost all their power. Their home and small
business equity was wiped out and their personal time shrank and expenses skyrocketed
as they dealt with the variety of problems created. The net energy minus people --
whether doing dirty HUD and other government deals, gaming the welfare system, or
dealing in narcotics -- were able to get and maintain power without interference from
the high performance folks. Today, the Solari Index is 0% in many neighborhoods, the
Dow Jones Index is over 8,000 and has been as high as over 10,000 and debt per person
in America is over $100,000 and growing daily. (One recent report claimed that it
was up to $140,000 per person.)
Since World War II, US leadership has used organized crime, government corruption,
currency debasement and warfare to amass large pools of capital to fund black budget
investment, the multinational expansion of US corporations and “buy” control
of government within the democratic process. Domestically, this has resulted in negative
rates of return on significant amounts of government investment as tax dollars and
government credit and financing are expended to buy political control, to bolster
corporate earnings and equity valuations and to keep afloat neighborhoods that are
producing significant amounts of organized crime profits in a manner that helps ensure
the political and economic disenfranchisement of minorities. These issues were addressed
in detail by my last article in SRA Quarterly, “The Myth of the Rule of Law,”
and by Chris Sanders in his brilliant pieces previously published by SRA, “The
Unsustainable Nation” and “The Illiquid Economy.”
The most significant long-term disadvantage of such a system is that it promotes
net energy minus people and marginalizes net energy plus people. As the followers
adopt the net energy minus behavior, the culture and productivity deteriorate significantly
relative to the optimal. The U.S. reckoning has been avoided for decades by simply
expending frightening amounts of government capital and issuing more debt to keep
economic activity going. This works only as long as ever-larger markets worldwide
will finance the process by holding and using ever-larger inventories of U.S. dollars
and buying US government and private debt.
The ability of the net energy plus people in the US to understand what is happening
and how and why has been surprisingly poor. This general ignorance has been helped
along by corporate control of the media (which, for this reason, I call the “corporate
media,” to distinguish it from the independent media), “info-warfare”
and covert operations. The more public form of information warfare promotes divide-and-conquer
tactics and incentives (men vs. women, rich vs. poor, black vs. white, Christian vs.
non-Christian, Republican vs. Democrat and so forth). The more private form of covert
operations includes targeting by tax and regulatory authorities, blackmail, financial
and sexual bribery that support “control file” systems, assassination
and the use various other forms of covert operations that diminish a more general
communication about what is happening and why.
A review of the economics helps us understand why and how. If we can presume that
10% of revenues is a reasonable advertising and marketing budget for a high-margin
industry, then organized crime in America as measured by the Department of Justice’s
estimate of $500 billion to $1 trillion in annual money laundering through the US
financial system has about $50 billion to spend annually on “marketing”
in ways more subtle than explicit Madison Avenue T.V. and magazine ads. Add that amount
to the government budgets that can be used to police franchises, and the amount of
money spent on controlling and influencing the “official reality” is stupefying.
When an understanding of the amount spent to mislead is combined with an understanding
of our intentional failure of disclosure regarding government investment and performance,
particularly place-based disclosure, the intentional and increasing centralization
of economic and political power by unlawful means can be much better understood.
The advantage of such a system to current US leadership is clear. By centralizing
the holding of equity in local institutions or in outside institutions that affect
local matters (whether through McDonalds franchises or national telecommunications
companies) and denying equity to those who do not support the centralization process,
the few at the top can amass the political base of operations and resources they and
their global investors need to dominate global political and economic power. It is
fair to say that that if we could eliminate narcotics trafficking and the so-called
“War on Drugs”, the US political and business leadership would be more
likely to resemble a representative sampling of the US population than a G-7 gathering
of global financial elites.
As new technology promotes meaner and far more subtle and invisible forms of economic
warfare and social control, the centralization of political and economic power in
the US continues with the latest transformation from the War on Drugs to the War on
Terrorism. The latter moves the targeting of continuous “clamp down” supported
by sophisticated relational database technology and digital surveillance to whiter,
wealthier and better-educated populations at the same time that this population’s
economic and political power and resources are diminishing.
The Solari challenge is to create a transformation out of the current win-lose
situation in which we find ourselves. The key is to provide a trustworthy flow of
information locally that -- when combined with equity incentive systems -- promotes
and incentivizes high standards of responsibility and accountability going forward.
Only a system that creates significantly greater amounts of wealth can do so. The
fundamental principle that all humans want more energy -- not less- along with the
mysteries of freedom and intelligence tell us that it is possible.
Making it possible starts with increasing the flow of energy to the net energy
plus people and moving them back into leadership positions locally. This can happen
in a model in which a portion of the resulting capital gains flows to the capital
that was amassed through organized crime and government corruption. In exchange for
offering the leadership of organized crime a “double” on their ill-gotten
gains, the local “net energy plus” people can buy back control of their
local areas. This alignment is necessary to achieve breakthroughs in reengineering
place-based government investment. Without it, the risks to both sides are significant.
This is why the Solari Stock Plan is at the very core of the solari model. The
economic productivity that can be unleashed when the high performance people are in
control subject to traditional conditions of fiduciary accountability and performance
are so extraordinary that “buying” our way into such a system turns out
to be surprisingly economic for all concerned.
The transformation of any non-sustainable system to a sustainable system must ensure
greater energy and safety -- starting in the short term -- for the net energy plus
people. The net energy plus people are our primary resource. Their risks need to be
reduced, not increased by heroic actions that drain more energy. This can be achieved
by rebuilding the alignment of local “net energy plus” leadership with
those who manage global financial capital around a common vision of high performance
and wealth creation -- and the rise of a more economic rule of law that makes it possible.
V. Solari Investment Opportunities
|"Dillon was one of those who
developed a means whereby small investors could profit from such intelligence. The
vehicle was called an investment trust, an old concept utilized in the nineteenth
century that would flourish again in the 1920’s. Unlike mutual funds, they would
not sell and redeem shares at asset values plus commissions; rather, they were pools
of money provided to a manager, who was supposed to utilize his special expertise
to purchase and sell bonds and shares."
— Robert Sobel, The Life and
Times of Dillon Read
A solari as investment databank promotes literacy about “how the money works”
within its place and -- with tools such as investment clubs -- promotes higher rates
of investment within its place. A solari circulates annual reports on:
- “neighborhood financial statements” describing public and government
resources and management;
- its estimate or poll of one or more indices (such as the Solari Index) of well
being that support a common vision of intelligence; and
- the equity value of the solari and any equity pools it manages.
The absence of place-based disclosure about resource management -- particularly
government resources -- was covered in the article in the November 2001 SRA Quarterly,
"The Myth of the Rule of Law; or How the Money Works: The Destruction of Hamilton
Securities Group," which describes some of the transactions, portfolio strategy
and simulation and software tool and database development that my former company used
to prototype and price various place-based and community equity components of the
Solari model over the last decade. See in particular the section “A Word about
Place-Based Financial Disclosure.”
One of the lessons we learned from approximately $12 billion of place-based reengineering
transactions and venture capital and portfolio strategy and simulation advice for
a $500 billion portfolio of US foreclosed properties, mortgages, mortgage backed securities
and mortgage insurance is that current negative returns on investment on current federal
government investment can be shifted to much higher returns in a 2-5 year period if
-- among other things -- literacy and understanding about “how the money works”
in a place is accessible on an open basis in that place. The experience of very financially
successful public-private reengineerings to date echoes the words of Nicholas Negroponte
of the MIT Media Lab, “In a digital age, data about money is worth more than
For a system to optimize, the players in the system must have a basic literacy
about how it works. Ask people in America about how the money works in their neighborhoods.
They don’t know. Ask people where to get all the information about their neighborhoods.
They don’t know. That is why the core function of a solari is to collect and
circulate information which serve as useful maps of “how the money and resources
work” accessible for busy citizens. Particularly for government resources, such
investment literacy is critical to achieve performance. When we understand our government’s
budget for the concrete world we see and experience daily, we can take responsibility
and be accountable to the standards described in the U.S. Constitution. Without conformity
of our financial information and our physical world, most Americans become confused
and easily misled and our ability to take responsibility within human time frames
There are numerous tools that a solari can use or help others use to promote investment
literacy within its areas. In addition to circulating neighborhood financial information,
a solari can work with local schools, libraries, home schooling associations and colleges
as well as local civic and business groups to promote training and education on the
local economy and to build local citizens' business and economic toolkits. It can
also promote investment clubs as well as book clubs focused on economic and investment
Each place is different, which is part of what makes doing the early solaris difficult
-- there is no franchise “ paint by numbers” kit of what will add the
most value in a particular place. A solari promotes process methodologies and incentive
systems. That is why it is highly decentralizing. Within the boundaries of the definition
of a solari, the Solari A shareholders have the power and responsibility to invent,
design and operate their products and services subject only to the judgment of each
other, their shareholders and their performance in the marketplace.
Once the solari has established itself as an investment databank and established
its process for circulating financial information and indices on performance, whether
by the Solari Index or other indices that it determines, the Solari A shareholders
will have the knowledge they need to then assess their opportunities to invest the
solari's time and money to exploit the potential reengineering opportunities -- either
directly or indirectly by helping local entrepreneurs, small businesses, accountants,
attorneys, associations and co-ops to do so:
- Consumer aggregation: a solari can help local business people organize consumers
into buying groups that can bid and negotiate for goods and services in bulk. This
can be useful not just in re-pricing services but in organizing consumption in ways
that reduce the producer’s risks and make new kinds of products and services
available. Theoretically, aggregation could fund such things as the creation of organic
and year round greenhouse farming or solar and alternative energy capacity locally,
of homeowners insurance premiums that declined with improved solari indices performance
or attraction of accelerated fiber optic and telecommunications capacity in a place.
- Small business/farm aggregation: a solari can also help local business people
or their associations and farm coops organize aggregations for purchasing raw materials
or supplies or to help vertically integrate, when and if the solari’s investment
knowledge and technology/networking skills add value.
- Small business incubation, back office and marketing support: most small businesses
tend to be good at their fundamental products or services, but less capable when it
comes to “the business of the business.” As the solari focuses on valuing
and pricing equity investments for small businesses, many issues will arise as to
how to consolidate, standardize and/or share back office functions in a place in a
way that will increase the equity valuation of the individual businesses. Ask yourself,
why do 30 businesses in the same place need 30 databases on the same local customers?
They don’t. As more and more small businesses access the solari equity pools
through B share sales, the incentives will grow to cooperate and consolidate where
doing so creates both individual and pool value. These types of shared functions are
opportunities for local accountants, attorneys and systems firm. They will apply to
the solari’s potential incubation and financing of new business through venture
capital funds or its reserves.
- Neighborhood venture and investment funds: to access stock market equity for local
business and real estate using the Solari A/B share model. While the potential structures
and possibilities are many and complex, the basic notion is pretty simple. Most places
are filled with small businesses with equity that is not liquid and not appropriate
for investors looking for diversified investments or investments in size. It is pretty
easy to see why Wal-Mart can take over a local market if the local businesses are
trading at a stock multiple of 1X, and Wal-Mart is trading at a stock multiple of
20X. That means that if group of small businesses have a total net income of $1MM,
Wal Mart can create $20MM of stock market value to buy up that market. A solari’s
opportunity is to use its investment vehicles to securitize illiquid local equity
in a way that allows it to be valued at a much higher multiple. This happens by creating
a diversified pool with the Solari Stock Plan, and remarketing Solari B shares, participations
or interests in the pool. Once a secondary market is established locally for existing
small business (the community offering procedure defined by US Securities and Exchange
Commission (SEC) rules should be ideal for this, as well as beyond the local area,
the pricing and liquidity for venture capital to incubate new small business should
One of the ways that building local venture and investment equity pools -- made possible
by the Solari Stock Plan and the solari acting as an intermediary to function as a
“governor” of the relationship on a diversified basis -- adds value is
by connecting the local community as shareholders to the businesses that they now
typically frequent as customers. This builds an alignment between the local businesses
and their customers which will promote a much higher learning speed between a business
and its customers. Such learning speeds are often the key to the success of such businesses
and the shared intelligence within a community.
- Debt-for-equity swaps on government and private debt: this opportunity may be
the most significant in the next 5-10 years as America’s high debt load continues
to choke off productive capacity. Equity pools raised by the solari can help individual
businesses pay off or renegotiate their debt. They can also start to negotiate swaps
on defaulted debt (credit card and consumer, mortgage, small business, and municipal)
that can then be aggregated for swap by private financial institutions and investors
and governments and their servicers. This debt will have higher values in many cases
when placed in a pool managed by a solari that -- as a portfolio strategist -- is
dealing with creating the economic value that is necessary to pay off that debt. In
a situation where a collection agent cannot get “blood from a turnip,”
buying up a lot of the debt in that place is a good business for someone who can help
get the turnips growing locally.
During the S&L crisis in 1989-90, there were towns in America where over 70% of
the housing was owned through defaulted mortgages belonging to the federal government
credit and disposition programs and the Government Sponsored Enterprises (e.g., GSEs
-- Freddie Mac and Fannie Mae). The last decade has seen ballooning of these federal
credit portfolios in far less credit-worth instruments than was the case in the 1980’s.
That means that the possibility of a period of high default rates has increased. A
solari poised to do debt-for-equity swaps could create and capture tremendous value
in handling large resolutions in a way that will “grow the turnips” locally.
The coda of cleaning up financial mess is “in the destruction of the old, let
there be the creation of the new.” Debt-for-equity swaps that aggregate and
work out defaulted debt by place may be the way we convert to equity based local economies.
If the economy sours and unemployment and default rates continue to rise, the presence
of a solari and the creation of local equity vehicles can make a tremendous difference
to the productive investment of a community’s time and energy in positive transformation
through such a period.
One of the most mutually beneficial relationships for a solari will be with the local
banks and credit unions that promote equity creation locally. The area of debt-to-equity
swaps is one with potential benefits and fee business for banks in a way that could
make them a valuable joint venture partner or investor in or with the solari.
- Buyouts, reengineerings, renegotiation and waivers of government investment and
regulation: anyone who has ever looked at the total sources and uses of government
monies on a per person basis in a place will understand the potential. Ask anyone
who has ever worked in a local post office handing out all the government checks how
frightening the current negative return investments are.
Most necessary or attractive government reengineering cannot be done by a typical
government agency within its budgets and regulatory constraints. A decade long experience
with reengineering significant government subsidies, credit, insurance, assets and
operations throughout America showed that 90% or more of all reengineering savings
came from place-based reengineering that was cross governmental platform (i.e., across
different functionally organized agencies at different levels of government) as well
as cross governmental and corporate platforms, which shifted functions and scopes
in unexpected and new ways.
The optimization of government investment returns must be organized on a per person
basis in a place. Vastly oversimplified, that means the ideal way to get the maximum
performance from government investment is to reengineer all local, state and federal
investment in a place as if there were one pot of money organizing around one set
of performance measures for the people and capital in that place. One of the reengineering
opportunities is to move some of these functions to the private sector subject to
local standards of performance -- and to simply stop doing a whole bunch of other
This is, of course, a notion that will cause every government contractor -- and its
employees and investors -- to have a turf war. That is, until local literacy about
“how the money works” grows. When everyone sees the opportunity to increase
performance dramatically -- and the absurdity of what is happening now -- the situation
will shift dramatically. This is particularly true if debt defaults and unemployment
rise and reengineering of income and expense flows are part of what it takes to address
the problems on the financial side of the balance sheet. The mutual destruction of
human and financial capital is part of what may inspire reengineering them back into
Again, the different opportunities and possibilities are complex and many.
They range from negotiating buyouts in both tax and expenditures categories, to renegotiation
of regulatory burdens with the granting of “jumbo waivers,” to thousand
of small changes that save people time in the area (time saving is a significant opportunity)
and that reduce paperwork and regulation. Many of these are things that politicians
find boring and not useful to promote and judges and attorneys delight in keeping
obscure and complex. However, when pursued continuously by a solari and local business
and civic leaders with equity incentives, they can make an extraordinary difference
in local equity values.
- Community currency and barter networks: significant amounts have been written
on community currencies. Reportedly, there were over 3,000 community currencies at
the end of the great depression in America. Numerous communities have shown a renewed
interest in the last decade. In addition, barter and trade networks continue to thrive
-- some, like E-bay, have grown up around the Internet and new technology. Many of
these opportunities require greater place-based financial literacy and more significant
support from local businesses, banks and organizations. Since a solari promotes equity
market access at higher valuations for the local business community, some of these
opportunities may be attractive for the solari and its local business customers, investors
VI. Solari Investment Analytics
|"This game is more fascinating
than no-limit stud poker."
— Clarence Dillon
The time has come to affirm age-old fiduciary principles with the firmest and clearest
of voices. The requirement that a fiduciary must first and foremost optimize risk
adjusted return for the assets in his or her care is -- and always will be -- the
clear line that stands between civilization and an abyss filled with primitive human
instincts egged on by the universal forces of entropy and sloth.
The traditional constraint on optimizing investment return has been the rule of
law. Hence, a fiduciary is not supposed to engage in financial fraud, covert operations
and narcotics trafficking, or the reinvestment of the proceeds thereof, to generate
higher yields. New technology is causing significant gapping in learning speeds and
resources between private investors and corporations -- particularly those who are
most savvy at high-tech covert and corrupt means -- and the government. The idea that
the finance chairman of Enron controls the company that manages the information and
computer systems of the enforcement agencies investigating him says a lot about the
implosion of US governmental sovereignty. If a government does not control its own
information and accounting systems, there is no government. Indeed, we appear to have
experienced a silent “computer coup d’état.” In this environment,
the highest returns flow to those who are successful at imploding government and trading
on insider information.
The question arises as to how we reinvent our application of traditional fiduciary
principles in such an “out of control” network economy. That is, how are
investment fiduciaries to handle the implosion of government’s ability or willingness
to implement the rule of law? For example, what does the head of JP Morgan’s
private banking group do when he can use Enron to offer a guaranteed 2,500% return
for an investment in a mysterious off-shore partnership? What does an investor do
when CIA personnel appear on Enron’s payroll and Enron’s access to Echelon
surveillance technology for investment espionage give new meaning to the terms “insider
trading” and “economic warfare?”
The reality is that private systems that support an economic rule of law can create
far more total wealth than our current system. For such private systems to evolve
in a timely and cost effective manner requires using a small local knowledge manager
and investment advisor as a “building block” to implement the investment
analytics necessary to use an understanding of total economic return to achieve higher
rates of return -- including through far superior risk management -- in practical
and concrete ways. To understand how Solari investment analytics does this, let's
return to the basics of investment return.
An investment’s return is its total economic return. This return can be positive
or negative. It can be looked at and measured from various points of view. The first
portion of the return is the return to the investor. The second portion of the return
involves the return to all the other affected parties in the investment’s ecosystem.
We call the net return to all other parties the return to the network. So, for purposes
of definition, an investment’s return is its total economic return, which is
divided into two portions: return on investment to the investor (first test) and return
on investment to the network (second test).
Traditional fiduciary principles say that all investors should optimize their risk
adjusted first test returns subject to the rule of law. The Solari investment model
affirms that all investors should optimize their risk-adjusted first test returns.
It supports doing this by adding second test analysis as an essential source of critical
strategic intelligence. Significantly greater intellectual mastery of how to create
the greatest total economic returns is used to reduce and manage risk and to generate
higher individual investor returns. Finally, the Solari investment model adds a new
constraint required for a world where application of the rule of law is spotty --
it is the surgeon’s motto: “Do no harm.” In other words, never increase
first test returns by lowering total economic return.
Solari investment analytics represent the application and evolution of more traditional
forms of portfolio strategy and investment philosophy to a network model. Numerous
tools make this type of enhanced scanning, scenario planning, simulation and estimation
possible. The more such tools are available, the more necessary having them becomes.
Analytics to Enhance Investment Returns
By Estimation & Optimization of Total Economic Returns
|Solari investment analytics in a nutshell:
Grow your intellectual mastery of your portfolio and your network (your ecosystem).
2. Grow your intellectual mastery of how your network optimizes its returns and
manages its risk: past, present and future. Master both organization players' and
individual players' positions and incentives.
3. Grow your intellectual mastery of how to optimize total economic return.
4. Grow your intellectual mastery regarding your impact on your network: cui bono?
5. Use this intelligence to attract the highest quality net energy plus players
and attract or invent the highest return opportunities to you and your allies.
6. Use this intelligence to minimize your risk -- avoid or arbitrage net energy
minus players and situations.
7. Optimize your return -- with one exception: do no harm and never lower total
8. When and if whacked by another player who does harm to total economic returns
or is playing outside of the rule of law, whack back hard and as fast if possible.
Some of the fundamental principles that support Solari investment analytics and the
Solari model are outlined by Robert Axelrod in his 1984 book, The Evolution of Cooperation.
Axelrod describes his discovery that in an economy with continuous repeat interactions
(that is, where repeat interactions are the nature of relationships and “one
night stands” are not possible), a “tit for tat” strategy is the
In a “tit for tat” strategy, one always cooperates, unless and until
the other party exploits that cooperation wrongfully, at which point the tit for tat
player stops cooperating and attacks back on a basis where the tit for tat player
is willing to return to cooperating after enforcement of some discipline. While the
tit for tat player occasionally loses a battle, he or she always wins the war. That
is because the tit for tat player attracts the most trustworthy and highest learning
speed players as allies over time.
The merits of Axelrod’s arguments have been overlooked during a period when
“hot money” has corrupted the corporate and investment communities. However,
corruption of the current magnitude is not sustainable. The power of Axelrod’s
thesis will stand the test of time, particularly as the economy is organized on a
decentralized basis that steadily enhances the ability of “net energy plus”
(or tit for tat) players to enhance yields from creating environments locally where
they are more likely to succeed and “net energy minus” (or one night stand)
players are less likely to succeed. The opportunity to build the knowledge and incentive
support to do this on a highly localized basis -- and the potential capital gains
from successfully doing so -- is one of the driving forces in the creation of a network
Negative Government Returns: An Example of Using Solari Investment Analytics
to Identify the Problem and Opportunities to Enhance Yields
An example that helps us see the power of the “two test” investment
analytics is what I call the “Ben Hur” problem. In the movie Ben Hur,
Charlton Heston as Ben Hur is a slave rowing in the galley of a Roman war ship. He
asks to be moved to the other side, as he is developing all his muscles on one side.
He wants to move to the other side so that he can balance out his muscle development.
Investment in the US economy has developed a similar out of balance “Ben Hur”
If we go back to our oversimplified construct that our resource management is primarily
managed by private companies and investors within markets and by government by means
of a democratic process within a republic, we can see that government’s investment
can be divided into two parts -- return on investment to taxpayers and return on investment
to the network. In turn, private investment can be viewed in two parts -- return to
investors or shareholders and return on investment to the network.
Oversimplified, the two are flip sides of the same coin. Understanding the US economy
gets much easier when our analytics start to estimate return on government investment
and return on private investment as two complimentary parts of one integrated optimization:
As described in detail in “The Myth of the Rule of Law,"14 private US
investment returns have been subsidized increasingly by government contracts, subsidies,
credit, insurance and favorable regulatory and enforcement policies that have produced
a negative rate of return on government investment to the taxpayer (i.e., to the government's
network). Some illustrations provided in this article include US Department of Housing
and Urban Development (HUD) multifamily housing that cost $150-250,000 per apartment
unit in neighborhoods where single-family housing could be provided at only $25-50,000
per home. The justification for such expense by a HUD official was that it would do
a better job of “generating fees for our friends.” Another illustration
was the contract paying AMS $206 million to produce consolidated accounting systems
that not only were not delivered by the allotted time but also resulted in the failure
to account for billions of agency dollars that we are left to presume have been stolen.
Another illustration provided was the cancellation of a loan sale program that resulted
in resolution of HUD defaulted mortgages at recovery rates from 70-90% in favor of
alternative methods that had traditionally generated recovery rates of only 35% and
were more harmful to local homeowners.
It was not surprising when in the summer of 2000 the senior staffer to the chairman
of one of the HUD subcommittees described HUD to me as “a criminal enterprise.”
What that statement suggest to me is that the US Departments of Justice and Treasury
and the private government contractors and bank depositories and other corporate stakeholders
are running HUD as a black budget criminal enterprise. All of the muscle has been
moved to the private side -- the parasite has overrun the host. Subsequent to communicating
my conversation to the staffer to my congressman and two senators in Tennessee, they
and the subcommittee on which the staffer served voted a $1.7 billion increase in
HUD appropriations. The HUD Secretary at the time, Andrew Cuomo, was then a candidate
for the next governorship of New York.
What examples like this illustrate is that a high private investment return has
been bought at the expense of a negative taxpayer return in a manner which reduces
total economic return. Nothing demonstrates this more clearly than the fact nationwide
that for many decades US citizens have been paying more and more for law enforcement
and national security and every year the Solari Index goes down. This is the equivalent
of buying a car that does not work and then paying more and more to get it fixed despite
the fact that it never works. The bombing of the World Trade Center and the Pentagon
an hour later on September 11, 2001 represented a massive intelligence and national
security failure. This failure was rewarded by Congress by its failure to take action
with regard to $3.3 trillion of money gone missing at the Pentagon during the two
previously reported fiscal years, and its approval of an increase in the national
security budget of $48 billion. This is the equivalent of paying large bonuses to
Ken Lay, former CEO of Enron, and the Enron management and board for achieving one
of the largest bankruptcies in history.
The War on Terrorism (WOT) is designed to significantly exacerbate the problem
of negative government investment returns by increasing private equity returns at
an exponential rate. The WOT is being financed by diminishing US domestic economic
standards in the name of NAFTA and globalization and accelerating imperial conquest
of global resources using the US military as a private mercenary force for networks
of global investors.16 It is one way of centralizing economic and political power
by those who control financial capital -- presumably competing towards one world government
and one world currency -- in a highly wealth destructive manner.
Invisible Assets: Another Reason for Negative Returns on Government Investment
The question often comes up as to how it is federal investment returns in particular
could have gone so negative without most people noticing it. There are two reasons.
The first is that most of our assets are not accounted for and tracked by performance.
Hence, we have a tendency to optimize only what we have systems to quantify in terms
of money or number of units. If we do not count it, it is hard to integrate it into
our decisions. The second is the organization of most government budgets and disclosure
by function( rather than by place as well) in a manner that obfuscates returns and
performance to the individual citizen. Let’s look at the asset question first.
A civilization's wealth is its accumulated assets. Wealth includes:
- Human assets – Human resources are people like you and
me. This includes our time and health. Many times you will hear the expression, “
People are our most valuable resource…” One of the themes that any solari
will find is the potential value to be created in looking at reengineering alternatives
that enhance the use of people’s time, health and well being. This is currently
and always will be a person’s single most valuable resource. Our human
assets also include our social assets that represent our desire to organize in collectives
and communities and communicate in ways that create value and ease confusion and friction.
- Intellectual assets – the net inherited intelligence of
ourselves and our ancestors accessible to us through our knowledge and our tools.
Intellectual assets are the intelligence that has been captured and can be transferred
or used to leverage other assets in a manner that creates value. It is the books in
your library, the maps in your car, the programming language that makes your computer
work, or the neural networks that make the whole history of consumer purchases in
your place immediately accessible to the newest employee. Intellectual assets include
manners and civic and cultural values. We also create art and musical instruments
and all sorts of tools that we use for work and for play to make our world safer and
more beautiful and to make it easier for us to stay in touch and connected with each
- Our physical and environmental assets – The world
is full of many living things in addition to humans. People are only one of many species.
Our planet, Earth, has thousands of acres of land, forests, lakes and ocean and an
atmosphere full of oxygen that supports our life. We cultivate and extract from the
land and living energy around us to grow our food and grow or make products that make
many of our physical assets. We build buildings, roads, bridges, water and sewer systems,
electric and gas systems, transportation systems, communication systems and various
other forms of property, plant and equipment and “things” from cars, to
lipstick to microwaves to furniture.
|Consolidated Balance Sheet
|Currency and trade have traditionally been used to price and allocate most assets
that could be bought, sold or rented. For the last few hundred years, we have tried
to improve our ability to allocate our assets through the use of financial capital
and markets. We move assets into corporate, trust and other legal instruments and
then proceed to trade stocks and bonds, or the corresponding options and derivatives.
A consolidated balance sheet for our current wealth as a society might look like this:
As digital technology increases the value of the component of our wealth that is
generated by human and intellectual assets, we are faced with a challenge. Our current
organizational accounting, internal control, audit and other reporting systems focus
almost exclusively on physical and financial assets. Only when a company is financed
with publicly traded equity do we have a way of valuing its investment in human and
intellectual capital. Those who have worked with investing in publicly traded companies
generally have a much better understanding of the market value of human and intellectual
capital, including “brand”, than their governmental counterparts who have
worked in a world financed with debt and who tend to be divorced from equity performance.
Unfortunately, many otherwise competent government staffers have been acculturated
to believe that government money is not “real.”
Grappling with the complexity of creating or adapting organizational accounting
and information systems that account for human and intellectual capital ultimately
leads to the conclusion that the most productive next step is to finance “places”
with equity. Local Solari B valuations will be significantly influenced by the quality
of education and “intelligence” in a place. Increased intelligence is
more likely to result from capital gains potential than from highly novel and cumbersome
accounting systems. Indeed, such capital gains will incentivize the investment in
practical accounting systems that transform our ability to price and invest in what
has been traditionally thought of as invisible or shared resources.
Our Ability to Measure and Account for Assets and Liabilities
(Scale: 0 - 10, with 0 being the least measurable and 10 being the most)
|Assets & Liabilities
The invisibility of human and intellectual assets given our traditional accounting
systems is compounded by the disassociation of most of our abstract information, including
financial information, from our concrete reality. The ultimate “control”
that prevents fraud and supports productivity is when lots of people who walk and
drive around and live in a place can affirm that what they are seeing with their own
two eyes conforms to the financial information on which they depend. As described
in more detail in my article, “The Myth of the Rule of Law,” federal government
revenues, expenditures, credit, insurance and regulatory impact are reported on a
functional basis that is generally “place blind.” While some place-based
accounting can be found, it is not generally accessible by the public and what is
available is incomplete and cannot be integrated with other data in a meaningful way.
Based on the repeated failures of all efforts to get government to improve its
place-based disclosure significantly, it is clear that local entrepreneurs will have
to institute this transparency and do so in the service of promoting local accountability
and responsibility for total government resource management and impact in their place.
Another Example: Economically Targeted Investments (ETIs) Are a Very Bad Idea Indeed
One response to negative government investment returns is to pressure private investors
and lenders to step into the breach with socially motivated or economically targeted
investments. Unfortunately, asking private investors to dispense with performance
standards to subsidize low or negative returns on government investment is compounding
the problem. The problem is not that some investors are optimizing too much. The problem
is that government is either optimizing too little or some private investors are manipulating
government investment to lower returns to help them inflate their returns in questionable
or criminal ways. Total economic returns are low or negative. The solution is not
to throw more capital at the situation or take reduced returns. The solution is to
illuminate total economic returns and deal with the “net energy minus”
investments and players.
The notion that more capital investment is an intelligent response to low or negative
yields is financial insanity. Fifty years of holding onto this notion have produced
an economy that is highly dependent on organized crime and non-performance based government
subsidy and credit. Indeed, the rise in organized crime and the proliferation of ETIs
are not unconnected. A review of the NY Fed website17 will show a series of community
investments. A calculation of any reasonable estimate of the organized crime and corrupt
government credit and subsidy flows that “run” through those neighborhoods
either through or then into the NY Fed and its member banks for deposits and reinvestment
would indicate that the logic of “looking good” with such community investments
is more easily understood.
ETIs essentially function as bribes or payoffs that then cause more damage in a
place by moving it even further from a fundamental economics and productivity.
The intelligent response to low and negative yields is to reengineer the current
allocation of a capital to more productive uses that will generate higher yields or
to remove capital or both. The problem is that such reengineering forces us to look
at “the real deal.” That brings up risks and serious political questions
-- particularly where the rule of law has collapsed. This is one of the reasons that
the Solari model was created -- to help transform us to a reengineering model where
financial capital can realign with human, social and environmental capital in a win-win
Another Example: The War on Drugs Can End Soon
|"Sunshine is the best disinfectant."
— Judge Brandeis
Conversations with most anti-War on Drugs players reveal that members of this group
believe that their cause may take decades to win. Indeed, the creation of a network
of solaris and the use of solari analytics can end the War on Drugs in a much shorter
The purpose of the War on Drugs is, to use the words of Chris Sanders, “to
concentrate and control cash flows.” The way to stop the War on Drugs is to
reengineer the economic incentives so that it is more attractive for the “cash
concentrators” to end it than to keep it going.
First, we need to build a network of solaris that moves significant resource control
to those who can enhance yields through moving us back towards the rule of law. Second,
we need to do that in a manner which is financially more attractive to the investors
currently dependent on the reinvestment of organized crime flows. Third, we offer
this opportunity in an environment in which a network of solaris has the power to
ensure that a large investors' children, families and neighborhood will hear of their
refusal to shift to more lawful pathways and the wider market can express their distaste
by “voting” in the marketplace to pull their monies from those financial
A network of solaris can help end the War on Drugs by reengineering its financial
incentives -- by going at the heart of our addiction to organized crime cash flows
and accumulated capital that such cash flows produce.
America is more addicted to accumulated drug and organized crime and money laundering
profits -- narco dollars -- than it is to drugs.18 That means we have to heal the
financial addiction and identify publically the people who are profiting outside the
rule of law in a way that reengineers their market incentives and risks so that they
chose to switch sides.
If the American people take responsibility for our widespread economic addictions
and use their day-to-day transactions to transform us out of our addiction to narco
dollars, the War on Drugs can end much faster than the currently prevailing expectations
would have us believe.
Another Example: Negative Local Resident and Financial Institution Incentives
|"If you’re coming to help
me, you are wasting your time. But if you have come because your liberation is bound
up with mine, then let us work together ..."
— Australian aboriginal
Solari B shares and the ability to negotiate or issue related options could be
an important critical tool in reengineering local financial alignment within a community.
The reasons vary tremendously. As an example, lets look at a typical “poor”
If you have ever spent time in a neighborhood with significant amounts of narcotics
trafficking and government subsidy you discover a perverse incentive system. A lot
of residents rent their homes and small business owners rent their commercial space.
They do not want the neighborhood to improve because that would drive up their rents.
They would lose their homes and some would lose their businesses. Some people own
homes, but still do not want the neighborhood to get better because of the various
property tax increases that would result that they could not afford. To compound the
problem, numerous jobs and income flows in the neighborhood are contingent on making
a compelling case to government and private not for profit foundations that the neighborhood
is depressed and in dire straights. Improvement could jeopardize existing financial
security. Without equity-based financial tools and cooperative negotiations, a turn
around is much harder to engineer.
The analysis becomes trickier when you start to account for the effects of organized
crime flows. Let’s assume two or three teenagers deal drugs in a residential
community. Figure they have a 50% deal with a supplier, do $300 a day of sales each
and work 250 days a year and their supplier runs his net profits of approximately
$100,000 through a local fast food restaurant that is owned by a publicly traded company.
Assuming that company has a stock market value that is a multiple of 20-30 times its
profits, a handful of illiterate teenagers could generate approximately $2-3 million
in stock market value for a major corporation as well as a nice flow of deposits and
business for the local banks and insurance companies.
The challenge for the solari and solari investment analytics is to generate more
capital gains from making sure those kids are in school and off the streets and doing
so in a way that local financial institutions are as well or better off, so long as
they help make the switch. This is all doable, but it requires finding ways of having
honest conversations about very risky subjects.
Solari investment analytics are essential for mapping out the detailed incentive
and risks systems that are necessary to reengineer a successful transition from an
economy that destroys our human capital to an economy that builds far greater wealth
by challenging human and intellectual capital to perform to standards of investment
|"I can tell you what will happen,
I just can’t tell you when."
— Nicholas F. Brady, Chairman of
Dillon, Read & Co. Inc. and 68th Secretary of the Treasury giving his overview
of the economic outlook at a partners' all day planning session in the 1980’s
The purpose of a solari’s investment analytics is to understand and apply
a deeper understanding of total economic return to reduce risk and enhance traditional
returns to the investor within its service area. Using these analytics in a small
local environment with growing economic literacy and an equity based financing system
makes it possible for a solari to overcome the local issues often raised while optimizing
across different asset and capital classes (human, intellectual, physical, and financial)
as doing so optimizes the solari's shareholder yields. This can generate the combination
of forces needed to permit private investors to assume a greater responsibility to
support an economic rule of law for the right reason -- it generates a higher return.
This returns traditional human greed to a more healthy free market force than it has
been in recent years.
VII. Solari Voting: Voting In the Marketplace for the Rule of Law
|"If I swung outside of the strike
zone, then how would I know where to draw the line?"
— Ted Williams
As our governmental systems implode or are compromised by government contractors,
“computer coup d’état” and fundraising corruption, consumers
will have to assume greater personal responsibility for supporting the rule of law
through day-to-day market activities. If government is going to be controlled by private
corporations and banks and manipulated for the benefit of those corporations and banks
and their global investors, then the marketplace is one of the few ways individuals
have of influencing and incentivizing corporate behavior that optimizes their integrated
self-interest. If our vote at the voting polls becomes less and less important as
governments are increasingly controlled by large corporations, banks and their investors,
our “votes” in the marketplace become the only powerful feedback loop
to those same corporations and banks.
Voting in the market with our time and money is a system that can provide a speed
of and cost of enforcement that can match or outpace that of private corporations,
banks and investors. As Woodrow Wilson once said, “no one is as smart as all
of us.” While US citizens vote in the polls every year or two, we vote in the
market place every day with our time, our attention, our associations as well as the
investment of our money in terms of deposits, our purchases and our investments. With
a network of solaris supporting us, we can have many eyes and ears.
The socially responsible investment industry (SRI’s) was founded on similar
principles. Currently, most SRI players assume that government can be depended to
police the rule of law. For example, a tour of any SRI conference will find lavish
promotion of some of the most significant corporate players in money laundering and
the reinvestment of organized crime profits. SRI inclined customers are becoming increasingly
aware of the fact that they cannot depend on government to implement the rule of law.
In addition, they appear to be indicating increased interest in place-based investments
for their place.
With solaris as part of an expanded knowledge infrastructure, those parts of the
socially responsible investment industry prepared to deal with “non-transparent
cash flows and operations” can transform to a more integrated model in several
- Purchases: Equity creation starts with our purchases, not
with our investments. Our first market clout is through our purchases. We will need
to use our purchases as consumers to vote for the rule of law, for the “do no
harm” principle, and for who gets the equity and -- as important -- the intellectual
capital on our purchases;
- Media: One of the most important investments of time, attention
and purchases we make is in media and other forms of information systems that give
us useful maps about what is really going on so that we can act in our own self interest
to optimize our energy. Hence, America’s tendency to buy and support media that
does not tell the truth about “how the money works” is one of the most
important areas that consumers need to transform if we want to restore the rule of
law. Again, a solari is the fundamental unit of transparency needed to support such
an effort, but numerous others that are not place-based will also be needed.
- Deposits: Depositing with financial institutions that are not
complicit directly or indirectly in money laundering, government corruption and the
reinvestment of organized crime profits will also be an essential.
Traditional investments: We have the ability to pick and choose investments as
well as to use our proxy votes and legal rights as beneficiaries to move our money
to corporations who do not “do harm” and to illuminate and hold accountable
those who do.
Place-based Investments: A shift of our investments from the corporate “production”
side of the investment industry to solaris and solari equity pools will start to balance
out the pressure in the economy to generate capital gains through natural resource
extraction and warfare, by promoting equity investment that can generate capital gains
through healing the environment and making places safer and more beautiful. “Trading”
equity associated with places is one of the steps necessary to create a powerful new
alignment of interests between the needs and concerns of those who manage our financial
capital and risk and those who are responsible to protect and grow our human and environmental
capital and risk.
A network of solaris will create a significant increase in the demand for and supply
of SRI investments and information.
VIII. Solari Network Valuation
|"The health of a State depends
on a due quantity and regular circulation of cash as much as the health of an animal
body depends upon the due quantity and regular circulation of the blood."
— Alexander Hamilton, 1st Secretary of the Treasury
In 1997, an effort was undertaken to simulate what a network of solaris (at least
one in each neighborhood) reengineering local investment to higher yields around financing
small businesses and local real estate with equity could do to enhance the GNP and
equity values in America.19 The results were quite astonishing. The results underscore
the price we have paid and the risk we have incurred for being “place blind”
while we financed places with municipal and small business debt.
Let’s look at several of the ways that a network of solaris and their investment
pools can add value:
Securitization of Small Business Equity:
Let’s say that there is about $700 billion of small business income20 in
America. What is the equity valuation of these businesses? Let’s assume the
related common equity is currently valued at multiples of 0-5 times income. For the
sake of this example, let's value the equity at $1.4 trillion. What would happen if
they were recapitalized with the solari stock plan through a solari managed fund?
Let’s say that a venture fund managed by an experienced solari investment
team invests and seasons a diversified pool of B share interests in the businesses
in that place, and then sells B share participations in the pool through a community
offering to the businesses’ local customers, and then later sells another round
of equity in regional and national stock markets. What could that publicly traded
liquid equity sell for? Let’s say that 50% of the small business equity is recapitalized
in this manner. If it trades at a multiple of 5-10 times earnings, the capital gains
potential on that 50% would be $1.1-2.8 trillion.
Which means while we were getting taken to the cleaners by Enron et al., we were
missing out on the diamonds in our own backyard.
Now, imagine the increases in value that can be generated with local and global
incentives aligned around an increase in an enhanced performance of local equity.
Can you imagine what the small businesses in a neighborhood are like when all the
local customers have equity participation through a pool and want to help them make
The Solari Index Rising:
Naturally, the real estate opportunity is also attractive. Let’s keep it
simple. If all the residential real estate in America is in 72,000 neighborhoods where
the Solari Index is currently 0-50%, what will happen to the value of all the equity
of all the residential real estate if solari-organized equity pools make it attractive
for all players to continuously reengineer towards a 100% Solari Index? What are the
total capital gains? What are the capital gains that solari-related pools might be
able to securitize?
If you are a pessimist, run the same scenario for a high mortgage default rate
and then realize the workout potential if Solari B shares in solari-managed pools
are available for debt-for-equity swaps.
Imagine that there are over $1 trillion of annual federal government expenditures
and financing domestically that have a negative rate of return to taxpayers.
Imagine what happens if -- using equity vehicles and incentives -- a $1 trillion
expenditure is reengineered to have a 5-10% positive return. How about a 10-15% return?
It’s more than possible.
As 72,000 neighborhoods have the solaris they need, the aggregation process can
proceed, with investment vehicles such as mutual funds aggregating B shares from solari
pools to create a diversified investment in “places.” This would create
an open network that could both price and trade places that could have a significant
impact on place-based risk management.
Can you imagine the possibilities in terms of managing weather and environmental
risks, political risks and to create incentives to behave productively? The possibilities
to go “long” places that are being smart about building human and environmental
capital and to sell places that are ill-behaved and shortsighted are endless. Can
you imagine all the solari B shares in a place going down when a corrupt county leader
or governor is elected and the incentive that will create to elect honest leaders?
There are many ways for a solari and equity incentives to create value in a neighborhood.
Multiply those by 72,000 neighborhoods and -- as Senator Proxmire once said -- “pretty
soon you are talking real money.”
IX. Macroeconomic & Risk Issues
|"Clarence Dillon read (the memo)
… and telephoned Nitze, inviting him for a weekend in Dunwalke. Driving through
New Jersey, Nitze recalled asking Dillon if he thought the market decline an omen
of hard times ahead…. Dillon thought for a few minutes and replied, “
I think it presages the end of an era.” By this Dillon meant that what lay ahead
was not merely a period of retrenchment, after which affairs would be conducted as
before. Rather, the world was in for a major overhauling of institutions.
Robert Sobel, The Life and Times of Dillon Read, describing Clarence Dillon and Paul
Nitze in 1929
|I call heaven and earth to record
this day against you, that I have set before you life and death, blessing and cursing:
therefore choose life, that both thou and thy seed may live.
There are several excellent sources for investors seeking an understanding of the
macroeconomic state of the world and its risks, including:
- Sanders Research Associates (SRA)21 offers some of the finest assessments of our
economic risks through the published commentary and speeches of Chris Sanders and
his SRA colleagues.22 These were summarized recently by Chris in two brilliant pieces
– “The Unsustainable Nation”23 and “The Illiquid Economy”24.
- Le Metropole Café25 is the gold and financial markets website of William
Murphy, Chairman of the Gold Anti Trust Action Committee (GATA)26. The Café
and GATA have done an extraordinary job of documenting the “bubble economy,”
including manipulation of gold prices and the gold market.
- Jon Rappoport’s publishes an ongoing interview series at NoMoreFake News.com27
including back interviews available in CD form. Jon, and attorney turned researcher,
Linda Minor, have done a remarkable job of describing the anthropology and cartels
that control global intellectual and financial capital.28 and 29
Several themes emerge from a review of unsustainable economics in the developed
- Debt: A robust economy has been bought at the price of astonishing
increases in government, corporate, mortgage and consumer debt. When this is compounded
by the growth in financial institution and system risks from derivatives and contingent
liabilities, an actuarially honest picture is not pretty. We have dug a much deeper
hole thanks to the ability of the central banks to manipulate the gold, stock and
other markets to keep the bubble growing. There is an intimate and painful relationship
between the financial incentives of global theft and depopulation -- whether through
economic warfare, biological warfare, terrorism or more traditional warfare -- and
the magic of compound interest.
- Oil Production Peak: A future of plenty of low cost fossil fuel
is no longer with us. The financial incentives for military, covert and corporate
conquest of oil reserves in Russia, the Middle East, Eurasia and South America say
a lot more about US policy than is to be found in the corporately controlled news.
Our failure to institute a system for changing institutional and individual energy
consumption patterns in order to achieve energy self-sufficiency, or even sustainable
economics in energy, is mirrored in frightening extraction economics and environmental
damage throughout the world.30
- Command & Control Economics: Free markets are quite good
at optimizing resources and supporting the shared learning speeds we need to maintain
to adjust to economic realities -- but, alas, we don’t use free markets. The
more we squeeze local equity into or through corporate systems or manipulate corporate
profits with taxpayer funds or do the same with the stock and gold markets, the worse
will be the adjustments necessary to return to free market pricing (the “mark
to market,” if you will), and the more bizarre and draconian government policy
must become to control the allocation of resources. This difficulty of making the
necessary adjustments is a key reason for the more Orwellian and ludicrous official
explanations for the policies necessitated by this 1984 scenario.
- Productivity Decreases: One of the problems with not allowing
appropriate adjustments for real economics is that we build incentives that encourage
even more unproductive behavior by rewarding failure. Hence the trend of the productive
losing power and the net energy minus people gaining power as economic entropy drains
and crowds out economic health. The waste in human capital and the cost of our failure
to reengineer human skills and experience towards a positive future are impossible
to measure but represent a most economically painful trend. Examples abound. Corporations
prop up earnings by means of accounting vagaries, fraud, tax evasion and money laundering.
Government agencies enter into cost- plus (as opposed to performance-based) contracts
with contractors and employ their own form of accounting gimmickry to avoid the budgetary
disciplines required by law. Corporate and government fraud and "cooked books"
then contribute to the steady liquidation of concrete industrial production and intellectual
capacity and infrastructure. Children spend such enormous amounts of time watching
television and playing passive “screen” sports (Gameboy, Nintendo, etc.)
that their imaginations are stunted and their thinking skills and reasoning capabilities
are reduced. Even more alarming is the insidious effect that the imbalance in the
risk/reward paradigm has on our most powerful leadership. Having spent their entire
lives mastering the skills required to win in a rigged game, rather than those necessary
for entrepreneurial success and jump-the-curve innovations, our leaders are increasingly
individuals who have never worked outside top-down subsidized economies supported
by fraud and warfare. Recent revelations about Harken Energy (Bush) and Halliburton
(Cheney) are only the tip of the iceberg. As a result, US leadership is increasingly
ignorant of the process of real wealth creation and the efficient use of capital.
This is tantamount to depending upon Soviet Era leaders in Russia to institute market
improvements based on capital market theories -- even to manage “efficient”
corruption. Without real world pricing intuition, they just “don’t get
- Population Growth: Our population continues to increase and we
encourage ever more immigration. A discussion of how to manage population growth is
not on the agenda of major media that are controlled and serve corporate interests
or part of polite conversation. Multiple personality and “double bind”
behavior is commonplace here. We attempt to limit government supported population
control programs in Third World countries as well as the US while at the same time
making few provisions for the education and nutrition of unwanted children. Our consumptive
behavior can be sustained only through the employment of children and adults in Third
World countries under abhorrent conditions. Life-extending drugs and therapies increase
our life expectancies, yet the marketplace deems a fifty year-old to be over-the-hill
and the public and private pension fund fraud and mismanagement make it unlikely that
we can support the baby boom generation in their old age.
- New World Order: The various factions and cartels jockeying
for a place at the table for the creation of one world government and one world currency
engage in gaming behavior and become indifferent to the rest of the human race and
all other living things. The perfect example occurred during a recent threatened nuclear
exchange between India and Pakistan, when Tony Blair went on a peacekeeping mission
to the region and took the opportunity to market new weapons to both sides. “Investment
espionage” with Echelon, PROMIS and other high tech tools has divided the world
into those with access to inside information and everyone else.
The current state of the U.S. economy is simply dreadful. This is thoroughly covered
up by a willingness of foreign investors to continue to finance a negative return
on investment system. Theoretically, one can maintain a negative return on investment
system so long as one can finance it. The notion that it cannot be financed forever
is probably a driving force behind the efforts by the two Bush and the Clinton Administrations
to build the legal, political and physical infrastructure for the occupation of the
US by its own military armed with a dazzling high tech toolkit of non-lethal weapons
and the authority to impose martial law. When and if US homeowners discover that their
private property and public land, water and minerals all belong to America’s
creditors, tensions may rise. This is particularly true when a penciling in of the
numbers will show that the US leadership has intentionally been moving public and
private resources offshore since the mid 1990’s -- much of it in fraudulent
and illegal ways.31 The folks whom the US middle class will depend on for financial
capital are the same folks who stole all their retirement savings and tax money.
One logical hypothesis to explain events in the US over the last decade is that
the investment leadership did its homework on the issues of sustainability and determined
that it was not possible for the US to create a sustainable economy while at the same
time maintaining the global power and wealth position of members of the current leadership.
The intentional refusal of US leadership to move expeditiously on energy conservation
and alternative energy has been well documented. We have chosen instead to increase
consumer dependency on oil. Likewise the intentional refusal to reengineer workforce
skills 32 or to reengineer government investment from negative to positive returns.33
Instead of making headway on fundamental economics or workforce productivity, the
practical solution was to keep the population happy and dumb while stealing everything
that isn’t nailed down before “the Reichstag burned.” It appears
this was part of the “oligarch collaboration” that Williamson and Palast
have so brilliantly documented elsewhere around the globe 34 as well as the type of
Iran Contra financial fraud documented by researchers like Pete Brewton,35 pulp fiction
writers like Michael Thomas36 and the fraudsters themselves.37 One way to explain
the 1990s in America is that the networks that did so marvelously looting the S&L
system and taxpayers with real estate in the 1980s used pump and dump stocks and venture
capital and derivatives to “do it” to the pension funds and the taxpayers
in the next decade. Clearly, reinvesting the profits of fraud in buying up and controlling
major media has been a successful strategy for those whose continued business is ever
This leaves the US middle class without a seat in the game of musical chairs. Since
World War II, they have been complicit with the elite leadership in practicing warfare
and covert operations globally to subsidize their middle class way of life. In recent
decades, they also have been supportive, or at least tolerant, of the leadership’s
use of the War on Drugs, mortgage fraud and narcotics trafficking to finance black
budgets at the expense of minorities and the poor. Finally, they have lived in a state
of denial as to the nature and source of temporary and illusory benefits accruing
to them from widespread fraud perpetrated by corporate and government leaders through
the centralization of power. This leaves the middle class with few, if any, moral
authority legs to stand on at the very moment that the accumulated debt and contingent
liability burdens -- not to mention the fraudulent emptying out of public and private
retirement funds -- make the baby boom generation worth more dead than alive. Leadership
largesse may be the only card to play -- and that’s evidence of a very weak
The important thing to understand about economic sustainability is that it will
be achieved one way or another. If mankind does not voluntarily impose restraints
that lead to environmental balance, Mother Nature will. We have reached a point in
our evolution where we have two potential pathways -- we can prototype, develop and
institute something like the solari model and the alternative technologies and lifestyles
that it makes possible or we can depopulate. In short, we can “use it, or lose
From my experience serving as a member of, and then from the outside as a close
observer of, US leadership, I am led to believe that those in positions of power have
concluded that a steady reduction in living standards combined with a depopulation/immigration
strategy is the most practicable solution to the issue of nonsustainability of our
current living standard within existing power structures. I was once asked whether
the creation and growth of a black budget in the US was to deal with aliens -- i.e.,
did extraterrestrials exist? I responded that I did not know what the truth was, but
that if aliens did not exist, then different parts of the human race had grown so
far apart from each other in terms of access to financial and intellectual capital
and use of scientific technology that we had become as good as aliens to each other.
In short, the leadership’s way of dealing with non-sustainability is to consider
a significant portion of the global population as sub-human, exploitable and expendable.
In such an environment we have three risks:
- No Map: To achieve sustainability, we first need to know
where we are within an integrated picture and flow of all global resources. As my
pastor, Bishop Alfred Owens, always says, “If we can face it, God can fix it.”
Right now the developed world is doing a marvelous job of avoiding the construction
of an honest map of how global resource management and optimization really works.
As a result, we currently support in the marketplace and in the voting booth the people
stealing from us and killing us and -- in combination -- we are guilty of supporting
significant environmental destruction and genocide worldwide. As we support our leadership
in these policies, their respect for us diminishes and they can justify to themselves
ever more draconian solutions to their dilemma. To break this vicious cycle, we need
to detach from the disinformation that the corporately-owned and controlled media
sell us and initiate the establishment of reliable independent media sources to help
us face reality. A reliable media is necessary to help us construct honest maps that
will facilitate our effective and self-interested use of time and resources. Step
one is to decide that we really want honest maps and vote with our dollars and our
time for those who are providing them.
- No Plan: Once we understand that the Titanic is sinking
and are prepared to face and deal with the impending wreck, the question is, how do
we build arks? In fact, the way to prepare ourselves is to institute local accountability
and responsibility organized around a model that optimizes resource allocation and
creates significant amounts of new wealth. I have spent the last decade developing
and prototyping the solari model, which would provide a conceptual financial framework
to work with when the time came. The solari model is a framework for the American
baby boomers to reinvent themselves -- to generate value in a manner that gives this
generation greater value alive than dead and provides for a decent retirement. We
have a wealth of knowledge about sustainable energy and agricultural technologies,
tools and culture as well as municipal and small business operations that, when combined
with the younger generation’s, superior command of new technologies, can form
the foundation for an economically sustainable future.
- No Faith: This is by far our greatest risk. Right now, there
seems to be a surprising paralysis -- a resistance to providing local leadership other
than at the specific direction from elites on high or their media. The Buddha said
it best, “with our thoughts, we invent our world.” Sustainability begins
with my family, my community and me. Removing corruption begins with removing it from
my feelings, thoughts, actions and transactions. We have the power to implement sustainable
solutions at the local level as soon as we choose to discover the power of one. Decentralization,
by its very nature, must occur without the instruction of those who promote centralization
and central control. We cannot wait for our national or global leaders to cede this
power to us. Since absolute power corrupts absolutely, it is unrealistic to expect
that those who benefit from centralization to propose solutions that decentralize.
We must choose to move away from the Titanic and focus on building arks. Part of our
paralysis reflects ignorance of the significant wealth potential that is possible
from transforming our relationships with nature and other members of our global society
and from reengineering government investment. Our lack of faith, in part, originates
in our ignorance of what the great teachers of spirituality and quantum physics can
teach us about the potential power of a small group of people when they act in accordance
with natural and divine laws. We vastly overestimate how many of us it takes, acting
in concert to, radically shift power in favor of the forces of decentralization. This
is a time to revisit the story of the hundred monkeys.38
Enemies of self-determination, freedom and peace send us the message that we have
no power. Why do we listen to them and ignore the interests of those we love? This
is a question for which I have no answer. As an investment banker, I know that the
economics of the solari model are sound. However, faith is the sine qua non of free
markets and significant cultural change. The revolution starts in our spirit, hearts
and minds. We must act as St. Paul admonished us, “by faith, and not by sight.” It
is for us to choose a positive future for our planet and our children and many generations
to come. Building a sustainable environment and economy is an act of faith. There
is no reason why it cannot be done other than a belief that it cannot be done. I am
reminded of the words of a man dealing with the economic manipulations that were part
of the move towards global fascism the last time around -- one supported by remarkably
similar networks of US and European investors as now:
|"The only thing we have to fear
is fear itself."
— Franklin Delano Roosevelt, First Inaugural Address,
X. The Solari Action Network & Solari Trust
|"You see this name at the bottom?
It will not be long before it is at the top."
— Clarence Dillon
|"Some of them risked their whole
careers, their firm’s reputation -- not to mention their own money ... I think
it is a damn wonderful thing, and personally I’m damn proud of it."
— August Belmont IV, speaking about his Dillon partners on the recapitalization
of the Texas Eastern Transmission Company in 1947
Catherine Austin Fitts is currently in litigation with the US Department of Justice
and its private informant. This litigation arose from efforts to stop Ms. Fitts from
helping to implement audited financial statements, systems and place-based financial
disclosure by the US government as well as to help communities privately develop place-based
databanks. All capital recovered in litigation judgments and/or related settlements
will be used to provide venture capital through investment in Solari B shares for
solari start-ups. This will include supporting media and software companies and financing
debt to equity swaps by solaris of government and private portfolios of defaulted
mortgages, bonds and consumer debt. It is anticipated that the entity created to channel
this investment will eventually transition to governance by the network of existing
solaris as the network grows.
For e-mail updates for people interested in the solari model or in starting a solari,
sign up for the Solari Action Network by sending an e-mail to catherineNOSPAM@solari.com
About the Author
Catherine Austin Fitts is the President of Solari, Inc. She is a former managing
director and member of the board of directors of Dillon, Read & Co. Inc, a former
Assistant Secretary of Housing – Federal Housing Commissioner in the first Bush
Administration and President of The Hamilton Securities Group, Inc. Ms. Fitts is a
member of the Sanders Research Associates Advisory Board.39
1 In the science fiction series, Dune, by Frank
Herbert, a solari is the galactic currency. A solari is the official monetary unit
of the Imperium, its purchasing power set at quatricentennial negotiations between
the Guild, the Landsraad, and the Emperor. Indeed, what well managed currencies in
combination with free markets do is to “reduce anxiety through illumination.”
2 See “The Myth of the Rule of Law,” Catherine Austin Fitts, SRA Quarterly,
November 2001, http://www.dunwalke.com/gideon/q301.pdf
3 See Kelly O’Meara’s “Missing Money” series in Insight
Magazine, re $3.3 trillion reported missing at the Department of Defense and the Department
of Housing and Urban Development during fiscal 1998, 1999 and 2000. Links
provided here or at master list of O’Meara’s writings for Insight
Magazine at http://www.insightmag.com/main.cfm?include=displaystaffbio&authorid=35278.
4 See “The Myth of the Rule of Law,” Catherine Austin Fitts, SRA Quarterly,
November 2001, http://www.dunwalke.com/gideon/q301.pdf
5 Both War on Terrorism and War on Drugs.
6 See Ann Williamson’s series on Russia in SRA Quarterly.
7 Transcript of Interview of Greg Palast, Journalist for BBC and Observer, London,
by Alex Jones. Alex Jones Radio Show, March 4, 2002, http://www.gregpalast.com/detail.cfm?artid=125&row=0
8 Transcript of Interview of Greg Palast, Journalist for BBC and Observer, London,
by Alex Jones. Alex Jones Radio Show, March 4, 2002, http://www.gregpalast.com/detail.cfm?artid=125&row=0
9 Attributed to George H. W. Bush by Lieutenant Commander Al Martin (Ret.).
10 For a description on the author’s reengineering and portfolio strategy
and financial fraud clean up work that is the basis of this conclusion, see: See “The
Myth of the Rule of Law,” Catherine Austin Fitts, SRA Quarterly, November 2001,
11 For a company that is not place-based, the Solari Stock Model recommends that
ownership of the A shares be limited to the constituencies who are appropriate to
assume the governance responsibilities for that organization as a result of their
excellence, their direct involvement in contributing to the organization performance
and the impact of the absence of excellent performance on them.
12 Dr. David Hawkins, Power vs. Force: The Hidden Determinants of Human Behavior,
Hay House, Inc, 1995, p.131.
13 I am not including in this category those who are no longer able to produce
economic energy due to age or disability -- nevertheless, provisions must be made
to fund savings to ensure that through time we generate sufficient energy to provide
for our net consumption in old age.
14 See "The
Myth of the Rule of Law: or How the Money Works on the Destruction of Hamilton Securities
Group", by Catherine Austin Fitts, SRA Quarterly, November 2001.
15 American Management Systems, a large government contractor headquartered in
the DC area whose former Chairman (who served until 1997), Charles O. Rossotti, now
serves as IRS Commissioner. Commissioner Rossotti received a special waiver from White
House counsel that permitted him and his wife to maintain significant holdings of
16 See "9-11" by Mike Ruppert, including his analysis of the strategy
for global empire by Z. Breskinski’s The Grand Chessboard.
17 http://www.ny.frb.org/ .
18 See “Narco Dollars for Beginners” by Catherine Austin Fitts, October
24, 2001, Narco News, http://www.narconews.com/narcodollars1.html .
19 See “The Myth of the Rule of Law,” Catherine Austin Fitts, SRA Quarterly,
November 2001, http://www.solari.com/gideon/q301.pdf as well as A Collection of Essays
and Articles by Catherine Austin Fitts, http://www.solari.com/gideon/articles/index.html
and Articles, Interviews and Speeches, http://www.solari.com/gideon/articles%20by%20caf.htm.
20 See Bureau of Economic Analysis, National Income and Product Accounts Tables,
Table 1:14, National Income by Type of Income, proprietors’ income with inventory
valuation and capital consumption adjustments.
22 See John Laughland’s All News is Lies, "Two Decades of Overstated
Corporate Earnings," Walter Cadette (Third Quarter 2001) is a study on questionable
corporate profits; see also the absolutely unforgettable Mr. Global by Justin Ward
and Chris Sanders at http://www.sandersresearch.com/
23 "The Unsustainable Nation," by Chris Sanders, October 18, 2002, http://www.scoop.co.nz/stories/HL0203/S00059.htm.
24 "The Illiquid Economy," by Chris Sanders, November 21, 2002, http://www.scoop.co.nz/stories/HL0203/S00060.htm.
25 LeMetropole Café, http://www.lemetropolecafe.com/
26 http://www.gata.org/ .
28 For an outstanding history of who is who in capital control in the US, see Linda
Minor’s archives at http://www.newsmakingnews.com/, particularly her six part
piece, "Follow the Yellow Brick Road, from Harvard to Enron," http://www.newsmakingnews.com/lindaminor/lm3,19,02harvardtoenron,pt1.htm
29 For a complete list of recommended free press, see Solari Action Network (March
30 The End of the Age of Oil, a three part series, by Dale Allen Pfieffer, From
the Wilderness, http://www.copvcia.com/.
for details of their upcoming conference: OIL WAR, November 15, 2002, London.
31 [xxxi] See “The Myth of the Rule of Law,” Catherine Austin Fitts,
SRA Quarterly, November 2001, http://www.dunwalke.com/gideon/q301.pdf.
33 See “The Myth of the Rule of Law,” Catherine Austin Fitts, SRA Quarterly,
November 2001, http://www.dunwalke.com/gideon/q301.pdf
34 See Ann Williamson’s series on Russia in SRA Quarterly; Transcript of
Interview of Greg Palast, Journalist for BBC and Observer, London, by Alex Jones
Alex Jones Radio Show, March 4, 2002, http://www.gregpalast.com/detail.cfm?artid=125&row=0
and Palast’s book, The Best Democracy Money Can Buy, St. Martin’s Press.
35 See Brewton’s George Bush, the Mafia and the CIA.
36 See Thomas’ Black Money.
38 See the writings of Ruppert Sheldrake, Edward De Bono, recent articles on “the
Isaiah effect” as well as any good general introductions to recent developments
in physics and new science as it relates to our understanding of shared intelligence.
For a more practical introduction, see The Tipping Point: How Little Things Can Make
a Big Difference, by Malcolm Gladwell, http://www.gladwell.com/books2.html
39 View a full list of Ms. Fitts’ publications
and bio here