How I Became a Dirty Capitalist

Life is evolutionary in the broadest sense of that term. Constant change occurs, both qualitatively and quantitatively, and that change is directed by God. (I do not believe in randomness as a pure function of existence, for while randomness is a useful mathematical concept and tool, much on the order of imaginary numbers, it is simply a subset of a more complex, highly directed universe. Entropy is not a proof of randomness, but an evidence of direction in existence.) God set up His creation at the highest level of organization, set mankind within it to maintain it to the best of their ability, and gave to people sets of goals and limits to maximize their success in Project Earth.

God also intervenes in the affairs of men, a function which was often described by people of an earlier time as "Providence", but which needs to be understood as something like a number line, where values can be perceived as either positive or negative, depending on a person's relationship to the zero point. Those who lack a proper relationship with God may find fault with "negative Providence", but in every instance, that which is "negative Providence" for one person will in some way be "positive Providence" for someone else. The truism is that, for those who love and respect God, everything is working to achieve God's intended goal.

I admit I am a neophyte in the world of capital investments. It was not until I was 44 years old that I began to invest in stocks, and that happened in an evolutionary sort of way.

I was always impressed by my father's ability to make do with a relatively meager income. He came of age at the start of the Great Depression. Graduating from high school at the beginning of FDR's regime, he felt extremely fortunate to have a job where his talents were totally unappreciated. Although he took college preparatory courses in high school, he had no money for college tuition; he would spend his life as a laborer. I remember him counting his pennies at the end of each day, journalling his expenses.

Dad kept track of every cent, and was not about to risk what he had in a stock market that he had been led to believe was not worthy of trust. Conventional wisdom of his time held that stock market investment was merely a form of gambling. His tales of the Depression and his own experience with stocks colored my perception of such investments.

There was little effort put forward during my schooling to explain that ownership of stock was ownership of the industries that employed people. Those were the days when public schooling was keyed to turning out workers rather than owners. Not much has changed since then, I suppose. As a teenager in the 1960's, my teachers were liberal in their persuasion and my life philosophy was a crazy amalgam wherein I viewed "big business" -- my perception of capitalism -- as somewhat "dirty". Further, my religious orientation at the time was such that it seemed wrong to be laying up treasures on earth. (Laughably, communism -- the doctrine of community ownership of capital -- was railed against but its tenets could not legally be taught in public schools. Had it been properly taught and contrasted with private ownership of capital, the socialistic leanings of the political power-mongers would have been exposed for what they were.)

In the mid-1950's the company Dad worked for instituted a profit-sharing plan in which the customary annual bonuses would be invested in the company's stock. Dad went along with it simply because he had no choice. In 1962, faced with the physical necessity of getting out of the meat coolers or dying, he accepted a job, at minimum wage, with Myers Tire Supply. Due to his financial necessity -- a new house, new car, five kids -- he persuaded his old company to give him the principal amount he had invested (via unpaid annual bonuses) in their profit-sharing plan.

His old employer grudgingly gave him the money, but only to the limit of the principal amount of the bonuses he was entitled to. A few months later that company filed for bankruptcy protection; to Dad's knowledge, he was the only employee that saw anything out of the profit-sharing plan. Thus he was extremely skeptical when Uncle Bill urged him to participate in Myers' profit-sharing plan, but he agreed to try it. Unknown to us was the future, in which dividends from Dad's steady investment in Myers stock, with its occasional splits, would form a small but welcome addition to Mom's income beyond Social Security.

My true education in economics began in the late '80's, as I struggled to maintain a business with employees. I had never before been faced with the problem of cash flow in a situation where the livelihoods of others was at risk. Not only was my position with regard to the role of capital fiscally disastrous, it also became apparent that it was at odds with the more important tenets of my faith. You simply cannot share or give to others that which you do not have.

In 1991, hearing stories of money to be made, I succumbed to temptation and invested $1000 in BCCI -- the Cayman Island Bank. Dad and Mom had taken out a $500 life insurance policy (through Prudential) for me when I was a newborn; over the years the policy amount had swelled to over $3000 and I was able to scrape up the cash by borrowing against the policy. Shortly after the investment was made, the assets of BCCI were seized. By the grace of God -- Providence -- a limited amount of principal was recovered. To put it in a safe place, my brother-in-law, Mark Novkov, reinvested it for me in a mutual fund, the Investment Company of America (ICA).

I knew nothing about mutual funds, their investment strategies, or their management. ICA, however, was a company with a long track record, and I was pleased with the dividends that began to be reinvested every quarter. Investing in the stock market was something I was now willing to try, but I was uncertain how to find a broker. Besides, we were financially strapped, paying back money that had been borrowed to pay ruinous Federal employment taxes, medical bills, and to keep my business afloat. Most years, I had no spare cash to even make more than token repayments on the principal amount of the policy loan; for some years I was able only to make the small required annual interest payment.

Then, in 2001, Prudential de-mutualized and issued stock to each of its policyholders. I was issued 24 shares. I cheerfully accepted my annual dividend check, which offset the annual interest on the policy loan. In 2003, I was hired as staff appraiser by Charter One Bank, and for the first time in years my income allowed me to make substantial progress in eliminating my debt. Also, the company matched employee investment in its profit-sharing plan, and I took advantage of the opportunity to get some free money.

When Charter One was bought out by Royal Bank of Scotland in 2004 and all the appraisers were let go, the amounts I had vested in the profit-sharing plan were rolled into IRA mutual fund accounts, but ICA was not an available choice through the IRA manager. I was introduced to several other mutual funds, and learned that IRA accounts were not free. IRA account managers collect a percentage each year from the accounts. This is not a problem when the funds in the IRA are growing and producing income, but if the funds show a loss, the IRA account will be charged for the manager's fund. That worried me, since, as an appraiser with a grasp of how mortgage financing was supported in the marketplace, I was well aware that the economy was overheated and ready for a downturn.

Additionally, all of the dismissed former Charter One employees had been given stock options as part of the buyout package. The company that would manage my RBS stock options was Computershare, which was also the agency used by Prudential for stock management. I logged into Computershare's website, set up my account, and discovered that I could buy and sell stock through them. They would act as agent, holding the shares in my name, and would reinvest any dividends according to my instructions. The stage was set for my entry into the World of Wall Street.

While part of the Charter One severance package was full vesting in all profit sharing, another part was the granting of options on Royal Bank of Scotland stock. The package gave me an option on 150 shares at £15.53, to be exercised between September 1, 2007 and March 31, 2008. In early 2007, as the advance ripples of the global banking meltdown began to trouble the banks, the Plan was altered with a 2-for-1 bonus issue; I was then holding an option on 450 shares at £5.1766 per share.

Needless to say, I became extremely interested in the price of RBS stock in 2007, and realized that due to the European bank meltdown (which I had been expecting for some time, although I was frustrated that no one else seemed to see it) exercise of the options would be touch-and-go. In February 2007 RBS hit its high of nearly £6. On March 21 it was beginning to slide, at £5.80. On September 14, 2007, the stock was at £4.56; if I wanted to exercise the option, I would have to pony up £277.47, or about $550 at current exchange rates. By March 20, 2008 RBS was at £2.75 and my options would have cost about $2,100 to exercise. I was not impressed, and in what I now consider to have been one of my finest hours, I let the options expire. Today RBS is trading at about £0.25. Good riddance.

There was an upside to that experience. While doing all that sleuthing in the markets, I also discovered that Dominion Energy, our natural gas supplier, had a program whereby its customers could purchase Dominion stock directly through them, and Dominion would reinvest the dividends (or send a check, whichever you might prefer) at no cost to the shareholder. I began to look for ways to come up with cash to open an account through Dominion Direct. My rationale was that as a Dominion customer I might as well get some of my heating bill money back as dividends.

A second discovery was that Computershare, as agent for a number of companies, offered a long list of stocks which could be purchased directly, and many of the companies which used Computershare would also pay any brokerage fees for the reinvestment of dividends. Throughout 2008 I studied a number of stocks available through Computershare, looking for companies which paid good dividends and which also paid the reinvestment fees. In late 2008 I took the plunge, buying 100 shares through Dominion Direct, and investing $1,000 in J. M. Smucker (we drink Folger's coffee and eat Jiff peanut butter) and $500 in Pfizer (seemed to be a low priced stock with a good dividend) via Computershare.

Throughout 2009 and 2010, the interest rate on our passbook savings account steadily declined. I began to look for an alternative bank. ING was recommended. In August 2010 several events occurred which would trigger a bank switch.

The funds in my IRA account had been a choice made when I had no known options for a different type of investment, and they were weak performers. They were also subject to annual management fee charges, as I mentioned above. Those accounts had lost heavily in the 2007-2008 downturn, but in mid-2010 they perked up and regained to the point that they were worth, in August 2010, what they had been worth two years earlier. I decided to sell and reinvest in stocks that had a track record for good dividend performance.

ING offers its depositors a brokerage account called Sharebuilder. Sharebuilder differs from Computershare in that Computershare is an agent which holds the stock in the name of the purchaser whereas the Sharebuilder account is a brokerage account which holds the stock for the depositor. Also, Computershare executes trades on set days of the month, whereas the Sharebuilder depositor is able to make trades in real-time and has more choices as to available stocks. If the investor chooses, shares purchased in real-time (at opportune prices) can be transferred from Sharebuilder to Computershare. There are valid reasons for holding the shares in either account, depending on the type of strategy the investor wants to use for growth or trading.

I deposited the funds from the sale of the IRAs into an ING Orange account which I then linked to a Sharebuilder account. Instead of the 0.84% that FirstMerit was currently paying, ING Orange was paying 1.10%. Further, the first purchase I made through Sharebuilder was for 100 shares of First Energy, which currently has a rate of return of about 5.2%. ($2.20 annual dividend on today's [1/18/2012] close of $41.97 per share.)

It isn't all gravy. There are dangers in investing in stocks. There are no guarantees that a company will stay in business or even make a profit. The day I bought my 100 shares of First Energy (at $39.33), the stock price tumbled almost 10% immediately after my purchase and only very slowly recovered over a period of several months. Had I made the purchase for speculative purposes, it would have had to be viewed as a huge loss, but because I am looking for long-term growth and income, I am confident that the investment is sound.

Owning part of a company brings to the shareholder the same kinds of concerns a sole proprietor faces on a daily basis, but usually without the urgency. It can also bring the satisfaction and reward that comes with successful business performance. I have learned a lot in a short time, and have formulated some concepts that I would like to pass on. Remember though-- there are no guarantees in stock ownership, and I, myself, am still learning on a daily basis.

Some Moral Implications of Capitalism

My view of motivation in life is that all of a person's actions are driven by that person's belief system. Every human, whether a devout worshipper of a deity or an atheist, is religious, because there are certain fundamental things which every person simply assumes without proof, and that is the essence of belief. Thus it is that a person's true religion will be revealed in his or her business dealings.

I am a Christian, believing in God Who created and maintains the universe (and thus by logical extension He is not a part of His universe), and Who gave to mankind a set of definitions of right and wrong contained in the Bible. God will, at some future date, judge both the righteousness and the accomplishments (two separate charges) of every person who has ever lived. The Bible assures me of the conditions for my righteousness, and instructs me as to the proper way to attain my accomplishments. For these reasons the arguments which follow may be uncomfortable for many people who do not hold the same beliefs; I can say that because they are at times uncomfortable for me as well.

The Bible begins with a story that is an allegory with respect to human nature. People had been given instruction as to what constitutes proper behavior. They had been given work to do, and were permitted to enjoy their labor and the fruits of their labor, with one restriction -- the property rights of their Creator must be respected. The desire to take what was not rightfully theirs lead to perversion of their assigned task and dissatisfaction with their gain.

That story of the Beginning is a summation of all of human economic history.

God chose one family, that of Jacob the grandson of Abraham, to hold the instructions for morally correct economic activity. Because the members of that family have more often than not followed the instructions, they have tended to prosper financially, and that prosperity has incited jealousy and persecution throughout history. Anyone wishing to know the secrets of economic propriety has only to read the Torah.

At the root level, the instructions teach that God Who created the universe is the ultimate owner and King of His creation. People are both citizens and employees of Project Earth, and the goal of the enterprise is to maximize both the size of the company workforce and its production, using the provided resources. The competition (The Adversary), on the other hand, works to thwart that goal.

Every person born is provided with some capital; each has a function within the company, and each is given, at some time and at some level, abilities, skills, and/or material goods, to invest in the project. I am of the persuasion that the gifts of The Almighty allow the individual to use the given abilities to develop skills to maximize the capital.

Because the capital is a distribution in trust from The Almighty, absolute human ownership of the capital does not exist. Each human is a steward of some portion, small or large, of the capital intended for the operation of the enterprise. Further, the hoarding of capital, whether the withdrawal of land from the production of food, the failure to use a medium of exchange to encourage work by others, or the restriction of the use of new ideas so as to prevent the profiting by others, is a breech of stewardship, thwarting the goals of Project Earth.

Capital is popularly seen as only money, but labor and ideas are equally important kinds of capital. How that capital is utilized within the micro-economic setting, whether through a free-market system or through a planned-market system, will determine its effectiveness because at the core of human nature is dissatisfaction with what we have been given (in trust) coupled with desire for that we lack. Further, the person's view as to the origin of that capital will influence his perceptions respecting ownership, stewardship, and disposition of that capital.

Maximizing the size of the company workforce and its production (which involves employee working conditions) is a basic goal of the project, so treatment of the employees is a critical concern of the owner. Thus rules were formulated -- don't steal reputations, or money, or spouses, or anything God gave to another employee for any reason. In this is seen the importance to the owner of individual workers, and the need to protect and take care of them. It is also the reason for lower, middle, and upper management, positions which God assigns and uses to govern various branches of the company (nations and kingdoms). Politics is thus a subset of economics, and war is destructive to both.

Profit is the result of attaining the goals of the company. The amount of profit is not necessarily significant to a particular work-shift since the company is a long-term operation, but profit is the goal. Jesus told several parables to illustrate that concept. Profit will result in people having more satisfying lives. Therefore, employees of Project Earth who do not invest in the company in some way (again, amount is not the critical factor) will be condemned for that failure. Extending this concept to monetary investment has encountered some resistance among those who fancy themselves morally pure, since the love of money is the root of all evil.

Profit from the loaning of capital is not wrong in itself, but when it impacts the welfare of the employees, particularly through mortgage interest on their homes, clothing, or food, it endangers the goals of the company. For this reason banking is one of those shadow activities with questionable morality. Usury involves the loaning of capital coupled with holding collateral hostage (a mortgage situation). It is described by the Bible as being evil. The collection of interest on money is not intrinsically evil, and may be legitimate where business lending is needed, but no collateral may be held. The antidote to personal mortgage lending is charitable giving; in the words of Jesus, lending without expecting to be repaid.

Investment is quite different from usury in that the purchaser of a share of an enterprise has no anticipation of a repayment except through sharing the increased profits (or losses, as that may be) of the company. If a business venture is formed through selling 1 share of stock to each of 100 investors, each investor is owner of a 1/100 share of the entire business, with the right to collectively dictate how the business is to be run, and to collect 1/100 of the business profits set aside to be paid to the owners (dividends). No individual shareholder can hold the company assets hostage as collateral. If, through the collective decisions of the shareholders, the business fails, they have no recourse, since it can be argued that the failure was a result of inattention by the shareholders to properly control the management of the work at hand. It can also be argued that the minority shareholders are not necessarily responsible for either the success or failure of the business when there is one stakeholder who controls a majority interest.

In the case of Project Earth, God is the majority shareholder, and He delights in profit-sharing with His employees. For that reason He distributes, as He sees fit, the dividends which each employee then is able to plow back into the enterprise. Dissatisfaction with the type and quantity of capital gain distributed by the King is a symptom of rebellion, but the desire to emulate the King, by donating capital to those who might in some way have less, is encouraged and rewarded by Him, often through a grant of a more diverse and profitable form of capital.

You cannot give to others that which you do not have. Profit from the investment of capital is the engine behind charitable giving. However, reliance on charitable giving to meet the needs of those who lack essentials will rarely bring about the satisfaction the recipients would prefer. If the recipients of such charity fail to find a suitable investment venue in turn, their gift will merely extend their misery. Coveting what another person has is evil, whether the covetous person has little or much. Those who have are expected (but not obligated) to share with those who have not; God will judge the adequacy of their donation. Those who receive a gift are expected to be satisfied with what the donor shares; God will judge the level of their thankfulness. Jesus implied that equality of opportunity is not the same as equality of participation; opportunity would be provided regardless the amount of capital a person would start with. Equality of results is not guaranteed.

What is the function of upper management (the government) in all this? It is to provide oversight of the conditions under which the size of the company, the amount of production, and the level of profit, can be maximized. While the ability to govern is a form of capital, management is not ownership; when management attempts to judge the actions of the shareholders, particularly with regard to disposition of the profits, it risks being replaced by new management more conducive to the desires of the owners. Management which reduces production by starving the enterprise of workers (either through reduction in actual numbers or by discouragement of inflows of new investment capital) and/or resources (by refusing to make them available) is being subversive and will be judged accordingly.

Applying these concepts to individual action leads to the conclusion that surplus capital should be invested in gainful enterprises whenever possible in order that it might be multiplied and ultimately used to provide for those whom God might direct to the individual for assistance. Again, you cannot give to others that which you do not have, and failure to invest carries greater condemnation than investing and failing.

Alas, Babylon!

When the book with the above title was published just over 50 years ago the Cold War raged; the United States was the champion of freedom and Godless Russian Communist atheism was seen as the enemy of that freedom. The worm has turned. To everything there is a time and a season. Last night was Christmas Eve in Russia : the readers of ITAR-TASS 50 years ago would have stopped their breath in wonder.
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Medvedev congratulates Russian believers on Christmas
Photo ITAR-TASS

MOSCOW, January 7 (Itar-Tass) — President Dmitry Medvedev has congratulated Orthodox believers and all Russian citizens marking Christmas.

“The Christmas days give us eternal light of belief and fill us with joy and hope. This is the time of good thoughts and good deeds, care about family and unknown people who need our helping hand,” he said in his congratulatory message.

“Sharing with you the joy of this holiday I wish you health, happiness and all the best. Let the light from the Star of Bethlehem bring happiness, love and harmony to every family and prosperity to our country,” Medvedev said in his message.

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We need only contrast this with the attention paid to Christmas in Washington this past December -- a tree with an Obama Ornament on it.

“12 How art thou fallen from heaven, O Lucifer, son of the morning? and cut down to the ground, which didst cast lots upon the nations?

13 Yet thou saidest in thine heart, I will ascend into heaven, and exalt my throne above beside the stars of God: I will sit also upon the mount of the Congregation in the sides of the North.

14 I will ascend above ye height of the clouds, and I will be like the most high.

15 But thou shalt be brought down to the grave, to the sides of the pit.

16 They that see thee, shall look upon thee and consider thee, saying, Is this the man that made the earth to tremble, and that did shake the kingdoms?

17 He made the world as a wilderness, and destroyed the cities thereof, and opened not the house of his prisoners.

18 All the Kings of the nations, even they all sleep in glory, everyone in his own house.

19 But thou art cast out of thy grave like an abominable branch: like the raiment of those that are slain, and thrust through with a sword, which go down to the stones of the pit, as a carcass trodden under feet.

20 Thou shalt not be joined with them in the grave, because thou hast destroyed thine own land, and slain thy people: the seed of the wicked shall not be renowned forever.

21 Prepare a slaughter for his children, for the iniquity of their fathers: let them not rise up nor possess the land, nor fill the face of the world with enemies.

22 For I will rise up against them (saith the Lord of hosts) and will cut off from Babel the name and the remnant and the son, and the nephew, saith the Lord:

23 And I will make it a possession to ye hedgehog, and pools of water, and I will sweep it with the besom of destruction, saith the Lord of hosts.” Isaiah 14:12-22(Geneva 1560)