Money is not a product.
The world seems to have forgotten that, accounting for much of the mess it finds itself in. The mess, unfortunately, is hurting hard working, ordinary people more than anyone else.
Now, I am not really qualified to comment on matters of finance or economics. But, as an ordinary world citizen, both concern me because they impact my present and future day. That being the case, I have some questions. By asking them, I am hoping that the thinkers, movers and shakers of the world will consider the value of listening to words from out of the mouth of a babe.
The first question I have is “Should money be treated as a product to be packaged, priced, branded and marketed?”
I don’t know about you but I have a hard time wrapping my head around so called investment products such as futures, options, forwards, hedges, derivatives, spot margins and what have you. Yeah, I get that these products came into being to protect investors and business owners from fluctuating commodity prices, currency exchange rates and what has come to be known as underlying asset values. But, other than meeting that purpose, I ask “What real economic value do these financial products generate?”
That thought leads me to another. You see, when I read financial news and literature, it often strikes me that the world of finance has been allowed to turn into the world’s biggest gambling den. What is then the point of asking why real investment in employment generating industry is slowing down?
To this babe in the woods, it very much appears that a range of increasingly complex financial instruments has hijacked the focus away from the real world of business. That can be said to be true of both financiers and industry. Noticed how the financial function within organizations has expanded and even become a profit centre, responsible for a final accounting item on the balance sheet called ‘Other Income’?
Even where real investment is taking place, the rise of venture capitalists, private equity, angel investors et. al. has created issues in the way business enterprises function.
Sometimes, I think the world was better off when business persons had to worry about generating enough cash flow to pay down bank loans. It made for more responsible business management. Take away the pressure of returning a loan and what is left are enterprises with an untenable cash burn rate. Growth is bought with someone else’s money. Profitability devolves in importance. When the cash runs out, businesses are wound up.
Sadly, the people left holding the can are, more often than not, employees who lose their job and in some cases even their hard earned money. This point was driven home to me when I read an article titled When a Unicorn Start-Up Stumbles, It’s Employees Get Hurt*. Any reader here who has fallen for the lure of stock options and accepted a lower cash component in her or his compensation would do well to read the article. Do so and you will hear how the value of employee shares in Good Technology, a mobile security start-up in California, fell to a fraction of the six-figure tax bill paid for the shares allotted.
Did the CEO suffer? Absolutely not. Apparently, Christy Wyatt, Good’s CEO (she has since left the company) exited with $4 million for her preferred shares and received a $1.9 million severance payment.
Did the employees suffer? According to Katie Benner’s article, cited above, the one-time high valuation of Good’s shares had increased the paper value of employee shares and thus, the income tax levied when they exercised their stock options. As employees hoping to strike rich are wont to do, some of them had turned to their savings and/or borrowed money to finance their share buys and pay the tax. Ultimately, those employees paid the piper because the common stock they held took a beating. Read Benner’s article to learn more about how common stock took a massive back seat to the preferred shares held by investors and senior management in Good Technology.
I accept that investors need some means to minimise the risk they take when doling out money to set-up and run a business. But, do allow me to ask here, “Where is the protection for employee investment in business – measured in time, effort and money?”
To my mind, the best employee protection will happen when the focus of business turns away from driving up the notional value of an enterprise. And, returns to generating real profits and true blue economic value.
Governments, central banks, and the business world need to wake up and remember that Money is not a Product. I ask, “Can’t world leaders see that when money is treated as a product in itself, it creates a toxic business world and hurts the real economy?
Moves need to be made to restore the role of money as a medium of exchange to fund and facilitate a real world economy.
Be it, financiers or entrepreneurs, the quest to find or be the next unicorn needs to be brought to a halt.
And, that brings me to my final question, “Isn’t the unicorn a mythical creature?”
#FinancialServices #Investment #Economics
Featured Cover Image Credit: Dollars by Tax Credits – Flickr (CC By 2.0)
*Katie Benner, When a Unicorn Start-Up Stumbles, Its Employees Get Hurt, The New York Times, December 23, 2015.