You know me, I've got too much time on my hands these days
so I chose to spend it keeping up with the tech pundits. So I was watching Triangulation on TWIT this
week (3-15-2012) and their guest was the co-founder of
Kiva.org Matthew Flannery.
Kiva is a micro lending service that allows anyone to lend
money to those in need around the world via a network of Microfinance Institutions
(MFI's). The first thing you have to
understand is that it's not a bank and you don't get any interest on the money
you lend. In fact Kiva is the antithesis
of a bank in that it exists not for its own profit motives but rather to offer
access to needed funding to those who'd
be denied otherwise. It's more like a
personal loan that also scratches your humanitarian itch.
Make no mistake, these are loans not handouts. In a move that should satisfy even the most
staunch fiscal conservative, this is the ultimate expression of pulling one's
self up by their bootstraps. Most loans
are for small businesses in need of a minimal amount of capital. Kiva
facilitates the process by connecting would-be lenders to MFI's. They take no
profit in the process and are funded by donations, grants, corporate
sponsors and foundations.
Leo and Tom did a far better job of shining a light on Kiva in their interview of
Matthew Flannery on
Triangulation
than I can do here so I suggest you watch the episode if you want to know
more.
Kiva is the rare example of a middleman that contributes
something tangible. So it struck me how
very wrong the so-called first world is in their handling of economies.
What it brought to mind was how much waste is caused by
middlemen in the developed world. For
example, I have loans like everyone else.
A car loan, student loan, revolving credit card balances and the
like. Each one of those has an interest
rate and somebody standing in the middle whose only purpose is to shuffle paper,
for a fee.
I get the interest part of the equation, someone lets you
use their money so it's only natural that they deserve some consideration for
making it available to you.
Here's the problem.
If you were to trace how many hands were on every dollar you
ever borrowed or spent you'd soon understand why prices always seem to be going
in the wrong direction of your bank balance.
Nobody just makes something and sells it for a small profit
over their cost, there's always more to it than that.
We always hear about
"overhead".. Overhead might as
well be another name for middlemen. Yes
there's always a cost to make something but as business has evolved we've added
layers of needless complexity creating a fertile environment for "facilitators".
Everything you buy, use or see has an army of people between you and the
producer. All with waiting open palms contributing
nothing to the process other than passing it from one hand to the next.
Buy a new car and somewhere in the price you're going to pay
the dealer's overhead. He's got to pay
for the land, inventory, utilities and property taxes just to offer that car to
you. Speaking of inventory he has to pay
the car manufacturer for his inventory which introduces its own overhead. The manufacturer has similar overhead for
facilities as well as the overhead built into the price they pay their parts
suppliers who in turn had their own overhead to produce the parts.
The chain can go on forever with a middleman at every level standing
between buyer and seller . That cost
ultimately gets passed on to you in the
form of a price that has little to do with the actual resources it took to
produce the product.
Some might say that's just how the world works these
days. I say it's exactly why the world
is in such dire financial straits. There
are far too many people whose living depends on doing little more than
facilitating the movement of paper from one office to another.
That's why there's so many layoffs in financial
institutions. When nobody's buying
there's not enough paper to shuffle and the middlemen start circling the wagons and reducing
headcount. Their fortunes are dependent
on "servicing" accounts which in layman's terms means ensuring they
get their fees for passing money from one entity to another. They only thing they're actually concerned
about servicing is their own profit margins.
Whole economies are based on professions whose whole reason
for existence is to "facilitate" a transaction. Their names are common, Banks, Title
companies, Loan Servicers, brokers, sales engineers and the like. None of them produce anything tangible, they
exist only as profiteers convinced of their own relevance. Yet when they fail they jeopardize the
financial stability of entire nations.
We hear a lot these days about poor working conditions in
the third world. That's because huge
corporations seek to protect their profits by exploiting their workforces
instead of cutting out the middlemen. That
includes the ones on their payroll by the way.
Of course PR departments and advertising firms swing into
high gear whenever the public gets wind of an obvious injustice. Realize that PR and advertising are just
middlemen of a different color. They too
produce nothing of tangible value. They
are, in effect, the middlemen between customer and corporation and ultimately
end up in the "overhead" reflected in the final price.
Which brings me back to Kiva.org. In developing nations a few hundred dollars
can have the same effect as a few million in other parts of the world. That's because the resources provided match
the need and nothing more. The process
is kept simple and the middleman isn't driven by a profit motive in Kiva's case. Economies grow by making transactions between
the buyer and the seller simple. The
more complex a transaction becomes the more waste gets introduced into the
process . Middlemen for the most part
don't follow Kiva's example and exist only to complicate simple processes to
their own advantage.
Until economies recognize the threat of the profiteering middleman
they will never be stable. As such a
vicious cycle continues to erode an already weak currency platform that's
backed by little more than faith in the very institutions that created the
problem. Not enough money in the
treasury? Just print more and dilute its value even further instead of dealing
with the real problem.
The question that's never asked is what role do the
middlemen play in all this? They're right
in front of you but only visible in their deeds. When the news cycle is full of reports on
deepening national debt, failing banks
and financial market corruption you see their handiwork.
Economies are driven by markets. Markets provide products to consumers. Money is not a product even if the Wall
Street currency traders and economic strategists
think it is. It's simply a facilitator,
a mechanism for exchange between parties.
If we apply the same criteria to it as we do a profiteering middleman,
the reason for all this economic strife becomes obvious. We've assigned a value to the worthless.
