In June of this year, Morgan Stanley and Wells Fargo Securities led managed a Aaa-rated securitised Social Bond issue, on behalf of the Ford Foundation. The deal raised $1billion, consisting of $300m thirty-year bonds and $700m fifty-year bonds. A decade ago, in the aftermath of the global financial crisis, the securitisation market faced significant criticism from regulators, policy makers, and many loud voices in the media, who charged that these structures were too complex for investors properly to understand and that securitised bonds spread risk widely and irresponsibly within the financial system. Nowadays, such views have come to be seen as hasty and ill-informed, an over-reaction, a paradigm case of blaming the message-bearer for bringing unwelcome news.
The Ford Foundation deal was heavily over-subscribed and appears to have been well received by both domestic and international investors. It has also provided the Ford Foundation with a substantially increased pool of cash to distribute to its grantees, many of which are struggling to fund themselves this year, consequent upon falls in donations and grants from funders as a result of the pandemic. In the words of Ford Foundation President, Darren Walker, … The proceeds of the Social Bond sale will support and stabilize social justice, human services, arts, and cultural organizations who must be essential voices in influencing the recovery and reimagining a new normal that is more just and inclusive.
Many of the organisations that the Ford Foundation supports are at the forefront of campaigns for social justice, for greater economic and social equality. They include organisations working on areas such as civic engagement, greater social inclusivity, gender, racial and ethnic justice, and climate change. Many of these organisations are critical of current social and economic structures, which help to reinforce inequalities, including the mainstream financial system. Hence the paradox: the very resources that support a wide array of campaigning organisations, all of which in their different ways are seeking a more just society, are funded by a foundation that was endowed by the profits of a highly successful capitalist business – which promoted the popular ownership of the motor car, thereby accelerating the rate at which carbon is pumped into the atmosphere – and this same foundation has recently increased its capacity to fund these campaigning organisations by means of a sophisticated capital markets mechanism, structured and led by two prominent financial companies.
In French, a public urinal, or pissoir, is sometimes referred to as a vespasienne in honour of the Roman Emperor who established the operation of public toilets on a sound financial basis. For the Romans, public urinals were not simply social goods, places of relief for citizens, they were also a source of raw materials. Commodification of the by-products of human labour is not solely a capitalist phenomenon, but dates back to classical times. Urine contains many valuable minerals, including nitrogen, phosphorus, potassium, and urea which, if left exposed to the air, decays into ammonia and can then be used as a caustic agent, for softening skins such as leather, for cleaning clothes, and for making toothpaste and mouthwash. (You can read all about it here). If Catullus is to be believed, imported urine from Iberia was the most prized by status-conscious Romans: and you above all, Egnatius, one of the long-haired race, the son of Celtiberia full of rabbits, whose quality is stamped by dense-grown beard, and teeth scrubbed with Spanish urine. (Catullus, 37).
When he became Emperor in 69CE, Vespasian inherited an empire weakened by a bout of civil war and with little money in the treasury. He determined to restore the financial security of Rome by raising taxes and imposing fiscal discipline. One of his first steps was to re-introduce the tax – called the vectigal urinae – paid to the state by collectors of urine from the Roman sewerage system, thereby ensuring that the state benefited from economic activity connected with the recycling of human waste into other business activities, such as laundries and toothpaste manufacture. According to the Roman historian Suetonius, Vespasian’s son Titus complained to his father about the tax, which he thought to be tasteless and a source of insults against the family. Vespasian’s reply was to pick up a gold coin, which he rubbed under his nose, and then observed, pecunia non olet (in English: money does not stink).
Today, those working for greater social justice fall roughly into two camps: those who, with Vespasian, believe in sound finance and who care less where money comes from than what it is used for; and those who, with Titus, worry greatly about the taint that attaches to money due to its source. Some organisations will welcome the Ford Foundation’s action, to provide additional funds for the causes it supports, in a time of economic and social crisis. Henry Ford himself, they will note, was famous for increasing the wages of his workers and reducing their weekly hours, in order to attract and retain the best workers and to promote their economic well-being. Other organisations will point out that Henry Ford was determinedly against trades unions and actively promoted anti-Semitism, so it should be no surprise that the Foundation he endowed has colluded with mainstream investment banks to boost its funds. They will ask, can’t you smell the taint of capitalist exploitation in all that the Ford Foundation does?
No. To my nose Ford’s money does not stink. And I would rather brush my teeth with paste made of urine than suffer halitosis.
When I started working in the mainstream finance industry, I discovered that my background in academia carried a taint: it was assumed that I would be ineffectual, pedantic, lacking in commercial vim, and generally uncomfortable with the methods of business. Most, but not all, of my colleagues had undergraduate degrees, but the conclusion they had drawn from their time at university was that there was an unbridgeable chasm between scholarship and investment skill. (The life of John Maynard Keynes must have passed them by). I hope that, at least a few of them might have revised their judgement having worked with me. Later, when I worked in the social business and charity sectors, I discovered that my taint had changed. There was respect, not always grudging, for my financial knowledge and my understanding of business planning and delivery, but alongside that came the assumption that I did not understand – and would never understand – the culture of voluntarism and social impact. (The life of George Peabody must have passed them by). What both sectors have in common, is the view that people either understand numbers or values; profits or impacts; means or ends; but never both together.
It seems obvious to me, and quite a few other people I know, that not only is it possible to combine knowledge of numbers and values, it is absolutely necessary to do so if the major social and economic problems of our time are to be tackled successfully. To take one example, if we want to reduce significantly the amount of carbon being added to the atmosphere, and in due course to extract some of the carbon that is already there, in order, first to slow the process of global warming and later to try to reverse it, then we are going to need more than slogans, demonstrations, protests, and the like. We are going to need more than books and articles, written in anger, detailing the extent of damage already done to the environment and pointing the finger(s) of blame at various corporations, governments, and individuals for their wilful contribution to the earth’s rising temperature. At some point we might want to demand reparations, but the more immediate problem is how to create an alternative energy system that maintains and improves standards of living across the globe. I do not know what this solution looks like, but I know for sure that it will involve a great deal of work by engineers and bankers – numbers people – who will have to find a way to finance and build a vast network of energy generating plants and equipment. Excluding the worlds biggest and most sophisticated energy and finance companies from this work would materially increase the chances of failure.
I have been reflecting on these issues recently because an organisation that I was involved with, on an unpaid basis, made clear that they considered my active involvement with mainstream finance created a reputational risk for their campaigning work, in particular on climate change issues. We have parted company. What puzzled me was not their puritanism, but their partiality. Just as Titus disliked his father’s urine tax, but was happy to continue to use the revenues from it when he became Emperor, primarily to fund the completion of the Coliseum, so too this organisation is happy to take funds from the Ford Foundation, raised from the capital markets by mainstream investment banks. They do not like the smell of money, but they have reconciled themselves to accepting it. When it comes to the people they work with, however, the taint of finance is overpowering.
I am not a great fan of Voltaire, but I have always admired his observation, Dans ses écrits, un sage Italien / Dit que le mieux est l’ennemi du bien which translates as In his writings, a wise Italian / says that the best is the enemy of the good. The main problem with perfection is that it never comes. The other problem is that it encourages the belief that improvement can only be made through the actions of the pure, those without taint, encourages a Manichean view of the world – the good guys versus the bad guys – in which those who are deemed insufficiently pure are considered unsuitable allies.
In 1934 Marguerite Yourcenar wrote a novella, A Coin in Nine Hands. Set in Rome, the story tells of a ten-lira coin which passes from hand to hand, during the course of one day, thus binding together nine otherwise disparate people. The book shows that however much we think of ourselves as divided – whether into two groups, or more – we are in fact all linked by the structures of our society. Today we are all connected by the global financial system and by global warming. We can choose to smell the taint of the coin and discard it, or we can choose to make better use of it. The good news is that the Ford Foundation understands the importance of using its money effectively, for which reason it has worked closely with mainstream financial firms to help try to secure a better future for us all.
There is another thread worth examining here: what about those charitable organizations which outwardly seem to do good, but whose mission is used by venal managers and board members to remove the taint of their own real immorality? In the US, the Wounded Warrior project has famously become a place where retired generals who don’t want to work hard can make millions as board members and consultants. Family foundations advertise gifts to symphonies and hospitals and the like, but are routinely used to bypass inheritance and gift tax laws by employing family members at exorbinant salaries. Mutual banks and insurance companies have always been famous for overpaying executives, buying lavish corporate properties and “corporate retreats” complete with golf courses and sailboats, all the while advertising that profits “go back to the little guy, not to Wall Street shareholders”.
Indeed, money does bring all of us into contact with one another in an almost infinitely complex waltz. In that way, though, money is really the music in the air, not the dancers. The dancers can be good, they may be innocently clumsy, or they may simply be there to take advantage of the setting. Such as the latter would ruin whatever setting they find themselves in.
I think that’s at the root of the ancient distaste for the merchant class. It’s not so much that bankers are bad people by definition, but for whatever reason, banking has tended to attract a peculiarly awful type of person, along with other people who aren’t so awful but who don’t characterize the industry the way the assholes do. (A trait the industry shares with the law, futon and used car sales, and evangelizers.) It’s the taint of those bad people that attaches to money, not the other way around… and then the stench infects those who would otherwise do something clever and interesting.
I am curious as to the fees on the Ford Foundation bond…