Many of my readers have written me over the past two years to express their anger toward the causes of the recession. They hate the government that succumbed to banking calls to relax regulations, and the government that pushed “affordable housing” which turned into “housing for even those who can’t afford it.” They hate the banks who jumped on the chance to lend to great throngs of unqualified borrowers, securitize the loans, and crater the economy when the unqualified borrowers failed to make mortgage payments.
More than anything, though, you know what they hate? The constant collusion between government, banks, and big business that forever jacks up the ramps of commerce so that America’s wealth flows steadily into their coffers. The recent Supreme Court decision allowing corporations wildly free rights to fund the political candidates of their choice is just the latest evidence that it’s big against small in America.
If you don’t watch your own financial back, you’ll end up working a job you hate to take home a little bit of money after you’re automatically taxed, buying too many depreciating trifles you don’t need with credit cards you don’t understand and whose balances you never pay down, living in a home too big for you to afford, driving a car that costs five times more than it should, and wondering why you can’t get ahead. They don’t want you to get ahead. They want you trapped in that very cycle because it keeps you docile and taxed…for life. Financial freedom is good for your interest, but not for the interest of government, banks, and big business. Financial servitude serves them better, so everything is tilted to get most citizens on the hamster wheel.
To fight back, many have decided to remove themselves from the stock market as if doing so will “show them,” meaning the powers that be. A second reason they want out is that two bubble bursts in one decade were enough to send them in search of investment returns beyond Wall Street. Some have concluded that moving their money from stocks to bonds is a great way to shrink the influence of big business while still getting decent investment performance.
Here’s the problem with that: bonds fund the big businesses people are trying to shun by turning their noses up at stocks. Tom Petruno touched on this in his Saturday column at the Los Angeles Times:
The Great Recession has killed untold numbers of small firms, many of which were unable to line up financing to keep their operations afloat.
But money is no problem at all for corporate America. And the biggest businesses don’t need banks, at least not for loans. As the credit crisis has eased, they’ve been able to turn to the welcoming arms of the bond market.
Who helped make the corporate rich even richer? You did — if you’re one of many Americans who pumped your savings into bond mutual funds. An unprecedented $375 billion poured into bond funds in 2009, providing a significant chunk of the capital that then flowed into newly issued bonds from companies such as General Electric Co., Pfizer Inc. and Dow Chemical Co.
If you really want to shun every part of the government, bank, and big business cabal, you’ll need to get your money out of bonds, too. Swearing off both stocks and bonds for your portfolio will leave a very unorthodox list of investments, but one that might not do as badly as some think.
One dawning notion among those snubbed at banks when seeking financing is that direct investment in small businesses is a way to move forward. It provides capital-starved small businesses with funding, provides investors with assets that can’t be wiped out by the stroke of a bureaucrat’s pen, skirts big businesses and banks entirely.
The simplest way to move capital from a former stock/bond portfolio to the small business sector is by using your own capital to start your own business, be it a shop, a hair salon, a professional firm, or something else. The balance of a typical 401(k) or IRA, for instance, is often large enough to start a small business, even after paying the early withdrawal penalties. Some people at a later stage of their career would probably have enough to start a small business and still keep most of the account in place. They’d end up with a new asset, cash flow from a business, on top of what’s left in the old smoke-and-mirrors account.
I realize that starting a business is no small decision. Most are hard enough to operate that a person can’t stay at their job that funded the retirement account and start a new business at the same time. Maybe, though, they have a spouse or child or a friend whom they could bankroll for a portion of the business profits. Barring that, they could go to Kickstarter or other sites like it that match people who have money with people who have ideas.
If you really hate the collusion at the top, you’ll need to disown bonds as well as stocks. That will leave you seeking returns on investment elsewhere, but you may be surprised at how much more fulfilling — and profitable — some of those alternative places can be.
