“Crowdfunding” 2.0?

By Hazel Henderson Reprint | | Print |

ST. AUGUSTINE, May 3 2012 (IPS) - The Jumpstart Our Business Startups Act (JOBS) signed by President Barack Obama on April 4th, 2012, had been loaded with provisions pushed by Wall Street lobbyists to include “small” companies capitalised at up to one billion dollars and perverted by relaxing both requirements of Security and Exchange Commission (SEC) reporting and compliance with the Sarbanes-Oxley financial regulations passed in response to the 2008 crisis.

While the bill fell far short of its initial promise, opening capital-access to startups is clearly needed, especially for the many that are focused on social problem-solving. The latter can be frequently found on the new generation of so-called “crowdfunding” websites, like Kickstarter and GOOD, where proposals soliciting individual investments are posted. This is a boon for social do-gooder organisations that were denied conventional loans and venture financing. Internet crowdfunding of such startups and non-profits is part of the social media revolution that disrupts incumbent industries and technologies by lowering costs, democratising access, allowing information-sharing, and ushering in the open-source, volunteerist sharing sectors described by Don Tapscott in Macrowikinomics (2010).

The IT-based revolution has changed newspapers, mainstream media, and retailing and threatens centralised energy, medicine, and agribusiness. It was only a matter of time before IT changed “too big to fail” banks and elite finance. Even though Wall Street’s grip on Washington politicians distorted the JOBS Act, key sponsors ­ congressmen Peter Welch and David Schweikert ­ have publicly vowed to amend the provisions favouring billion-dollar companies and close loopholes on disclosing and compliance that they and others can exploit.

The IT open-source community that promotes responsible, transparent crowdfunding is also gearing up to make sure the JOBS Act does not lead to further opportunities for the fraud and corruption that have decimated the trust of retail investors since Wall Street blew up the real economy in 2007-8. Indeed, it was this widespread distrust and anger toward Wall Street’s depredation of Main Street businesses, homeowners, and small investors that led to their revolts and efforts to bypass Wall Street. These arrogant gatekeepers forgot that they are not “providers of capital” but simply intermediaries between producers and savers and people who can re-deploy these savings most productively.

Like so many other middlemen, financiers and centralised finance are being dis-intermediated by the radical flattening of old hierarchies allowed by the Internet. Local currencies, time banking, neighbourhood sharing of appliances, cars, credit systems, and peer-to-peer lending increase wherever central banking, policymakers, and financiers squeeze real economies, imposing “austerity” through ideology, stupidity, power plays, or greed. All financial “crises” produce these countermovements: Argentina in 2002 and recently in European Union countries in the grip of financial dictatorship imposed by “technocrats” like President Lucas Papademos in Greece, Prime Minister Mario Monti in Italy, and Mario Draghi at the European Central Bank (ECB) ­ all alumni of Goldman Sachs.

The crowdfunding movement is a response to central banks’ incompetence, the perversion of responsible finance on Wall Street and in the City of London, and the new opportunities for bypassing such centralised control through the myriad social networks allowed by the Information Age.

Fine work has been done by reformers of Wall Street and Washington, notably Professor William Black of the University of Missouri, Gretchen Morgenson of the New York Times, and all their exposes. Yet, their condemnation of the JOBS Act need not blind them to the IT revolution bypassing the defunct financial centres they decry.

Some reformers see crowdfunding as leading to a new round of abuses, fraud, fleecing of unsophisticated investors, and the loss of trust in U.S. financial markets ­ though this trust has already been violated and lost. Which is worse: the continued printing of free money showered on Wall Street banks by the gullible Ben Bernanke and on European banks by the ECB’s equally bemused Mario Draghi or possible fraud in efforts to bypass these malfunctioning financial centres through crowdfunding and local initiatives? Meanwhile the Wall Street perpetrators go unpunished while the real U.S. economy continues to suffer with millions of evicted, homeless, long-term unemployed and pervasive fear and desperation.

The politics of money-creation and credit-allocation is spreading. The insanity of high-frequency algorithmic trading now gripping Wall Street and London is evident in its perversion of markets and misuse of computerised communications platforms funded by taxpayers. Trading has become an addiction worse than gambling. I prefer to take my chances with crowdfunding, digital trading and exchange, complementary local currencies, and homegrown economies. (END/COPYRIGHT IPS)

(*) Hazel Henderson, author, is president of Ethical Markets Media (USA and Brazil), creator of the Green Transition Scoreboard, and co-creator of the Calvert-Henderson Quality of Life Indicators.