In 1989, I was serving as Assistant Secretary of Housing. The housing bubble of the 1980’s had burst, and foreclosures were rising. The mortgage insurance funds of the Federal Housing Administration (FHA) were experiencing dramatic losses. We were losing $11 mm a year in the single-family fund. All funds had lost $2 billion in the southwest region the year before.
My staff and I did an analysis of what had caused the losses. What were the actions that we could take?
Fraud aside, the single biggest cause of losses in the FHA portfolio was a falling Popsicle Index – an index that we coined as a rule of thumb to express the health of the living equity within a place.
The Popsicle Index is the percent of people who believe that a child can leave their home, go to the nearest place to buy a popsicle, and come home alone safely. It’s an expression of the sense of intimacy and well being in a place.
Not surprisingly, there is a correlation between the financial equity or wealth in a place and the living equity or human and natural wealth. Where the people, living things and land are happy, businesses thrive, and the value of real estate is good.
Much as I tried, I found it difficult to interest anyone in a rising Popsicle Index. Countless petitioners made their way through my offices – mortgage bankers, homebuilders, realtors, low-income activists, real estate developers, tenants and city officials. Invariably what they wanted was for me to make a decision that would help them make money. Over time, I could tell what government actions would cause the stock market to go up and down by the flow of people and their various petitions. Meantime, I could not interest anyone in a rising Popsicle Index. They did not see how it could make them money.
It took many years of researching to realize what was going on in our financial systems to incentivize this behavior. In most areas of the world, places are organized by government and financed with debt.
Corporations are financed with both debt and equity. The key financial opportunity is in owning the equity. When profits increase or the perception of a company prospects improve, the stock goes up. Senior management and investors sell the shares, generating capital gains. Capital gains on stocks and real estate are primary mechanisms for creating financial wealth in our society.
As a result, corporations can make money exploiting people and places and their stock will go up. The “stock” of the place harmed will not go down; there is no ‘stock’ of the place. By centralizing our investment capital into large corporations, our financial interests are not aligned with the interests of the people and our natural environment
So what do we do? If we are to stop the financial drain on our families and communities we must change how we manage our own finances. Perhaps the way to begin is as permaculture teaches us – to listen and build out from natural systems which are, ultimately, the source of most of our wealth.
In every place, there are thousands of existing financial agreements, including laws and regulations that impact financial values. If we are to nurture and restore places, we are well served to listen to both natural systems and existing financial agreements, looking for ways of building new, fundamental alignments between land, people and their savings that reduce risk and optimize resources on an integrated basis. From years of studying the financing of places, I can assure you that those opportunities exist. Years of continuous learning, patience and collaboration will be fruitful.
In every place, people and local institutions have financial capital, typically retirement capital or various kinds of savings and reserves. Increasingly, this capital is invested through centralized institutions and financial centers.
Developing ways of creating sound investments to finance permaculture developments and the businesses that supply them would serve to spread the adoption of permaculture techniques. The more opportunities locally, or through decentralized networks, the easier it will be for people to withdraw their retirement savings from destructive systems.
The power of financially sustainable alternatives is that they help create a safe haven for billions of dollars that would like to leave more traditional investments but must have a place to go that is respectful of their precious savings and need for retirement income.
I am often told that financial tools are destructive and we should withdraw from them entirely. However, it is important to understand that millions of people have their life savings invested in that system. By choosing to not create sound, reliable alternatives, we ensure that their capital will stay invested in the old paradigm, financing destructive activities. Let’s find a way to welcome and protect their capital. Think of the potential allies we could make.
When we look at the flow of time and resources within a place where are some opportunities?
Small Business: Small business is the engine of a local economy. Look for ways to help local businesses attract and build talent and market products and services that increase local self- sufficiency. With the importance of agriculture increasing, this includes small farms too.
Government Resources: Centralization means that a greater portion of resources in a place are controlled by government, including the federal government. This money - as well as government regulations -often creates incentives out of alignment with the best interest of the local community and local natural resources. Concerted attention to understand government rules and regulations can produce opportunities for reengineering.
Distressed Assets: We are experiencing significant mortgage and other debt defaults as well as bankruptcies. Organizing ways to proactively help people harmed and reposition assets owned by distant financial institutions or government may represent an opportunity. Could these assets be “greened?”
Local Capital: Increasingly local investment capital is invested through Wall Street. Look for angel or other small investors as well as philanthropists who would be interested in creating ways to circulate more equity investment locally.
Strategic Partnerships: Every community can benefit from renewable technology and new skills. Look for ways to build linkages between a community and the enterprises and institutions that help create self- sufficiency. Such partnerships may also provide another opportunity for local capital.
Waste: Just as physical waste presents an opportunity for greening a community, so does financial waste. Study what is causing financial distress and look for opportunities to find solutions. For example, one of the biggest sources of financial waste comes from using a currency that is falling in value. Hence, the growing interest in community currencies and barter.
Align incentives: Increasing local equity investment means that investors can benefit from a wide variety of initiatives to lower costs and consumption, improve local business and markets and the flow of deposits, purchases and investments locally.
The idea of using the term Financial Permaculture to describe our efforts was coined by Thomas Hupp of the Leadership School as he, Jennifer Dauksha-English of the Center for Holistic Ecology, Greg Landau of the Ecovillage Training Institute, Carolyn Betts of Solari and I were brainstorming how to integrate Solari investment strategy with permaculture.
We decided the best way to create an integrated vision of natural and financial health within a place was to invite many more people into the conversation.
From October 24-28, with our colleagues Connie Sharp from the Sonnenschein Festival, Debbie Landers from Leadership Lewis and the team from GAIA University, we will gather with students and experts from across the country in Hohenwald, Tennessee for a five day course and simulation - Financial Permaculture: The Greening of a Rural American Community.
We would love for you to join us in the “invention room.” For more information and to register, see www.holisticecology.org.
Also see: The Farm Blog
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