Karma Banque - What goes around comes around!

http://karmabanque.com/

https://www.youtube.com/user/karmabanque

The Bonnie and Clyde of Karma Banque



Smart boycotts: redistributing wealth away from social irresponsibility

The boycott was invented in 1880 in Ireland. It's been a staple of
labour, human rights, and environmental activism ever since, in
basically the same form as when a group of Irish tenants refused to sell
to, buy from, or otherwise deal with an English landowner, Capt.
Charles Cunningham Boycott, because of his eviction policies. Well-run
boycotts have been successful in enforcing government and corporate
responsibility for more than a century. But if Max Keiser and Stacy
Herbert have their way, the traditional boycott is going to make room
for a new and improved formula: the internet-enabled, market-savvy,
hedge-fund leveraged "smart boycott." It's the founding concept behind a
new web community called "Karmabanque."


Stacy Herbert and Max Keiser

Karmabanque describes its audience as "Activists, Anarchists,
and Hedge Funds." It's a stock exchange of sorts, but with a
brilliant and maniacal twist: it trades on the strength of
boycotts.

If you're an activist, you can research a corporation's
vulnerability to a boycott by using the Karmabanque "Boycott
Profitability Ratio." The Boycott Profitability Ratio (BPR) roughly
measures the impact that every dollar you DON'T spend with a
company will have on its market capitalization. A company like
Exxon is highly insulated from a retail boycott - only a small
percentage of its profits come from consumers at the pump. A
campaign, like Greenpeace's, to encourage people to not buy Exxon
has to be global in reach and expect a long, hard haul before it
sees results. Coca Cola, on the other hand, derives almost all of
its value from how often consumers buy Coke, and a boycott of Coke
can hit the company very hard very quickly.

Anyone can start a boycott of any company. By doing so, you
create a new 'security' and the KbQ database calculates where it
stands in the KbQ index, taking into account the company's
vulnerability, and the level of support from other Karmabanque
members for the boycott.

Karmabanque members can keep a maximum of three boycotts in
their 'portfolio'. They can monitor the performance of all boycotts
on the index in real time and decide to 'sell' one boycott (that is
to say, decide to stop boycotting one company) and 'buy' another
boycott, (that is to say, start boycotting a different
company).

At Karmabanque, a portfolio is most successful when the
companies it holds are having their share prices hammered. The more
a stock goes down, the more the value of the Index goes up.

Over the last twelve months, Karmabanque's KBQ index of boycott
holdings has outperformed most of the multinationals it targets,
and outside of a small elite, the majority of professional money
managers.

The secret to its success is the most primordial force in what
Max calls "modern American-style capitalism:" greed.

When a company gets listed for a boycott at Karmabanque, the
object is to turn it into what Stacy calls "Hedge Fund bait." Hedge
Funds will "sell short" a stock if they believe its share price may
be heading south.

Like all investment, it's a gamble: if the stock goes down, the
hedge fund's short position goes up in value. If a hedge fund has
reliable information that a boycott is going to hurt a company's
sales, and knows that the stock value of the company is vulnerable
to retail loss, it will take that bet. The fund will gain on the
success of the boycott and the consequent decline in the company's
stock.

If enough funds are betting that a stock is going down in value,
shareholders and investment analysts begin to bail out of their
long positions on the stock. Stock value further collapses, and by
now any good activist is talking to the company about how it can
make changes that will end the boycott.

Max and Stacy want to be known as the Bonnie and Clyde of the
Internet. They're each in their way specialists in two of the most
powerful forces on earth today: information and money. Max was a
Wall Street wunderkind during the internet boom, made a fortune,
got out of the market before it collapsed, and retired to France in
his early thirties. For fun, he then founded the Hollywood Stock
Exchange, an internet-based virtual market for the film industry.
Stacy is a script writer for film and television, and a
self-described information activist.

We talked to Max and Stacy about Karmabanque, activism,
capitalism and Rock and Roll recently at the Greenpeace
international Headquarters in Amsterdam.

Q: Max, you talk about "smart
boycotts" at Karmabanque. What's dumb about traditional ones?

There are three basic problems with traditional boycotts. The
first problem is there's no retention of anger. They tend to have
short half-lives. When a boycott is launched and is successful,
there's no central repository of information about what made it
work, and no continuation beyond the boycott's end. Why can't those
people be repurposed for another boycott? I think that needs a
fresh look. If you're willing to voice your dissent with a boycott
against Exxon, you ought to be willing to shift your resistance to
another target. Karmabanque gives you the chance to manage your
"boycott portfolio." We think that the dissent is the key quantity,
not the boycott target. So we aim to retain dissent at
Karmabanque.

A second problem is that it is very difficult to create and
maintain momentum around a boycott. You get a lot of people
expressing their dissent in multiple boycotts in diverse areas, but
little or no feedback loop about who else is participating and how
effective you're being. There's also a sense that boycotts are
outside the mainstream. There's this image of an activist as a
hippie who doesn't wear Nikes and doesn't eat meat or drive an SUV
because he doesn't have any money. At Karmabanque it's very
egalitarian - you may have no money, or you may have a billion
dollars, all that matters is are you angry? Do you have some reason
to dissent? If so you open a portfolio of the boycotts that you
feel make sense, and then get feedback from the market.

Say an exposé comes out of a particularly heinous activity by
Nike. Everybody on Karmabanque, no matter what boycott they've
indicated interest in, can switch to this Nike boycott. That
decision gets picked up by the database, spooled back to the
community, and then you have an aggregation: dissent becomes
accretive, to use another financial term. Then you've got momentum.
Before you know it this Diaspora is singularly focussed on the most
effective use of their dissent dollar.

Thirdly, Karmabanque offers a way for you to personally monetize
your dissent. This to my thinking is a huge breakthrough, but also
controversial. We just took out ads saying "Attention Arabs: Make
Money Boycotting Coca-Cola." This is a twist to the boycott model
that has been hitherto non-existent. Typically boycotts are about
sacrifice - but we've created a model where an individual can
profit from an effective boycott, and ideally turn over those
profits or a part of those profits to the organizations working to
change those companies that are being targeted.

There's a famous money manager on Wall Street named Peter Lynch
who says that investors spend too much time getting technical in
analyzing their investments. He basically says if you like shopping
at Home Depot, invest in Home Depot. The same can really be said to
activists: if you think Coke sucks, sell Coke short.

Q: So you're recommending that hedge
funds put their money where the boycotts are, and bet against the
success of socially irresponsible multinationals?

It's a way to do well by doing good. The KBQ index is up 13
percent over the last 12 months. And as of May, it's up 9.89
percent this year. It's performing better than any socially
irresponsible business and better than almost any money manager
outside of a very small elite. So if at the end of the day somebody
wants to say I agree with your politics but I've got mouths to feed
and I can't afford to invest according to the Karmabanque index,
the reality is you can't afford NOT to do it. And it's only going
to go up. Global dissent is simply going to become more focussed,
and more intense due to the war in Iraq.

Oh, and by the way... for as little as $500 and a cheap on-line
brokerage account any activist can become their own hedge fund if
you piggy back what the hedge funds are doing. If an activist spots
that hedge funds have taken their lead, and are shorting a socially
irresponsible stock, they can play along too, and short the stock
themselves. But this of course means that the activists is taking
some economic risk, which most probably won't want to bother with..
The beauty of KbQ is that it works without money. The hedge funds
put up the money, the activists put up the dissent in the form of
boycotts.

Q: So the future isn't bright for bad
companies?

I like to think there's no such thing as bad companies, just
conflicted ones that haven't had their social irresponsibility
monetized yet.

Q: We at Greenpeace have tried for
decades now to "monetize" environmental harm by ensuring that the
whole cost of a product is reflected in its price -through
government regulation, trade restrictions, and cradle-to-grave
responsibility for a product's harm. You're really talking about
pitting a corporation's greed against the public perception of
harm.

The stock price for a commodity should reflect the interests of
not only the shareholders but the stakeholders and the global
community in which it operates.

There's nothing wrong with greed in itself - it's just a force
of nature. So Karmabanque tries to take Karmabanque-style
capitalism and use that force to power a more equitable
distribution of resources - primarily wealth.

I was re-reading Adam Smith's the Wealth of Nations, supposedly
the book that predicates the enlightenment in modern finances. The
whole beginning of the book is dedicated to trying to create an
economy that mirrors nature. Smith recognised nature as the
ultimate market-maker: photosynthesis is the perfect frictionless
market that exists between the sun and plants in converting carbon
dioxide, and the goal he sought was to replicate that in goods and
services. The system that was produced from that insight is
horribly warped, however, by the advent of modern banking
derivative products. They allow corporations to separate the
bearing of risk from the reaping of reward.

Enron was the perfect illustration: the insiders kept all the
reward, the shareholders ended up holding the risk. Warren Buffet
recently said that modern derivative products ought to be
considered "weapons of mass financial destruction." It used to be
nearly impossible to separate risk from reward - it was as
difficult as splitting the atom. But these products do just that -
they're the nuclear weapons of the financial world.

For the past thirty years, with the aid of those derivatives,
US-Style capitalism has come to dominate institutions such as the
IMF and the World Bank. They've created huge problems, huge
dislocations because they're driven by the unchecked self-interest
of their funders. The Asian financial collapse of the late 90s was
a direct result, as was Russia's transformation into a US-style
Mafia capitalist market.

The war in Iraq was a by-product of that system.

Q: But environmentalists have won
significant victories against the IMF and the World Bank using
traditional tactics - what is it that you want to improve on
there?

Corporations are appeasers. They are never going to respond to
activism in any way except that which is necessary to call off the
dogs. Governments, similarly, are never going to act in the pure
public interest as long as their elections are tied to the
Corporations that fund their campaigns. So the real challenge is
how you bring an economy of scale to activism. When you look at the
commercial world, the model for economy of scale is the
consolidation play, in which a thousand little mom and pop
establishments get swallowed up by a single conglomerate that then
becomes fantastically successful. There must be 16,000
Non-Governmental Organizations, and within that community talk of
economy of scale is probably anathema to people who don't want to
see themselves as penny-pinching bottom line capitalists. Yet
somewhere between all of these dissent groups becoming one
organization and all of them running 16,000 different boycotts
there is a middle ground, and I think that's what Karmabanque has
established.

Q: Stacy, what's your role at
Karmabanque?

My official title is President. But I'm the
information side of the operation. There are two ways that markets
are manipulated today. With money, and with spin. Max is the money
guy, I'm the one with the inside track on spin. [Stacy was involved
in a high-profile tabloid-fueled sex scandal last year which led
to the sacking of "Have I Got News for You" host Angus Deayton]

The tabloids are money-making machines, fueled by the fact that
nobody wants to hear the truth. Working with Karmabanque I saw this
incredible parallel between the guys who run Exxon and the guys who
run the information machines. Rupert Murdock is polluting a global
commons, which is the info-sphere, with oil slicks of
misinformation, just as badly as Exxon is polluting the planet.
Truth has never traded at a lower value than it does today.

Q: Max, your move has been the real
world markets of Wall Street to the creation of virtual markets on
the Internet, both with the Hollywood Stock Exchange and now
Karmabanque. Why the Internet?

I think what we're seeing as a result of the Internet is a
social and political upheaval unlike anything since the 1960s, when
it was drugs and free sex and free thinking that challenged the
status quo.

The Internet is a new kind of LSD -- it gives everyone a sense
of euphoria and global understanding and vision, it's being
outlawed the same way, by the same people who see it as a threat
because it's just too liberating. It's too much free speech, free
software, free music, free thinking... it's just too free.

The technology of the 60s was vinyl. For a couple hundred bucks,
a band could cut a record. That was rock and roll, the freedom of
expression of the 60s. Now, anybody can publish on the web for
free, be a part of something like Karmabanque or Linux or Napster
or Kazaa, and be a part of this revolution. And we definitely need
a new revolution. Rock and Roll has become occupied territory -
it's stopped, it's seized. You have punk rockers from the 70s
saying nothing about war at the induction ceremonies at the Rock
and Roll hall of Fame, because their record label told them not to.
Cultural history in the US has come to a halt except for some rebel
pockets - and they're all on the Internet.

Q: But there was a belief in the 60s
that a new morality, or a new spirit, was somehow going to change
the world and make it a better, fairer place. You seem to be coming
from a more pragmatic, or a more cynical, point of view when you
say it's plain old greed that will determine the future.

Capital is the most overwhelming force on the globe. It will
seek its highest point of return. Nothing can stop that, but that
doesn't mean it can't be harnessed. George Soros has proven this
brilliantly. He basically shorted the English Pound, he made a
billion dollars, and then he distributed a lot of that in Eastern
Europe. He was his own sovereign entity. So I say, "let a million
George Soros' bloom." Let's get this revolution started. That's
what Karma Capitalism is all about - redistributing wealth away
from socially and environmentally irresponsible corporations and
into the hands of the people who oppose them.

There's 2.6 trillion dollars that moves between banks every day.
It's a tossing sea of money out there in which the entire market
capitalization of the world turns over every 23 days, and activists
need to be out there in fast, maneuverable crafts that can outrun
the big boats. Hedge funds are looking for absolute rates of return
any way they can, and one of them is capitalizing on the cost that
we can apply to socially irresponsible practices through
boycotts.

What happens to stock prices is the ultimate arbiter of what
anyone's going to do. The final battle for what our planet's future
will look like will happen on the stock exchange."

You can join Max and Stacy's Bonnie and Clyde act, and be a part of the Karmabanque revolution, at http://www.karmabanque.com