This content is from: Corner Office

The American Dream

Donald Trump’s rise to the presidency reveals some ugly truths about our financial system. It’s time to take a hard look at them.

  • Ashby Monk

I recently wrote an open letter with my friend and business partner Lindsay Holden on the need to reignite the American Dream. Call us sentimental, but Lindsay and I believe that all people, independent of the circumstances of their birth, should be given the opportunity to achieve a better, richer, and fuller life through honest and hard work.

But while we believe in the American Dream, we also recognize that most Americans no longer seem to have access to it; it’s become just that — a dream. Not real. 

Consider this: Some recent research suggests that 63 percent of Americans don’t have enough money saved to cover an unexpected $500 expense. Let that sink in for a second. 63 percent? 

These people — this majority of Americans — are living on the edge. How can anybody take a risk if they are living paycheck to paycheck? In our view, without some personal savings there’s no financial freedom ... no independence ... no risk taking ... and no American Dream. 

And without the American Dream, dear friends, electorates will do some drastic things. That, I believe, is what we saw on Tuesday. 

How did we get here? There are likely many culprits that stoked the fears of a frightened population. But one thing is certain: I blame finance — the engine of capitalism. I’ve worried for a long time that the rent-seeking behavior of finance companies could threaten the stability of our economy. But today many of us are waking up to a polity that is far from stable. And that raises the stakes even further. 

As a country, we’ve pushed our citizens into an increasingly financialized world and then stood back and allowed the financial services sector to take advantage of them. Look no further than the mortgage crisis of 2007–’08, in which money was basically embezzled from ordinary Americans by bankers. Look at the payday loan business. Look at most credit cards’ terms and conditions. Look at companies like Wells Fargo that have stolen thousands of dollars from millions of customers. Look at the hedge fund industry. Look at the callous way private equity GPs steal money from pension funds (the elderly) and endowments (students).

This is an industry that is meant to allocate capital efficiently around the economy — for the benefit of all — yet instead seems best at allocating capital to itself. It exploits our lack of knowledge and tricks us into paying too much for things that have no value. We’ve been drinking snake oil for decades. In 1950 the financial services industry captured roughly 10 percent of all aftertax corporate profits in America. Today it captures 40 percent. 

40 percent of profits after tax go to an industry that doesn’t make anything? Can this much wealth be captured by such a small band of elites without the common man rising up? 

More billionaires have been created by the financial services industry than by any other industry in the U.S. If we took that 40 percent of profits that’s been grabbed by finance over the past decade and reallocated it constructively across the country, would we be in this position now? 

I don’t think so. The theories of economics that espoused “efficient markets” and “rational actors” empowered the financial services industry to behave without conscience (or conscientiousness) and without regret. The strict fiduciary duties we placed on our pension funds purposely blinded us to important issues such as human rights, poverty, and climate change — as if to suggest these could not be considered economic or financial risks. (The lunacy of that notion was playing out in financial markets yesterday.) 

We need to reroot finance in the real economy. We need to put our economy (and thus democracy) on a stronger footing by delivering an investment ecosystem geared toward wealth creation. If you take a long-term view, finance is not a zero-sum game. But that implies empowering long-term investors to build value. 

And that’s my cue to talk about the professionalization of asset owners, which represent the base of our capitalist system. The world of institutional investors — the pension funds, sovereign funds, and endowments — need to be better and to focus on long-term value creation rather than playing into the games of Wall Street. You’ve heard me tell this story before, so I won’t do it again now. But it’s critical. 

As I rise today to a new America, it’d be easy to sit here and blame others, to tearfully look at my two young children and wonder how racism, sexism, and xenophobia could have boiled this close to the surface of our society. How has the dignity of our system morphed into indignation? How have we failed to share the benefits of creative destruction and innovation with all Americans? 

But I’m not going to go there right now. I can’t. I’m motivated like never before to rebuild the American Dream. Where and when people feel safe and secure and rewarded for honest and hard work, all the scary stories about “other people” taking our jobs or affecting our way of life simply fade to nothingness. 

I don’t normally share much personal information on this blog, but today’s clearly different. So I’m going to tell you exactly what I’m going to do in the next four years to improve this country, and you can hold me accountable to it:

• I will spend a huge amount of my time building a company that takes the money that poor people would spend on predatory state lotteries and redirects it into a savings account via prize-linked savings products. 

• I will continue to build a company that seeks to get deep transparency on the fees and costs that pension funds incur and, in turn, help those pensions renegotiate better terms with asset managers. 

• I will continue to build a company that seeks to connect long-term investors to long-term climate infrastructure projects by reducing investment fees to zero, allowing the long-term investors to get uniquely aligned access to these important assets. 

• I will continue to run my research center at Stanford, which has a mandate that includes helping to reroot finance in the real economy. 

• I will continue to advise long-term investors and build communities that will help asset owners improve the way they operate. 

• I’ve personally invested (tiny amounts) in 35 private companies that all — in some way, shape, or form — are trying to democratize and improve the financial services industry through technological and business model innovation. And I will continue to invest in these sorts of companies and help them in any way I can. 

Those are things I promise I will continue to do in the four years ahead. I encourage you to develop a similar list and hold yourself to it. I believe we really can rebuild the American Dream. More important, we have to.