[GREENPOST] The Bonnie and Clyde of Karmabanque

08Juin07

The Bonnie and Clyde of Karmabanque
Smart boycotts: redistributing wealth away from social irresponsibility

04 June 2003

 

 

Stacy Herbert and Max Keiser

Stacy Herbert and Max Keiser

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Paris, France
— 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. »

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 capitalisation. 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 monetise
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 organisations 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 analysing
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
monetised yet.

Q: We at Greenpeace have tried for decades now to « monetise »
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 Organisations, 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 organisation 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?

I’m the Chief Anarchy Officer.

Q: You can’t be an Anarchy Officer, that’s an oxymoron.

All right, 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-fuelled 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, fuelled 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 infosphere, 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
capitalisation of the world turns over every 23 days, and activists
need to be out there in fast, manoeuvrable 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 capitalising 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

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