Patrick Donohoe, Author at The Wealth Standard – Your home for finance, economics & building wealth outside of Wall Street

Capitalism: The Individual At The Center Of The State with G. Edward Griffin

February 21, 2019 Patrick Donohoe 00:47:45 Comments Off

TWS 07 | Capitalism

We all have different social and political stands. This normally starts when we’re young and honed by various exposures to different environments. Writer and a documentary film producer, G. Edward Griffin followed his curiosity about these ideological discussions in the ‘60s and found himself attending a communist group. However, the things that he discovered upon reading all these communist books opened his mind to more questions waiting to be answered. His worldview has grown all through the years of studying and research, and he realized that the struggle is being able to simplify the concept of whether the basis of the society is the individual or the mob. He shares sensible insights about individualism and takes us through a deeper understanding of capitalism and all of the powerful and reasonable stands on the real balance of having the individual at the center of the state.

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Capitalism: The Individual At The Center Of The State with G. Edward Griffin

We have a very special guest and his name may be familiar to most of you, his name is G. Edward Griffin. He is a writer and a documentary film producer with many successful titles such as The Creature from Jekyll Island, The Capitalist Conspiracy and World Without Cancer. He is listed in Who’s Who in America. He is well-known because of his talent for researching difficult topics and presenting them in clear terms that all can understand. Ed, it’s a pleasure and an honor to have you on the show, welcome.

Thank you very much. It’s a pleasure to be back.

Over the years, I’ve had some very enlightening conversations with you. It includes some of the presentations you’ve given at different events. I’m fascinated by how articulate you are and how well researched you are, but also how you present yourself and present these topics, which I believe goes to your character. Maybe before we get into the topic now, which is capitalism, how would you describe your philosophy about life?

I thought we were going to narrow it a bit about life, but that’s interesting. That’s like my favorite speech topic is the world and everything in it. My philosophy about life, maybe we can do that again sometime, but about the social and political aspect of our lives, it’s considerably a narrower field. It’s taken me a lifetime to refine my concepts on that. Now, they’re so clear to me. It’s so obvious. I think to myself, I must have been a blithering idiot most of my life not to have seen it because now that I do see it, it’s like night and day. The old saying is that once you see something, you can never forget it. Sometimes people do, but in terms of a worldview, you never forget that. Once the bell is rung, it can never be un-rung. Once you know, you can never not know.

This is all prefatory to this because I have a great deal of optimism about the world now in spite of all of the negative and horrific things that are going on. I see a great awakening going on. Young people, in particular, are coming to know and they are seeing the truth. They’re hearing the bell being rung. Even though all this turmoil I still going on, I’m aware of this growing groundswell of awareness of young people. They’re going to be here long after I’m gone and they’ve got it. Like you, you’ve got it. I know you have. Once you understand that, you never don’t understand it. Back to the question, what is my view? Like a word or a handle to describe who are you? Are you a conservative? Are you a liberal? Are you a left winger or a right winger? Are you a moderate? What are you? A neocon or whatever, all these words are floating around. A capitalist, a socialist, a Nazi, a fascist, all of these things. I was in that trap for most of my life trying to figure out which one did I want to be.

I picked one that sounded pretty good, then I got to learn a little bit more about it. I said, “Nope, that’s not me after all.” I went through the whole thing. I think every young person starts off being some communist, a socialist, a collectivist is the word. It has so much public relations appeal. The greater good or the greater number. Isn’t that wonderful? We all have to get together and be a team player. These things are very appealing and they’re good in so far as you go, but nobody ever looks at the flip side of the coin. It’s not what you do so much or what you want to accomplish so much. It’s how you do these things and how you accomplish them. I learned that a long time ago because, in the ‘60s, I was very curious about all this ideological discussion. I went down and I said, “I’m going to go down to the communist’s bookstore. I heard there was one in town,” and I did. It was down in Larchmont Street in Los Angeles, practically in downtown. There it’s called the People’s Bookshop. I went in there and I got to know the comrades pretty well.

They thought I was a convert or potential convert. They invited me to their study clubs. Their study meetings, which I knew and everybody knew that this was a recruiting funnel to get me into the party. I played along with it. I didn’t know much about it and I’m here to learn. I told them, “I don’t know what you guys are up to but I’d like to know. Show me what you believe, what are your books and so forth.” I don’t think they expected what happened because I bought their books and I read their books. I not only bought them, but I read them. It wasn’t long after going to a couple of those so-called study groups, I realized that I knew more about the doctrine than they did because they hadn’t read. They had slogans. I’m leading to this. I realized in that early stage that most people are driven by slogans and certainly those on the left and the right too, they’re driven by slogans.

One of the greatest slogans and it’s very appealing for the communist and socialist movement is, “From each according to his ability and to each according to their need.” What is wrong with that? Isn’t that wonderful? Isn’t that the basis of charity? Isn’t that the basis of all the religions of the world? To help your fellow man in need to the best of your ability. Naturally, it’s appealing but what they don’t tell you is how. You have to think a little bit. Not take this to the next step. How? It’s the argument for world government would bring peace because there would be no nations to fight each other. If there could be no nation, there could be no wars between nations and so forth. Then you’ve got to ask the question, “What kind of world government?” As a kid, you don’t think of these questions. When I was trying to figure out what all this mess is, I suddenly realized that in the Western world, there were only two basic ideologies. If you go outside of the Western world, you’ve got theocracy for example.

The government based on the concept that the leaders are representatives of God. They’ve been empowered by God. In fact, they have some kind of spiritual status that makes them above human. There are many places in the world now that still believe that. In centuries past, it was much more common than it is now. That’s not the driving philosophy in the Western world. Theocracy is not our problem. Our problem is something else. In the Western world, there are only two concepts and they have words. These words were well-known 80 or 100 years ago. I found out in the literature that these words were used to all the time, but I never heard them when I went to school. The words are collectivism on the one side and individualism on the other side. What is that all about? When you take these other words like socialism, communism, fascism, leftist, rightist, moderate and all these things. You peel off the labels of those concepts and all of them are variant of collectivism.

They’re all the same if you understand what the underlying elements of the ideology are. I made a study of that and I came up with about eight. They were quite common such as I mentioned the origin of the idea of what is the ultimate goal. The conflict between the individual or the state or the collective, which is more important. The collectivists, whether they call themselves communist, socialist, fascist, Nazi, whatever, they all believe that the group is more important than the individual. That the individual must be sacrificed if necessary for the greater good of the greater number. That’s that magic phrase and I bought into that when I was in school. I know that sounds good. The greater good for the greater numbers.

It’s a mathematical equation. If you’ve got three over here and they want something and only two are here, well the three get it because it’s the greater good of the greater number. The old cartoon about democracy. The greater good for the greater number. The cartoon shows the wolf and the bear arguing over what’s for lunch and the lamb has only got one vote. The democratic thing is that the lamb has to go. My worldview gradually has grown over all these years of studying this and making a lot of discoveries and frankly finding out how ignorant I was. Even to this day, I don’t think I have any idea that’s completely original with me. Everything I have learned was known by the ancient. It was known by people hundreds of years ago and they wrote about it. I just never read their stuff.

Now that I’ve found some of these things in the old documents and I found books that had been forgotten. Some of them had been buried and deliberately hidden from view. I realized that these ideas are not new but they’re very important. I realized that the struggle is between this concept of what is the basis of society, is it the individual or is it the mob? Once you get it simplified down to that concept, it begins to get easier to straighten out. What is my view? I am what you would call an individualist. I believe that the individual is all there is in human society and hence, the most important thing. I don’t believe that you can vote away a human right.

A human right is yours. If you’re an individualist, you believe this. That you’re born with certain inalienable rights as they said in the Declaration of Independence here in America. Inalienable rights, which means they’re individual rights, they are not group rights. I don’t care how many people there are out there, there’s a mob out there and they don’t like it. Maybe they don’t like your beliefs. Maybe they don’t like the color of your skin. Maybe they don’t like your religion. Maybe they don’t like the way you talk or whatever it is, they don’t like you. As if they can gang up on you and there are three of them and you’re only one or two. In the concept of collectivism, the three or the larger number gets everything. There’s no question of limitations and the power of the group.

Once you get down to that understanding, things began to fall into place. I believe that the structure of society is based on individual rights and that we have them. They come with this. Some people would say that they’re God-given. That makes you nervous, then they’ll say, “Anyway, you were born with them.” They’re hardware, they’re not software. You have these rights and you create the governments. The people create the governments. The governments can do only those things which you as an individual have a right to do because that’s all you can delegate to the government. It’s what you have the power to do. Once you get that concept in place, that’s the next one and they go, “That’s an interesting thought. What can I do against my neighbor and using force and violence against my neighbor? What’s okay for me to do to kill my neighbor? Is it ever okay to kill my neighbor or somebody I never saw before?” The impulse is never okay, but that’s not right. You do have the right to self-defense.

Capitalism: It’s not what you do so much or what you want to accomplish so much. It’s how you do these things and how you accomplish them.

If somebody is trying to kill you, “Lord, help us,” but it’s desperate if you are the lamb. You didn’t pick the fight. They’re trying to take your life. They’re trying to kill you. Maybe they want what you have. Maybe they just don’t like you. They’re trying to kill you. I don’t think anybody would blame someone for defending their life, their liberty or their property with violence if they had to into the defensive mode. If that’s the only basis for individuals to use violence against another human being, then that is the only basis that this individual can delegate to his state, his authorities, to the police, the military, the judges, the courts and all that.

If they derive their power from the people, as we’d like to say, then that’s all that they can do because that’s all we can give them to do. Once you get that in your mind, you mean the state can only use force, meaning military force, guns and jails. They can kill you in the electric chair. They can punish you and they could torture you and all these things. The only thing they can use any of that for is in the defense of life, liberty and property. That means that 99% of the stuff that our state is doing that supposedly for the greater good of the greater number, they’re doing it without any basis at all. They’re just doing it. They don’t have a right to do it because you and I don’t have a right to tell our neighbor that he can’t sell his candy bars on Sunday. We can’t do that. We can’t tell our neighbor what to teach his kids. We can’t tell our neighbor how many hours a week he must work or whether or not he needs a lunch break and the list goes on and on. We cannot take money from our neighbor that’s got a lot of money and give it to the other neighbor that doesn’t have a lot of money because we want to justify it.

I’m glad you’re hitting on all of this because is it possible to understand the proper role of government? Can you understand what a free market is or anything? Like you’re saying, there are these layers that come on top of this initial idea of individualism versus collectivism. The collectivism idea is an abstract, individuals are all that exists. If you can’t get beyond that, then there’s no sense in getting to the next layers as far as the Second Amendment, as far as other laws, other ideas and other structures. Would you agree with that?

Absolutely. As much as I revere the constitution with the United States, I think it was an inspired document. It’s the best political document that’s ever been written. I also know it was a beta model. It was the first time in history that any men had tried to create a state based on the concept that we’re talking about, limitations on the power of the majority or in the power of the ruling elite. Nobody had ever tried that before. We just assume that if you had control of the guns, that’s it. You’re in charge. You better like me because if you don’t, these are not going to go well for you. I have a great revere for the constitution because it was a beta model to try and instill some of the concepts I’m describing onto an agreement on a printed page. This is what we agreed to.

I also recognize that it wasn’t perfect. I also recognize that if we’re going to be talking about these principles and advocating them on a global basis and we go to some country in Europe or in Asia or in Africa and we say, “The US constitution says,” they look at you like who cares what the US constitution says? I realized quickly that we want to be missionaries on this concept. We had to talk about the principles. Even if they had never been embodied in the constitution, which was almost a fortuitous accident maybe. Even if it had never been written, these principles still needed to be understood and talked about. You’re absolutely right, I think it’s the principles that we have to look at.

It’s interesting if you go back and look at whether it’s John Locke or some of his contemporaries and then the Scottish enlightenment. How all of these very similar ideas, which originated before their time. As they started to converge and even though there weren’t the modern ways in which you communicate, those ideas spread. They spread in parts of Europe and obviously in what’s now known as the United States. I think most people will embrace that fundamental idea. That’s why I wanted to hit on that because if you can’t get your mind around that, then there’s no sense in having a discussion about the ideas that come afterwards.

Let’s go there. Let’s assume that our audience understands that we have inalienable rights, fundamental right and the purpose of our current government structured in the Declaration of Independence then leading into the constitution was to protect these rights. That was the function and proper role of government. Going to the next layer, why is there this draw towards what we currently have now as a very collectivist society? There is this moral backbone it seems into most of these collections of people, collections of individuals. They’re driven by this moral justification and you’re right, it doesn’t matter if it’s Democrats or Republican, there are these groups that have a very similar initiative. How have you come to understand this draw or this positive thing that has come from the collective grouping doing and acting for the benefit of the whole, if that makes sense?

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It makes a lot of sense and I think that the answer is twofold. It’s a combination of the fact that people do not know or have not taken the time to think and study about the questions that were raising the issues. It’s like they’ve never been to school. They don’t know how to read and write. They don’t know what math is all about. They’re not informed. It’s not that they’re stupid, that’s not it at all. It’s that they’ve never been exposed to this information. I’d like to use the word politically illiterate and it’s not their fault because they’re depending on the school system and the society in which they’re born to deliver this information. At the turn of the last century, that information was being delivered at an increasingly higher level in America. The school systems were doing increasingly a good job I thought.

Then with the advent of the rise of collectivism and the takeover of the educational system by the missionaries or collectivism and they started to rewrite the textbooks. Then you’ve got the large influx of money from the Rockefeller Foundations and the Carnegie Groups and so forth. They stated right in their own literature that their goal was to change the attitude of the people in America, their favorite collectivism. They said that openly. That’s what they set out to do and they did it. They did it through, first of all, removing the information from the history books and from school systems that you need in order to come back the propaganda. They’ve been so successful that now you can hardly find any remnants of this history in our educational system.

Unfortunately, the young people going through the school system are denied this background history. That’s half of it. The other half is that there is a class of people who know exactly what they’re doing and they’re the ones responsible for the extraction of this information. For the substitution of a new philosophy or a new point of view, it’s their favorite collectivism. They profit immensely in this situation. Over the years, I’ve never known what to call these people. People call it the elites and the powers that be and all these names. I finally came up with this, I call it now the PP class. What is the PP class? The PP class is those people that are made up of the predators and the parasites. In every cross section of any society, any place in the world, any race, anywhere throughout any period of time, you’ll find that a certain percentage and I’m going to say about 15% or 12% of the population that are predators. Probably another 15% on top of that would tend to be parasites if they were encouraged. If they were given a free ride, that side of their nature would come forth.

Here you have the predators who want to control you. They want to control society for their own wealth and power and they really are predators. They had no sympathy or compassion for the human being at all except to make them their servants and their machines to serve them. They will deceive you and deliberately lie. They’ll even kill you if you get in their way. They’re just predators. Then you’ve got the parasites that get sucked into this thing and they get dependent on the predators. They’ll do what the predators say. They’ve got a pretty good little army there that will work day and night to continue to further their nest at the expense of your work and your liberties. It’s as simple as that and you could go sub-analyze that into different subcategories. Overall, those are the two main forces that we’re facing.

Let’s pivot to this because the theme of our season is capitalism. The discussion we’ve been having and what we’ve been referring to as far as principles and individualism and capitalism. What’s the connection in your mind?

The word capitalism, that’s one of those words that is very hard for people to find in agreement on the definition. If you’re a collectivist, then you’re thinking maybe you’re not one of the PP’s out there, but a student hearing all about this will think, “The greater good for the greater number,” and all of that and so you’re into that. Then somebody says, “These capitalists are all selfish individuals. All they care about is getting to be rich and they’ll just grind you into the ground.” Are you going to be a capitalist? No, that’s the definition of capitalism. It depends on how you define the word capitalism. You get 50 people in the room and ask them to define capitalism, I bet you’ll have at least 35 or 40 definitions.

What’s my definition of capitalist? I like to go to the roots of the word. Capital is a form of property. Capital is property. A capitalist is a person who believes in the concept of privately-owned property and he uses that property for whatever purpose he wants. In an industrial society, the capital, this property becomes a means of production. He invests his personal property into machines, into educational institutions and training programs. He may even have schools they create to bring people to a higher enough educational level so they could work within his factories or his systems. For them to provide jobs and raise their standard of living. He can be a criminal or he can be a bad guy and use his capital for purposes in which we would not object. That’s up to him. If he’s going to use this capital against the laws of the land, then he’s a criminal. He’s a criminal capitalist.

Capitalism: We cannot take money from our neighbor that’s got a lot of money and give it to the other neighbor that doesn’t have a lot of money because we want to justify it.

Being a capitalist doesn’t make you a good person, except it does narrow your focus to the fact that you believe in private property. That is I believe the foundation not only for prosperity but for personal liberty. If you do not have private property, you cannot sustain yourself. You cannot be independent. You have to be dependent on the group. What’s the group? It’s always the state. You become the servant of the state. You do what the state tells you to do if you do not have private property, which is why people like Karl Marx, Lenin, Hitler, Mao Zedong and all the other great collectivists of the world said, “Private property has got to go.” They teach that in the schools now. They say private property has got to go because it’s not right. It’s not fair. They put a twist on it and they sell it as a humanitarian objective when they know that private property stands in the way of the individual being subjected by the state. My definition of a capitalist is it’s simply a person who believes in private property.

I spent an entire year of going through John Locke’s ideas around life, liberty and property and what those things meant and how a very successful society has to understand those principles and how they work together. I look at what you said, which is brilliant, that property or capital is something tangible. It’s the physical world but I haven’t look into these days with the internet and how much is being done there, which is hard to distinguish is that physical or nonphysical? In the end, human beings, the brilliance we have in each of us is that we’re all different. There’s a uniqueness about human beings that’s incredible because we’re all different. We all have different backgrounds. We all think a little bit differently. We all have different ideas. That’s why I think property is an extension of that. Property in and of itself, I don’t know if it has value. The value comes from our ideas and our uniqueness and how it applies to that specific physical resource and what can be done with that.

If it has no value, it’s not property because nobody wants it. If it’s a rock in the middle of the stream and it has some value but not very much. Nobody cared for it unless it’s pretty. If it’s pretty then it has value and somebody wants it, now it’s property.

It either has to be like a relationship between individuals in order for property to have that value. It’s a fascinating idea but at the same time going back to your point of criminal capitalists because there are. The criminal capitalists are those that prey on the individuals but also they violate those inalienable rights. I look at the structure of free market capitalism and how it reinforces and protects individualism and it allows for both the success and also the failure associated with using capital. Tying into the idea of individualism, you have to protect a person’s desire to want to use property to do something and to benefit themselves. Ultimately, it has to benefit someone else in order for it to be determined as property.

The principle of enlightened self-interest is extremely important. Even if you’re a son of a gun and you’re a bastard but if you realized that the only way you can gain wealth and comfort is to build something or do something that serves a purpose in the society, then you’re going to be a constructive human being, whether you like it or not. This is your enlightened self-interest to do it.

If you look at the whole centralized power around what capital is and resource is, it conflicts with the ideas of individualism. I look at the word that’s thrown out there now which is equality where this person has too much money or this person has an unfair advantage. How have you come to understand the drive for equality and what that even means because that’s a word that is defined in a number of ways?

First of all, it’s a word that is very difficult and people have different responses to it. As you said so well that no one is the same to somebody else, exactly the same. Nobody is exactly equal. Thank God for that. Wouldn’t it be boring if everybody was exactly like we are? We’ll be mad at each other most of the time because we’re onto each other. We know all of each other’s tricks and all of that. Thank God there are differences in talent, structure, strength, intelligence, aptitudes and I might even say gender. Nobody wants to be equal in the sense of that context. What we want to be equal and under what circumstances is under the law. We wanted to be treated under the law equally and that’s all we can ask for, all we should ask for. We don’t want any favoritism. We don’t want to be treated as a special group or class.

A capitalist is simply a person who believes in private property. Click To Tweet

Even if our parents were destitute, even if we were poor or if we were denied something, it didn’t have love or something, maybe one of our parents is dead and all of these things. Maybe we were born with a deformation of some kind and maybe we don’t have a hand. Maybe we were in an accident and all these things. All we have to say is that you cannot give any group any favorite treatment under the law, no matter how worthy their cause is or how compassionate you may feel toward them. Once you crossed that line, there is no stopping that. You can always make an argument, if this was true for Matilda, it’s also true for Johnny. His condition is a little bit different. Now you got two exceptions. If it’s true for Matilda and Johnny, it’s also true for Mary. The next thing you know, the whole world has got these exceptions.

All you need to see that is go look at the federal income tax and see all the exemptions and so forth. It just becomes a maze. It’s illogical. It’s unethical. For all we can ask for is to be treated absolutely equally under the law. Most people will say, “That sounds good.” Yet they’re perfectly content with the existing legal system, which I guarantee you 90% of the existing laws on the books do not treat people equally. 90% of them at least are designed to shift favoritism from this group to that group. Give this person a little edge over that edge or to punish this group for that. 90% of the laws are not administered equally and we’ve got to do something about that if we want to create a better world.

It’s one of those things where it’s going to continue to have corrections of the law to compensate for the deficiency that is created by another law. Then it’s this vicious cycle of trying to compensate for something that’s simple.

The truth of the matter is that it’s not just stupidity. It sounds good but they’d made a mistake. They didn’t think it through because it won’t work. What we don’t realize is we’re dealing with predators. They did think it through. They know exactly that it won’t work, but in the process, they know that it puts them in the middle. They are now the administrators of the system. They’re in charge. It helps them a lot. They don’t care whether it doesn’t work. In fact, they’re delighted that it doesn’t work because now it’s an excuse to go back and have another program and more taxes, more regulations and more power to them. It’s not stupidity. We got to remember there is a predator class at work.

I had the thought I had on bullet points to talk about monetary policy. I think a book that is definitely something that you created as this enlightening document to be able to understand what the monetary system of the US is or just a central monetary system in general. Going into that will take another take another few hours. I look at even with that, which is another way of describing collectivism and also the creation of equality in a sense. If you don’t understand the simple principles of what individualism is and also the principles associated with why our founding fathers created the documents that they did and why they did it.

Escaping from the political systems that they were in before, then there’s no sense in getting into monetary policies because it will just be super confusing. At the same time, you look at what is running the world right now, it’s commerce to an extent. Commerce is all controlled. It comes down to the control of a central bank and how they’re able to manipulate certain things, for the interest of some. I won’t even get into what those groups are, but you know where I’m going. Did a lot of what we’re talking about play into the desire that you had to write that book?

I have to think back. I’m rewinding the tape now all the way back many years. I think the honest answer is no, because when I had a desire to write that book, frankly I had no idea what I was getting into. Had I known, I’m sure I wouldn’t have attempted it. It was too much but ignorant though I was, I thought, “This is an interesting thing. How money comes into creation. How they create money out of debt, out of nothing.” Actually, debt is even worse than nothing. I thought, “I’m going to do a little documentary on this one.” That was just the beginning of my learning process. Had I known them, I wouldn’t have gone all the way through. It’s too much. The depth of this problem is something that grew in my awareness as I prepared for writing the book. It was a learning process.

Capitalism: Young people that are recruited into the left movement are definitely crusaders. They think they’re working for something good.

Looking at where we’re at now. You had said something that hit home, which is there’s optimism. Despite what’s going on in the world around us, which is quite a bit. Where do you derive the energy for that optimism? What are you seeing that makes you optimistic?

That’s a two-part thing. The first part and is the most interesting is where do I derive that energy? Where does that drive come from? I had to stop and think about that. Since we’re talking about the predator class, we might think that at the other end of the spectrum there is a crusader class. I think that’s true. We have about the same percentage or 3%, 10% little group. At the other end, that are born with that drive to shut things right. I’ve discovered late in my life. I was an adult, I was married, I had a job and had a family and everything before my crusader gene kicked in. I had no interest in saving the world or anything like that. My interest was climbing the ladder of success, looking good, living well and all that sort of thing. When I got into some of these issues that we’re talking about now, I realized, “What am I going to do about it?” That’s a problem. Some of us have this insane desire, this insane thought that we can do something about it and we must do that.

The honest boldfaced answer is that I can’t help myself and I have a feeling you’re probably the same way. Probably at this end of the spectrum, there may be 5%, 6%, 7%, 10% of the people who just can’t help themselves. They’d got to rush forward and see what they can do to correct the wrongs. No matter what it takes, we can’t sleep until we figured it out. That’s my drive. I’m not claiming any great honor for it or any praise. It’s the way I am. My crusader gene is always buzzing. That’s interesting because if you look at the world in retrospect, in all history, all the great changes in history were done by 1%, 2% of the population. That’s all.

It’s been 1% or 2% in one end, 1% or 2% on the other end fighting it out and the other 98% were sitting back saying, “I don’t know which side will win but whichever side wins, I was always on that side.” It’s sad in a way, but it’s encouraging too because it means that we don’t have to convince our neighbor next door cutting his lawn. If he looks at us with that glazed look and he says, “Huh?” “What did you think about the Super Bowl?” That’s what he probably wants to talk about. “What about that Dancing with the Stars last night, wasn’t that something?” If that’s the focus of his life or her life, then you just say, “Next.” We’re looking for that 2%, 1% that have this crusader gene.

That’s an amazing way to put the crusader gene. I’ve never heard of that, but that makes sense. I look at a lot of what drives other collectivist groups. They probably think that they’re crusaders too.

A lot of people, especially the young people that are recruited into the left movement are definitely crusaders. They think they’re working for something good. I was that way at first, then I realized the trickery involved in all of these slogans and then that changed everything.

Maybe we’re going to end with this, how I’ve looked at things over the last couple of years and wanting to understand how important it is to recognize not just the principles associated with individualism, but you yourself. That there’s beauty in all individuals. There’s that uniqueness of where they’re born, that the socioeconomic environment, that political environment. People are driven in very similar ways. What touched me over the last couple of years is understanding more about the hierarchy of what people are driven to do. Maslow has one model. I think it’s pretty simple to understand. We don’t have to worry about in our day and age, food, shelter and clothing. Those are somewhat simple to come by. Then as far as inching our way up the ladder, people are getting very close to this idea of wanting to do purposeful things.

Debt is even worse than nothing. Click To Tweet

That’s where it comes down to the collectivist idea, where it does have, in a sense, a moral foundation. They think they have a moral foundation and they’re pursuing something for the best interest of others. I look at most of those groups and really what it does is it ruins the individuals. Whether it’s giving away welfare and their social programs and giving away this and giving away this, redistributing wealth. It ruins the experience of the individual to grow and to experience life. That’s where I find it very unnerving because I look at how important the experiences I’ve had in life, the difficult experiences. If I had been bailed out, where I would be and not having learned from those lessons. I look at family members, I look at so many different circumstances where individuals are robbed of experiencing life. I think that’s one of the travesties of our day.

You’re certainly right on target with that; the idea of protecting people against the effects of their own folly. I think it was Lord Acton or somebody like that said, “If you protect men from the effects of their own folly, you will fill the world with fools,” and that’s exactly what happens. You realized that if you follow the mantra of collectivism, you do not help people, you actually hurt them. You may give them a temporary meal. You may give them something they need very badly at the moment. That’s charity. I’m all for that. You should be doing that but to build a system around that so that it becomes no longer voluntary, but you have to do it or you’d go to jail.

Now, you’ve created a system, a machine that’s going to destroy the average person. They will not help them at all. I came to the conclusion that the mantra of collectivism is for the greater good of the greater number and if necessary, that means you have to sacrifice the individual. I finally came out the other side realizing that the individual should be the center of the state, protecting the individual. That is the greater good of the greater number. That does help the greater number to a higher degree than collectivism, which professes to have that goal but accomplishes just the opposite.

How can individuals follow you and learn more about what you’re doing? I know you still write quite a bit and contribute in different areas. What are some of the best ways to keep up to speed with what you’re up to?

Thank you for that. Supposedly the first thing I should do and I always forget this, is to talk about our commercial site, RealityZone.com. That’s where we have a lot of books and recordings, videos and audio tapes on the themes that we’re talking about here. My books are there too but we have about a hundred different excellent items. It’s a good place to start if you’re looking to flush out these ideas and say, “I wonder if this is true,” and you want to dig into the history, the rationale and the logic of it all. Then you have to do a little study. That’s the starting point. You have to put these ideas into action. Knowing that something is a superior idea, doesn’t make it win, especially when you’re up against the PP class. The predators and the parasites are working against you and all of them are looking for laws, the force of the state to compel you to shut up or go away or conform to their point of view, whether you like it or not.

To have this knowledge and a big bookcase full of books and you read them all, “You can’t do anything to me. I understand. No, that’s not it.” You’ve got to get out there and get active and recapture the system and change law if necessary. I’m devoting my attention to that aspect now. For anybody that’s interested in that, I’d like to invite you to come visit us at FreedomForceInternational.org. It’s an organization. It will tell you all about it there on the website. It’s a group of people. We now have members in 85 countries. It’s amazing. This issue of collectivism versus individualism is global, ladies and gentlemen. It’s not just here in the United States. That gets even further advanced in some other parts of the world. It’s more sophisticated here but it’s quite global, let’s put it that way. Then let’s go right to the chase. In order to get the word out to as many people as possible, we’d devise some marketing tactics if you wish to call them that.

We’ve adopted the idea of the Red Pill because you can talk about ideology all you want, collectivism and individualism. Some people will say, “That’s hurting my brain.” If you talk about something more popular like, “Take the Red Pill and break out of the illusion, face the reality.” “I saw the movie, The Matrix. It was a pretty good movie.” All of a sudden, it’s in a more popular frame and not quite so intimidating. We’re having fun now talking about these things in the context of the Red Pill. It’s fun, so I’m getting to the point now. We have a Red Pill Expo. It’s the third one that we put on and it’s scheduled for June. It’s coming up June 2019 in Hartford, Connecticut. Put it on your calendar, please. It’s on June 7, 8 and 9 and if you want to know more about it, come to the website which is RedPillExpo.org and you’ll learn all about it.

Capitalism: The mantra of collectivism is for the greater good of the greater number, and if necessary, that means you have to sacrifice the individual.

It’s a great event. That’s all I can say. It’s a no holds barred event. People come there. We don’t agree with everybody that’s on there. In fact, we have some pretty good debates sometimes. The idea is if you want to break out of the matrix, out of the illusion, you have to open your mind to the fact that maybe what I know or think I know is not true. If you say, “I’m not going to listen to that person because that’s not true.” That means that you already have closed your mind to ever getting outside of the box that you’re in. If everything out there is not true, only what’s inside my box is true and you’ve had it. You’re getting into some great discussions at the Red Pill Expo. I invite you all to come.

I’m from Hartford. Where are you doing it in Hartford?

I should have the name of the conference center, but it’s a big one. Right in the middle of town. I’ll have to look it up. Come to the website and you’ll find out.

We’ll post everything. I was just curious personally.

It’s going to be a lot of fun. I got to tell you, we just finished the website and the enrollment process. The man who’s taking care of our Facebook and social media stuff sent that tweet out to a couple of people and several minutes later, we had our first enrollment. It’s a good omen. I know people are going to flood to this thing. It’s something you don’t want to miss.

This has been a fascinating discussion and I know you’re passionate about this. You keep doing interviews and you keep doing videos and it’s a worthy cause because, in our day and age, people are understanding more and more. At least they’re curious and more open-minded. Hopefully, these ideas resonate so that people can start to celebrate what can ultimately change their lives but I think change the world.

These ideas do resonate. That’s the fact. They resonate because they’re the truth. When you hear it, the bell is rung and you think, “I’ve been waiting for that sound all my life.” There it is.

The biggest barrier of the truth is that you may have to be wrong and people don’t like being wrong.

It’s embarrassing but at the end you think, “Now, I’m awake.”

Anything that’s really changed the world is somebody had to step back and question assumptions. Ed, it’s a pleasure as always. Good luck with everything and I’m sure we’ll get back in contact. Maybe we will do a version two about the Federal Reserve.

We’ll do version two, meanwhile, put it on your calendar. I’ll see you in Hartford.

Thanks, Ed.

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About G. Edward Griffin

TWS 07 | Capitalism

G. Edward Griffin is a writer, documentary film producer, and Founder of Freedom Force International. Listed in Who’s Who in America, he is well known because of his talent for researching difficult topics and presenting them in clear terms that all can understand.

He has dealt with such diverse subjects as archaeology and ancient Earth history, the Federal Reserve System and international banking, terrorism, internal subversion, the history of taxation, U.S. foreign policy, the science and politics of cancer therapy, the Supreme Court, and the United Nations.

His better-known works include The Creature from Jekyll Island, World without Cancer, The Discovery of Noah’s Ark, Moles in High Places, The Open Gates of Troy, No Place to Hide, The Capitalist Conspiracy, More Deadly than War, The Grand Design, The Great Prison Break, and The Fearful Master.

Edward is a graduate of the University of Michigan where he majored in speech and communications. He is a recipient of the coveted Telly Award for excellence in television production, the creator of the Reality Zone Audio Archives, Publisher of Need to Know News, and is President of American Media, a publishing and video production company in Southern California.

He has served on the board of directors of The National Health Federation and The International Association of Cancer Victors and Friends and is Founder and President of The Cancer Cure Foundation. He is the founder of The Coalition for Visible Ballots, a grassroots organization for the elimination of vote fraud made possible by electronic voting systems. He is the Founder and Chairman of Freedom Force International.

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Reflections On Capitalism And The Morality Of It with Craig R. Smith

February 14, 2019 Patrick Donohoe 00:38:59 Comments Off

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TWS 06 | Capitalism

Capitalism seems to have more bad than good reputation among people. Breaking down some reasons why it is misrepresented is Chairman of Swiss America Trading Corporation, Craig R. Smith. He gives his thoughts about capitalism and the relevance of money in a laissez-faire capitalist society. He talks about China, the government, and what they have been doing to the markets. Helping those who are still grappling with the monetary system, Craig defines sound money and why it is important. He also reflects about humanity, equality, and where we are headed in the next ten years with our current situation. Ultimately, amidst everything going on in politics, he reminds us how we, the people, are the government.

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Listen to the podcast here:

Reflections On Capitalism And The Morality Of It with Craig R. Smith

Money, Morality & the Machine: Smith’s Law in an Unethical, Over-Governed Age

We are going to be talking about money and our monetary system. I have an expert with me to help navigate this sometimes difficult to understand topic. My guest is Craig R. Smith. He’s the Chairman of Swiss America Trading Corporation. He has also written a number of books including Money, Morality & the Machine as well as Don’t Bank on It!: The Unsafe World of 21st Century Banking. Craig, thanks for taking the time. I’m excited about the conversation.

Patrick, it’s great to be with you.

Our focus or this theme that we have for the next several months is around the nature of capitalism, what it is and why it’s misrepresented sometimes. I would love to hear how you think about capitalism, but also the relevance of money in a Laissez-Faire Capitalist society?

Let’s talk about capitalism. Capitalism clearly historically is the one form of societal thinking that pulls people out of poverty. This is one thing that very few people are talking about. Perfect modern-day example of that is China. China is a communist nation. We tend to forget that they are red communists. If they have to starve ten million of their people to save their country, they will do that. They embrace capitalism. All of a sudden, 1.3 billion Chinese people have a pathway to get out of their poverty. When you look at capitalism and how it changes society, it changes a society because it eliminates poverty. It rewards merit. It rewards hard work. It rewards results. Unlike socialism, you don’t have to do anything. You don’t have to produce anything. You don’t have to play by rules. You are taken care of. Capitalism is by far the most superior form of societal cooperation than any other system out there. Take a capitalist like John Rockefeller. When he took over, kerosene was $0.85 a gallon. When he retired, kerosene was $0.10 a gallon. Did his capitalism help the average person or did it hurt the average person? I would argue it helped the average person.

Don’t Bank On It!: The Unsafe World of 21st Century Banking

I love the examples you’re using because China is not considered necessarily a capitalist society, but yet as they’ve gravitated toward that, giving a little bit more freedom, a little bit more openness associated with the trade. It’s benefited so many people even though it’s not a full capitalist society, even small aspects of it make a difference. I would say it’s similar to the US. Correct me if I’m wrong, I don’t think there’s ever been a pure Laissez-Faire Capitalist society. Are you saying that any increase in those tenants ultimately is going to benefit everyone?

It’s no different than the principles of gravity, they work. You can argue against them but jump out of an airplane and see whether your argument holds water. The tenants of capitalism, when they are applied properly, work very efficiently because you have markets. Markets can remove excesses, can get the price right. Price discovery and markets give us the ability to grow. I can think of capitalism. I can go all the way back to people like JP Morgan. People think he’s a banker, or some of these guys that did the financing on things like electricity that ended up lighting America, that ended up heating our homes, that ended up allowing factories to run 24 hours, seven days a week. This is the thing we have to keep in mind. Capitalism takes natural resources in the form of steel, copper, so on and so forth. Combines it with human resources, labor along with technology and capital markets and creates a product, and that develops an economy. This is what we have to be careful about. Our government has gotten so big, the government doesn’t produce anything and yet they take $4 trillion a year out of the economy.

They’re also adding almost $1 trillion each year.

It’s ridiculous. Remember, I talked about markets. Markets are going to get this right pretty quick. We talk about the national debt and we talk about the trillion-dollar a year deficit that we have? People say, “They don’t matter. We were at $10 trillion, it didn’t matter. $15 trillion under Barack Obama, $20 trillion now under Donald Trump, $22 trillion. Why does it matter?” Deficits don’t matter until they matter. The day that they matter is a day too late.

Craig, first off, maybe define sound money. What does that mean? For those that don’t necessarily understand our monetary system. Talk about maybe the importance of sound money when it comes to having a very capitalist type of society.

Money in its nature has to have certain characteristics. Number one, money has to be divisible. In other words, you have $1, $10, $20, so on and so forth so you can make a change. Money has to be scarce. It has to have a store value. Our money is not scarce. As long as they’re growing trees, you can make more money. There’s no store value. If you put $1 away in 1900, that $1 now is only worth $0.2. It didn’t do a very good job as a store value. In America, we used to have a gold standard. When we were on the gold standard, our money remains sound. Matter of fact, there are many periods in the 1800 where the US dollar became stronger. You were able to buy more goods and services with your money. When Mr. Roosevelt decided to recall the gold in 1933, and subsequently Mr. Nixon closed the gold window on October 15th, 1971, we took all gold out of our money. We systematically started devaluing our money. That trend is not going to change. We are on a downward spiral to where one day the dollar, in my opinion, will be replaced with an alternate currency, probably maybe the Chinese or the Russians or maybe even the IMF will come out and issue a gold back currency.

To answer your question, sound money has to have something behind it. We don’t have anything behind our money anymore other than the full faith and credit of the United States government. Go look at $1. It says, “This is legal tender for all debts, public and private.” What does that mean? Your dollar is a debt instrument. It’s not money. Money, in order to be money, cannot be encumbered by something. All we use in our money system is an IOU that we pass on to somebody else. In other words, Patrick gives me an IOU and I go down to the grocery store and I use that IOU with somebody at the grocery store. It works very well as long as everybody recognizes that paper. If that grocer says, “I don’t recognize Patrick,” that I will use nothing. Patrick doesn’t have any money.

Price discovery and markets give us the ability to be able to grow. Click To Tweet

I think right there is where you hit something that I want to make sure that I understand correctly because you’re the expert here and has spoken to it for so long. I would say the relevance where you are making an exchange. Money in and of itself represents something. Inherently gold has tangible value. Paper doesn’t have tangible value. You look at the underlying premise of money is the whole mimic of exchange idea where your work, your labor, your goods, as you put it, how you take the resources of the world, the material of the world and combine it with the human mind, labor and production. It creates something of value to other people.

When a person exchanges that medium of exchange, your understanding that it’s worth a certain amount and them understanding that it’s worth a certain amount. The purpose of the actual exchange is that for the person that’s getting the money because they provided the value is now going to go out and do something else with it. The certainty that exists that it’s going to be worth the same amount when they go to exchange it is where the whole sound money idea breaks down. Is that an accurate logic?

It’s very much so. Money, when you think about it in its purest essence, is your labor that’s convertible into currency so you can buy goods and services. You go to work every day. You work 40 hours a week. You get a paycheck the other week. You’re able to take that labor and translate it into a tradable commodity. This is what we have to understand that if that’s the case, which it is. I have to work 40 hours a week, 52 weeks a year to make $50,000. The Federal Reserve can push one button on a computer and create $50 million or $50 billion. What have they done to discount the value of my labor if they didn’t have to do anything to get $50 billion, but I had to work all year to get $50,000? That’s not fair.

Craig, these are the points that those that have studied this understand, but for those that don’t study this that this may be their first exposure. That right there what you said, is the heart and core of the issue, is that when you have a central power that has the authority to increase that amount of money that’s in circulation through whatever means, number one, it’s fake. There was no value produced for that. It dilutes and it essentially takes from those that did provide value. It’s everyone. It has been going on for a long time. It’s still that the overriding narrative is to continue to do this because it’s a good thing.

Governments by nature will never be satisfied. They always have to have more revenues. If the government was to move your tax rate, and I’m using a hypothetical here, from 32% to 80%, more than likely we probably have a revolution. Is that fair to say?

Absolutely.

If they leave your tax rate where it is and they devalue your currency, they can get the same effect. You don’t even realize this happened. In other words, if they hit you with an 80% tax, you would revolt. You wouldn’t pay for it. If they devalue your money every day and you have to use that money to survive, they are in essence taking more money from you in the form of depreciating the currency. They can’t tax you so they depreciate your currency. The Chinese are famous for this. They’re currency manipulators. This whole bit about our trade talks with China, it’s a joke because if tomorrow we cut a new deal and they don’t like the deal, they’ll play with their currencies and work it out through their currency. This is what the Federal Reserve has done. They’ve stolen from every American. Years ago, we did a study about it.

We can argue that there have been $100 trillion that’s been stolen from the American people since 1913 when we formed the Federal Reserve by what’s called financial repression, by paying people an interest rate that’s substantially lower than the rate of inflation. We’ve seen that happen and by using inflation as a form of taxation. I did a whole paper for the Congress years ago entitled the uses of inflation. I showed how back in the ‘50s, our Federal Reserve chairman wanted to do away with federal income tax. He said, “We don’t need a federal income tax. I’ll play with the currency and we’ll get our revenues through the currency.” Nobody talked about that. His name was Beardsley Ruml. If you read what he was proposing to the federal government, it will turn your hair.

Deficits don't matter until they matter; and the day that they matter is a day too late. Click To Tweet

The introduction I made where the wool is over our eyes is that this type of conversation is not prevalent. It is something that affects literally everybody every day. There are different ways to approach this. The common narrative is so strong that a central bank is a good thing. It’s the lender of last resort. It protects us. I look at it as very similar to how we perceive the government in general. I say we, I’m talking as a society, not me particularly. As a society, the government is there because if they weren’t there, then we wouldn’t have roads or if they weren’t there then people wouldn’t have jobs.

You know the fallacy of that because the reality is if you go back 150 years ago in America, we didn’t have a Leviathan government as we have. People weren’t dying in the streets from malnutrition or for lack of healthcare. We didn’t have any of that. We didn’t have welfare or social security or anything back in the 1800s. I didn’t see elderly people dying on the streets or anything. We have to keep in mind we’re pretty a benevolent nation. We take care of each other. The bigger issue is it’s important that we hit on this. I could never have this conversation I’m having with you on that national television show. I could never have it because they say, “You’re a conspiratorialist.” The facts are out there. You know them and I know them. All a person has to do is read and use a little common sense.

You draw the conclusion that this Federal Reserve is a very failed experiment. We should unravel the Federal Reserve. We should abolish it. We won’t because of the powers to be as I write about Money, Morality & the Machine realize that the money is more important to them than morality. Keeping the machine going and Washington, DC is more important than at all. As a direct result of that, we are not going to see things change. Short of us having a revolution. When I talk about revolution, I’m not talking about a 1776 revolution with guns. I’m talking about people revolting and going to the polls and saying, “We’ve had enough. We want a government that will work for us instead of working against us.”

It’s interesting to see how humanity operates that way where something bad has to happen in order for there to be a paradigm shift. The reason why you can’t have that conversation and it’s very difficult for anybody to have that conversation especially with opposing opinions in an intelligent way. There are so many layers behind it that it almost gets to the point where it’s not the same context. Therefore, you are so many layers above context that it’s “I’m right, you’re wrong” type of rational thing.

It becomes an ideology. You’re right. It’s an ideological argument.

The physical revolutions, I look at where we’re at in our society, I don’t know. I’m hoping that people start to wake up, but at the same time it’s most likely going to be through some pain where people wake up and step back and say, “We’re going to be in this government shut down when we went this long. Why do we need the Federal Reserve? Why do we need this?” Hopefully, people started waking up and asking more questions, better questions.

I said on national television the government doesn’t produce anything, so why are we worried about it hurting our GDP? The government spends money. We have to worry about if the government can’t process small business loans and small businesses can’t operate, and that would affect GDP. I get that. As far as I’m concerned, if Donald Trump wants to do something brazen, fire the 800,000 workers like Ronald Reagan did with the air traffic controllers. They’re non-essential employees anyway. Has your life been affected since they went on vacation? I say get rid of them. Let’s get rid of a million employees at the federal level and let’s reduce the size of government and who knows? Maybe we can even lower taxes ultimately. There’s a big flaw. I want to bring this up before we get too deep in the weeds. The flaw with the Federal Reserve is simple to explain to every single American. Watch this, Patrick and Craig, we moved to a desert island and we start a money system.

The 2008 crisis is not an exception. It's a rule. Click To Tweet

We get the local guys. We come up with dollars. We decide we’re going to use dollars. We lend out $1,000 to the locals at 5% interest. Now the locals owe us $1,000 principal and $50 interest. If you and I only printed $1,000, how can they pay us back? There’s not $1,050 out there. I have to create another $50. I lend that out. I need to borrow more and more. That’s the point. Every year you’ve heard the feds say our inflation target is 2%. They have to have inflation to survive. Let’s say it’s 2%. Every 50 years, you lose 100% on your investments. That’s not a very good deal. Nobody is talking about it in these terms. It’s flawed. It doesn’t work. That’s why you wonder why we’re talking about trillions now. Go back to the $1,050. We need to create $1,050 payback. We need to create $1,200 payback. Now you know why we’re at $100 trillion. Just so your readers know, if you were to spend $1 every second for the rest of your life, it would take you 32,000 years to spend $1 trillion. We owe $22 trillion of those?

Plus you add benefits or social programs, Medicare.

Our long-term liabilities are well in excess of $150 trillion.

I’m glad we started by getting into the morality of it because of a lot of the other episodes that have been done have talked about the morality behind things because I look at that being one of the foundational tenants that people don’t understand. I’ll bring up an example. I made the mistake of turning on the local news to see a Jazz game score on a snow report. On there was basically, there was this huge rally of people that all opened their businesses, opened gyms, the food bank opened up for the federal employees that didn’t have any work who are struggling financially.

I look at the nature of us and the nature of us wanting to help. There’s this confusion associated with central powers what it is and what relevance it has, whether it’s a good or a bad thing. I’m bringing up that people naturally want to do the right thing and do good for society. The government, in theory, I would say right now isn’t necessary. You look at how it continues to perpetuate and it strengthens the paradigm and makes it all the more difficult to get people to wake up. It’s inevitable because of how extreme the negative results and the outcomes have been. Right now it’s getting papered over until who knows when. It could be any type of event but when it goes, it’s going to go quick.

When it goes, you’re going to see the unraveling very quick. When people talk about a crisis or a meltdown or a recession, we’ve got to keep these in real terms. We went through the Great Depression in 1933. If you talked to anybody that lived during the Great Depression, they’re now in their 90s. They will refer to the Great Depression as the good old days. They don’t see it as negative. We went through recessions in America in the ‘60s and the ‘70s. We had the inflation crisis in ‘79, ‘80. Here’s my point. When we have meltdowns, people get rich and people get poor, but you don’t have people dying in the streets or lining up for food. It’s not how it works anymore.

I hear people calling for the market is going to melt down. You start thinking to yourself, “Is it going to be Mad Max at the grocery store? How am I going to feed my family?” No, it’s not going to be that way because there’s no benefit. I have one neighbor who half of his house is underground. I said, “Richard, what are you doing?” He said, “It’s when the bands of criminals come down the street.” I said, “Are you crazy?” We have a military. We have the police. This is the point. In run-ups in markets, people get rich, people get poor. Drops in markets, people get rich, people get poor. What we’re trying to do is wake up the American people and say, “We’re going to have more crises.” 2008 is not an exception. It’s a rule.

We have them every so many years in America. You need to be prepared for them so that you don’t panic. Think about if you didn’t panic in 2008, you’re already back to where you started and you’re way ahead of the game in stocks. We try and show people that if you have a diversified portfolio and that you have planned your future, you’re not going to have to worry about these ups and downs in the market. You’ll be able to sleep well at night and know that you have a game plan that’s protecting your financial future. That’s why I wrote the book, Money, Morality, & The Machine. That’s why the deal I cut with the publisher was for every one book we sell, we give a book away because we want to wake up the American people. They’ll call programs like yours to discuss these issues because the American people have the answers. We’re smart.

Sometimes our intelligence gets stifled because I’ve thought oftentimes crises are a good thing at a large level, even at the individual level. As human beings are so resilient and when we’re put to the test is where we thrive and where we learn and we discover.

Capitalism: When we’re put to the test is where we thrive, learn, and discover.

It normally takes a crisis for a major paradigm shift to occur. Is anybody going to tell me that we don’t need a paradigm shift in America? Have you watched the news? Have you watched Alexandria Ocasio-Cortez or whatever her name is, talking about we want to eliminate billionaires? That would have been good. Let’s see, maybe we should not allow a John Rockefeller to be a billionaire. Nobody would have light or maybe Bill Gates, we shouldn’t let him be a billionaire. He’s revolutionized computers. This talk is crazy that we have coming out of Washington.

It’s done under the guise of morality that this is the right thing. People should be equal. Not understanding the nature of equality and what that means. It’s interesting. It goes to show that this pervasive message of what is moral, what is ethical, how things should be, and what the purpose of government is. It’s out of whack. There are strong voices on both sides. It’s become this right divisive fight. That’s why the truth I don’t think is discovered unless that fight gets magnified. There’s a crisis. Suddenly people wake up during that typically. It’s interesting. It’s a fascinating time to be around where you and I can talk about this. The message can be spread.

Craig, these are our opinions. This is how we see things. We’ve connected the dots in so many different areas. We’ve read similar books. You have a much more extensive education and background than I do. I look at our ability to communicate our ideas. That’s going to continue because there are principles of truth that are true. People feel that and when it’s applied to specific situations, that’s when wake up occurs. Right now, it’s a difficult time. It’s also exciting that you can start to see what’s going to happen in the future.

You hit something that strikes me. You’re right on the money. Truth is it doesn’t matter whether you believe it or not. It doesn’t change what the truth is. It’s like a lie. A lie has to keep changing in order for it to live because if it doesn’t keep changing, it will die. The truth is the same now as it was 10,000 years ago as it will be 10,000 years in the future. You said something about equality that is spot on. A very dear friend of mine, Mike Savage, you probably know him who has a national talk show. He has a saying that says, “You can have no equality without quality.” I want you to think that through. We can’t have equality in this country unless the people are quality people.

It normally takes a crisis for a major paradigm shift to occur. Click To Tweet

Look at the people who are calling people racist, are they quality people? I don’t think so. We’re looking for this equality on whose scale on some guy from Black Lives Matter, from Antifa, from the Tea Party. Whose perspective are we looking at here? This is the problem. We’ve lost our ability to be human with each other. I could argue it’s because of cell phones and all this stuff. We’ve lost our humanity. If we lose our humanity, De Tocqueville told us that the greatest strength we have as a nation is our humanity. I hate to sound negative. I feel very optimistic about the future of America. However, the next ten years I think we’re going to experience some very difficult times.

Craig, everything you said has been brilliant. I look at humanity and I’d also say that during times of crisis is where humanity shines too. You saw many examples, whether it’s natural disasters, how people come to the rescue. I think we’re driven that way. We have this instinct inside of us to do the right thing. There are exceptions because we all have an irrational side of us as well. Generally speaking in crisis, you have a lot of good that comes from that. It is so much divisiveness. I had a cool experience a couple years ago going to Hawaii with my kids. It was a Disney-type of resort that they have there. We were swimming. There were these guys like a gangster, tattoos they had. They were like human having discussions with me laughing. It’s one of those things where everybody has this humane side. We all in a sense will resonate or talk to one another even though there are so many differences. It’s powerful but typically, the environment is what creates so much divisiveness.

Tribe: On Homecoming and Belonging

What you brought up is so important. We should elaborate on this. There’s a book out that I encourage you to go read. It’s called Tribe by Sebastian Junger. In the book, Sebastian Junger studied war-torn societies, England after the famous bombings in London, Kosovo, and Sarajevo. He found out something fascinating. He found out that after the crisis was over, the people wanted the crisis to come back because when the crisis was happening, neighbor was taking care of neighbor. Brother was taking care of sister. Mother was taking care of son. Everybody was taking care of each other. In London, they would go down to the air raids bonkers when those sirens would go off. After the war was over, what the English people did was they congregated down in the bomb shelters. They missed getting together. Here’s the point, do you remember how tight we were as a nation in 2001? Remember George Bush on that puddle, “The people that tore down these buildings, they’re going to hear from all of us soon.” I felt like an American.

I’ve got to tell you something. We’re going to have another crisis. We have threats all over the world. I’m not going to telling you militarily. I’m talking about financially. We got China. We got Russia. Don’t underestimate India by any stretch of the imagination. The European Union, they’re trying to hold themselves together right now. Keep in mind, the European Union collectively is a bigger economy than ours. Individually, they’re not. As a European Union, they are bigger than we are. We have a lot of threats that we need to be thinking about on a long-term basis that is existential to this nation. One of them I believe happens to be our money system because if you devalue our money system, how are we going to be able to fund anything to be able to protect our interests? I’m incredibly concerned about the future of money because money, as much as we hate to admit it, has the morality to it. I talk about this in my book. Every moral decision in America has a financial consequence and every financial decision in America has a moral consequence. We’re not thinking in those terms.

Adding to that, I’d also say that behind every transaction is the nature of a human being to provide value to one another and use their abilities, use what their unique at, and also the process of figuring out what is valuable to others. It’s one of those things where money also has a very individual aspect in addition to what you mentioned.

Sometimes people misinterpret money too. Think about the guy that’s got $5 million in the bank and he’s drinking himself to sleep every night. He doesn’t think he has any problems because he’s got money. I would argue his problems are worse than the guy that’s on the street who is a drunk, who knows he’s got trouble because he can’t mask it because he lives in a fancy house. This is where we are in society. Money is merely a tool. It gives us the ability to trade, to buy, to sell, to live our lives. It shouldn’t represent who we are. My checkbook should have nothing to do with the quality of human being that I am. The minute that it does, we’ve lost as a society. What do we need government for? If men be angels, we don’t have any need for the government. The reality is men aren’t angels. The reality is men do things very immoral. That’s why I was very disappointed in 2008 that none of the bankers or some of the people that created some of the problems like Mr. Mozilla didn’t have to pay a price for this. Think about what happened in 2008 and nobody was held accountable.

It was worse. They made all the mistakes but yet all of their problems were solved for them.

That’s why I think the average American is getting very discouraged. They’re saying there are two sets of rules. There are sets of rules for the power of powerful people. There’s a set of rules for Hillary Clinton and those people. There’s another set of rules for me. That’s why most people are discouraged right now. The good news is we still are the greatest nation in the world. We still have the greatest capital system in the world. What I’m hopeful for is that these politicians have overplayed their hands. What we saw in 2016 is the beginning of, for lack of better term, a new popular populism in America where the American people get involved. I was very happy that the House went to the Democrats. You’re going to say, “You’re a Republican conservative. How could you say that?” Do you want me to tell you why? Because the Republicans in the House didn’t deserve to hold on to the House because in 2016, what did Donald Trump come back to the White House with? The American people said, “Build a wall.” The American people said, “Did this.” He’s doing those things. Isn’t that what he’s supposed to do? Isn’t that what he run on? Isn’t that what he got elected on?

If we have more of that, then the people are going to say, “If you’re doing your job, we’ll reelect you. If you’re not doing your job, we’re going to throw you out.” That’s what they did to the Republicans. We have a very healthy democracy. When the Republicans didn’t do what they promise in 2016, 2017, 2018, the American people threw them out. Now you’ve got Democrats in there. If they screw up, hopefully the politicians realize that until we start promising and following up on fulfilling those promises, we don’t have a chance to govern. If we do that, we have a bright future ahead of us.

I find it interesting your last couple of statements because you’re right. It comes down to what we as people believe and understand the influence that we do have by electing certain officials. At the same time, we make election decisions in this case based on our belief system, based on what we know. I look at how we’ve been conditioned as a society to understand government, understand their purpose, and understand their nature. That impacts the way in which we vote, where we do vote because this person is going to create jobs, this person is going to do this and this person is going to do that. Maybe you can end with your opinion here, going to quality, the quality of a collective people right now I would say isn’t necessarily making decisions politically electing certain people for the right reasons. As we shift as a society and understand whether it’s the purpose of government or whether not wanting to be taken advantage of because we’re aware of what they’re doing and why it won’t work. That will be hopefully the shift that can create some influence politically where we want different results than we want right now, which would definitely shift power.

I hope you’re right. You’d like to think that the American people get it right every so often. The problem in Washington, DC, I wrote about this in the book, Money, Morality & the Machine, the whole concept of that book is it plays off of Dwight Eisenhower’s warning to us. Be aware of the military industrial complex. What we do is we show how that military industrial complex is a type and shadow of other things that are going on in our government. Here’s how it works. The Congress appropriates funds. They go to build bombs, tanks, so and so forth. We need that for our national defense.

We, the people, are the government. Click To Tweet

Defense contractors turn around and give donations back to the congressmen and get them reelected. We wonder why some of these guys are like Ted Kennedy in the Senate for 40 years because they have this incestuous relationship with not just the defense contractors but everybody that contracts with the federal government. Whoever is contracting with the federal government, I guarantee you is giving money to the political campaigns. That’s the problem. If we break that, then we’d get our government back. We have the best government that money can buy right now because our politicians are bought and paid for. Our politicians shouldn’t be bought and paid for. The only people they should be responsible for is the American people. That’s why I’m grateful that you’re doing shows like this. That’s why I’m grateful for hosts like you that are talking about these issues. I am convinced if we engage the American people in a dialogue, we will fix this problem. We, the people, are the government.

You’re absolutely spot on there. There’s a lot more going on. I think there was more podcast created in 2018 than ever before. They’re a lot smarter than I am because I’ve been doing this for over ten years, there’s a lot of success in most podcasts. That’s also a good thing because it’s helping spread certain messages. I hear more of it. Craig, thank you for what you’re doing. You clearly contributed trying to understand how our seemingly complex system works and what are the principles behind them, the morality behind it. Thank you for what you’ve done and continue to do. We’ll support you in every way possible. Why don’t you let the readers know the best ways to follow you, see what you’re up to when you speak on this national show live. If you want to talk about ways in which people can follow you, that would be awesome.

I’m a major contributor to Fox so you’ll see me on Fox Business or Fox News every week or so. The best way to stay in touch with us is through the website, SwissAmerica.com. The publisher was gracious enough for every one book we sell, we’re able to give a book away. I don’t know how big your audience is, but I’m sure, 50, 60, 70 books, if they call 1-800-289-2646 and mention that you were listening to the program or mention Patrick’s name, they will send you a complementary copy from the publisher of the book, Money, Morality & the Machine. No hidden charges. They don’t say, “It’s $5 postage.” Everything is free. You call that number, you put your name, address, phone number down and they will send you a complementary copy of the book. All we ask you to do is read it and then engage with somebody like Patrick. I don’t know if you take call-ins, but let’s talk about these issues. Let’s get a number of opinions out there because I’m convinced in a multitude of counselors, we will find wisdom. The best years of America could be ahead of us if we fix some of these stupid problems that are very fixable.

You see signs everywhere that people are getting more engaged, more aware, learning and there’s a lot of accountability associated with media these days. It hasn’t been there before. It continues to improve and ensure that the messages that are out there are sound. We’ll make sure your book and the links to it gets distributed on everywhere we post the podcast and in our social media channels as well, and articulate that offer.

It’s great being with you. I look forward to doing it again.

Likewise, Craig. Have a good one. Thanks for what you do.

Important Links:

About Craig R. Smith

TWS 06 | Capitalism

Craig R. Smith is Chairman of Swiss America Trading Corporation, a national investment firm specializing in U.S. gold and silver coins. Mr. Smith founded the company in 1982 out of a bedroom in his home with $50.00. It has since grown into one of the largest and most respected firms in the industry known for its dedication to consumer education and safety.

Mr. Smith is an expert in many forms of tangible assets including; oil, precious metals and U.S. numismatic (collectible) coins. He is a student of history and an author of nine books.

Mr. Smith is sought after by national media for his insights on breaking news because he instantly engages audiences with his common-sense analysis of major political and economic trends. Craig’s door is always open to the media. Over the past two decades, Mr. Smith has been interviewed on over 1,500 radio and TV programs. He has also been featured in various print publications. He is a former columnist for Worldnetdaily.com and writes economic columns for Swissamerica.com

To receive your complimentary copy of Craig’s book Money, Morality & The Machine, please call (800) 289-2646 and mention that you as a listener of The Wealth Standard Podcast!

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Breaking The Common Stereotypes About The Oil And Gas Industry with Beau Flowers

February 8, 2019 Patrick Donohoe 00:29:51 Comments Off

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TWS FF 5 | Financial Friday

Having the biggest driving population right now, the common stereotype about oil and gas is that they are simply for fuel. However, they are more than just that. For Financial Friday, Chief Executive Officer of LoneStar Asset Management, LLC, Beau Flowers talks from a 30,000-foot view about the oil and gas industry – where it is at right now, and where it is going. He touched on the impact of the new millennial generation, the green movement, and the downsides of the industry. Sharing lessons for success, Beau also gets into what makes or breaks an opportunity, how to set up operational structures, and what are some of the poor choices in the industry that have led to bad outcomes.

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Listen to the podcast here:

Breaking The Common Stereotypes About The Oil And Gas Industry with Beau Flowers

Financial Friday

I have an interesting topic. It’s oil and gas investment and I have as my guest, Beau Flowers, who’s the President of Lone Star Asset Management. He participated in the Cash Flow Wealth Summit and also was one of the sponsors. My relationship with Beau is still new so I’m excited to learn more about his business and also about the oil and gas industry that I have some experience in. I can’t wait to get into it. Beau, welcome to the show.

Thanks for having me.

We talked a little bit before we started this interview and I look at the oil and gas industry. There are so many different facets of it. With the social opinion of the biggest driving population right now, which is the Millennial generation who are making their ways in the workplace and they’re living differently. You look at oil and gas, the stereotype is that it’s for burning fossil fuels and it’s for cars and for transportation and there’s a big movement for green. It’s one of those things where the stereotype and the misconception people often have about the oil and gas industry is it’s just for fuel. Why don’t you talk maybe from a 30,000-foot view about the oil and gas industry, where it’s at right now and where you think it’s going and then we’ll go from there.

The new Millennial generation starts establishing itself as the prominent figures in the economy and in society. The oil and gas business is starting to get somewhat of a negative connotation towards it with the old pushing for the green movement. Wanting to eliminate fossil fuels is becoming more of a thing that you hear about. At the end of the day, where we are right now and where our civilization is right now is we’re nowhere near being in a position to where we can eliminate or even come close to eliminating the use of fossil fuels. It’s still the most prevalent and probably one of the most important industries in the economy now. This is where we are right now.

Oil and gas business is so big and so broad and there are so many different ways to get into it. What we try to do is find our little niche, find our little corner in the industry and do specific things that are profitable to us and profitable to our investing partners. Essentially, our main concentration is wealth preservation. You can go out into a wide variety of aspects of the business where the risk factors can be really low and really high. It depends on what your tolerance is. We try to carve out our little niche in to this already prevalent and essential aspect of our economy. We try to be as profitable as we can at that and not concern ourselves with the rhetoric or any connotations that might be evolving with this Millennial-driven society.

Fossil fuel needs to make advances; we need to have different kinds of renewable energy sources. Click To Tweet

You look at the perspective that we have as Americans and we often place our perspective of what life is, how things work and assume that everybody else in the world has that perspective. My wife grew up in Mexico and I had no understanding of what poverty was right until I visited and experienced the neighborhood she grew up in and how people live there. People are happy there, but yet it’s a totally different perspective. If you go to third world countries, it’s the same thing. If you look at the emerging markets and the massive economies that are on the rise, whether it’s India or China or Africa, these are economies that don’t have this massive dependence on fossil fuels.

However, because they are emerging and because technology is integrating into their emergence, they’re obviously going to have demand. You look at the demand now for oil in China, the demand in other parts of Asia, in India, as well as in Africa, it’s massive. Maybe the US and in our production, we’re headed toward more of a green and setting trends there. The transition from being exclusively dependent on fossil fuels to slowly decreasing that dependence, it’s not a one-year, five-year or ten-year. It’s probably a couple of decade transition. What do you think about that?

That’s a very good point. There are two things that I would address about what you said. The first was our dependence and our demand for fossil fuels and the things that fossil fuels provide us is not decreasing. If you look at the actual facts and statistics of the supply, the demand and the usage of fossil fuels to provide the things that we need, even above and beyond in transportation, it’s still a very needed commodity. One thing that I would address, we mentioned the push for Millennials and now being such a big member and prevalent member of society, is they’re also a very vocal generation class with social media.

They have a different medium to vocalize their opinions. It’s not like it was in the past where it was close to your neighborhood or the bar where you hung out with your friends and the coffee shop. Now, it’s like they take that message and because they grew up on technology, the message and the opinion just magnifies.

Just because their opinion or their word or message is broadcast in such a wider spectrum now than it ever has been in the past, that doesn’t mean it’s right. It doesn’t mean that they’re right all the time. I’m not saying that we don’t need as a society to start transitioning into other alternatives. Fossil fuel needs to make advances and we need to have different kinds of renewable energy sources. I’m certainly not saying that. I’m just saying right now, we are where we are. From an economic financial standpoint, our goal is to take advantage of where we are and where we’re going to be for the foreseeable future. That’s what our goal is in our firm. The second thing I would address, you were mentioning of geographic locations and cultural backgrounds influencing what your views are and then perceptions are of different things. That brings me to why am I in the oil business.

Financial Friday: The opportunities with any industry are what exist in the past and what exist in the future.

I’m from Texas. When you grow up in Texas, from an outsider looking in and the guys that aren’t familiar with our industry and aren’t familiar with our culture, when they think of oil business, they get this negative connotation because they think of J.R. Ewing sitting at the top of a big building in Dallas, smoking a cigar with a big cowboy hat and making money hand over fist. That’s the general connotation that folks outside of our industry look at it as. When you grow up in it, when you’re in Texas, you look at it not as something like that. You look at it as your lifeline, as our livelihood. It influences every aspect of our day-to-day lives at some point or another.

We’re talking about people that are running the companies, producing the oil all the way down to 80% of the working families that I grew up with in my small town were employed and fed their families from this industry. Where we’re from, it’s definitely quite the opposite of a negative outlook. It’s our lifeline. You can even see our business is very cyclical and it has its ebbs and flows for sure. You see how detrimental those ebbs can be and those low points in the business can be. That’s why we hang onto it and try to push it and still be a part of this industry because it’s what got us here from every definition of the word.

The opportunities with any industry, it’s what exists in the past and that’s what exists in the future. I’m looking at just the oil and gas industry, it’s a major part of our country. The opinion and the stereotype of guys with the big hat, sitting up and smoking cigars, I’m sure that that’s changing. I want to go there really quick because one of the things I’ve perceived in the financial industry over the last ten to twenty years is there is a significant shift. The 2008, 2009 financial crisis forced it in a sense where individuals were taking matters into their own hands. Individuals were not using stockbrokers, were not using money managers but also they pivoted to these Robo platforms or technology. There’s such a quick evolution and a lot of financial advisors or the financial industry has a difficult time keeping up.

By the time they try to steer their battleship in the direction of where things are going, it’s changed again. There are new trends and there are new demands. I look at the same thing with the oil and gas industry where it’s controlled by some big players. Because of how big they are, it’s sometimes difficult to pivot which provides opportunities for smaller firms to go in and find a niche and capitalize on that. Maybe talk just briefly about what you see as your industry and how the guard is changing and how things are evolving and the opportunities that are presenting themselves to smaller firms.

I’m glad you brought that up because what you mentioned and what you talked about is our driving motive why we started this company and why we do what we do. It is because of the different natures of the business between large scale operator like ExxonMobil and ConocoPhillips. Did you hear about Valero? Did you hear about every day? You pump your gas in? A lot of people think about the old business, that’s all they think about. They are the biggest players, but there’s a whole lot in our industry that goes on outside of that. Since about the mid-late 1990s and early 2000s since we went through what’s called the Shell play revolution where we have essentially discovered a brand-new way to efficiently produce this massive wealth that the big guys produce. That’s all they’re concerned about with now is going in and looking at $50 million developments, drilling 30, 40, 50 wells or whatever it is. All at once of these extremely expensive wells to drill to have these astonishing production rates.

It's easy to get stars in your eyes in this business. You see opportunities and all you think about is the upside. Click To Tweet

When that shift happened, it started happening in the mid-2000s. Whenever the big companies completely shifted their focus to those developments, there was a ton of what we call the conventional place that was left. That wasn’t what they were concerned with anymore. What we do in our company is we follow where these big companies started and spent their money researching and developing and then all their resources, figuring out where to drill and then how to drill in certain areas. They never finished essentially. When they shift their focus to a different business model of the Shell play, we go in and acquire their data.

We acquire all their records, everything that they had and we picked up where they left off, which for us works out well because we get a plethora of research and data that would be uneconomical for a company of mid-level or small level producer to be able to afford that level of research. We can acquire that from them for a much reasonable financial compensation. We can go in and pick up where they left off. They had every intention of doing and then the revolution came along, they shifted their focus and they forgot about this stepchild. It’s not quite as good as what they’re doing out there, but it’s good for producers like us. That’s our philosophy and what we try to do. We’re evaluating our prospects and it’s worked out well over the last six or seven years.

That’s where things shift with the discovery of new ways in which you can extract oil and then finding big places that have never been tapped before. That’s where all the big players can go, but there are limitations where they need to have a lot of money at work and require a lot in return to get a good return on investment. When it gets to be smaller, that’s when the numbers don’t make as much sense as they did previously. It allows you guys to go in and to clean up. I look at this and we’ve had some guests on over the last several years in regard to oil and gas. I know that a lot of your education and what you provide in your website and talk to people about what goes into a lot of the details of why this is a significant opportunity which I completely agree with. I want to get into what makes or breaks an opportunity, which isn’t necessarily the opportunity itself. On the Cash Flow Wealth Summit, the presentation that I gave talked about Robert Kiyosaki’s B-I Triangle and how a successful product is supported.

A product could be an investment, it could be a commodity or it could be a business. That’s where the least important thing is the actual product, service and investment. The most important thing is the underlying infrastructure that supports it. My exposure to oil and gas, I’ve seen some big success but I’ve seen also some failure because of mismanagement and poor management, poor understanding of details and poor communication. It wasn’t intentional, but I’ve also seen some intentional things too where it was a complete fraud. I look at you have an asset management company and you’re in this industry, I’m sure you’ve heard way more stories than I’ve heard. How do you use the lessons of others and use the failures and the successes to build your operational structure? How you’ve set up your business to be different and successfully execute on your business objective in this massive opportunity?

There are several different answers to that. One is in some cases learning the hard way. One thing about our business is that you get amazing tax benefits better than any other investment vehicle that I know of and any of my investors have known of, but these investments did not come without risks. Anytime, no matter what you do and in our business, it’s going to have a risk factor to it. Probably a little bit higher risk factor than any other investment vehicle most of our partners have invested in. What I found is the old saying, “Keep it simple, stupid,” is what we’ve learned works best for us. In this business, especially when you start having a footprint in the business over a few years as we do now. You can imagine the opportunities or deals that come across our desk of folks that think they’ve got the next biggest well in Texas or whatever. It’s hard and I’ve seen companies that I worked for in the past and even my company and being guilty of it myself to some degree.

Financial Friday: A product could be an investment, a commodity, or a business.

Sometimes it’s easy to get stars in your eyes in this business. People come and you can see opportunities and all you think about is the upside. We’re talking tremendous upside. We’ve had deals that pay back the entire investment within 30 days, which is unheard of in any other typical investment vehicle. Those deals are few and far between. We’ve built our team. I’ve got a very dynamic team of close-knit group of guys, a 50-year veteran in the field, Andy Whitehead, our operating partner that has an old school mentality of evaluating our deals. He and his dad has been doing this for 50 years using his own money for the most part. He evaluates them very conservatively. We’re not necessarily looking to knock one out of the park every time, but we’re trying to put us in the best opportunity to make some money that puts us in the lowest risk opportunity of losing our money.

That’s the real hard thing in our business to evaluate is to be able to walk away from those opportunities that are presented to you that have this tremendous upside that put stars in your eyes. It sometimes makes you forget about the heavy risk factor that comes along with it. We’ve got to be disciplined in our company checks and balances system to be able to pull the reins back, walk away from deals and stick to a more conservative approach that might not have the tremendous upside as the other deals. It also doesn’t carry near the risk factor and it gives our investing partners and ourselves because in every deal we do, we’ve got our own money into it. We’re shoulder to shoulder with our investing partners in everything that we do. We also have more motivation than anyone to preserve our capital. It gives us the biggest opportunity to help that grow and not lose it, which is something that can be done pretty easily in this business if you’re not careful.

It’s the worst thing to happen in any business. I always look at it because we’re in Salt Lake City and our office is right next to a huge conference center that takes up an entire city block. I sometimes equate it to a restaurant starting two days before one of the biggest conferences comes into town. It assumes that the rest of the year is going to be like that weekend where they have people out the door and you’re hiring and you’re ordering food. Before you know it, everyone’s gone and there are three patrons in the afternoon. It’s one of those things where you have to be very cautious. I’ve seen that and that’s one of those reasons to have good structure. A good structure allows you to make good decisions when things don’t go as planned. You have plan B is you have communication, figuring out what can we do at this point relative to whatever the challenge is.

Every opportunity and every business get these curve balls that you’re not prepared for. It could be legislative curve balls, it could be economical curve balls and in your case, oil prices. You don’t know what OPEC is going to do here and here. I have massive options market in the oil and gas industry. It’s one of those things where if you have a good structure when things go wrong, you make the right decision, not when things are going great. What have you seen maybe as a result of poor choices in the industry that have led to some pretty bad outcomes?

I’ll look at it from a different perspective because what we try to do is we try to make a good outcome for us based on some poor decisions of other companies. It is not predatory or it’s not something we go and prey on companies. With this cyclical environment, just like you’re talking about when nobody knows what oil prices are going to do. When they’re hot like they were in 2008 and then again in 2012 and 2013, all the typical governing rules of economics go out the window. It’s the Wild Wild West. That’s what I call it in the business. When oil prices are hot, nobody cares about what they’re spending. Nobody evaluates budgets. Nobody looks at anything except what can we do to get the most oil out of the ground right now. A lot of companies make a lot of money doing that. I can see where those mistakes are made, but a company did that in our area. They’re in Southeast Texas where we are very active.

A good structure allows you to make good decisions when things don't go as planned. Click To Tweet

A company that was doing well right there in 2010, 2011 and 2012 were bringing in after expenses $34 million a month, really big money and got overextended. They got greedy, put a bunch of money into some stuff that they weren’t with. They borrowed a bunch of money against their production to expand their operation into something that wasn’t their bread and butter. Then when the prices fail, that was it. They were done. Their financial backer out of New York pulled their funding and they were done. I went in 2016 or starting in late 2015 and we finalized the deal in 2016. I went in and bought up. If you put it in perspective with all they spent probably $22 million, $23 million worth of their assets for pennies on the dollar. When I say pennies on the dollar, I mean that in the truest form. I went in and revamped them, repumped it up and made a lot of money off of what they couldn’t keep going because of their poor decisions whenever the prices were high.

The big part of the structure is knowing what you say yes to and what you say no to. It’s hard sometimes to say no to that greed factor because that’s one of those irrational drives that usually kills people. When the decision is made because of that and not a rational model that dictates what your business parameters are. I think we’re all guilty of it. I certainly am, saying yes to way too many things. You lose focus and you don’t have any focus anywhere. Things end up not working out in a few areas and it hurts. If you go into and understand, “This is what we say yes to. Here are our parameters. This is what we say no to,” it makes it easy so that when that volatility produces something that seems like, “This is a five-star star in my eyes, we’re going to make a killing.”

It’s one of those, “Should we do that?” That’s why having a good team, having a good debate, having a good perspective allows for the best outcome. That’s where I went down that road is because you’re hitting on certain things where that’s evident in so many industries. Real estate is one of them where people are buying stuff, pennies on the dollar. It was only the people that understood what was going on that had the pennies to pay. The people that are letting it go, they didn’t have pennies.

I haven’t learned only from other people’s mistakes, I’ve been guilty of it myself. I tell my business partners, the guys that we do business with every day that four or five years ago, what I thought was literally the worst thing that could have happened to me in business and even in life at one point with some deals that didn’t go as we planned. That in our early stages when we needed them the most, that turned out to be one of the most beneficial things that ever happened to me in my career. Because had I not took those bumps and bruises early and saw those curve balls that this industry can tell you first hand right off the bat and learn how to sustain from those curve balls, then I wouldn’t be where I am now and we wouldn’t have the business model that we’ve over the past 18 to 24 months has proven to be successful. Like the tortoise and the hare, go back to slow and steady wins the race. It’s exactly what’s worked for us.

In business and investment, I’ve learned whether it’s hiring employees or investing in a company or bringing a company on as a strategic partner, aligning with this firm or that firm. If they haven’t had their bumps and bruises, you have no idea how they’re going to behave when they get them because that’s an inevitability. When things are at their worst and people do the right thing, that’s one of the greatest signs you can have. That’s ultimately what happens is when things don’t work out and people are not used to failure, they’re not used to things not going as planned and what to do about it. You could get a person that has great morals, great ethics and do the right thing or you can get the other side where they don’t make the right decisions.

Financial Friday: People who are not used to failure are not used to things not going as planned.

That’s the thing, we all have our bumps, we all have our bruises and knowing that and having someone that you align with in whatever capacity and that hasn’t had them, I think that’s one of the worst decisions you can make. This has been awesome. I appreciate you being candid because this is what investment is about. There’s always an inherent risk you have and there’s not just one type of risk. Like we mentioned, you have political risks. You have an economic risk. I would say though the prevalent risk that you have is people risks. That’s where understanding the dynamic of a team and the dynamic of a company, how to communicate and how to have good operations, that’s where businesses make or break themselves. Thanks for sharing your opinion and perspective there.

Thanks for having me on. I enjoyed it. As I said, the investments that we offer and folks that invest in our project are specific target audiences. It’s definitely not for everybody but at the end of the day, we’ve hopped on the risk and the downside of the business. At the end of the day, we wouldn’t be in it and keep doing it if there wasn’t more money to be made in this than any other business that I know of. We go out there and we sustain those risks and we sustain those bumps and bruises. When we do have success, which is way more often than not, the return that we see in this business, even in this modern oil prices are just astronomical compared to normal investment vehicles. There’s a reason that our folks keep investing with us time and time again. The reason we keep putting our money into the projects time and time again because there is a lot of money to be made out there. That’s why it’s one of the biggest backbones of our economy and society in my opinion.

Why don’t you give the listeners ways that they can learn more about you, learn more about your company, learn more about the industry and the specific opportunities you have available?

The best way to check us out is to visit our website at LoneStarAssetManagement.com. From there, you can get the history of us and the background of our company and links and resources to help you learn about the industry and the tax benefits of investing in oil and gas, which are phenomenal and things of that nature. If it’s something that everybody’s interested in discussing further, when you get on the website, right there at the bottom of the main page. You can schedule a free one-on-one consultation. Usually that consists of about ten to fifteen minutes conversation with me or somebody here in the office to explain to them what the investment upside is, what the risk is and what we’re currently offering. What our goals are for our folks in building a small oil and gas investment portfolio outside of their primary investment portfolio and just go from there. If you have any questions, all our contact information, phone number and everything is on there. We would be happy to talk with anybody interested and get any questions answered that we can.

It’s been great. Thank you again for your time. Thanks again, Beau. I’m sure you’ll have an awesome year. Best of luck to you and thanks for being on.

Thank you for having me. I look forward to talking to you soon.

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About Beau Flowers

TWS FF 5 | Financial Friday

Beau Flowers is the Chief Executive Officer of Lonestar Asset Management, LLC. Mr. Flowers is a native of Southeast Texas and a graduate of Texas State University. Mr. Flowers has over fifteen years’ experience in the oil and gas industry, and for the last five years has served as Vice President for some of the top oil and gas firms in the United States.

In that capacity, Mr. Flowers has had the opportunity to work with private investors and investment firms from across the country to assemble and execute numerous successful oil and gas drilling programs.

During the course of his career, he has played a key role in the development and production of over thirty oil and gas joint ventures, similar to the projects currently proposed.

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Capitalism And The Endless Quest For Freedom with Lawrence Reed

February 7, 2019 Patrick Donohoe 00:33:31 Comments Off

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TWS 5 | Capitalism And Freedom

Alongside our basic need for shelter, food, and clothing, a person’s yearning for freedom and liberty has always been present no matter what era and time. Lawrence Reed, President of the Foundation for Economic Education, talks about freedom and capitalism. He believes that each individual that comes into this world has the right to do anything that’s peaceful. He recounts what brought him to this quest and perspective which was the Soviet invasion of Czechoslovakia in 1968, and explains the philosophy of capitalism which he believes is the economic component of a free society. He also relates the importance of understanding freedom on different aspects of life and how everyone will benefit from it.

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Listen to the podcast here:

Capitalism And The Endless Quest For Freedom with Lawrence Reed

You’re going to love my guest. One of the most brilliant minds out there in relation to freedom and liberty. He is the President of the Foundation for Economic Education and he is also the author of bestselling books. Those include Excuse Me, Professor: Challenging the Myths of Progressivism. He also has authored a number of pamphlets including the Great Myths of the Great Depression and his Real Heroes. My guest is Lawrence Reed. Larry, it’s great to have you on. Thank you so much for taking the time.

It’s my pleasure. Thank you for having me. I appreciate it.

You’re an incredible wealth of knowledge. I want to dive straight into a description. How you would describe to somebody your philosophical views of life and business, which is part of life too.

I’ve always been a little bit hesitant to assign a label because labels often are shorthand for things that may or may not be true. People jump to conclusions. I always try to stress to people that you should judge another person’s views by the value of their content, not by some label you or others may ascribe to them. If I had to put a label on my philosophy, I would be comfortable with classical liberal, that means liberal in the 19th-century sense or in the sense that Europeans use the term even now. I would also be comfortable with the term libertarian. The bottom line is that I believe that each individual comes into this world with the right to do anything that’s peaceful. By peaceful I mean as long as you do no harm to another, as long as you respect the life and the property and the contracts and the choices and the decisions of your fellow man, you commit no fraud or force or violence or deception, then the burden should be on those who think in some way you should be restricted. I think you then as a peaceful person who has the right to live your life as you see fit.

We’re going to get into what the commonly held description is of how life should be for the collective good. Before that, I would be intrigued to know what helped bring you to this perspective you have that you very eloquently defined.

We can delude ourselves into all kinds of fallacies or we can enlighten ourselves with the truth. Click To Tweet

For me, I can say was my parents because, in my mother’s case, she never had any political or economic or current events viewpoints. She was a very nice lady that had no inkling about these things and I respect her for that. My father had some good instincts. He was a small business owner and so he bristled at the thought that some distant government might tell him how to run his business. He was in some ways hostile to authoritarianism and very respectful of the individual. He planted some good instincts in me. The most jarring early episode in my life that proved to be pivotal in the development of my thinking was the Soviet invasion of Czechoslovakia in 1968. I was only fourteen at that time. I had begun to be interested in current affairs and I was watching these people in Czechoslovakia increasingly move toward freedom. A new regime had come into power in the early part of 1968 and they were moving away from hardline communism, even talking about free elections.

I was cheering them on because I instinctively thought this is great. They should be allowed to do these things. Then when the Soviets invaded, I remember watching that on television. I was outraged that for no reason other than to bring people under control, to push them around, to live their lives for them and to use force to get it done, you had these foreign powers invading their country and it moved me. Within days, I went to Pittsburgh on a bus from my home, which was at that time about 30 miles away to participate in a demonstration against the Soviet invasion. It was put on by a youth group that I joined. One of the first things they did with new members was they put them on the mailing list to receive materials from the foundation that I now run. My reading then deepened dramatically. I got into this from an anticommunist angle, but my philosophy has blossomed into a full-blown appreciation for human liberty across the board.

Before we get to that, as you look back on that pivotal experience, how would you define or describe that instinct that was compelling enough that you felt for people that didn’t speak English that lived across the world? They were pursuing freedom and were essentially invaded under the guise of being able to control and make their life better. What was that instinct? How would you describe that?

Probably an anti-authoritarianism that I inherited from my father. I remember in third grade, I would have been eight. He wanted to take me to Florida for a week to visit relatives in February. I was a student in the local public school in Western Pennsylvania and I mentioned to my teacher that we were going to Florida. She said, “He can’t do that. He can’t take you to Florida. I’m going to talk to the principal.” I went home thinking we’re not going to be able to go. I told my dad that and he said, “I’ll take care of it.” Sure enough, when the principal called, I heard my dad’s side of the conversation. He was generally a quiet shy guy, but he put his foot down on many occasions. I recall vividly him saying at one point to the principal on the phone, “He’s my son, we’re going to Florida. Don’t call here again,” and he hung up on him. He was my hero. Skepticism of authority, especially authority that had little more going for other than just guns, have always been with me from the earliest of ages. Then I saw those scenes in Prague in 1968. I know it touched me to see people who were not much older than me, students in 1968 being hosed down by water cannon and being arrested and rolled over with tanks. That deeply touched me.

I look at the degrees there because I would say most people would say that type of behavior and how individual liberties were being violated by the hose spraying. Most people would agree to that, but most people would not agree to the notion of you going to Florida during the winter as essentially the same idea. Where is the disconnect there? There are degrees, but how do you typically address that?

Capitalism And Freedom: You should judge another person’s views by the value of their content, not by some labels.

That’s rather ordinary and automatic for people to think that the two are not in any way connected. The more I came to understand and appreciate liberty, the more I realized that it’s a very precious and unique thing. Not many people in the history of the world have enjoyed it. Most who have had it have sooner or later lost it and not by one fell swoop by some dramatic radical invasion by another country. Most of them lost it by a steady and slow drip, erosion where they say, “In this area of life, we can trust the government to run our affairs.” Later it’s, “Now, we have to do this for us.” It’s the old slippery slope once you begin to abandon things like self-reliance, personal responsibility, and character taking charge of your life and trusting to politicians to do those things for you. The big question that every Socialist need to answer but never does is, “Where you got to draw the line? How are you going to stop that?” What about the next group that comes along and says, “I want something too” or “I need the government to give me this or that.” I became a much more appreciative of the slippery slope that societies have engaged and that have taken them from free societies to tyranny. Often, slowly enough that they didn’t realize it until it was too late.

Maybe talk if you would about when something like that is done where a person is impeded from doing something that they want. I would say, give something to somebody because they’re less fortunate than the other. What does that do to a person?

It means so much more to all concerned when people do good things like giving to those in need from the heart and by choice entirely voluntarily. So much more good is accomplished by that method than by beating it out of them or sending in the tanks if they don’t do it or taxing the life out of them. For the same reason that you don’t take a person to church on a Sunday morning at gunpoint and then pat yourself on the back later and say, “I made him religious.” It probably had the opposite effect. One of the most important observations about humans is that each of us is extraordinarily and completely unique. No two people who have ever lived have been precisely the same. For me, that screams freedom because you can’t be who you are. You can’t be fully human unless you have broad sway, as long as you don’t harm another, if you don’t have broad sway over how your life goes. If somebody else is telling you all those things, you’re not really living your life. Somebody else is living their life through you at the point of the gun. That’s so anti-human nature. It’s unthinkable.

One thing I’ve come to realize is there seems to be at least, I’m not going to speak absolutely, but there seems to be this natural curiosity that we have as human beings. Children have it at incredible levels. The stifling takes place sometimes when that curiosity is interrupted. I would say the interruption can be to the degree of being invaded by Russia, as far as pursuing things that you want to pursue. I would also say from a school perspective where the curriculum is dictated and essentially, I wouldn’t say forced, but highly coerced as far as what you should be studying, what you should be reading, what’s right, what’s wrong from an academic perspective. That’s how I see it. How does that relate to the importance of understanding freedom when it comes to taking the uniqueness of who we are and having the greatest experience that we can in life by pursuing curiosity and pursuing our desires?

You’re exactly right. You’re on to a very important point. Everyone develops in his or her own way at their own speed and interruptions in that through the use of force or dictation by someone outside. Especially if they’re remotely connected to you. It tends to send people down the wrong path. It tends to discourage their lust for knowledge. The most effective teachers are the ones who don’t just open up a kid’s skull and pour in the facts and figures. The most effective teachers are the ones who strike a match in the mind and the heart of a student. To ignite that lust for learning, to get the kids to appreciate the importance of learning and make them want to do it on their own by inspiring them. That’s the most effective way to teach, not to treat a kid as if he’s a robot that needs to be programmed at every turn. That runs counter to all that we know about human nature.

Labels are often our shorthand for things that may or may not be true. Click To Tweet

We could go to a completely different direction talking about academia and grades and what determines that you’re a smarter student. I won’t go there, but I do want to pivot to what we’ve chosen as a theme, which is Capitalism. All of these talking points that we have been discussing so far relate to that in a very peculiar way. Capitalism, to me at least, is a structure that can bring out incredible things from human beings. Maybe as it relates to your role with FEE and the discovery that you made of the principles of liberty and with your specialty in public policy, how do you view or have come to understand what Capitalism is and what its principles are?

Capitalism is the economic component of a free society and that’s pretty important. Nobody should say that economics has everything. Economics is the means by which we solve an awful lot of problems. It’s the means by which we feed and clothe and house people. It’s the means by which people’s lives materially can improve and put them in a position where they can do wonderful things, including helping those less fortunate. One of Capitalism’s greatest virtues of many is that it’s the one system that doesn’t require a mastermind or a central planner. Some guy in an ivory tower somewhere who says, “If I have enough cops that I can send out to tell people what to do, I can play in society.”

Capitalism is what happens when you leave people alone. You don’t have to tell them to do things like trade, invent, create, employ, or build. They do that as long as the incentives are there and they’re free to be themselves. We are naturally a creative being as human beings. That’s one of the greatest shortcomings of every other system. All the others, non-capitalist systems are contrivances. They are Rube Goldberg contraptions. They are individual humans pretending to be what they can’t possibly be and constructing stuff and then imposing it on other people. That is fraught with failure from the word go.

How would you associate that with the previous topics that we were mentioning in the general notion of liberty and specifically to your experience in school and how school dictates and how curiosity is the fire that can be ignited to create some of the most amazing learning? How do you associate that with Capitalism?

Capitalism by its very nature sparks and nurtures. It inflames in a positive way that natural human curiosity. Capitalism basically says, “If you have an idea that you want to try to put in place. You think it will meet a need or somebody will like what you do and give you money for it and therefore you can do better in the process. You’re free to do that, go to town.” It also says you can’t just do these things without regard to the desires of other people or you’ll flop. Capitalism says you can’t put a robot around you and a crown on your head and tell the peasants to cough it up. You have to produce things that they want and need. If you’re good at it, you’ll be rewarded for it. I don’t know why anybody wouldn’t want a system that is aimed at rewarding people who actually meet the needs and desires and wants of other people.

Capitalism And Freedom: Appreciate liberty. Not many people in the history of the world have enjoyed it, and most who have had it have sooner or later lost it.

I would say the statement you just made, a lot of people would say that they don’t deserve that. They have more than they need and therefore they should share that with others. What’s wrong with that argument if it’s for the better good of other people? If somebody figures out a way to create value and be successful based on the value they create for somebody else, because they’re so successful, they have too much and others don’t have enough. Therefore, they don’t need all that. Therefore, they should share with others.

The wealthiest among us who have got that way, not because of any special favors from the government. I’m very much opposed to that when it happens, but because of their efforts, their ingenuity, their investments being at the right place at the right time and meeting the needs of a lot of people, by definition, they got there through a life of service. They’ve created value. In every case, you’ll find the so-called super rich who have accomplished great things like that and had been rewarded for it. What society in effect pays them for having done that is a minuscule fraction of the wealth they’ve added to society. I don’t care that Bill Gates has $70 billion. He created hundreds of trillions of dollars in value that didn’t exist before. The last thing you want to do is to say to such people, “If you get to where you are so successful because you’ve done such a good job at serving others, we’re going to treat you like a villain.” Why would anybody want to do that? Except for some rotten motives like envy and covetousness that never end well.

No, it doesn’t, yet that’s a pervasive feeling that exists in society right now.

I tell people all the time, “For your own mental health, count your blessings. Don’t count the other guy’s. You’ll feel a lot better about life and you won’t be wasting time trying to run somebody else down.”

What came up when you were speaking a moment ago, it was a speech you gave a while ago about the wealth and about Adam Smith and The Wealth of Nations. It wasn’t necessarily on The Wealth of Nations which most people define as the title of that book that was highly influential. You went into the actual true title of his second book. Would you maybe discuss that and what is the beginning of the title of the book? What relevance does that have to the actual title that most people subscribed to his book The Wealth of Nations?

If somebody else is telling you to do things, you're not really living your life. Somebody else is living their life through you. Click To Tweet

Most people know something about The Wealth of Nations, but most don’t know that that wasn’t the full title. This was Adam Smith’s second of only two books. The full title was An Inquiry Into the Nature and Causes of the Wealth of Nations. It’s significant to think about that because he didn’t entitle it An Inquiry Into the Nature and Causes of the Poverty of Nations. I’m pretty confident if he were here right now and we asked him, “Why didn’t you focus on poverty? That’s on everybody’s mind these days.” He would say, “Everybody knows what causes poverty. It’s what happens when you don’t do anything.” It’s what happens when the government stands in your way so that it penalizes people who create wealth and solve poverty. He was more interested in how do we go from a naturally poor society, which we all have been sooner if you go back far enough. How do you go from being a poor society to a rich one? That’s the problem we need to work out and encourage whatever it is that makes that happen.

Going from a poor society to a wealthy society, what do you say are the causes of that?

I think Adam Smith would say there are several components here. I’m not sure how he might rate their importance, but these are among the ones that he would list as most important. One is you’ve got to leave peaceful, productive people alone. You can’t stand in the way. You can’t vilify them. You can’t swipe their capital, otherwise, they’ll say, “Forget this. Why should I endure the risk and the hassle and the headaches if somebody else is going to take whatever it is I produce?” Don’t stand in the way of productive people like entrepreneurs. He would also say that self-interest is a powerful factor. I know that gets a bad rep in a lot of places. People say, “Self-interest, you mean you’re doing it for yourself. That sounds antisocial.” We all should do whatever we do for altruistic reasons just to help the other guy.

You look around the world and ask yourself, “How much of what actually gets done? How much of what’s produced that we benefit from derives from somebody’s charitable motive just to help somebody they don’t even know?” Not very much. That’s not denigrating the charitable impulse. I give to charities all the time, but I don’t underestimate the enormous benefit and power of self-interest that’s channeled into constructive, positive, wealth-creating directions by entrepreneurs and others in a free society. Think of everything you’re going to eat now. How much of that was produced because you said, “Jose, down there in Venezuela, where’s my coffee?” No, it’s because somebody said, “I can make a few bucks if I meet this need and create a new product and get it to the people who need it.” That’s a constructive and positive force. It’s one of the most powerful things for a higher standard of living, self-interest.

I wasn’t planning of talking about this, but he has his first book, The Theory of Moral Sentiments. I haven’t studied this in a long time. I know that you’re more verse here. Would you maybe get into the moralities behind the principles of Capitalism? As I understood in that book and some of the main premises were that there is this natural driving self-interest for our personal well-being. Through that, we figured out ways to exchange with others and not just benefit ourselves but better the whole. Speak about the morality side of Capitalism and how those human tendencies to be self-interested work out in the favor of others.

Capitalism And Freedom: The most effective teachers are the ones who strike a match in the mind and the heart of a student to ignite that lust for learning.

That first book of Adam Smith, The Theory of Moral Sentiments. Some Smith scholars argue and I think there’s a foundation for this, that maybe that was the more important of the two books. He laid out some of those moral foundations that later he draws out and shows the economic implications of in The Wealth of Nations. Smith was very curious about what motivates people. In particular, what motivates them to do something for other people instead of exclusively and entirely for themselves? When you look at those such things, you go down the path of realizing that people want to feel fulfilled.

If you talk to most entrepreneurs about what motivates them, you’ll find in fact, very few of them will say, “I just wanted to pile up lots of cash. I want to sit around and play with my pile of gold coins all day long.” No, that’s a byproduct of what they’re doing. What’s most fulfilling to most of them is the very idea of solving problems, interacting peacefully and productively with others. Deriving happiness from making them happy, finding common areas of interest and inventing and creating things that satisfy that lust of their curiosity. Those are far more motivating to people and Smith recognized this. Then the old caricature of the rich capitalists has the desire in one thing, just piling up cash.

That was a couple of hundred years ago, the mid-1700s to the late 1700s. Has human nature changed since then? Are those principles obsolete or do they still apply now?

I think they apply and I can’t see how human nature has changed. Remember, one of the key elements of human nature is that we are creatures of ideas. Our underlying nature may not change and I don’t think it has, but our ideas can change and ideas have real-world impact. We can delude ourselves into all kinds of fallacies or we can enlighten ourselves with the truth and with useful knowledge. At various times in history, people go down one rabbit trail or the other. I don’t think our nature has fundamentally changed, but our understanding of it or understanding of the world is too often colored by things like the political heat of the moment or a fad of the day. Those things don’t ultimately undermine our basic human nature.

That’s awesome. That’s an incredible way to explain it. Let’s end with the notion of failure. When it comes to a capitalistic society, there’s a failure that comes as a result of a person pursuing their curiosity, whether it’s entrepreneurship or business. You look at where the central powers of government have stepped in and thrown their weight around is that failure hurts people, failure is bad. In order to protect the collateral damage of failure, the government has to be involved because they’re the only ones that are going to look out for the best interest of the whole. How do you typically think through that type of logic that people use?

Capitalism is what happens when you leave people alone. Click To Tweet

I don’t know how anybody could look at the way the government operates now and say, “Somehow those guys can make up for our shortcomings.” That’s absurd. Some failures in life are inevitable and unavoidable and actually not necessarily bad. It depends more than anything else on how you react to it and what you learn from it. I don’t think we should look to any entity, Capitalism, Socialism, government, whatever, as the outfit that’s going to prevent failure. What we should be asking ourselves is what kind of system tends to minimize it, localize it, and maximize what we learned from it. That’s what we want. You don’t get that under a centrally planned top-down government-directed system because they fail all the time. They don’t have the internal incentives to ride in to ship to adjust because their concerns are elsewhere.

Their concerns are re-election, getting a bigger budget, not serving you so much as maintaining their own position and power. In Capitalism, when you fail at something because you didn’t control your costs or you didn’t meet a need that was out there, somebody else did it better than you. There’s a mechanism called profit and loss that immediately sends you a pretty powerful signal. It says right off the bat, “You need to get off this horse and get on another one.” That minimizes the waste of resources that redirects human energy. I’m grateful for a system we call Capitalism that tends to minimize failure and to maximize service which every entrepreneur is trying to do.

Failure is one of the most amazing things to attach to as far as opportunities are concerned. Now though, I look at how failure is a bad thing. I’ve had a number of employees and it’s been a very difficult thing over the years to unprogram or reprogram them to look at that making mistakes is a good thing if you handle it the right way. It’s one of the most incredible ways to learn and accelerate that learning. As you’ve spoken in the idea of what the government has done and how they’ve failed, I think most people agree with that, but because their mission is for the betterment of society, it somehow accepts it.

I find it curious right now with the government shut down. I was watching the news. There was a segment on there about how gyms were opening up to federal employees that wanted to go work out. There were food banks that were opening up their doors. There was so much charitable drive to help those that were in need because of the government shutdown and they didn’t have a paycheck. I find it interesting how people perceive government’s doing and how incredibly strong that perspective is. It made me concerned to an extent. How have you looked at what’s going on right now in the current environment and associated that with some of the stuff we’ve been talking about?

Every time I hear someone say, “We have to rely on the government for this to help those people.” I always like to say, “You’re selling yourself short.” What you’re saying is that the politicians are the ones with compassion. The rest of us dummies don’t have that. We somehow have the wisdom to select the right people because they have more compassion than we do, but we don’t have that kind of compassion. I think that is so ridiculous. It’s absurd. It’s childish. We should look around and rejoice and all the good things that people are voluntarily doing to help other people. They’re doing it in spite of the fact that the government is swiping a quarter or more of what they earn. It’s amazing how much charity there is after the government takes its cut. Don’t sell yourself short.

Capitalism And Freedom: Some failure in life is inevitable and unavoidable and actually not necessarily bad. It depends more than anything else on how you react to it and what you learn from it.

This has been amazing. I hope you enjoyed the conversation. This has been incredible. I’ve enjoyed everything you’ve said.

Thank you. You have great questions. You drew it out of me and I sure appreciate that.

It’s one thing that you and I have. I have a similar background where I didn’t have very politically-involved parents. They had strong opinions one way or the other about commerce. They were both teachers. I just had the curiosity about how things work and how people behave. I came across a lot of your material in 2005, 2006. It gave me that same feeling and I didn’t necessarily have the same experience as you did with seeing how a person’s liberty was taken at a larger scale with the Czech Republic and Russia. I start to look at myself and I start to look at what I was taught and what drives me and what drives other people and the environment associated with the healthiest grooming of a human being where they can pursue what they want in happiness and joy. It’s not something that can be dictated or force. It has to be chosen. Oftentimes, people gravitate toward this easy way of doing things. I’m not sure if that’s the purpose of life.

I looked at the incredible experience I’ve had learning from you and learning from others who understand the principles of liberty at such a deep level and how much of an impact it would have on the average individual. Let alone the society, but just the average individual where they recognize in themselves that there is something special and that they can do incredible things with their life. It’s inspiring and your website is incredible. You have so much information on there, more than can be consumed in probably ten lifetimes.

I’ve spread the word in regard to FEE and other organizations that are similar. I commend you and applaud you for all the effort you put into spreading this. I know it’s not easy and I know that these are not widely held beliefs and understood beliefs. The way in which you do it is incredible because it feels genuine and eloquent and you do it with such a great demeanor. Thank you for all the work you’ve done and keep it up and continue to charge forward and try to get more people that understand this.

You made my day. Thanks so much for the very kind words. You seem like a guy who would be great fun to have lunch with. I’ll look you up and I’ll let you know when I come out your way next. Meantime, holler anytime if I can be of any help and let us know when this goes online and we’ll be happy to help promote it on the website and on social media.

Thank you again. I really appreciate it.

It’s my pleasure. Thanks, Patrick. I really appreciate it.

Important Links:

About Lawrence Reed

TWS 5 | Capitalism And Freedom

Since 2008, Lawrence W. Reed has been President of the Foundation for Economic Education (FEE.org) in Atlanta, Georgia. Previously, he served for 21 years as President of the Mackinac Center for Public Policy in Michigan and taught economics at Northwood University. He is the author of hundreds of articles in periodicals around the world and seven books, the most recent of which are Real Heroes: Inspiring True Stories of Courage, Character and Conviction and Excuse Me, Professor: Challenging the Myths of Progressivism. His travels as a historian, lecturer, economist, and journalist have taken him to 83 countries on six continents.

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Mortgage Note Investing with Bob Fraser of Aspen Funds

February 1, 2019 Patrick Donohoe 00:25:49 Comments Off

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TWS FF 4 | Mortgage Note Investing

Sometimes people get into trouble with their mortgage payments, but then they get back on track and have their loans modified. These become good performing notes that sell at a discount. Bob Fraser of Aspen Funds says this is where they specialize in. They buy discounted notes that are performing, aggregate the notes, and manage the cashflow. Bob goes into detail about mortgage note investing and the unique opportunity in it, and shares why he’s chosen this niche from the get-go amidst great challenges.

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Mortgage Note Investing with Bob Fraser of Aspen Funds

Financial Friday

My guest is Bob Fraser of Aspen Funds. He’s the Cofounder. We’re going to talk about mortgage note investing. Bob, welcome to the show.

Thanks, Patrick. It’s great to be here with you. Kudos to you for what you’re doing, all this great education you’re giving to these people.

I appreciate that and thank you as well. You and your company were one of the sponsors of the Cash Flow Wealth Summit and we appreciate that. We appreciate the support and I’m excited to get into some of the details of your presentation and your business. The presentation I gave at the Summit talked about that investment isn’t just the investment idea and that it’s also the underlying business that orchestrates the investments. The first part is talking about your niche, why it exists, what the demand is, what the opportunity is, what the investment opportunity is and what the idea is. We’re going to segue toward the end and talk about your team and how you operate and look who’s behind the curtains. That says a lot about the success of a company that’s been in business as long as you have. Let’s start with the investment first. Tell us about note investing, whether it’s private notes or non-private notes.

What we specialize in is performing notes on consumer homes. We buy discounted notes that are performing. A lot of times, it’s newly originated seller finance paper. Sometimes it is people that have had their loans modified. They got in trouble, but then they got back on track and now it’s good performing paper but it sells at a significant discount. We love those discounts. We buy that paper, we aggregate that paper, and then we manage it. We manage the cashflow. It’s a cashflow-based investing using retail residential mortgages.

The greatest non-cyclical thing out there in the real estate world is owner-occupied real estate. Click To Tweet

One aspect of real estate, in general, is that it’s not necessarily liquid collateral but in a sense, everyone needs a place to live. It’s a very in-demand collateral. Talk to us about why this market exists. Why wouldn’t someone go and refinance in a conforming or a conventional type of loan?

Loans are often modified. FHA for instance, during these big auctions they’re selling billions of dollars of non-performing loans while they buy it by hedge funds. These hedge funds buy these non-performing assets and a certain percentage of them end up re-performing. About a third if you look at the auction results. A lot of times they take possession of the property, but a lot of times they do not take possession of the property. They talk to the borrower if the borrower wants to stay in the home and they do a loan modification. If they can afford, they put that in place and the borrower starts paying again. It’s a huge market. There are $30 billion in what’s called troubled debt restructure held by US banks that’s in compliance. It means it’s in compliance with its modified terms. It’s performing paper. It just went bad at one point in its life. That’s one option.

Another is the low balance area, which we love. These are loans on homes that are under $100,000. It’s a place that the big boys don’t want to play. It’s very complicated if you have to take back the property. If you put in $20 and have to fix it up, that’s a significant amount. Borrowers have less wherewithal so it’s a much more problematic space and the easiest thing to do is to avoid it. Most of the big service providers, big funds and financial institutions avoid the low balance market. We love the low balance market. The low balance market is in the Midwest. Here I am in Kansas City in the Midwest and it’s a fantastic market. In fact, I argue that it’s a non-cyclical market.

If you look at the price of a home that’s $100,000, the replacement cost for that home is close to $200,000 because of the price of lumber and labor at everything. Doesn’t that argue that it has to go up in value at some point? You’re not seeing a lot of new construction. I’ve done a lot of financial analysis and economic analysis of the housing market. You’ve seen single-family homes have been significantly underbuilt in the last decade since the crisis. There’s a shortage of single-family homes. In my view, the affordable low balance homes are the ones that have the greatest upside and the least downside. It’s a market that not only do we love for its discounts but also for its safety and its non-cyclical behavior.

Mortgage Note Investing: The affordable, low balance homes are the ones that have the greatest upside and the least downside.

How did you arrive that this was your bread and butter, that this was where you learned to play and that it was your niche? It makes sense because some of the questions I had was, “Banks have a ton of capital and they’re still able to access it relatively cheap to the Fed window. Why aren’t they participating in this market?” My point was getting into why you’re in this specific niche. Was there a story behind that or was that the opportunity from the get-go?

We got into space from the non-performing loan side. We buy the non-performing loans. There’s a great space because we get to help people. We’re about people and we get to wipe out a massive amount of debt and help people stay in their homes and we created a lot of this re-performing paper. We help people stay in their homes and that means they get a new loan and they start paying on the loan. We discovered there were IRS issues. It’s a huge phantom income problem if you do a loan modification. I won’t get into the technical details, but we had to sell it. At the same time, I had a good friend come to me and say, “Bob, I have a settlement, I have an inheritance, I have a nice chunk of change, how do I earn income?” Where do you go to get a good safe income? In the public markets, it just doesn’t exist, Patrick. Not that safe and not that’s nonvolatile. I said, “I could create that for you by buying these assets that are secured.” They’re at a discount there. They have a lot of safety on them. I said, “Let’s put together a fund.” We put together an income fund based on loan modifications and learn to manage that very effectively. I’ve done well for our investors.

We got in for wanting to help people and wanting to solve an income need that’s a tough need. The rally has been fantastic. A lot of people have made money in the rally, but it’s getting a little long in the tooth. How much further is it going to go? I’m a computer scientist by background, so I’m a super math nerd. I can show that the future earnings and future growth in the stock market are highly correlated to PE ratios. They’re inversely correlated. The higher the PR ratio, the lower the expected earnings ten years out. We’re roughly around 30 right now. You can expect it to earn about 1% in the stock market over the next ten years annualized. That’s not that attractive. When you look at the bond market, that’s not very attractive. Even alternatives, which most alternatives are facing real estate. Is that getting long in the tooth? I’ve been in the investing world for 30 plus years and I’ve seen several real estate crashes. What’s to say this isn’t going to happen again? You’re looking for countercyclical or non-cyclical investments in my opinion. That’s another thing. When we designed this and when we went after space and after the strategy, we are looking for something that is non-cyclical. The bread and butter homes are non-cyclical, but I’ll give you a tip. The greatest non-cyclical thing in the real estate world is owner-occupied real estate.

A lot of the guys that have lost money were in hard money loans. This is fix and flip loans, developer loans or construction loans. What’s the value in the housing crash of a piece of partially developed land? It disappears. What’s the value of a home that you’re currently living in? Patrick, if you experienced negative equity in your home. The Zillow says the paper value of your home goes down, are you going to hand the keys back to your lender? No, you’re not and people don’t do that. In investment real estate, the first thing that people do when they have troubles is they just give the keys to the lender. It’s your problem now. Not with owner-occupied real estate. They do not. That’s what we buy. It’s the owner-occupied real estate. It’s uber sticky and. In my world, home equity is less important than the job market. I can show you correlate the false. It correlates not to the price of equity but to the job market.

You probably let your home go before you let your dog go. Click To Tweet

I have a background in economics where financial models are very straightforward in a sense, absolute assumptions. Something that surprised me is based on the conversation I had with the chief economist of Fannie Mae. I had a long dinner with him and it was amazing. One of the things he told me was that they weren’t communicating well with their borrowers. They experienced that people left their homes and they were in default. What they did is they correlated the demise of Fannie Mae that the fact that Fannie Mae went into bankruptcy or receivership to them no longer having a mortgage, therefore they couldn’t stay in their home. It doesn’t make sense to us because we understand certain elements of finance.

Sometimes human behavior is outside of that rational line of thinking. Nonetheless, they communicated with their borrowers and they communicated what was going on. They started to do surveys and they continue to do it. They use artificial intelligence as well now and they’re able to understand how to price risk in a way that they wouldn’t have been able to experience before the financial crisis. I look at where you find safety in anything. I would say more lends to the expertise that you have any experience and it sounds like you found that because you’re in a market that isn’t that volatile. You also have people that will stay in homes for a long period of time, which is the Midwest sector.

Oftentimes it’s easy because you know what your assumptions are, and you know what you need to get to a rate of return. You know you need to buy at and you know how to communicate with people. I’m assuming that you initially worked in the non-performing space. In the non-performing space, people weren’t paying their mortgages. You figured out ways and you have a system where you spoke to them and you modify the terms of their loan so that it was affordable. They recommitted and now it’s performing because they’re making payments on it. That is an insanely valuable piece of this. It’s a 5% mortgage at $50,000 and you buy it at discount for $40,000. You have a system in place in which you’re communicating to the people. They’re going to be paying you. That’s one of the most valuable pieces of this puzzle.

I was talking with a New York investor and he said that one of his top investments was loans on pets. I was like, “Are you kidding me? Who’s going to default on their dog and get their dog to repossess?” You let your car be repossessed before you let your dog be repossessed. You want a little bit of the emotions attached to something as well. We’ve all seen the financial models. A lot of the models out there that traditional bankers use is dumb. The reason I’m making money is because their models are incorrect. I found a better way to do what they’re doing. I found different ways to solve the problems that they couldn’t figure out. There’s a lot of opportunity by building better models. We love having owner-occupied homes and helping people stay in their homes. It just creates something that’s very sticky and not correlated to the home price entirely. It’s a great place to be.

Mortgage Note Investing: A lot of the models traditional bankers use are dumb; there’s a lot of opportunity by building better models.

Bob, this is an investment niche and alternative type of investment where there are tons of opportunity and you’ve clearly articulated that. We both are on the same page in regard to what success is in any business. This investment has an underlying business that operates it. Would you speak about your experience in the business world and the team that you’ve put together to orchestrate this great opportunity?

My background is I was a computer scientist, but I ended up starting a company in 1995 that became one of the largest ventured capitalized companies in the Midwest. It was a tech company and it started in my attic with my sister-in-law and $100,000 from mom. We grew to 300 employees and hired some of the best people in the city and learned a ton by doing that. I learned a ton from the guy I hired to run my business. My president learned about what it takes to run a business by the guy who worked for me and ended up winning in 2000 the Ernst & Young Entrepreneur of the Year Award, which is a big honor. I’ve rubbed shoulders with them of the top entrepreneurs in the world as a result of that. I even have a quote from Richard Branson. He said, “I’ve never been that interested in money. I’ve been more interested in ideas.” The best entrepreneurs are not bottom-line focused. You’d be surprised. They’re solution-focused. They want to make the biggest impact. It’s just different than TV people think.

That greatest strength of entrepreneurs is often their greatest weakness.

It can be. A lot of people who are the best entrepreneurs and having watched a number of venture capitalist companies rarely end up running the company. That’s just an absolute it seems. Through all that, I’ve learned that people are the most important asset. Getting great people matters. It’s the key driver of success.

The best entrepreneurs are not bottom line-focused. They're solution-focused; they want to make the biggest impact. Click To Tweet

It’s the right people in the right places doing the right things. Always on the same page. I look at your team and maybe you can comment on some of them and how you guys operate. It sounds that they have extensive experience in banking and also in this niche. There was some project management and systems expertise as well. Can you talk to us about the different positions that exist in your business and how you guys operate?

One of the first guys we hired in the non-performing shop that we did was a guy named Stephen Gryglewski. He’s a banker. He is a 29-year bank veteran at the time we hired him with fifteen years of experience running the workout shop in the bank. When a bank loan went bad, he was the guy they heated hot potato to. He’s super compliance oriented. He’s super knowledgeable and he was a conference speaker. He was the guy that went to the lost mitigation conferences. I’m sure you’ve spent a lot of those conferences. He loved them as much as I am. He was the speaker. We hired him. He has since built a team in Maryland of have all bankers. We have seven full-time staff and part-time staff out there who handle all loss mitigation efforts and do a fantastic job. They know more about the statute and limitations issues about bankruptcies, about foreclosures, which are different in every single state than most lawyers do. We make money primarily because we know how to buy and we know how to avoid the pitfalls. We know how to get deals done for people and at the same time helping people. Here we are, we’re buying bad debt but only 3% of the time. We ended up closing three.

Are you in credit in a specific way? You say scalable, but what do you credit the sub-skill level?

It’s exactly what you said. It’s communication. We reach out to the borrower. We educate them. We put them in touch with home counselors supplied by the government who tells them, “Talk to these people.” The biggest issue we have is getting them to talk to us. I wish some of these borrowers would call us sometimes because we’ll do miracles for them if they will talk to us. They’re afraid and they think that they don’t have any answers, so they’re not going to talk. The truth is if they will work with us, we’ll do miracles for them. That’s the key. We’ve hired a fantastic team and continue to hire a fantastic team. We were in this for the long haul and we want to grow to a very large company. I love scaling a business. It’s the most fun thing on the planet, in my opinion. I do that with people.

Mortgage Note Investing: You make money primarily when you know how to buy and how to avoid the pitfalls.

It’s easy to get a return with one deal or two deals when you get to 10,000, 2,000 or 5,000. This is where I felt so strongly about the presentation I gave at the same summit you sponsored and presented at. The BI Triangle that Robert Kiyosaki came up with or helped it to improve, which talked about the successful operation of a business. The smallest piece is the actual product or the investment itself. The underlying mission, values, systems, financials and so forth is vital. There’s one element there which is profound that I’m picking up on with you is the team. Your title originally was the CEO and President, but it sounds that you have essentially delegated a lot of those responsibilities to others. It’s paramount to any business that wants to scale to find those that are best at doing what they do. Putting them in that position and then putting you whatever other role is in a position where you are going to be the most valuable. Can you talk to that briefly?

Having scaled a business from two people to 300 people, I learned that you only do that when you have to give up control. You are limited to what you can control and you’ll never get bigger than what you can control. The truth is when I own a thousand notes, I can’t control. I can’t get my head around a thousand notes. I’ve got to have it subdivided. I’ve got a capital department, I’ve got a loss mitigation department, I got an acquisitions department. I’m not in control of any of those things. I hired people who run those divisions and are doing a fantastic job doing that. It’s not just people. The other key to scaling is systems. I read a book called Total Quality Management back in the ‘80s, back when Japan was ruling the world. The book is all about TQM and it was all about systems creating quality. The key to being one of the other keys besides getting the right people in the right spot is getting systems for everything. Everything is systematized and that means a super high level of quality. That’s why McDonald’s can make the hamburger that tastes the same regardless of whether you’re in Singapore or in San Antonio. It tastes the same because it’s completely systematized. There’s not a creative element in there. It’s all done the way it’s supposed to be done through training and systems.

That’s why most entrepreneurs are not systems guys. They understand systems and the importance of them, but they don’t follow them. There’s an underlying foundation of a business that has to be systematized. There’s another layer of it they can’t be and that’s more of the creative ideas adapting to markets and so forth. If you don’t have those systems and you’re trying to scale, it’s a disaster waiting to happen.

I was a computer programmer for twenty years so what I do is I built a system and I built them to scale so I understand about building systems. The creative element is also super important. Even that, there’s a way to be creative. I’ve run shops of computer programmers and creatives and there’s a way to get them to do well. You have to put boundaries around it, around the creative side even.

The keys to scaling is getting the right people in the right spot and getting systems for everything. Click To Tweet

One of the coaches I’ve had was in charge of all the developers. She’s the vice president of development and it was fascinating to talk to her about how they operated. The tech world has it done. You’ll see a lot of the business operation guys that are essentially modeling what the tech world is come up with, whether it’s scrum or agile systems. There are so many different ways to do it. It is a uniform quick efficient way to get things done, which is just business in general. Because of tech, there are so many different moving parts and elements that was a requirement to make any type of tech project viable and successful.

How do you get a bunch of uber creative independent-minded people all work together and like each other? It’s magic for sure. Technology is our big helper too. It’s just so easy. We are a thousand miles apart and we’re communicating. My team does the same thing. We communicate through technology. We use software platforms to manage all of our activity. Everything is systematized. I do analytics all pulling data from the accounting reports to the servicer reports to everything. From my home, I have knobs and dials on every aspect of the business.

I have the same thing. There are so many different moving parts, but technology has made it so that you can pull up a dashboard and you can have all of the different primary measurements that tell you whether things are going the way they should or not. Bob, this has been a fascinating interview and I appreciate your time. Let’s talk briefly about how people can get involved and learn more about Aspen Funds and some of your opportunities. Can you talk about that a little bit?

Our website is AspenFunds.us. That’s the best starting point there. There are webinars. People can learn about what we do and why it’s cool and how we do what we do and see our team. That’s the best place to jump in and get started.

Mortgage Note Investing: Technology is our helper. It makes everything easy.

Is this restricted to accredited investors or are there opportunities for non-accredited investors?

This is all accredited investors. You understand the regulations as I do. It’s the way we were able to offer these kinds of things. We have to enforce those rules.

Bob, it’s been a pleasure. Thank you so much for joining us and we’ll make sure that we get the word out and people can learn more about your business and how to make investments.

It’s been great to be here with you.

Important Links:

Aspen Funds
Cash Flow Wealth Summit
Stephen Gryglewski
Total Quality Management
http://AspenFunds.us/wealth-standard/
http://AspenFunds.us/
https://www.LinkedIn.com/in/Bob-Fraser-22469312
https://www.LinkedIn.com/company/aspen-funds
Click here for Aspen Funds’ exclusive offer for Wealth Standard Listeners: http://aspenfunds.us/wealth-standard/

About Bob Fraser

TWS FF 4 | Mortgage Note Investing

Bob Fraser has 20+ years’ experience as a finance and technology executive and is a Magna Cum Laude U.C. Berkeley computer scientist and a former Ernst & Young Entrepreneur of the Year Award winner. In 2012 Fraser co-founded Aspen Funds, a fund management company focused on real estate note investments. In 1995, Mr. Fraser founded NetSales, Inc., a back-office e-commerce provider. As a CEO, Mr. Fraser raised $44 million in investment capital, and guided the company to an average of 20% month-to-month revenue growth, becoming the metro area’s fastest growing company between 1997 and 1999.

Since 2002 Fraser has founded and served several non-profit organizations as a board member and CFO. Fraser has also been involved in a number of entrepreneurial initiatives, including book publishing, financial consulting, and an investment fund managing member.

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