Patrick Donohoe

TWS 06 | Capitalism

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

February 14, 2019 Patrick Donohoe Podcast 00:38:59 Comments Off on Reflections On Capitalism And The Morality Of It with Craig R. Smith

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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

TWS 06 | Capitalism

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.

TWS 06 | Capitalism

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. Share on X

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. Share on X

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. Share on X

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.

TWS 06 | Capitalism

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. Share on X

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.

TWS 06 | Capitalism

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. Share on X

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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TWS FF 5 | Financial Friday

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

February 8, 2019 Patrick Donohoe Podcast 00:29:51 Comments Off on Breaking The Common Stereotypes About The Oil And Gas Industry with Beau Flowers

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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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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. Share on X

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.

TWS FF 5 | Financial Friday

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. Share on X

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.

TWS FF 5 | Financial Friday

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. Share on X

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.

TWS FF 5 | Financial Friday

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.

Important Links:

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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TWS 5 | Capitalism And Freedom

Capitalism And The Endless Quest For Freedom with Lawrence Reed

February 7, 2019 Patrick Donohoe Podcast 00:33:31 Comments Off on Capitalism And The Endless Quest For Freedom with Lawrence Reed

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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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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. Share on X

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?

TWS 5 | Capitalism And Freedom

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.

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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.

TWS 5 | Capitalism And Freedom

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. Share on X

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.

TWS 5 | Capitalism And Freedom

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. Share on X

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.

TWS 5 | Capitalism And Freedom

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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TWS FF 4 | Mortgage Note Investing

Mortgage Note Investing with Bob Fraser of Aspen Funds

February 1, 2019 Patrick Donohoe Podcast 00:25:49 Comments Off on Mortgage Note Investing with Bob Fraser of Aspen Funds

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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. Share on X

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.

TWS FF 4 | Mortgage Note Investing

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. Share on X

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.

TWS FF 4 | Mortgage Note Investing

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. Share on X

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.

TWS FF 4 | Mortgage Note Investing

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. Share on X

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.

TWS FF 4 | Mortgage Note Investing

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:

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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TWS 04 | Positive Psychology

Positive Psychology: Creating What We Imagine with Dr. Paul Jenkins

January 31, 2019 Patrick Donohoe Podcast 00:42:51 Comments Off on Positive Psychology: Creating What We Imagine with Dr. Paul Jenkins

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TWS 04 | Positive Psychology

 

In the psychological literature, we have known forever that happiness and success are correlated. We think that when we’re successful, then we’ll be happy. Dr. Paul Jenkins, however, says we got it backwards. Dr. Jenkins is an author, speaker, positivity expert, and personal development coach with over twenty years of experience as a professional psychologist. He specializes in positive psychology and delves into the subject. He also discusses the evaluation and creation process, creative discontent, how we tick, what motivates us, and why happiness is a choice.

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Positive Psychology: Creating What We Imagine with Dr. Paul Jenkins

I have an incredible gentleman on the show and his name is Dr. Paul Jenkins. We’ve known each other for quite some time. I had the opportunity to be on his podcast. It’s always a pleasure talking to him. He is a psychologist. He’s a speaker. He’s a podcast host. He’s authored two books Pathological Positivity and Portable Positivity. His podcast is Live On Purpose Radio. We’re going to talk about psychology, his specialty. I have some questions to ask him in regard to how we tick and what motivates us. The environment that we’re talking about this entire season and capitalism. Why environment is important as part of the human experience to grow and to achieve what we’re all after in life. Welcome to the show. Thanks for joining us. Why don’t you introduce yourself to our audience?

Thank you, Patrick. I’m honored to be with you. I’ve enjoyed my associations with you over the years. We go back ways and we’ve learned some stuff in that time. I’m a professional psychologist. I left the tribe of traditional psychology. I jumped onto positive psychology, which is a little different animal because we’re not interested in the question what’s wrong with you? That’s the wrong question but we focus on, “What are the principles that allow us to live at a higher level of functioning to enrich our relationships and our experience in life?” You said that it’s a tall order to take on this topic but it’s pretty simple what we’re after, what makes people tick? In my book, I pointed out that we all have the same agenda. We describe it in different ways. Some people call it happiness and some people call it success. One of my favorite alternate words for it is joy. Whatever it is, it’s that feeling that we’re after, that feeling that life is good, that I’m in a good place, that I can reasonably anticipate good things to come. It creates a feeling and that’s what we’re after you think about it, everything else that we do is toward that end.

The common belief is that circumstances are the means to get there. If I had this, then I’ll be happy. If I had this career, I was making this amount of money, I drove this car, I married this woman, I did this or lived here then, I’ll be happy. It’s like we deceive ourselves, in a sense, in order to create criteria in order to have that feeling. How do you approach that?

It’s not even a new idea, Patrick. This goes back through eons of time. All you got to do is talk to somebody who has, all that stuff that you think will make you happy and they will tell you, that’s not it.

People don’t believe them for whatever reasons. It is interesting.

In the psychological literature, we have known forever that happiness and success are correlated. There is an actual correlation, but we got it backwards because we used to think and some of us still persist in this myth. We used to think that therefore when I’m successful, then I’ll be happy. We got it backwards. It’s the other way around and the research is supporting this in some phenomenal ways. When we are happy, then we are successful. How else are we going to define success, when we’ve got the feeling we’re good? We’ve also found that happiness in all the ways that we can measure happiness is correlated with success and all the ways that we can measure success, including finance, relationship, and health. It’s correlated and its causal and there’s a lot of good support for this now that choosing happiness, that happiness is a choice. Honestly, that irritates and annoys some people because they’re like, “Why would I ever choose this?” They don’t see that they are. My job as a psychologist is to illuminate the obvious, which is cool. I get paid to tell people things they already know. How awesome is that? There are obvious things that are completely unnoticed.

One thing that I think about often is the process to understand this, whether it’s someone that has a session with you or they go to a seminar. It is highlighting the obvious. I thought about there’s a narrative in society that if we put a person and we give them a home. We give them food, job and we forced them into a situation, assuming that they’ll be happy and fulfilled. Their life is complete because we gave them all of this stuff. I find it interesting that it never works. Sometimes it makes it worse but why is that? It goes back to the same thing, if I had this, then I would feel this way. When it’s another person’s initiative, maybe it’s a brother, neighbor, acquaintance or friend that’s in hard times and we want to help them, we have this empathy toward them that we want to give them a job, money or a place to live. We think that because of that, now their life’s going to turn around. Why doesn’t that happen?

Everything that we experience gets filtered through our amazing mind. This is where the key is. I said that there’s things that are obvious but unnoticed, like the feeling of your clothes. Can you feel them? Is it obvious? You didn’t notice before I called it to your attention.

That wasn’t my focus.

The fact that we’re speaking English, did you notice?

We’re speaking. We’re making sounds with our mouth and tongue.

It’s obvious once it’s called your attention, but we get programmed into routines that automatically play out. Until we become aware of them, we’re not in a position of choice. Once we’re aware, it puts us in a position of choice. The two processes that I try to help people understand that are going on in our mind are evaluation and creation, they’re very separate processes. You engage your mind to do both of them. Evaluation is judgment and notice as I bring it to your attention, notice that you’re constantly judging, aren’t you? You judge yourself. You judge your circumstances. You judge your spouse, your workplace, your co-workers, the environment and the economy. You judge all of this stuff and you can’t turn it off because your mind is constantly seeking for meaning. You have to evaluate or judge everything. Just notice that you’re doing it.

The other processes creation. You can’t turn this one off either because your mind is busy creating what is to be and that doesn’t exist yet. We haven’t created it yet. Everything that’s created has to be imagined first, so it’s all driven in the mind. That’s both good and bad news. I’ve shared this story with you once, where I was driving. Maybe you’ve done this before too, where you get lost in your thoughts and you’d go right past your exit and I did this. I was going down to St. George, Utah to visit a client. It’s in the southernmost end of Utah and I knew I had missed my exit when I saw the sign. Arizona welcomes you. I’m like, “This isn’t where I wanted to be. I’m in the desert of Arizona.” Nothing against Arizona, it’s an amazing place but it’s not where I was going. How often in life do we look around and it’s more like, “Crap, this isn’t where I wanted to be?”

We look at our circumstances and we think that that’s causing all of our feelings, which is an illusion. It’s a myth. That’s not what causes our feelings, what causes our feelings is the way we’re judging our circumstances. That puts us in position to do the next step, which is to create something. I’m in the desert of Arizona. It’s not where I want it to be. I looked down, guess whose hands I see on my steering wheel? That bites, first we’ve got to acknowledge I am here because I drove here. It’s my choices that led me to this point and I’m not saying that you blame yourself. Blame is a victim mentality. Response-ability, I break it into two words in my book. The response ability, it’s your ability to respond. It’s your agency that kicks in because the bad news is also the good news. If my hands are on the wheel, what can I do next? Steer it, take it somewhere that gives me power. As long as I’m in victim mode trying to blame someone or something else, I’m also waiting for that someone or something else to change in order for me to be happy, to experience the feeling.

Is it possible to circumvent that? Is it possible to get what your aim is in life and achieve the happiness without accepting responsibility, without recognizing that you’ve got yourself in this situation, having that awareness. Is it possible to start with that?

To get lucky?

TWS 04 | Positive Psychology

Positive Psychology: What causes our feelings is the way we’re judging our circumstances.

 

I don’t think it is, but it does happen. Is the lesson really learned?

When that happens is it puts people into greater captivity. You know some of the research that’s been done on lottery winners for example. Take finances for a minute because people think all the time, “If I only had enough money or when I achieve or obtain that, then I’ll be happy.” It’s overwhelmingly negative when people happen upon money in significant amounts. I remember a routine that Bill Cosby did years ago. I know he’s taken some flack in the media, but he has made me laugh and brought me joy in my life. I’m ready to forgive him for other stuff.

He did good things. He did bad things.

Welcome to Earth.

Welcome to life. Welcome to the human experience.

Here’s what he said, he was talking about drugs. He was doing a little bit on drugs and he was interviewing this guy, “Why would you ever use drugs?” This guy says, “It magnifies your personality.” Bill’s response, “Yeah, but what if you’re an idiot?” Money is like that. Money is not a source of happiness. Money is a power tool. If you put a power tool in the hands of a two-year-old, you got a problem. It’s going to magnify whatever thinking is already going on in your mind. If you’re trapped in scarcity saying, “I’ll be happy when or if or upon completion of or when I obtained this or that,” you’re going to be more in that mode if you happen upon money. I have seen people who are so paralyzed by fear because they obtained money without understanding the principles that drive that.

It’s more captivating. It doesn’t liberate you. People who don’t have the money and think that the money will bring them the happiness that they seek, they don’t believe that. Some of your audience might be thinking, “That’s easy for him to say, he’s got money.” I’ve been in a bankruptcy. I’ve been on both ends of that spectrum. Here’s what I discovered, Patrick. Happiness is a choice and I can do it with money and I can do it without money. It’s not the money that matters and when I realized that, money is not an issue anymore. That’s so weird. It’s a paradox but that’s what we got to learn. It’s our hands that are on the wheel. We choose happiness and in doing so we put ourselves in position to bring about every other measurable aspect of success, including money but the primary objective here is that little three letter word, joy. That’s what we’re after and you can have it with or without whatever it is you think controls that.

I’m super inflexible but I’ve come to a realization of how important mobility and flexibility is. We started doing some ten minutes of yoga or stuff like that. The lady that does it, it’s like a YouTube thing. She’s different, she talks different and so Synthia said something, “That make sense.” She was talking about what goes on in your mind. Everything, your life experiences in is in your mind. Nothing is in the physical world if you think about it. We had a cool discussion in that regard but in the end it’s a mindset. Positivity and joy are available as it is if you had all of these things that you think was going to ultimately bring it.

Everything that's created has to be imagined first. Share on X

I love the way you look at it a bit backwards. Backwards from I would say how we’re naturally drawn to understand it, which is you’re able to be happy. Experience joy in the moment, as much joy as if you had $1 billion in your bank account. It’s interesting what prevents us from getting there. Because of the theme of this season, the idea of capitalism, I want to extract from what we’ve been talking about the idea that this is an experience that humans must go through in order to understand happiness, joy and fulfillment at a personal level. These experiences I don’t think can be circumvented or skipped over because they won’t be valued. They won’t be understood.

The experience of life is that we’re going to make mistakes. There’s no such thing as perfection in most humans. It’s an idea that if we accept that and we realized that we’re going to make errors, it’s part of the process but that errors are as a sign. Mistakes or falling short, challenges are a sign that there is an incredible lesson and that’s a beautiful thing because it helps build our joy, our potential, our capacity for joy and fulfillment. It’s our experience that we have to go through. You can’t necessarily replace that by providing an environment for somebody or taking the experience away from someone. It robs them and it does make it even more difficult to ultimately experience it. They’re going to have to probably go through even more difficult circumstances in order to have that same result. It’s interesting where, I would say a part of our society politically, economically is we should provide for others that are less fortunate. I understand that empathetic drive and intention there but at the same time, you rob a person in a sense of experiencing certain things that got them in that place to begin with.

At the very least, Patrick, we perpetuate a myth that, “This will make you happy.” No, it won’t. I tend to agree with you. We get to go through these experiences in order to learn that. For me personally, is I went through a bankruptcy. I used to think that people who went through a bankruptcy were flakes or dishonest. I have a whole lot more empathy. I learned it’s not about the money. My bankruptcy essentially divorced me from money. I learned in that experience it’s not about the money, which has interestingly enough put me in a position where money is not an issue. It’s simply a tool and it flows in abundance. Why does it flow? This gets down to the capitalism. The only moral reason that money should ever flow to you is because you have assisted others to achieve their purpose.

It’s the same thing as you’re saying, it’s the opposite. Money is not going to create, you’re going to create the money. The focus is creation as opposed to money and that’s where it flows. The paradox of all of these ideas is pretty fascinating.

The money is the receipt. It’s not the value. The value is joy in whatever form that comes. You assist people to experience joy and money shows up as a receipt for the value that you’ve created for them. That’s a shorthand way of saying it’s not even about the money. The money is simply a receipt for the value and the value flow, as value flows from you receipts come in. As value flows to you, receipts go out and it’s a beautiful flow. It’s a cool thing and it’s not about the money. It’s not the money that’s the value.

Here’s a question I have that I’m curious to hear your response. As you look at me, you’ve met with so many people, you speak, you do interviews, you have a podcast and you’re talking about this all the time. When you look at someone, it might be a patient, it might be an acquaintance and you look at what’s possible for them, what they’re capable of. You can’t tell them. You can’t say you’re capable of all of this and you’re going to do this. You have so much in your life, you have so much to be grateful for and be happy about. You can’t tell a person that. It’s more of like, do you facilitate the experience in which they discover that and then maybe give us some insight on how do you do that?

It all comes down to metacognition in my mind, which is a made-up word. We make up words in psychology because it makes us feel smart but if you break it down, cognition means thinking. If we put that at this level, metacognition is a higher level. It’s thinking about thinking and notice as I bring that to your attention that you can do this. You’re aware now that you’re thinking about your thinking, this is cool because metacognition creates a space and in that space is where choice exists. Until we see it as a choice, it’s not because we’ll roll with whatever we’re programmed to do. You and I are programmed to speak English. It’s not that you chose it, you were programmed this way and that’s naturally where your mind is going to go. Can you speak another language? Yeah, it’s a choice to speak another language until you see it as a choice. You roll with whatever you’re programmed to do and this is true with what I call the victim mentality too. If we’re programmed in a victim mindset, then that’s naturally where our brain goes. Can we do something else? Yes, it won’t necessarily be natural if we’re programmed in a different language. I’m constantly stretching myself to remind myself that I’m programmed.

When I turned 50, I took up guitar. When I was 50, that’s too old, apparently not. I mean guitar is a choice and it’s also very obviously a skill set, you can choose it. You can choose to be positive for example. If you’re programmed with some negativity, you better hire a coach. You better put in the practice hours and be ready to do the hard thing because it’s a skill set too. What are people capable of? When you asked that question, my mind went to Elon Musk. I don’t know if you’ve read the biography of Elon Musk by, Ashlee Vance. It blew my mind. This guy is innovating and thinking things that other people don’t. He’s a weirdo. What is the human mind capable of? It’s capable of Elon Musk. It’s capable of Benjamin Franklin, it’s capable of Thomas Edison or Robert Kiyosaki or Immaculee Ilibagiza. What is it capable of? It’s unlimited when we get out of our own way and these limiting beliefs that have us thinking, “I’m stuck here because of my circumstances.” You mentioned my podcast, Live On Purpose Radio. I have interviewed hundreds of people since 2007. That’s before podcasting was even a thing. I’ve interviewed you twice. I have found an amazingly consistent theme.

TWS 04 | Positive Psychology

Positive Psychology: The money is simply a receipt for the value and the value flow. As value flows from you, receipts come in.

 

As I interview people about their story, usually there’s a hard part. In fact, every hero story has a hard part in the middle so get used to that. I’m thinking Carol Decker for example, she wakes up from a coma after giving emergency C-section birth to her second daughter. She wakes up as a blind triple amputee. You think, “I guess I can’t be happy now. Well, that sucks. There goes my life.” Her book is called Unshattered, subtitle is Choosing A Beautiful Life. It’s not about whether you’ve got all four of your limbs. She’s got most of one remaining. Chad Hymas, who had a ton of bale of hay fall on his head and fractured three of the vertebrae in his neck, left him quadriplegic. You think, “There goes my life. I guess my life has to suck.” You don’t hear Chad Hymas or Carol Decker saying that. This is interesting too because I don’t think we can truly deceive ourselves.

You don’t think we can deceive ourselves?

No, I think we are influenced by forces outside of us and we shouldn’t be too quick to believe everything we think. It may have come from a source that’s not our friend. That’s a whole other conversation but we get into this deception where we believe that we can’t. As long as we believe that, we’re right.

It’s interesting that you brought up those examples. When circumstances become so dire, when there is extreme disruption or failure, there is a higher probability of overcoming limiting beliefs. Have you found that to be true or is it maybe circumstantial?

Go back to those two processes that I mentioned, evaluation and creation. Creation is where we’re going to create something, but we start with evaluation. You used the words dire, extreme compared to what? Something that’s more trivial or not so bad, that also is a judgment. That’s the point, notice that you’re doing it, to be extreme. I read an Instagram post from a friend of mine, Elizabeth Smart. I don’t know when people are going to catch this particular episode of the podcast but as we’re recording it, a young woman who was abducted at the age of thirteen and held against her will, her parents were killed, was rescued. Elizabeth spoke out on that because she at the age of fourteen was abducted and raped every day for nine months. In her Instagram posts, is her heart is going out to this young girl who was rescued. Elizabeth is human too and she’s comparing that circumstance to her own. She’s like, “My parents weren’t killed. I had it easy.” These aren’t her words but what do we mean when we say extreme or extraordinary?

It was always a comparison, you have to compare it.

That’s always compared to what, notice that you’re doing it. As soon as you notice that, then that’s what brings up the metacognitive gap, that space where choice exists. I’m judging this to be bad, is it really? You’ll notice that it can only be bad compared to something better. It’s only good compared to something worse. What if a hard thing happens? Like what? I have people all the time, “This is so hard.” I’m coaching them through setting up a live coaching practice, for example. That’s a big part of my focus is coaching coaches. “This is hard,” and I’m like, “Compared to what? Being abducted? Having your children taken away from you?”

Losing limbs, losing eyesight.

Everything that's invented starts with discontent. Share on X

Compared to losing your right arm, compared to what? I am not here to tell you how to think. I don’t have that authority. I want you to see that you are. In that thinking, thoughts have consequences. It’s those thoughts that have us judging this to be hard, bad, difficult, easy, happy, joyful or whatever. Since you can choose why not choose something that serves you well and gives you that little three-letter word. You need to experience joy not after you accomplish stuff. I mean then too, but life happens not after you do all this stuff.

The label or the definition of circumstances, the word that you put on it that’s a choice. From what you’re saying, it can be defined as something that’s negative and limiting. It can be equally defined as something that’s empowering, liberating, powerful, or great as far as your experience of life.

The hard part of the hero story and everyone has to have a hard part. Maybe this is yours. Here’s a little challenge. Take whatever it is that’s been kicking your butt, whatever it is that you’ve been telling yourself, “This is bad,” and switch it. Try saying, “This is good.” As soon as you do that, you’re going to have a fight on your hands or in your head more likely, where your own mind is going to jump out and say, “What could possibly be good about this?” It’s a pretty good question but it’s not a question, it’s a statement disguised as a question. Turn it back into a question. Watch your punctuation, what could possibly be good about this? First of all, it is good compared to something worse, notice that but then your mind goes into a whole new realm. You start to explore this experience that you’re having in a different energy and that is the currency you get to take to the creation game.

Have you ever been to the Consumer Electronics Show in Vegas?

No, but it sounds fascinating.

200,000 people go there and it’s a show and tell of all the new innovative things that are going to be available to consumers. I went this year and it’s fascinating where you look at the business world, the technology world and you have these annoyances associated with what we have, which aren’t really annoyances. It’s amazing the stuff that we have available to us. I’ll give you an example of a dryer. Most dryers will come with a vent that metal thing that you have to find and get it outside of your house. It’s an annoyance. LG has invented this vent-less dryer. They also invented a proprietary way in which they lower the heat and dry the clothes so it’s not ruining and shrinking them. My point in explaining this, as you look at the innovation that’s going on, it parallels to the human mind associated with what we experience in life.

There are companies out there all the time that are figuring out ways of how to overcome some of the annoyances and inefficiencies. I would say a big thing is the inversion in Utah Right. The pollution idea, that’s an annoyance. There are those that are like, “What can we do to figure that out?” With our own limitations in our personal lives, we can parallel to all of the amazing things that have been created by human beings in the last decade. That have helped and have overcome some of these limitations. Human beings are wired this way. We’re wired to experience difficulty, annoyances, limitations but we’re wired to overcome them and become better because of it. We use our mind to do that.

It’s called creative discontent. When we’re in evaluation mode, when we’re judging, discontent misleads us into thinking that, “This sucks.” Actually, this rocks and that discontent is more appropriately used in the creation mode because it will steer us into innovating, solving or coming up with an invention that addresses the discontent. Everything that’s invented starts with discontent.

TWS 04 | Positive Psychology

Positive Psychology: Since you can choose, why not choose something that serves you well and gives you joy?

 

You can look at it as an amazing opportunity. Imagine framing discontent and frustration with an incredible opportunity. You’re looking for it but then once it happens, it’s like, “Eureka.”

There’s no question in your mind what you get to work on which is nice to narrow it down because there are so many things to work on. Follow your discontent, it’ll tell you what to work on.

It’s where all the opportunities are. Happiness is boring.

You can experience joy and discontent at the same time. It all has to do with how you interpret it, what you’re doing with it. Those two processes that I mentioned, evaluation and creation.

This has been amazing. I had no idea where the discussion was going to go but I look at how you think and what you’ve been able to create. It’s come from years and years of experience with people. I would say in our day and age, they’re always going to be people that are stuck. There’s always going to be limitations. 100 years ago, it was, “How am I going to have enough food for the winter?” Now it’s, “What are they going to think of me if I don’t post these things on social media?” We always had these experiences where we’re getting stuck and we have limitations, anxieties, and difficulties. The way in which you frame it’s so empowering because it’s absolutely true. There’re amazing things that can come from it if you frame it that way.

Seeing it as a choice changes the game. Some people will resist this because if it’s truly a choice, then it’s my responsibility. The victim mindset doesn’t want to take responsibilities. “It’s my fault. What’s going on in my life, check out my circumstance? This is why I’m not joyful,” and as long as we’re blaming, we don’t have any power.

Why the focus on positivity? What has drawn you? I love your perspective here and the idea of positivity. What is it about positivity that is so attractive, engaging or magnetic?

That is a really interesting question and to me, it’s obvious. That is the way that our mind operates. The model that I’ve created puts these two processes, evaluation and creation on the same model. We can see how our imagination puts us either in a negative energy or a positive energy depending on what we choose. Creation, for example, we don’t know what’s coming. How are you doing next week? You don’t know you got something to do with it, but you don’t know because you haven’t created that yet. When we anticipate or predict that bad things are coming, how do we feel? That’s anxiety and it’s paralyzing. You don’t know what’s coming. If you believe, predict or anticipate what’s coming is even better than the rich abundant stuff you’ve already got, how do you feel?

Positivity drives everything because it's how our mind works. Share on X

This energy drives everything. I get called in to train sales teams. I did a big keynote for the biggest door to door sales conference. It applies in sales and leadership. I get asked to come in and do this retreat for a leadership team in Park City. The industry, the application doesn’t matter. Positivity drives everything because it’s how our mind works. That’s why I am so attracted to it and that’s why the topic resonates with so many people. They can see immediately something that is obvious but unnoticed and that is that their own mind is putting them in a position. If that position doesn’t serve you well, wouldn’t it be good to know that there’s a choice now? It’s a choice but it’s also a skill set we already talked about that. It doesn’t necessarily come naturally, you get to practice and that’s why I’ve set up coaching programs and I’ve written books. I’ve run a YouTube channel and trying to help people with the application of a simple concept, simpler and easier at the same thing because of our programming.

As you talked about positivity, you referenced a number of relationships. You have a professional relationship, if it’s a sales role or a leadership role but also there’s a personal relationship, spouse, children, neighbors, friends. Would you say that that positivity is one of the keys, maybe the key or the most important? How do you rank positivity as the variable to meaningful relationship, which I would guess is probably the common thing that produces that feeling of happiness?

When I’m coaching relationships, there are nine principles that I emphasize. The first one is positivity. For a lot of good reasons, it’s in our most intimate, closest relationships between husband and wife or between parent and child. That’s where we get to experience the greatest measure of joy. That’s why it’s even more important to apply these in our personal relationships, in our intimate relationships. It’s even more important there. It’s assumed in my mind.

It’s one of those simple things, obvious but unnoticed.

Let’s bring it to our attention occasionally.

That’s how I look at happiness and positivity. It’s one of those things if you flip that, the impact that it would have on your relationships on how you carry yourself, your posture, and interaction with people. It’s one of those magical skeleton keys, where it can open every door.

It is and I’m thrilled that’s the foundation of my platform because it is so universally applicable.

Why don’t you give out the best ways in which our audience can learn about you, purchase your books, or subscribe to the podcast? These are some simple principles and ideas that can revolutionize someone’s life.

TWS 04 | Positive Psychology

Positive Psychology: Positivity is where we get to experience the greatest measure of joy.

 

I would invite you to a couple of different places. I’m spending a lot of time on YouTube. You mentioned the podcast, Live On Purpose Radio. You can pick it up in your podcast app. Those are interviews that I’m doing with inspiring people. Some of the people that I’ve referenced here on the show, they’ve all been on my show. There’s the podcast, there’s the YouTube channel, which is Live On Purpose TV. Go to YouTube and look for Live On Purpose TV, there’re several playlists there. Positive parenting, positive relationship resources, positive leadership and entrepreneurial-ism and have some fun there on the channel.

We’re doing daily videos there. It’s a great way to boost your positivity. The website DrPaulJenkins.com, where there’s a number of things that you can connect with there. I’ve got a products page, I’m offering a free digital download of my mini book, Portable Positivity, which is a step-by-step explanation of the model that I shared with you. Those are some of the first places I would invite people. As you encounter principles that make a difference in your own life, share them with other people. That’s important to the other people, obviously for some good reasons. It also solidifies that principle in your own mind and you become an owner of a new tool that can drastically change the game for you.

The whole principle of exchange, which is providing what you know and ultimately sharing that with others. It’s the principle of knowing in the first place is isn’t necessarily your own knowledge but it’s also for a benefit from others that you interact with it. We can continue on with that but this has been enlightening. We’ll definitely need to chat again because this is one of those things where you can’t escape the environment, which you will continue to discover these principles. No matter where you are in life, there are always going to be different circumstances as you mentioned next week, the month after, next year, ten years from now. There’s always different circumstances and the same principles apply in those circumstances. It’s a conversation, the repetition behind it is going to build that strong backbone so that you can approach life with positivity. Approach life and understand how to achieve that level of happiness.

Practice it because it’s a skillset as well as a choice.

Dr. Paul, thank you again for sharing your wisdom and your experience with us. Keep it up. This has been very enlightening and helpful to me. I appreciate it.

I’m honored to be on the team, Patrick. Thank you for the invitation.

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About Dr. Paul Jenkins

TWS 04 | Positive Psychology

Dr. Paul Jenkins has 20+ years’ experience as a professional psychologist. He is an author, speaker, positivity expert, and personal development coach. He is also the host of “Live On Purpose Radio” since 2007 and Contributor to the record-breaking 60 hours World Hope Cast. His YouTube channel, Live On Purpose TV was launched in 2018 and is steadily gaining subscribers and changing lives.

Dr. Paul illuminates obvious principles, that when applied have life-changing benefits in your personal, family, and professional life. He knows the science behind the brain and relays the information in ways you can actually read, understand and use. It is like having an owner’s manual for your brain. Pathological Positivity and its pocket-sized companion, Portable Positivity, are the manual to power-up your positivity.

 

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About the host

Patrick Donohoe

Patrick Donohoe

CEO Paradigm Life

Patrick is the President and CEO and started Paradigm Life in 2007 after learning from his mentor Kim Butler about financial strategies outside of Wall Street.

With a background in economics and marketing, Patrick immediately realized the opportunity to teach investors, business owners, professionals and families on a large scale using modern digital media and communication technology. Since 2007 Paradigm Life has worked with thousands of individuals in all 50 states.