My Move From Free-Market to Compassionate Capitalist
Capitalism Can Only Solve Big Problems When Boosted by Compassion
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My first job as a teenager was digging ditches. Paired with a guy who was literally twice my size, I could dig lawn sprinkler trenches just as fast. I remain proud of that to this day.
My first grown-up job began in the summer of 1985. I worked on a temp crew cleaning up a building foreclosed during the construction phase. Today, one of my best friends lives there; I distinctly remember prepping his unit for its first sale. He bought it 30 years later.
After a field promotion to lead the crew, I worked directly with the bankers who owned the building and eventually landed a position in the bank’s real estate owned (REO) department, foreclosing on mortgages and selling the property.
It was as bad as it sounds. Perhaps because I’d been a ditch digger and had spent my fair share of time with a broom in my hands, I enjoyed it. Thoroughly.
The bank assigned me to work in the oil shale region of the Western Slope of Colorado and Eastern Utah.
As an early twenty-something kid, I loved leaving the office in Salt Lake City in the company car to go on business trips. I felt like a big deal.
On my own dime, I got subscriptions to the Wall Street Journal and Forbes and devoured every copy that hit my desk. I followed the rise of Donald Trump and his fall into bankruptcy. I was also fascinated by the insider trading scandal that caught Michael Milken.
I had something in common with Milken. In 1988 (or thereabouts), he famously earned more in compensation than his firm; he earned about $1 billion, and Drexel Burnham reported just $600 million that year (as I recall). That year, I earned more than my employer, too. I pocketed about $20,000; the failing savings and loan that employed me lost money that year.
My property management responsibility for a foreclosure, typically a home or condo, began by conducting a pro forma auction of the real estate on the local courthouse steps. There were never any competing bids.
Once completed, I proceeded to the home to inspect and secure it. Then, we’d have the property cleaned up and repaired. Finally, we’d engage a real estate agent to sell it.
Usually, homeowners had long abandoned the properties the bank acquired via the auctions. Once, we found what appeared to be a healthy young lawn growing in the living room carpet after a long-uncorrected leak provided the necessary water. Homes were often—but not always—in rough shape. Foreclosure did not engender good relations with the outgoing homeowners.
One home was different. My duty that day was to foreclose on a tiny house with a tiny mortgage we’d made when we sold the home after its first foreclosure. Later, I recall selling the home for $10,000.
When I arrived at the property after conducting the auction at the courthouse, the home was not empty. A young mother came to the door with two naked babies. She didn’t appear to have celebrated a birthday that would allow her to buy alcohol.
She asked if I would allow her to rent the property for a few weeks rather than leave immediately.
The lawyers had warned me never to rent to the foreclosed owners. As foreclosed former owners, they had no rights to be in the property, and eviction could proceed immediately. Once a rental agreement began, the tenant had new rights to be in the property until we could complete a legal eviction process.
Faced with the desperate circumstances in front of me—with the lawyers’ warnings ringing in my ears—I accepted a $50 check for two weeks of rent.
The family spared me any repercussions. When we returned in two weeks, they were gone.
The bank did not spare the young family. The impact of foreclosure is devastating. Beginning with the disruption and humiliation of eviction and foreclosure, the effect lasts for at least seven years.
After foreclosure, the bank has the right to sue the homeowner for the difference between the net proceeds of the bank’s sale of the property and the balance on the mortgage plus costs. (I don’t know if my bank sued this family.)
Then there is the credit impact. For at least seven years, someone with a foreclosure will have no access to affordable forms of credit in the market, meaning that buying another home is out of the question for that period. A foreclosure can have a generational impact.
By way of context, this region of the country was utterly devastated by the collapse of oil prices. With skyrocketing oil prices in the 70s, big oil companies began investing prematurely in oil shale in this part of the country. They didn’t figure out how to extract it economically for 30 years. When the failure became apparent, the oil companies shut down the effort. The economies in these small western towns collapsed. There were no jobs, and folks couldn’t sell their homes for anything approaching the loan balances.
To the modest credit of my employer, we routinely worked with borrowers to accept their homes in full satisfaction of the loan in what we called a deed-in-lieu of foreclosure or just deed-in-lieu. This approach spared families some of the worst effects of foreclosure.
Despite my experiences, I continued to see free-market capitalism as the solution to all problems. There was no problem innovation, driven by pure, unbridled greed, couldn’t solve. This was the era of fictional Gordon Gekko’s famous speech “Greed is Good.” I drank it up.
Later, in Washington, I worked on the U.S. Senate Banking Committee staff, where I worked to ensure that banks weren’t subject to any unnecessary regulation. I worked on the repeal of the Glass-Steagall Act, which passed after I left Washington. Smart people connect the repeal to the Great Recession beginning in 2008.
In 1991, I left Washington to pursue and complete an Ivy League MBA.
As I write this, I see my early career through an entirely new lens. As I sort out my participation in a flawed system that devastated families, I neither want nor deserve your assurance that I was a mere pawn when I so thoroughly relished my work. I hope I can make up for my past mistakes.
Early in my career, I dreamed of owning a bank. In mid-career, I achieved that, launching the investment bank I creatively called Thorpe Capital Group. We operated both an SEC-registered broker-dealer for investment banking and a registered investment advisor so we could run a hedge fund.
In 2007, leading into the Great Recession, the fund failed, and I shuttered the firm. While we operated, however, we completed dozens of transactions, often just opining that deals were fair to all the parties. We helped companies make acquisitions, raise venture capital and attract working capital. I was a little Gordon Gekko with a growing heart that suspected fundamental flaws in capitalism.
In 2011, I was serving as the CFO of a global food and beverage company when my boss suggested it wouldn’t be necessary for me to continue working there. Gail and I decided to spend a year teaching in China as part of a program hosted by Brigham Young University.
While in China, I wrote a book called Your Mark on the World about using money for good. Upon my return, I landed a role as a regular Forbes contributor, ultimately posting over 500 articles with my byline, reaching millions of readers. I covered social entrepreneurship and impact investing for eight years.
The deeper I waded into this world, the more I loved it. I’ve learned that capitalism is at its best when it is layered with compassion.
That compassion considers the interests of all stakeholders. It recognizes that shareholders aren’t the only ones with a claim on profits.
Labor has a compelling interest in fair wages—which have been flat or declining since I began my banking career.
Consumers have a claim in the form of fair pricing. High gas prices and record oil company profits this year highlight this tension. It is far more painful in healthcare when patients pay a price that is hundreds of times the cost of lifesaving drugs.
Communities have a claim on profits, especially in company towns where the company is the primary employer.
The planet and its entire population have a reasonable claim on moving toward genuine sustainability.
Capitalism can only create solutions to climate change, global public health, poverty and social justice with a healthy dose of compassion. Some problems can only be solved by governments and nonprofits.
Without compassion, capitalism will extract more value from the Earth than it invests. Without compassion, capitalism will create more poverty than it alleviates. Without compassion, capitalism will harm the health of more people than it helps.
Over the nearly four decades since I accepted that $50 rent check, I’ve had the chance to visit with a wide range of impressive people. Most have track records of generosity, service and impact that humble and teach me.
While impact investors, philanthropists and social entrepreneurs don’t unanimously align in their thinking about every aspect of capitalism, they generally agree that capitalism requires a layer of compassion to achieve the best outcomes for people and the planet.
In my mind’s eye, after nearly 40 years, I can still see a young mother and her two naked babies. For me, they epitomize free market capitalism’s failure and my role in perpetuating an unfair, unsustainable system. I’ve now spent more than a decade working to atone for that. It’s going to take a few more.