- Commercial banks make business loans, and provide credit in other ways, mostly to facilitate reinvestment and the creation of value that is new in the sense of being a replenishment of what has gotten used up.
- Investment banks buy shares in companies which they then list for re-sale as commodities traded over the Exchange, mostly to facilitate investment and the creation of value that is new in the sense of being more of what we already know, like and what more of: Growth through Economies of Scale.
- Institutions (Insurance, Endowments, Pensions and Annuities) form investment partnerships with special purpose Enterprise organized and operated to create value which may be new in the sense of continuing (competition for the Banks), new in the sense of growing (competition for the Exchanges) or new in the sense of innovative (more on this later).
- Governments assess taxes to fund projects that are determined to be required for the public good. but not capable of being funded by private means. These frequently include projects that create value that is new in the sense of innovative.
The Banks, commercial and investment, in combination, are true marvelsof human ingenuity when valued for their ability to provide liquidity. And liquidity is good.
It didn't start out that way. In the 19th Century, when Investment Banking as we now know it was just getting going, the Exchange-based architecture for bringing Investment into Enterprise was the height of innovation, using cutting edge technology of the day for information and communication to finance the innovative enterprises of the day on a scale that had never been achieved in the private sector before then.
The genius of this solution includes: the Dutch auction method for setting the price for securities listed for trading over the Exchange, the broker network for soliciting bids and asks; and the central clearinghouse for settling transactions between buyers and sellers separated from each other by distances of space and time.
Today, we have computers, the Internet, the World Wide Web, cells phones, email, texting, Social Media and all manner of information and communication technologies that connect us together, from remote locations, in real time, eliminating for all practical purposes the distances of space and time that once separated Enterprise from Investment, making a centralized, placed-based solution an inspired innovation. And today, if and when physical proximity is necessary, we have air travel to cross the miles in minutes, easily and affordably.
We no longer need a centralized, place-based solution to make the connection indirectly that once could not be made directly.
Yet, we still choose to.
That is not unusual. It is hard to let go of what we know, and to move into something new and less familiar. This is a common dynamic with every paradigm shift to innovation. When large amounts of money are invested in keeping the old way of doing things the current way those things get done, the shift is even harder, because the resistance to change is so high.
Nonetheless we need to make the shift. It should not be that hard. We already have the new paradigm with need. It is the Institutional Investment Partnership that is a proven, effective mechanism for bringing Investment into Enterprise directly, with interests aligned along multiple points of shared value that include both liquidity and sustainability, each in due measure. This paradigm is already familiar to those we need to use it most, our Institutional Investors who have emerged as the new stewards of our private wealth.
All we need is the right catalyst. We need to market to know there is a choice. Once the market sees that choice, the market will choose, and we will make the move.