We are a f-p social business. To date we are self funded. Grew by 95%; then hit the wall--as we do not have the $$$ to advance to the next level. We need the type of financing described by Yunus. Need an investor who seeks his initial investment back without additional earnings. The benefit sought by such an investor is change in the current specialty coffee paradigm--change that allows indigenous people to offer the U.S. a finished value added product.

Though not quite the same as Diane. We do software development and IT consultancy for profit and invest that in our advocacy work, primarily childcare reform in Eastern Europe. The model we apply is in fact the original one pitched to President Clinton in 1996 along with a critique of western economics greed based on abstract numbers rather than people, for his re-election committee.

Though currently our commitment is more than 100% profit for purpose, i.e. we're making a loss, the model proposes a social business to be one re-investing at least 50% in social or community purpose allowing us if we wished to take on investors. In this it differs from the Yunus model and allows coexistence within the free market, rather than having a social stock exchange. According to our Department of Trade and industry here in the UK, this model conforms to their definition of one form of social enterprise.

A year after we launched this model in the UK, legislation was introduced to allow something very similar, the Community Interest Company or CIC, which like a charity has a regulatory body to monitor conformance.

Our problem is customers. Those that don't pay, and those new ones that we can't attract. The third economic sector itself being of little help, with more people developing their careers on the promotion of social enterprise as a concept, than providing a much needed service that connects social enterprises with potential customers.

Local government organisations are perhaps the worst kind of customer. Two of mine are in breach of contract, in requesting services and then not paying. They all have websites proclaiming their support. A classic example arises in my own local council this week. Contracting in a headhunter agency to find an IT services consultant who turns out to be up to no good, and intimidating other employees to cover his tracks.

This Third Economic Sector has become something of a farce, few understanding that to grow the sector requires those participating to invest in each other by engaging SE suppliers.

Gandhi, is reported as having once instructed his granddaughter, Indira that there are two kinds of people in this world - those that do the work and those that take the credit. Advising her that she should strive to be in the first group, where she'd find less competition.

I suspect if a few more got on with just doing it, rather than investing in CSR self-promotion we might actually have a chance of lifting ourselves out of the current economic downturn.

It may be worth noting that in 1998 the Russian economy collapsed in spite of efforts to stimulate it with conventional trickle down economic development. That was our first target applying the for purpose model to leverage a development initiative and micro-credit bank, which returned 98$ repayment and 10,000 new small business owners.

This was business, government and NGOs working together to lift people out of poverty, exactly as Bill Gates prescribes Creative Capitalism. Nearly a decade later we're still talking about doing it.

Farley... (just kiddin')

We also found the Yunus model for a Social Business a bit extreme in that it did not recognize sufficiently, the psychological need for the investor to imagine wealth creation from their largess. The problem with a social business model (well... at least one problem) it the perennial question of how much profit is sufficient. With the laissey faire capitalist, if 100% profit is good, then 1,000% is wonderful. SRI Profit should be commensurate with the amount of capital invested, the level of risk involved, and the amount of soft investment required to support sucees. Another factor should be the percentage growth obtained over the investment (loan) period. Thre should be a formual possible here somewhere...?

Thanks for your comment.

I would like to add a reflection. For good or bad, capital has not heart. Return maximization is the name of the game. Capital optimization will flow towards places were return is maximized. If so, social entrepreneurs have two options. Design business models that a) can offer market rate returns, and compete for capital in the formal financial markets or b) below market returns and compete in the social financing sector.
Regarding the "formula"" I can point to the work Sarah Olsen and Brett Galimandi have done in their report "catalog of approaches to impact measurement.

In my personal opinion, SRI is a nice idea, but has significant challenges: 1.-it tries to redefine the way investments are evaluated, a very daunting task in a field with more than 600 years of history, since Lucca Paccioli "invented" accounting 2. - Id disregards the price mechanism as the social convention of value, trying to "create” a new valuation mechanism. This is not the point to elaborate in the importance of the price mechanism as an autonomous self arising entity among humans as language, but contact me if you want more info.

Herman... while I appreciate your candor, I wonder ... If you read my recent guest editorial on The Micro Capital Monitor you would know that we, MicroVenture Support, were sucker punched by the myth of Socially Responsible Investment ... our metric: 463 new, high growth SME's in three countries, all with effective management and IT structures, evolved business and strategic plans and engaged value chains ... If correct, IF ... we change the name of the economic development model forever.

I know I sound cynical, but I've earned my stripes the hard way... I spent my own money to discover that SRI is myth perpetrated by financial hustling banks and investment houses to take the ugly stain of greed from them... methinks a new asset class called emergent human capital and focused on the developing world where there is more elasticity and opportunity for growth at the bottom of the market BoP. In truth, I believe thant a thousand dollar investment in a roofing company in Accra, Ghana is both safer and more potentially profitable than the same investment in General Motors today.

Hi Herman,

Outside of the operational model and the difficulties I relate above, there's possibly an option c) when it comes to the project outcome. We've been directing our efforts in Eastern Europe as social entrepreneurs and as activist in raising awareness of childcare related issues. We delivered a strategy paper to their government 2 years ago in October 2006 for a nil overall cost approach which was copied to the US Senate Foreign Relations Committee.

So far, 4 of the paper's recommendations have translated into policy. From their side the pledge for 400+ rehab centres, doubling the adoption allowance and just last week an announcement that the home for all orphans concept would be piloted in the second city of Kharkiv. From the US side came funding from community initiatives by the East Europe Foundation.

They have yet to act on components which demonstrate full cost and more than full cost recovery, namely microfinance and rural community broadband, the need to deliver information to eliminate poverty being a founding premise for this work, re-iterated recently by CK Prahalad.

For the less than full cost recovery parts detailed above, there's a case made for making them more cost effective, taking into account that the relationship between large numbers of disenfranchised and the influence on the development of HIV epidemic, child pornograpy, prostitution and trafficking and above all depopulation, cannot be disregarded as having no cost.

There is no BOP concept in the profitable components. These are based on proven models for deployment of microcredit to create business and new jobs. Without this, making it economically possible for larger families, the cost of de-institutionalising children will yield a short term palliative.

Jeff

I am very skeptical of combining business and philanthropy under one organizational form (I think it makes a lot more sense to institutionalize both the business and philanthropic activities separately). See the following post:

http://tonyjwang.wordpress.com/2008/09/29/reexamining-the-case-for-social-enterprise/

However, if we do move forward with below market rate investments, I would like to see a different kind of accounting in social enterprises.

More specifically, I would like to see a financial report of how much theoretical profit the company made before accounting for its philanthropic activities and how much it sacrificed as part of its philanthropic activities. So imagine I'm making a Green Computer and I would have made $X but because my costs are higher by $Y, the profit is only $X-Y which is below market rate, but generates SROI of Z, which when divided by $X-Y is more effective than other acts of philanthropy.

But even with such a report, I would still be skeptical as an investor in subsidizing a social enterprise with below market rate capital since I can't be sure that the social enterprise is efficient in generating social return. Imagine that I subsidize the social enterprise AND the customer is also paying a premium for the philanthropic activities AND so are the employees. The total SROI/$ is not just the philanthropic cost of the investment, but the philanthropic cost of the investment, the purchase, and any sacrifice in wages.

Tony, with just two of us here, let us continue the conversation.

I just re-read the 1957 speech made by John Spedan Lewis in his advocacy for extending the scope of capitalism, with the application of an adjusted model. Today the John Lewis Partnership is one of our premier retail organisations which still holds true to the principles of returning the best value to the customer and the sharing of profit with those stakeholder which it employs, as partners.

"The present state of affairs is really a perversion of the proper working of capitalism. It is all
wrong to have millionaires before you have ceased to have slums. Capitalism has done
enormous good and suits human nature far too well to be given up as long as human nature
remains the same. But the perversion has given us too unstable a society. Differences of
reward must be large enough to induce people to do their best but the present differences are
far too great.

If we do not find some way of correcting that perversion of capitalism, our society will break
down. We shall find ourselves back in some form of government without the consent of the
governed, some form of police state.

The dividends of some shareholders exceed their own highest hopes, hopes that may have
been much too greedy, and the incomes of the more fortunate of the captains of industry are
many times as great as would have caused the same persons to work just as hard and for just
as many years if, instead of going into business, they had happened to become, say, lawyers
or doctors. This is quite wrong."

In 1996, with his paper delivered to Clinton, my colleague Terry Hallman made a similar call, for the adoption of a more inclusive form as a replacement for the nonprofit approach. He proposed a model for business driven social and community investment, with the following justification:

"The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a non-profit organization. The only restrictions are the normal terms and conditions of free-enterprise. If a corporation wants to donate a portion of profits to its local community, it can do so, be it one percent, five percent, or even fifty percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no one will object. The corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of employees and community leaders."

A key point here is coexistence. There will be no coercion, the new kind of businessman being a new animal who has a this inclusive perception that Friedman considers unlikely, there have always been willing ethical investors.

The objective of putting this paper out without copyright as a web document in 1997 was to make it possible for anyone to apply for social benefit, because business in the end is about people. Based on a manifesto for people first, ahead of numbers.

"Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion."

There is no justification for capitalism keeping people just above the economic level of bonded slavery, or disenfranchising them from our information age, since the ultimate cost is borne in defending ourselves against the consequences of poverty.

It's difficult to believe that B corporations have missed this part of the message, and are obliged to pay people lower wages.

He goes on with the case for enlightened self-interest in 2002 for an Islamic community in what is now a potential flash point, In Crimea, as a new Cold War develops. Consider the returnable cost, he says, compared with that of cruise missiles. We go on to direct our attention at a nation, crippled by corrupt capitalism.

"We see a nation staggering under the crushing burden of widespread poverty, the extent of which no one is sure but which most people assessing the situation realistically is at least twenty five percent of the population. We understand that communication – particularly high-speed Internet communication at a cost that is affordable to half the population and all businesses – is essential for economic growth and development so that poverty can be reduced.

We see a staggering array of social problems arising directly from poverty, including but not limited to tens of thousands of children in orphanages or other state care; crime; disrespect for civil government because government cannot be felt or seen as civil for anyone left to suffer in poverty; young people prostituting themselves on the street; drug abuse to alleviate the aches and pains of the suffering that arises from poverty and misery; HIV/AIDS spreading like a plague amidst prostitution, unprotected sex, and drug abuse; more children being born into this mix and ending up in state care at further cost to the state; criminals coming from poverty backgrounds, ending up as bandits, returning to communities after prison, with few options except further criminal activity. These are all part and parcel of the vicious negative cycle of poverty, and this threatens to destroy Ukraine, if Ukraine is defined in terms of people rather than mere geographic boundaries. Overall, population is steadily declining; families have not sufficient confidence in tomorrow to reproduce more than 1.2 children on average per couple. "

Call it B Corporation, Creative Capitalism or even People-Centered Economic Development, as we have done - we are just in the infancy of it's potential.

Lots of good thoughts here Jeff. Some quick thoughts:

1. Why is P-CED an improvement on business? 50% goes to stimulating a local economy, instead of private hands. But private hands could have used the same 50% to stimulate a local economy. Also, what makes stimulating a local economy better than stimulating a different economy or philanthropy? I'm skeptical of the details, but in favor of some kind of third party certification that tells me that instead of feeding opulence, the wealth of a company will go towards more worthwhile endeavors.

2. However, I think social enterprises that simply brand themselves as being socially responsible without providing clear financial and social accounting may be inefficient in both business and philanthropy. I think we need some kind of third party certification scheme that tells me the difference between the greedy companies versus the non-greedy companies and also tells me the cost of my subsidy and the social return on investment/$ of my subsidy.

Let's connect offline too, though I'd be happy to see this discussion move forward. (I think our emails are listed in our profile).

Tony, Hold in mind that I'm not the author, but I'll convey it as best as I can. What we do is to leverage investment, so far from government, by development strategy plans for social initiatives which yield full cost recovery or better. We have no private wealth, so for us stimulating any economy personally is not an option. In all cases so far this has been to stimulate a different economy, ie that of a region overseas.

The paper when written, prescribed a model for a form of business intended to create a new paradigm in that a business of this kind had the potential to seed fund other like businesses. Philanthropy, might well do the same, in a one-off gesture without creating further philanthropists.

I agree that there's a need for adherence to a set of principles. The CIC model, in the UK for example has a CIC regulator a government position as I understand it.

Also in the UK there are organisations that have made efforts to impress their own interpretation of a model for social and/or community purpose, for which it's necessary to undergo assessment and pay a substantial fee. These are not social enterprises in their own right, but grant funded development agencies building careers on the efforts of entrepreneurs/activists. What we don't have is the guidance of an overseeing agency, which certifies that all those ogainisations pledging support of social enterprise, mostly in local government, actually do take steps to encourage SE suppliers.

Tony... if you think that calling an organization an NGO precludes dishonesty, greed, and malfeasance ... look no further than many of the current crop of Micro Finance Banks (MFI) Oversight does not assure honesty.. because the overseers often become complicit in the very behaviors they are supposed to prevent. Enron, Lehman Bros... the list goes on...

Greed has no special color, or title, or tax designation ... all we can do is do our best to assure transparency in all publicly funded transactions. In either venue: Profit/Non Profit. However the profit model is the only way one can create an economy. if we want to move to sustainability we have to look at profit as a goal. The important question is always, how much?

That is the argument in our organization and it should be a global discussion. With that, I agree. Our economic development solution calls for the creation of many, profitable small business...growing and hiring people... non oppressive jobs, etc. In order to do this we will need to invest a significant amount of "soft" dollars in our two year incubation program. This cost cannot be borne by the new micro enterprise ... it will buy them, and if someone does not cover that cost... it will buy us.

Here is where the blended profit/non profit model applies. We use the non profit as the developer and deliverer of the training, mentoring, and IP. The for profit licenses this IP and pays a hefty royalty to the non profit. This symbiosis prmits the venture partner to grow ... establish a strong management team, and become profitable...

I don't think that calling an organization an NGO precludes dishonesty, greed, and malfeasance but I certainly do think that NGOs mitigate the risk of such things. As Henry Hansmann wrote in his seminal work on nonprofit theory, one of the reasons donors are more comfortable donating to nonprofits instead of for-profits is the decreased risk of their donation being redistributed to investors as profit, due to the nonredistribution constraint that exists within nonprofit law.

Nonprofit organizations are great for collecting and distributing donations. I'm with you that economic development calls for more than just philanthropy and donors - but I disagree that there needs to be a lot of "soft" dollars in the field. Soft dollars subsidizes inefficiency. If you want to change the world, make sure you're generating market rates of return or better. By focusing on profit, you can assure that you are focusing on the ideas that have the most potential to scale, that you are providing the goods that are most demanded, and that you are supplying and training people for the jobs that have the highest return on investment.

I think Google, eBay, and many other companies that we don't consider social enterprises got it right by focusing on a product or service that could be intensely profitable that would also benefit a lot of people. If you want to engage in development, think of a model that can be intensely profitable - only then can you actually achieve scale.

I love your skepticism. In my opinion, if the "social enterprise" will offer below market returns, it needs to do so with a clear justification of the economic externalities it has produced (social benefits) using STANDARD valuation methods. This way we can answer the question: did it worth? Let me use an example: if the going IRR in the capital markets is , lets say a average of 10% yearly, and this specific investment will generate financial returs of 8%, investors would love to know if the missing 2% is well deployed. In short, if the 2% created value (mosquito nets, whatever it might be) that, when priced at MARKET rates accounst for the missing 2%. Otherwise, we are just wasting money...

Exactly! You hit the nail right on the dot. It becomes even more complicated when there are multiple sources engaged in philanthropy. What if the employees are also sacrificing wages and customers paying an extra premium. Then it's not only the missing 2% that you mentioned, but the lost wages and consumer surplus - which I imagine makes accounting much more difficult.

Sara and I were engaged in a similar conversation over on her and Brett's blog on Social Edge here:

http://www.socialedge.org/blogs/svt-on-impact/archive/2008/10/06/whose-value#comments

If we can create a common standard, I might throw my support behind SROI analysis. One place to start would be carbon free production. If I am a consumer, an investor, or an employee, I want to know the financial returns before philanthropy and the cost of philanthropy and the SROI (carbon offset/$). Maybe then we can start comparing products on the basis of environmental efficiency..

Risking being exiled from “Social Investment land”, I would like to point to Milton Friedman argument AGAINST "Corporate Social Responsibility".
According to Friedman, enterprise mission is to create profits. There are other human organizations without the profit goal (family, school, etc). The ethical thing for an enterprise to do is maximize profits, and in doing so increase the society’s available capital witch in turn, create more investment that lead to more jobs. Assuming that owners are best managers than non owners (at the end of the day, is THEIR money...) managers might be tempted to "give" money that is not theirs –deviating from their ethical mandate of profit creation- to charity or to pursuit sub-optimal investments in order to fulfill their own wishes -ego, reputation, etc- In doing so, they are betraying their fiduciary responsibility. Owners, on the other hand, would tend to maximize profits and in doing so they would fulfill their ethical responsibility, and if so inclined, might decide to give part of their profits to philanthropy.

I learned today that some would be contributors here have problems seeing the content. It came up as a question on Linkedin's section on social entrepreneurship from a user in Japan, who experiences-

"an encoding bug that users from Japan or other Asian countries are unable to access the content".

Thanks for this posting Hernan. The topic is thought-provoking, and the following discussion in interesting. Keep it up!

Hi... imagine my frustration (I hope it won't show) as I spent over an hour writing an explicative post to your discussion, only to realize today that it NEVER posted... arrrrggghhhhhh! Well, now I hve that out of my system... onward~

I have just been asked to write commentary for The MicroCapital Newletter. I will post the salient parts of my first one here as a conversation starter. As you will see I have personal experience with the questions you pose here. I look forward to the discussion:

Here it is:

One cannot help but notice the downturn in MF funding when you become the victim personally. As a consultant to The Grameen Foundation USA, in August, 2006, I was running an executive briefing on business process management for key members of the foundation’s portfolio at the Ashoka Hotel in New Delhi when a staff member came into the room and handed me a sheet of paper. It said, “… Dr. Mohammed Yunus has just been awarded the Nobel Prize for Peace…”

Like others before me, I was inspired to move from training others, to personal action and commitment. This writer experienced first hand, the effects of the then pending crisis. In June, our newly formed MicroVenture Support, a social mission initiative, was poised to launch when Morgan Stanley withdrew its Microfinance unit. This caused a domino effect. That resulted in the evaporation of our committed funding.

In the late winter and early spring of this year, meetings at the MF Club of London were awash with new MF units being formed by all virtually all the international investment houses MFDAQ, a new social mission stock exchange, planned to inject $300 Billion in SR funds to support the MF sector. Our enterprise was to be the new exchanges first offering. (see announcement in microcapital newsletter). In May, MFDAQ was the darling of the market’s rush to microfinance. By mid June as the global maelstrom gained momentum, the decks were swept clean and the new funds evaporated. To date the exchange has yet to bring forth its first successful offering.

The MFI sector has the reputation for low default. high interest lending. If the perfect storm of global credit crisis continues, it is more than possible that the much vaunted loan pay back rates will begin to fall. It will be instructive to see how the original alliance of intermediaries, commercial banks, and philanthropic donors will weather this storm.

Now to the practical side of my problem: Every time we have presented our, "Transformative Model," every time we present out, "Ladder of Prosperity," we get Kudos from all hands. We are experience MF profiessionals, my partner a former Financial Officer for The Grameen Foundation USA and a CPA. We have reccomendations from both CGAP and US AID (AID senior officers personally emailed Gates on our behalf) I'm becoming exhausted and repetitive ... if you would ... our website: www.microventuresupport.org In addition tothe position paper and slide presentation, we have a fully evolved detailed business plan with roll out schedules, time lines, budgets and all pro forma including detailed specific objectives and assumptions.

Finally, we are at the BoP of the investment pyramid. We plan to invest (not lend) at the upper liimit of the MFI's lending ... between the MFI and the social mission VC's like MEDA etc. We have had two very well known Donor organizations back off because they did not want to go down there ... I don't want to name names and make enemies ... but if the truth were known, most MFI's a re lending to the unbanked and not the BoP as well... help!

Interesting site JP. I think in the context of development we are singing from the same hymn sheet. In the regions we've been focussed on, the typical micro-entrepreneur would be able with micro-credit support, join an already crowded sector of street kiosks. There has to be a finite limit to the extent that this market can absorb several thousand new competitors, without creating more poverty.

We want to break out of this subsistence mentality which has impoverished people making trinkets for charity gift shops and develop real industries and jobs.

My own frustration is in knowing that much has been proven, yet is often disregarded. To illustrate: for more than 12 years, we've made the point about needing to deliver access to information for new enterprise to flourish, though one might think it discovered yesterday.

"The greatest initial social and economic risk of the Information Age is in creating two distinctly different classes of people: the technological haves and have-nots. Those who have access to information and information technology have a reasonable expectation to survive and prosper. Those with limited or no access will be left out. This holds true for individuals as well as nations. The key to the future is access to free flow of information. To the extent that the free flow of information is restricted or diminished, people will be left to endure diminished prospects of prosperity and even survival."

"In order for economic development to take place in any given location, the very first thing required, before anything else can possibly happen, is information. This information includes first and foremost where to look for the necessary resources to do anything. If new businesses are needed, knowing they are needed and finding funding for them are two very different things. The first step is to locate possible capital resources in order to move forward, and this step is no more and no less than information. Once resources are located, the next step is what terms and conditions are involved in obtaining those resources -- more information. Once this is known, paperwork must be completed, business plans made, market research and due diligence conducted, and all of this compiled and forwarded to the appropriate parties. Again, nothing more than information. In fact, most of the work involved between identifying a need and solving the problem is information acquisition and management: getting and developing information."

<a href="http://www.p-ced.com/about/history/">History link</a>

On the matter of plans and support, as individuals with limited means, we'd invested our own funds to leverage social enterprise in Ukraine. One response came from USAID with the creation of the East Europe Foundation, who almost immediately "had inadequate funds" when approached for minor project assistance.

<a href="http://www.p-ced.com/projects/ukraine/national/"Strategy plan</a>

Hernan pointed to two choices in his introduction

a) find money from investors looking for a financial return b) compete with others for philanthropic dollars

I encourage you to review some of the maps I'm posting at http://mappingforjustice.blogspot.com

These show different stakeholders within a geographic area. I think that there is a blended approach to the question of "where's the money". This would be an association of anyone within a defined geography who is focusing on the same problem; or anyone across different geography who is focusing on the same problem.

My aim is to provide information that anyone who fits this description in Chicago, or across the world, can use to stimulate their own thinking and progress toward goal. If I, or others like me, can draw enough of the stakeholders to a common portal, or discussion, maybe my hope is to educate the donor (time, talent, dollars) to shop via the map, or via blueprints showing all of the actions/actors who need to be funded in solving a complex problem) so that more become personally invested, and are able to define their own philanthropic or financial metrics for why and where they should get involved.

It's a long way to go before this is a success, but it grows a bit at a time. In 2007 a group formed within the Chicago Bar Association gave $240,000 in grants to 31 different tutor/mentor programs in Chicago, with $30,000 going to me for my role in supporting them, and all the rest of these programs. I've been working on that for 13 years. The other 30 organizations who received funding from the 2007 round, have contributed to this by their participation in events I've organized, and by being listed in the database of programs I've maintained.

Imagine what might happen if half of them had been just as persistent as I've been in coaching donors in other business sectors to form funds that would give money, and recruit volunteers for all of the tutor/mentor programs in the city, not just their own program. There could be five or ten funds like the Lawyers group, giving money into our sector.

Thus if you find people who focus on the same goals as yourselves, or if you become the knowledge base connecting such people, you have a chance to change the way you might be funded, by changing the way all of the organizations in your sector are funded.

Your site and activities are beautiful!

I agree with the fact that founding can come from (a) different sources based on common interest -geography, for instance, or theme (b) in different stages different funding is required. what works in the initial stages -ussually grants- might give way to for profit funding in the latter stages (c) these funds might come in the form of equity and or debt...

The current meltdown in traditional asset class values can be witnessed by the fall of both stocks and bonds, bonds being the most common offset of hard times in the market, and the concurrent rapid deflation in the most traditional harbor for sheltering liquidity; the bricks and mortar of real property. This is a frightening prospect for any investor, Still, there is opportunity in change and great change brings great opportunity.

On Oct, 10th, the Dow Jones Average fell below 8,000 finally rallying back to 9,000, the Dow lost 18% of its value in one week. From Wall Street to Main Street investors have begun to abandon even the most solid blue chip investments. Recently the US Treasury found it’s periodic T bill sale so fully subscribed that it is paying zero interest. Investors are so panicked that they are literally losing money to park funds in US Government securities. Internationally, Iceland, the nordic economic powerhouse nationalized the banks and is desperately seeking help from the EU, Silvio Berlusconi, President of Italy, was heard to say after a recent meeting that there is a plan to shut down the World’s Stock Exchanges to standardize and normalize regulations to meet these new realities.

At this writing, America and the global economy is a much poorer than it was only a few days ago. All wealth has been diminished. The value on the books will soon have to be “written down” to reflect the realities of the new economy. This applies to all wealth, not just the investment banks. It applies equally to Philanthropies … The big and the small. The Ford Foundation to The Calvert Foundation, all donor organizations will see their reserves shrink significantly.

Agree. The de-leveraging of the financial industry and the economy at large will reduce the foundations endowments. Nevertheless, most foundations have a large part of their endowments in very conservative instruments