a plan to help fix the economy, opinions wanted

[Dios]

what did they say? If you didn't get any support don't be surprised, I don't think there is a political win in this, the best thing to do is to circumvent the state altogether, I think it would be faster and less bureaucratic.

You'd need regulation to deter the spivs and fraudsters from making a credible presentation then heading off consequence free on a holiday. The best idea is to use that regulation to give potential investors an even and balanced view of proposals by running each idea through an auditing system. You could even have a projected risk/reward index of sorts, whereby say a new supermacs franchise would have a low ratio number in the green, and some whizz bang technology coming from a lone basement inventor could be high in the red.

We are planning to do something similar with the ICIM, using a single site as a centrepiece to showcase individual companies, letting them put their stand out with as much exciting marketspeak as they like in one section then a sober government analysis (mostly automated) showing profits and losses, assets, previous performance on the market plus directors' other company associations and so on in another section. You'd need that to cut out the brokers in any case.

[MortgageBroker]

You'd need regulation to deter the spivs and fraudsters from making a credible presentation then heading off consequence free on a holiday. The best idea is to use that regulation to give potential investors an even and balanced view of proposals by running each idea through an auditing system. You could even have a projected risk/reward index of sorts, whereby say a new supermacs franchise would have a low ratio number in the green, and some whizz bang technology coming from a lone basement inventor could be high in the red.

We are planning to do something similar with the ICIM, using a single site as a centrepiece to showcase individual companies, letting them put their stand out with as much exciting marketspeak as they like in one section then a sober government analysis (mostly automated) showing profits and losses, assets, previous performance on the market plus directors' other company associations and so on in another section. You'd need that to cut out the brokers in any case.

I don't know that regulation would prevent fraud in any industry in the same way that it didn't prevent the financial crisis, rather lots of diligence might - you can never have any system that is 100%.

things such as ICB checks, garda checks, and three references (which will be checked).
An agreement to run the accounts through one bank with the ability for an auditor to see them online might aid transparency too, along with an agreement that is as watertight as possible regarding expenditure and reporting.

Every system will have fraud, I actually spent this morning at a bank discussing mortgage fraud and how to spot it/stop it. The only protection is strong systems with trained people working on them, and even then somebody will always get through.

On the ICIM front, there is already a market there with lots of business broker in it, if you plan to pursue it you might be as well to find a way to include them but on acceptable terms, I don't broker in that area so I can't come up with ideas other than to say that cutting out an existing distribution channel might be a mistake.

[Dios]

I don't know that regulation would prevent fraud in any industry in the same way that it didn't prevent the financial crisis, rather lots of diligence might - you can never have any system that is 100%.

It was the removal of regulation, in particular the Glass-Steagall act, that was instrumental in causing the crisis.

On the ICIM front, there is already a market there with lots of business broker in it, if you plan to pursue it you might be as well to find a way to include them but on acceptable terms, I don't broker in that area so I can't come up with ideas other than to say that cutting out an existing distribution channel might be a mistake.

Stock brokers are a holdover from the pre-computer days, when they were needed, for most markets excepting the likes of the NYSE most of it is done electronically these days, you'll almost certainly never get to actually speak to your stockbroker.

So the logical next step is to make information available to consumers and remove the broker layer entirely, in much the same way as buggy whip makers found themselves in need of new employment at one stage. Besides I'm not talking about removing the old market, just adding a new one.

[MortgageBroker]

It was the removal of regulation, in particular the Glass-Steagall act, that was instrumental in causing the crisis.


Stock brokers are a holdover from the pre-computer days, when they were needed, for most markets excepting the likes of the NYSE most of it is done electronically these days, you'll almost certainly never get to actually speak to your stockbroker.

So the logical next step is to make information available to consumers and remove the broker layer entirely, in much the same way as buggy whip makers found themselves in need of new employment at one stage. Besides I'm not talking about removing the old market, just adding a new one.

Glass Steagall may have arguably been part of the root of the financial crisis in the role that it played in giving the fed basically unlimited power, as more money is created banks can leverage that to create a debt which is them monetized but that's another story.

Good regulation is one thing, regulation of itself is another, the current regulator in ireland failed a fundamental test in that it spent time barking but not biting, rather than more rules which are not adhered to a few that are imposed would be better.

Regulating a small private market would only be a taxation of sorts upon the workings of it
see this post on 'the tax of regulation'

The whip maker concept applied due to the invention of the car, creative destruction. But the financial markets are still too human oriented to remove them completely, you might be able to do it on a small scale but it'll be a while before computers take over fully!

[Dios]

Glass Steagall may have arguably been part of the root of the financial crisis in the role that it played in giving the fed basically unlimited power, as more money is created banks can leverage that to create a debt which is them monetized but that's another story.

Are we talking about the same act here? It was created in the midst of the last great depression to prevent another great depression; it gets repealed and look, a few years later we have another great depression.

Good regulation is one thing, regulation of itself is another, the current regulator in ireland failed a fundamental test in that it spent time barking but not biting, rather than more rules which are not adhered to a few that are imposed would be better.

He was doing what he was paid to do.

The whip maker concept applied due to the invention of the car, creative destruction. But the financial markets are still too human oriented to remove them completely, you might be able to do it on a small scale but it'll be a while before computers take over fully!

Of course you can remove the human element. Its no different to ebay, buying and selling things online. In fact it would be easier, since no physical goods change hands.

[MortgageBroker]

Are we talking about the same act here? It was created in the midst of the last great depression to prevent another great depression; it gets repealed and look, a few years later we have another great depression.


He was doing what he was paid to do.


Of course you can remove the human element. Its no different to ebay, buying and selling things online. In fact it would be easier, since no physical goods change hands.

yeah, same act, it was the precursor to the banking act in 1933, helped create the FDIC (which wasn't shut down when the act was repealed). The fed in the meantime gained unprecedented power and that has an ongoing theme in that their control of money is behind almost every boom/bust since then.

Regarding the current regulator in Ireland, they actually were not doing what they were paid to do, they took the mandate of prudential and consumer regulation and focused purely on the consumer, a good example is this: they were worrying about the citizens of rome while the city itself burned to the ground. Nero wouldn't have done better. There were fines handed out left and right to small almost inconsequential financial firms while the big hitters evaded punishment even in the face of glaring oversights and breaches of code (such as forex overcharging etc.), it wasn't even until 2008 that any bank was fined for any action (INBS took the accolade due to advertising the state guarantee abroad).

The regulator failed miserably in the primary role they were given, but I guess we have to live and learn the same as folks did back in the 30's.

[Dios]

Regarding the current regulator in Ireland, they actually were not doing what they were paid to do

That comment was a bit tongue in cheek, a reference to the fact that they were clearly told to let the banks do what they want by Bertie and da boys.

[MortgageBroker]

That comment was a bit tongue in cheek, a reference to the fact that they were clearly told to let the banks do what they want by Bertie and da boys.

mistook it for genuine! lol!


anyway, on your idea of ICIM how would that be set up? do you have a broad outline for how it might work? from a real life functional/operational standpoint?

[Oppenheimer]

I'm fed up with the bad news, the increasingly depressing statistics, so I am thinking of doing something about it. I want to post the idea here and hopefully people will critique it, trash it, think its good or whatever, for all it matters you can rip it off if you think its any good, we can be competitors.

Nice initiative - well done. I think you posted this some time ago too, I wonder what the response is there. It is a good thing to promote action, even if it is small and focussed, it gets people's psyche away from being fed up and that is at least a good place to start.

I've some comments below - you asked for critique so necessarily some of these may come across as negatives but hopefully constructive thoughts too consider.

1. Savings is increasing rapidly, taking money out of circulation, individually it is a responsible thing to do but when we all do it at once the paradox of thrift is that it hurts everybody.

Savings are increasing but people are more likely to invest in safe havens than business start ups, i.e., I think the current risk/reward attitude is quite risk averse and banks are slowly getting to give established businesses credit so start-ups are more risky and taking a second place to that.

2. unemployment is rising, there is literally hundreds of thousands of talented people without

3. a collapse in investment, in particular in ourselves, is making it ever more difficult for companies to start up irrespective of the strength of their ability or plans.

Yes, there are lots of people on social welfare that could be brought back into the system but many have not had the idea planted in their head that they can start a business. It may be useful to evangelise the message that starting your own business is an option as much as knocking out CVs to businesses.

4. SME's are the true driver of an economy, they are part of the solution, but the IDA goes after big firms, government lead departments such as enterprise ireland are primarily interested in export oriented businesses, the reality is that there are lots of great ideas and people with the talent to see them through that don't qualify for their funding, and more importantly the process is too slow (for my liking anyway!). If there was funding available that wouldn't place 100% of the risk on the individual it would decrease risk to an
entrepreneur who may otherwise be unable/unwilling to try their business idea.

5. The state is not going to have all the answers, rather, people know what is best for them as individuals. We need to start finding our own answers. the state also doesn't have the money to fund every solution every time.

It is not the IDA's remit to focus on indigenous business, it is Enterprise Ireland's and the local County Enterprise Boards so I think you are not showing/seeing the full picture here. EI and the Enterprise Boards do offer grants and education for entrepreneurs and the basic difference between them is that EI focus on start-ups or companies that seek to export while Enterprise Boards focus on the businesses which derive their business in the domestic market. It should be said that EI do offer a number of grants aimed at people starting businesses. For instance, there is a feasibility grant that is available for up to €20k to assess the marketability of ideas (healthwarning: my data may be out of date but there will be some initiative along these lines). There are follow up grants then available and also EI can invest in companies too. You are correct in saying that things have dried up somewhat so the quality of the business has never been more important. Also the EI grants usually come with a requirement that the entrepreneur has to commit up to 50% of the funding so for people on social welfare that is difficult.

6. people are not willing to take big risks, but the opportunity to take a smaller risk, and one that will benefit your local economy with transparency would likely attract investment.

7. banks are not lending, most importantly to SME's, individuals however, can pool resources where appropriate and if that is channeled towards entrepreneurs then good ideas can succeed.

This is where I think you need to think about positioning. What sort of businesses is this good for? IMO, it is good for local businesses which are seeking to get to the next stage, having shown that there is a business and this may be an alternative way to get them cash through an equity deal.

Is this for funding hi-tech starts? I don't honestly think so. At least until your idea has gained credibility with success at the local level. The reason I don't think so is that the amount of funding for such starts is usually higher and there is usually a longer gestation period prior to revenue generation. Also, for future funding rounds of such companies where dilution becomes a risk the original investors can lose significant value and the incoming investors may be put off by a rather complicated capital structure. So it may be that you want to consider people who want to invest, setting themselves up as a consortium so that the cap table looks clean, for instance.

by doing these types of conferenes in regional areas, you could help put regional privately held savings into regional business start ups. people would be living close to the location of the business they might invest in, they might be happy to support it (for instance, I'd eat at a chipper I held a stake in quicker than I'd go to McD's or something).

Good thinking, I had a stat once that showed that a high number (greater than 70%) of VCs invested within 60km of their office so locale is an important element.

If a company does start then the investors take an equity stake of 49%, the promoter gets 49% (but putting up far less capital) and MicroVentures gets 2% the idea being that the MV company holds the swing vote if there are issues further down the line.

When a company starts they have to provide monthly updates via the website and investors can log in, this would provide ongoing transparency, and the idea is that investors get a dividend on their shares. If the promoter wants to get a raise then the dividend goes up too. this would eventually create a secondary market, with increased dividends the value of the shares would increase.

These seem like harsh terms for any business. The types of business will have different values depending on the idea and the entrepreneurs will not want to give up over 50% of their business straight out of the box. Also the idea of dividends, IMO, is a non-runner and perhaps where the idea is likely to fail most. Start-ups are, by definition, only starting to create revenue - to mandate a dividend at such an early stage is likely to be seen as a killer. Microsoft do not pay dividends and had tens of billions in the bank - the investors saw this as a strength as their share price had a very strong foundation. Start-ups are about building, and every bit of cash should be kep in the business until it is at least break-even.

Investors would be taking risk by investing, but the amounts would be small and you could diversify by investing in different types of start ups. not every business succeeds but equally, not every businness goes through several real life market tests before starting.

You really should look up the stats in the business failures in the first year, eighteen months and two years so you can be transparent with your potential customer base.

the basic premise is to circumvent state solutions, to rapidly deploy money to SME startups and to do so in a manner that doens't be the family silver on it, in order to fund SMEs promoted by entrepreneurs that have identified an opportunity and passed several key tests in order to start the company.

I don't see the need to circumvent state money - it is there to help. Say you got a number of investors to put up €50k for a business and the entrepreneur was then able to use this capital to leverage grant money from EI, surely that is in the interest of all investors, i.e., another grant amount is injected with no dilution to any of the original investors - seems like madness to potentially turn away money, particularly if it is not equity loaded.

[Dios]

anyway, on your idea of ICIM how would that be set up? do you have a broad outline for how it might work? from a real life functional/operational standpoint?

Well the first thing to do is get Google and the heavyweight network/datacentre operators on board. They are so far ahead of the curve in terms of rapid resolution of data queries and redundant backups that its not even funny. We also need to consult with existing stock market solutions providers and examine the legislation to build a proper framework for the market, this would be in conjunction with a wider scale broadband and municipal wifi rollout, which is another story.

It could work quite well with what we have right now, build a few datacenters (one main one, three regional ones for redundancy), and away you go. The major challenges would be in checking that companies are in fact legitimate, and that insider trading isn't taking place, which would mean regional offices set up for companies to apply for the service, which could then be continued by registered accountants as part of their normal duties. Alternately training could be provided to these accountants and you could join the ICIM via any accounting firm, no specialised offices required.

It wouldn't be that much of a stretch really.