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Why Fintechs are Investing in the Unbanked and Underbanked Population in the US

Important note:

The following text is a transcription of the Fundamental Fairness podcast.

Capitalism 2.0: Reimagining our Economy


Welcome to Fundamental Fairness, a podcast about bridging the gap between fintech and financial inclusion, brought to you by Camino Financial, with your host, Sean Salas.

Sean Salas

Welcome everybody, to another episode of Fundamental Fairness. And today’s episode is titled Capitalism 2.0: reimagining our economy, with Javier Saade.

I want to mentally prepare you that this introduction will be long because Javier has a lot to say, thanks to his vast experience.

Javier Saade is managing partner of Impact Master Holdings and venture partner at Fenway Summer Bankers. He is Chairman of the Board of a private, equity-owned, financial services firm and serves on the Board of Trustees of The Nature Conservancy and The Organization of American States and American Economic Engagement.

Javier also holds seats on the Local Board of DocuSign, The Corporate Social Responsibility Board at Univision, and the Board of Advisors of Harvard University’s Arthur Rock Center of Entrepreneurship, of which Camino Financial is a proud fellow.

He is a founding member of Fast Company’s Impact Council and a member of the National Association of Corporate Directors and Latino Corporate Directors Association. Previously Javier was one of the highest-ranking Latinos during the Obama administration and the SBA program, and he oversaw and invested over 128 billion. Let me repeat that: 128 billion, with a capital B, into more than 300,000 companies. Wow! That’s crazy.

Before his White House appointment, he spent time with organizations that included McKinsey & Company, Booz Allen Hamilton, Bridgewater Associates, The Global Emerging Markets, and Abbott Laboratories. Just so you have context, that’s probably the blue-chip of blue-chips.

And if that wasn’t enough, he also holds an MBA from Harvard Business School, an MS from Illinois Institute of Technology, and a BS from Purdue University. So without further ado, welcome Javier!

Javier Saade

Whoever you are talking about, sounds pretty damn good on paper. Hi, everybody! thank you for joining. I can’t see you, but hello!

Sean Salas

Great. Well, thank you for joining. Javier, one of the things I love about you is you do like getting straight into business. So I want to get straight into business and have some real talk about the economy and I want to get started.

The Nasdaq is trading at all time highs. The Dow is almost recovered most of its losses since March. All while unemployment rates in June is 11.1%, yeah, granted a little bit better than what people expected, but over three times, close to three times where it was in March, with 17.7 million unemployed. That’s far from the roughly 4% unemployment rate in March.

So I see a disconnect here. I see a disconnect in the financial markets recovering and yet, the fundamentals of our economy, as measured at least by unemployment, are still nowhere close to what I would consider recovered. So can you help me and our audience understand the disconnect in today’s financial markets and our economy?

Javier Saade

I think you laid it out really well. It is a vast canyon, not a gap, between what’s happening in markets and what’s happening in real life. And I think one statistic that I think you left out is I think it’s over 45 million people in America have filed for jobless claims over the last three months.

And you have four crises happening at once: you got a health crisis, you’ve got an economic crisis, you got social justice crisis, and not yet, but I think this is where you go with your point, a financial crisis. And I think that disconnect that you’re talking about can be explained with thinking about it in three buckets.

One is that if you think about what happened in 2008, the financial crisis, that situation was pretty contained to financial institutions, their balance sheet not being safe and sound and all this stuff and about $800 billion was pumped into the financial system.

And the mode of distribution of that crisis was much more contained and the genesis of it was much more specific. It wasn’t four huge crises happening in synchrony that we had now. Today… So when it was $800 billion, at the height of the crisis, we were losing 800,000 jobs. We’d be losing 10 million jobs for the last four months, just to put it in context.

The Federal Reserve, when you add it all up, for sure there’s Treasury and the SBA –I’m sure we’ll get into the SBA program soon–, in total the commitments to print and/or backstop and/or lend and/or whatever all together, is about 7 trillion dollars, with a T. That’s more than eight times what the financial crisis was.

So to answer your question with math: the reason you’re not seeing stocks plunge and debt markets go into a spiral is because you have the only institution, not in the United States, in the world, that can actually backstop all of this with facilities that actually hold the economy together.

They’re buying corporate bonds. They’re buying junk bonds. They’re literally doing everything, they’re taking out everything in their arsenal and throwing it out and what the markets are reacting to is the fact that the full faith and credit of the United States is essentially propping up the market. But that music is going to stop.

Sean Salas

Yeah, I want to break that down and I’m going to try to explain this in layman’s terms so that everyone, including myself… At different points in time, I get jumbled with what the Fed is doing and how that impacts asset value in the economy and who are the winners and losers.

So let’s focus on, obviously, there’s monetary stimulus and there’s fiscal stimulus. Obviously, you’ve alluded to the fact that fiscal stimulus is proportionally much larger than what we saw in 2008. And then there’s an argument to be made that the government may be doing what they’re supposed to do –we’ll put a pin on that for a second–. And we’ll talk about the effectiveness of that fiscal stimulus.

And then there’s the Fed. One of the biggest tools in their toolkit is their ability to change the rate at which effectively banks in the world borrows money. And when you bring that rate down to pretty much 0%, what that will effectively do for many of you… and the best analogy is: when interest rates go down, what happens to property value? It usually goes up despite a potential economic downturn because it’s cheaper to borrow and therefore that influences demand in property value.

And a similar dynamic happens also in the purchase of stock and the asset value preservation of assets in the financial markets, because effectively those assets are… I’ll describe the asset value of that stock in a way, is artificially preserved because that discount rate is lower, which effectively increases the net present value of the future cash flows that those assets generate.

But here’s the issue: that playbook worked in 2008, right? We needed that injection of (inaudible) financial markets so that the fundamentals of the markets kind of figured themselves out. But the issue here is: we still have a lot of people unemployed. The productive value of these assets have not increased; maybe they’ve, in fact, probably, gone down.

The supply chain, especially with the resurgence of COVID, it’s still not only in destructive stage, but that’s probably not getting better any time soon. And so, when I look at the financial markets and the fundamentals of the economy, yea, granted, I recognize the Fed for preserving value artificially. But something tells me that’s not enough. In fact, something tells me that that’s moving the ball away from what really matters, which is the productive value of these assets.

So here’s my question. I wanted to lay that out for everybody. Here’s my question: Let’s assume for two seconds that this playbook works, for two seconds. We should question whether that works, but let’s assume the same playbook we used in 2008 works today, ok? Who are the winners and losers of using that? that’s going to preserve the asset value of my son. But my guess is not everybody. So who are the winners and losers of that?

Javier Saade

So there’s a lot to unpack there. And I think you’re broke it done pretty well. This will, no matter what lens you use to look at it, benefit people who own things, who own assets. Most people in this call probably hold stocks. On the one side, they may be having all kinds of problems with the PNLs (Profits and Losses) in their business ’cause, if they own a restaurant, they’re selling, at best, half of what they sold before. But if you own a stock, you’re in good shape.

And that’s just at the micro level. But at the macro level, which I think is where you’re going, the gaps, which have become incredibly apparent, that we all knew existed and now have the magnifying glass on them, have potentially gone and exacerbated.

If you look at what happened in 2008, the genesis of that was excess risk in the housing market and the mode of distribution of that crisis was actually predictable, you know? Bonds that collateralized the loans are going to fail, the counterparties are not going to have the money… So you kind of knew how the cold glass was gonna crack and you were able to actually pop it up.

And even back then, there was a lot of blowback from Main Street going: why the hell are you bailing out Bank of America, Wells Fargo, Goldman Sachs when we’re losing all these jobs and all these small businesses closed down?

This is potentially much, much bigger in terms of that Main Street blowback, and part of that you’re seeing on the streets of America every single day, the tip of the spear being the police brutality and all the things you’re seeing on the street, playing out in the streets of America, are a symptom of a much bigger problem, which is that there is two Americas.

And really it’s the world. There are two worlds. There is a world for the… Let’s just call it 1%, ’cause that’s easy to visualize. There’s the world for the 1% and the world for everybody else. And the higher you are in the 1% –that if you are at 0.5%, if you’re the 0.1% or you are like Bezos, the 0.000001%– the higher you are, the better the world is for you.

And I think that all this stuff that is happening and all this stimulus that you’re seeing… And a version of this you saw with the PPP, that loan program that the Treasury and SBA stood up, you may end up driving a bigger wedge into this dichotomy between “the have” and “the have nots”.

Sean Salas

And you said something very interesting, which is: this put a magnifying glass on something that already existed. So, when we think about the winners and losers, winners being those that have assets, likely people that are in the top 1%, are the top 0.00001%, right?

And by the way, you didn’t say this, but I’m going to go ahead and say this: the people, the others, the “have nots”, the losers, unfortunately, in this scenario, are more likely to be black and brown, let’s just called a spade a spade, right? And maybe we’re seeing some of that frustration manifesting itself in the reemergence of the Black Lives Matter movement. So this already existed, are we on the same page there? This already existed, this has just magnified what could be a broken system.

Javier Saade

Zero question that the 400 years of oppression our black brothers or sisters have felt, it has changed… Slavery no longer exists, but there is a system that… And by system, I mean a financial system, a health care system, an education system, that continues to create a gap. And that gap is almost, for different reasons, analogous to the Hispanic community.

Which by the way, combined –just to give you a data, to give the folks that are listening to the single data point– combined the African-American and Latino community are about 30% of the population, 100 million ish to 330 million.

And by the best guess out of the data that came out of the SBA recently on PPP, that even though people didn’t checkboxes about ethnicity or race, you can piece together that only about 3%, so far, $522 billion dollars, 3%, went to black and brown small businesses. Again, they’re 30% of our population, but you’re gonna tell me “well, are they 30% of the small businesses?”. Actually, they’re 27% of the small businesses, so they are still well in representing.

So you’re going to go “well, why did that happen?” Which I think is the point of this talk and why we need to reimagine capitalism. I mean, just back to the markets for a second, the original thing you were talking about… Milton Friedman, very famous economist, in 1970, September 1970, wrote an article in The New York Times in which he mentioned something called “Maximizing Shareholder Value” and the primacy of the shareholder in everything a corporation does.

That was 50 years ago, almost to the day, a couple of months are gonna be 50 years. That profit maximization as the sole purpose of a company is what has shaped our economy since. And I know we haven’t yet started talking about what capitalism should look like, but there is a reason why commercial endeavors and the productive use of capital, which is actually the definition of capitalism, looks the way it looks like: because companies –and these are the very largest to the very smallest– are focused on essentially one thing: making a profit, and that has translated into quarterly profits. So not only are you only focusing…

Sean Salas

Short term profit.

Javier Saade

Short-termism and all that stuff. So, where we are is a very –I think I would argue– a very bad place and actually value destroying planes. But it’s no surprise. That’s what we’ve been doing with the economy and our productive capacity for 50 years. And forgetting everything else.

Sean Salas

Yeah, and you said something critical. You said a lot of things that are critical but one thing that I want to hold in on is: I would argue, because I am a capitalist, that long-term view of capitalism will, in my mind, acknowledge the need to build the strong middle class economy to bring up people within our economy. But that the issue that I think is happening in this market is the short-termism, that’s a term that’s being applied to profit creation. And that is what I think gives a lot of very smart people, because I think they are smart and they know how to make a profit, blindsided by the opportunity, the economic opportunity I would say, in investing in these other underserved markets that we’re talking about.

Another way of putting it is, and I want to get your sense on this, let me just ask you the question: do you think today’s capitalism is sustainable if we continue to turn a blind eye to the “have nots”?

Javier Saade

No. Zero…

Sean Salas

Even from a profit standpoint, even from a capitalistic, I’m selfish, all I care about is turning a profit, profit standpoint.

Javier Saade

Maximizing value as the sole purpose actually does not maximize value. There’s a paradox. I’ll give you two examples. One example is the fact that there is all kinds of data –this goes back to Jim Collins books and things like that– that look at companies who overtly were focused on more than just profit. Today, they’re called socially responsible, impact capitalism, social entrepreneurship, companies with a mission. And they found that to add creative shareholder value gives them 6x than those that were solely focused on turning a profit.

I’ll give you another example, more reason than what I said, and that is stock buybacks. And I don’t want to blow everybody’s brains on this call, but it’s a trick that public companies use to prop up their stocks. Essentially, if you think about what a company does, which is a micro version of what an economy does, is that it turns $1 into $1.1 with productive use of resources, and that’s usually people, money, and, to some extent, manufacturing and natural resources. That’s becoming harder and harder.

So what companies have been doing is that they’re using their profits and instead of paying it back to shareholders as dividends, more in reinvesting in their businesses. Which is kind of what happens in the venture world, and in your world, Sean, is that the reason all this smaller, fast-growing companies get so much capital is because they’re using that capital for productive terms.

So share buybacks have zero productive use for the economy except…

Sean Salas

To finish that thought, what they end up doing is they, in the absence of being able to create that productive value, what did they do? They buy.

Javier Saade

Yeah, they buy back their own stock, which means that the number of shares in the float decreases, but the value remains the same. So, what happens to the share price? It goes up. A lot of what you’re seeing, just to put this in perspective, since the financial crisis, something like two trillion dollars, with a T, has been spent by Fortune 2000 companies, that are just 2000 in the US, buying back stock.

I’ll give you a more interesting example: IBM spent, I think, over that same period, a $140 billion buying their own stock. If you Google what the market cap of IBM is today, it’s about $106 billion. So put that in perspective. They took $140 million over 10 years, bought back their own stock, and the company is worth less. But to your point, there are all kinds of reasons why companies should be focused on more than shareholder value. And that is, from a purely capitalistic perspective, it creates value, right?

In the case of the ESG –which is a term that a lot of people use (Environmental, Social, and Governance)–, on the environmental side, people pay a premium… Look at Ben and Jerry’s and Patagonia, two companies that most people know, companies that are rooted in the mission, rooted in social good, both of those companies literally charge a 300% premium to everybody else.

And the products are essentially… I mean, Ben Jerry’s is great ice cream but it shouldn’t be worth 300% more per ounce than other ice creams. The reason people pay that premium is because they’re not putting hormones and cows, they care about the environment…

Sean Salas

So there’s an economic argument…

Javier Saade

And then on the “S”, which is what you were at, what you were pointing to earlier, the “S” which has to do with brown and black people participating more equitably in the economy, women still earning, whatever it is, 58 cents of the dollar or if you’re a brown woman, it’s 61 cents to the dollar… Well, shoot! Math is math.

If you get everybody to participate at the right levels and access capital at the right levels, and everything, for the most part being equal, regardless of what you look like, where you come from, are you religious and who you love, of course, are going to make my money. So you’re seeing a lot of that today. Some of it platitudes. You’re seeing all the companies out there saying “we care about this stuff”, “we’re going to put…”

Sean Salas

But we need to incentivize action. And I want to get into that Javier. So I just want to summarize this first part, because we’re almost 30 minutes into this conversation and we still haven’t talked about Capitalism 2.0. But the reason why is because I wanted you, the audience, our listeners, to really contextualize what Capitalism 0.0 looks like.

How the inefficiencies of that capitalism, especially in the short-term profit game, it’s a little bit of artificial privation sense, a little bit of hocus pocus here, may work to sustain certain downturns in the economy. But does it necessarily increase the productive value of these assets over the long term?

So in a way, think about those hocus pocus tools a little bit as a way to preserve asset value in the short-term, but still puts the long-term value of these assets at risk unless we unlock opportunities with the “have nots” and the math is simple. So with that said, I want us to now officially set right into capitalism 2.0.


This week’s episode of Fundamental Fairness, Capitalism 2.0: Reimagining our economy, with Javier Saade, is brought to you by Camino Financial.

Sean Salas

So, big, broad question: in your mind, Javier, can you define what Capitalism 2.0 is for you?

Javier Saade

We’re starting to see it around the margins. The Business Roundtable, what fintech, including your company, Sean, is attempting to do to the financial piping of America, mission-driven, investing in the fiduciary rule… You’re starting to see around the margins this realization that shareholder primacy may be flawing. So if it’s flawed, what does that mean?

Well, it means that if you have a pool of candidates for a job that doesn’t look like America, you’re probably not trying hard enough to find out. If you’re choosing between two businesses and one is located in East LA and the other one is in Westwood, well, the Westwood one is a lot easier to lend to because of all kinds of rules and regulations and things like that, but maybe that business in East LA –and I know you have some loans like this, Sean, yourself, that you’ve made– is a more creditworthy one, if you look at it through the lens of environmental considerations.

Which, by the way, the damage that we’re doing to the environment, which is unequivocal and backed by data and science, overwhelmingly affects black and brown people more because where are the trash disposals? If you look at the world, people that live next to the coast, well yeah, they have pretty houses but some of them live there because they have to fish, and they’re the ones that are going to be more susceptible.

So climate change and all this stuff happening with the environment affects people without means more. And in Capitalism 2.0, you can create financial incentives and people will reward you with paying more for your products if you’re doing right by things that matter to society, the environment, racial equity, equal opportunity… And things that sound esoteric and kind of fluffy, kind of, good for society, actually has been proven to make more money.

And you’re seeing it. I mean, that’s a kind of a not answer. But you’re actually seeing it around the margins and you’re seeing what companies are doing now with the BLM (Black Lives Matter) situation. They’re saying “oh, I’m going to throw $500 million a day, or “I’m going to create a pathway for that” or “skirt around the margins”. But unequivocally, there is no putting the genie back in the bottle…

Sean Salas


Javier Saade

The system does not work. It works for… Once for me, because I own stocks and I’ve been lucky enough to have built that good life, but it wouldn’t have worked for me growing up. And that black of pathway for most people in America is destroying value creation.

Sean Salas

Yeah, I hear you loud and clear. And so here’s… If I had to oversimplify your answer, I think Capitalism 2.0 it’s still about maximizing value, productive value, I think the first part of that definition of capitalism still holds true. But the second part of that definition, “maximizing value for shareholders”, I think should change to “maximizing value for stakeholders”. Stakeholders in of itself is a broader definition of who we need to maximize value for.

And so that will include shareholders, by the way, need simpler shareholders, because they are going to invest and help continue that beautiful, productive value creation that does happen in our economy. But it also has to include community stakeholders, which include black and brown communities. It needs to include our environment because if we’re not helping our environment over the long-term, we are just all going to die, literally. And I think there are other stakeholders that we can even discuss about, which I want to get into. So, got it; Capitalism 2.0, understand it. Now I want to talk about…

Javier Saade

Can I react to something? Think about it this way. If those companies that spent two trillion dollars buying their own stock back would have increased wages… Think about it this way: would have increased wages, a living wage, a situation that we don’t have in America broadly, that’s sustainable. Anyway, that’s just one example of, in something that doesn’t cost.

Having a sustainable workforce, which we don’t have ’cause look at what happened in four months, literally four months. And our economy… We haven’t even started seeing the pain yet ’cause we have had it propped up significantly by a lot of instrumentalities or the federal government. That music is going to stop. People are going to start defaulting on loans and rent… Anyway, I didn’t want to derail you

Sean Salas

No, no, no. I think they’re all valid points. I appreciate the clarification.

Ok, so now I’m gonna put my cap, ’cause it’s still Capitalism 2.0, so I’m wanna get excited about the opportunity because I know there are a lot of people that invest money on this call and I wanna get them excited about the opportunity.

So what’s the math behind measuring the opportunity of investing? In particular, we talked about the underserved communities and that part of stakeholder definition. So what’s the math behind it? How do you measure the opportunity?

Javier Saade

I’ll give you three markers. One marker: let’s talk about the Latino, specifically Latino market. Five million –plus-minus– small businesses that are Latino owned or Latino catering. If they were to be capitalized at the same rate as the economy as a whole, our GDP would be $2 trillion, with a T, larger. So…

Sean Salas

Wow! That’s the size –just to give people context–, that’s the size of Brazil. We’d be a Brazil larger than we are today.

Javier Saade

Yeah. I mean, it’s is it’s a good way to put it. I mean, right now, it would double… Think about it this way: right now, Latinos contribute about $2 trillion to GDP. If we go to $4 trillion if we would have been investing and capitalizing in people and small businesses at the same rate as the population…

This is not a handout, this is not a favor, this is purely a… You’re setting up a cupcake shop or you’re setting up a rice and beans shop… Money is money. If you can turn a 10% profit, I’ll go with the rice and bean shop all day long because they haven’t had the money yet. So that’s one marker.

Another marker is when you look at diversity in companies, at the Board, at the C level, all throughout. Study after study after study after study shows that more diversity delivers more return on invested capital, return on equity. These are numbers.

Catalyst –I’ll give you an example–, Catalyst, which is an organization that focuses on women in leadership roles, mostly putting women on Boards, they did a study that found that when a company has two or more female directors on the Board, they return something like 20% more to shareholders. And there’s no magic to that. The magic is that a more diverse point of view, starting with gender, creates better solutions. And it’s backed by data.

The third marker is investors. I think you mentioned in the introduction I myself run a program that was about $30 billion that was essentially invested in small and medium-sized private equity, venture capital structure lending funds. And we did a study of our own program back into time.

Just for context: there’s been like two thousand funds in America that have been regulated under this program, SBIC, and we found that whenever there was a female or a minority in the check-writing positions, people that write… decision-making authority to write checks, they invested something like four times more into companies that were diverse.

And wait, there’s more! The returns were better. Furthermore, the National Association of Investment Companies, which is an association that has all these private equities, venture capital and structure lending funds that are managed, majority, minority-owned, they’ve done studies with KPMG, with all kinds of people that show that diverse funds beat the benchmarks –venture capital benchmarks, private equity benchmark, whatever benchmark you want to say– by not insignificant margins.

So there is mathematics, arithmetic. There’s no language, or what you wanna call it, there are no language problems with math. Everybody understands a number. The numbers speak to the fact that we are leaving money on the table. Last time I checked, it is bad for capitalism. I don’t know, that’s just me talking.

Sean Salas

So, I just got a question… And we’re going to get into life questions in a bit, but I think we need to address this question right now because it’s important. Our good mutual friend, Beatriz Acevedo, founder of Mitú, has a really good question, which is: decision-makers have this data about Latinos and women in diversity, but yet they still don’t change. Help Beatrice and me understand why is this the case.

Javier Saade

Beatriz’s question is dead on and I have wondered about this question for many years, including when I was a graduate student when I wrote a paper on it and got published. Look, I think it’s brain-damaging that we have all this data, unequivocal math, and still no action. Who gives an “f” about the data when there’s no action? Stop telling me about the data. Do something.

I personally think there’s a really strong force called inertia in the physical world if you took Physics at some point in your high school life. And inertia, I think, shapes their behavior of institutions. And the reason it shapes the behavior in institutions is because of the preservation of power, kind of a reflex.

And that preservation of power, when you, you know, peel the onion, make it, make it, as the BLM protests have done on the streets of America, but now you’re seeing it in boardrooms anywhere, is that there is a structurally mismatched and, I’ll be even blunter, there’s structural racism that runs through all of the power structures in America. And that even though somebody that benefits from all the power they have, let’s call a spade a spade, white men benefit from all this power, and they may have all the right intentions in the world, inertia precludes them from giving up power.

So whenever, and I think you saw this, not to get political, but you saw this in 2016 with the election of Donald Trump. He fired up a base that was seeing the rise of an America that looks very different from what I looked like at the beginning as a Zero-Sum Game. Well, if brown people are winning, that means I’m going to be losing. And that’s not the argument. So I think the first step in all of this, I think, we’re living through right now, that is like “holy moly, this is bad”. And the system doesn’t work.

Sean Salas

Javier, I actually want to push back on one thing you said. Don’t get me wrong. But let’s not talk red versus blue, let’s talk red, white and blue. And there are some fundamentals around what the agenda of the policymakers are, what our representatives should be so that we avoid a Zero-Sum game.

So why do I want to avoid the red versus blue, let’s talk about red, white and blue, because I do think we should get a little political here because I see one of the critical roles in Capitalism 2.0 working and building the inertia is putting the right people in the seats that they need to be, that is pushing the agenda that benefits Capitalism 2.0. So what should we be looking for in policymakers and how should we be beating them?

Javier Saade

Let’s talk about the PPP, because this was very intersectorial very directly with what you are doing and fintech…

Sean Salas

Define PPP very quickly for those that don’t know…

Javier Saade

Yeah, the Paycheck Protection Program in total was about $660 billion that was basically put aside for Treasury and SBA to backstop loans for small businesses. So far, out of the $660 billion, about $525 has been lent, 4.9 million loans. I actually was looking at this before: the average loan size was $107,000. If you look at what…

Let me back up for a sec: there is no way, even with the smartest, best-intentioned policymakers, that you were gonna pump $660 billion into the economy and things were not gonna break. There’s been something like 35 changes to the rules and it’s been very confusing, and fintech companies like yours have been wanting to participate for a good reason, and that is that you touch on the smallest businesses which were the most vulnerable…

And looking at the data and looking at policy, one thing that the SBA did right was for the first time opened up the aperture of who could participate in putting out the money for the program. The problem was that it may have been a little too late. Out of 5,400 lenders, 20 were fintech companies, give or take. And the 20 fintech companies –let me look at my notes– put out $4.7 billion and 160,000 loans out of the $521 billion out of 5,400.

But this is the statistic that I want to focus on, Sean, in where policy really is almost this positive of what happens. The average loan size that fintechs did was $28,000. And that tells you that the businesses that got those loans were much smaller than what banks and other larger institutions were doing. Why does that matter for policy? I’ll tell you why that’s a matter of policy, specifically about black and brown owned businesses: all of them, for the most part, not all of them, the mass majority of them are tiny. They need tiny amounts of capital…

Sean Salas

They’re micro businesses.

Javier Saade

Exactly. And you’re going to need Robitussin, right? You need an aspirin. And what the solution that was crafted, very quickly… And putting it in perspective, the SBA on a good year puts out $25 billion of loans; in four months it put out 30 times that amount, so if you do the math, they were running at 100 times that capacity, just insane numbers.

But it tells you that there would have been maybe some more forward-looking policymakers and things like that, they would have realized: Oh shoot! There’s this whole crop of interesting alternative lenders, like Camino Financial, there are many, several, that could put this money to work really fast, really quickly to these businesses that needed the quickest.

And that happened but not as effectively as it could have happened. If you look at what’s gonna probably happen with forbearance and mortgage market, it’s going to be much different than it was before. But at some point, people are going to start skipping on rent.

And even if you don’t have a mortgage, you live somewhere, you’re going to start skipping a rent, and the person that owns that place where the renter lives has a mortgage, typically. And in the case of somewhere in the South Bronx or where I’m from, San Juan, Puerto Rico, or all these places, the music is going to stop really quickly.

So how do you create policies that would allow for the most vulnerable communities to ensure people don’t lose their homes, people don’t lose their mortgages. So, yeah, the policy seems esoteric, but it sets the stage for a lot of these things in the economy to function. And there’s a lot of blind spots, and I think we’re seeing that in real-time.

Sean Salas

Great. I’m glad you mentioned that. So I might go ahead and bring up Tania Chaidez as the first person to ask the question.

Tania Chaidez

Hey, I’m Tania Chaidez, I’m part of Camino Financial. I’m very glad to hear you. Well, I have a question regarding current capitalism and how it will change. Currently, we are very dependent on the specialized and affordable workforce of China. But at the same time, our country and many other countries, the relationship with this communist country are getting tense. And even there, people are protesting against new law enforcements that limit their freedom. That’s a very, very difficult scenario for this new movement of capitalism. So I would like to hear what’s your view on how these Capitalism 2.0 will deal with this tense scenario?

Javier Saade

That’s a really good question. Well, look, China just last year passed, even though their GDP is smaller, they passed us by something called power purchasing parity. So their economy, in essence, is bigger than ours. And it’s going to be much, much bigger in 20 years. They’re going through some serious issues now because of what you’re talking about, Tania, which is that because they were focused on being the manufacturing capital of the world, their way to be competitive, to do that, was to keep labor prices low, and that, as has been evident, is not sustainable.

So now they’re looking at inside their borders growth, so you’re seeing a lot of unrest and how that affects us. I guess to your point is that all of the very cheap stuff you buy on Amazon or Walmart is brought to you courtesy of this, you know, abuse of labor in low-cost places, it’s not just China.

That is not sustainable. And we’re seeing that, we’ll go back to that in real-time. So that’s by far the most important relationship, bilateral relationship, the United States has. We need a lot more time to talk about it. But, yeah, it’s a really good point, Tania.

Sean Salas

Great. The next question we’re going to go straight into, someone else that you know Javier: Kenny Salas, my co-founder, and brother. Kenny, go ahead.

Kenny Salas

Good morning, guys. Javier, thanks for joining this podcast. We really appreciate it. My question is: what role does K-12 education play above capital in America and what should be the government’s long term strategy to bridge that gap?

Javier Saade

Jesus! These questions are huge questions. Hi, Kenny! That’s where it starts, and if you listen to the biggest successes economically of our community, like Jose Feliciano, or Robert Smith, or the CEO of Pfizer, whose name escapes me, who was an amazing African-American guy, is that somebody blocked them out of obscurity and put them on the right path early in their education.

And that, right now that the educational system in America is funded by, for the most part, property taxes. And as you know, all we have to do is go to a school in a high property tax area and a school in a lower property tax area, you go to that school.

So there’s a very clear… Again, this is one of those systems that doesn’t seem racist, right? That seems kind of, generally, that’s how the system is, well, no, if you really peel the onion, it’s set up in a way that more resources go to richer neighborhoods, and that is not right because you have… Talent is distributed equally, opportunity is not. So if you buy that talent is distributed equally, you should distribute opportunity as well.

So, I think that educated people are having their hands full. As you know, the president is encouraging universities and schools to reopen in the fall. Everybody’s scared of doing it for obvious reasons, the pandemic, but it’s also going to be costly. I just heard a public university system, not the University of California, but I think it was the University of Texas, that said that to reopen, all the equipment and all the things they needed to invest in to make it happen –testing students every two days, plexiglass everywhere–, tens of millions of dollars. Somebody is going to pay for that.

Online construct while effective, most of us that are in this call went to college, part of the learning experience is being with people, so it’s a very bad non-answer answer, but I think that is a big cause of the inequities we face is educational.

Sean Salas

I think we have time for one last question. Francisco Alcedo.

Francisco Alcedo

Hey, friends! thanks for having me, I really appreciate it. You know, I’m a big fan of capitalism. I’ll just say that (inaudible) white and blue. And one of the things that I think about a lot is just the mathematical incentive structures that exist. And you mentioned it before very, very pointedly.

And then when you think about it from PNL standpoint and the way that corporations and entities operate, where they have to meet incentives of their shareholders, which have dividends and other financial structures where they have to meet metrics, right?

Those incentive structures have some time horizon. In what way can the new capitalism work, where that incentive structure isn’t so myopic? ‘Cause that’s the challenge that I, in my opinion, see as people looking at the short run, like investing in oil and gas, even though we have a climate crisis impending. How do we balance those two things in a meaningful way? I would love to hear about your thoughts on that. Thank you very much.

Javier Saade

That’s an awesome question. Yeah! Metrics and goals or tax policy drive behavior. You’re absolutely. And if you don’t change those, well, it doesn’t matter what we’re talking about here. Go hug a tree. Who cares? Nobody is gonna change behavior. You’re seeing a lot of this in private markets.

So venture capital and private equity funds raised money from institutional investors. But in reality, when you look at what an institutional investor is, in the case of California, if CalPERS is an investor in a venture capital fund, it looks like one entity, but in reality, they’re representing the interests of three million people. And because you don’t have the spotlight of a dividend policy or whatever else policy that requires you return money to your investors that are usually either mutual funds or hedge funds, you have more leeway to do things.

It was the genesis of that buyout in the United States. The reason people started taking companies private was so that they could do things more long term, right? Like private equity, that’s a (inaudible) private equity is that when you take the scrutiny of a public company in best or out of the picture, you could focus on other metrics.

But in the case of public companies, dividend policies are set by shareholders. So you can argue that if the directors of a company choose to reduce the dividend by two pennies in a quarter, and that two pennies… If you do the math, two pennies in an Apple stock really represent hundreds of millions of dollars. And they decide that with that hundred millions of dollars they’re going to raise the wages of their factory workers, it’s hard for me to envision that that doesn’t get a fair shake in the public markets.

So to me, all of these metrics and policies… There’s nothing in stone. All of these systems we had were invented by us. They are constructs we create. Money doesn’t exist, right? Money is a construct we use to transfer and store value. All of these things are things we invented. So if we invented them once, we should be able to reinvent them.

Really good questions. All of them. And I really enjoyed this. I don’t know if we have time for more, but this is great!

Sean Salas

Unfortunately, we don’t. And believe it or not, it was like 23 questions that were submitted. So I did a terrible job, mostly, in this fireside chat. I promise, for those that tune in in the future, that I will allocate the appropriate time to address many more questions than we were able to address. As you can imagine, we can be having this discussion for hours and hours, if not days.

And so I want to thank Javier. Your knowledge is vast. Your leadership is true. And I want to thank you for the contributions you’ve been making in our community. And I know you are trailblazing Capitalism 2.0. I want to follow you on your journey. So, how can people follow you, Javier?

Javier Saade

Well, I don’t know if you want to follow me, but if you want to follow what I’m doing, I’m pretty active. The social media platform I use most is LinkedIn to communicate. So anybody here… I don’t think there’s that many “Javier Saade”. There’s a lot of “Javier’s” but not a lot “Javier Saade’s”. Happy to take your invitation.

I’m relatively visible. I like to write a lot. And sometimes I could write articles with people. I would love to engage with all of you. And I’m really happy to have had this conversation. Thank you for having me. Thank you, everybody, for tuning in.

Sean Salas

Alright. Yeah, he writes in a few small publications like TechCrunch (inaudible). Alright, thanks again, Javier. Thank you all for joining. Thank you all for staying this whole hour, I know we lost one person till two minutes next to the hour, so just testimony to the level of engagement and interest that there is in this discussion. Thank you and stay tuned.

Javier Saade

Thank you, guys!


Thanks for listening. Please make sure to like and subscribe to our podcast on your favorite platform. We’d like to thank Bethany Sands for sound and editing. Our creative team, Tania Chaidez, and Daniel Bustamante. Talent producer: Gerry Cervantes. And our senior producer: Ellianet Romero.

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