TEXT OF STORY
Bob Moon: Ever since the financial crisis hit, there's been soul-searching about the role of "exotic" financial instruments. Just how many of these fancy, often risky, investments does a business need just to keep afloat?
In our series Economy 4.0, special correspondent David Brancaccio has been following the quest for a financial system that better serves more people. Today, David visits a global business in mid-America that's been doing just fine without any derivatives, hedges, or even a big loan.
David Brancaccio: Go back to the furthest recesses of your long-term memory and see if you can identify this sound.
Sound of clicking and men talking
Jack McGinnis: He's typing on a typewriter. He's never made the transition to the computer age yet. And we bought him a laptop hoping we could teach him how to do the Internet, and he just has no interest.
Jack McGinnis is talking about the boss, his father Leroy, CEO of McGinnis Wood Products of Cuba, Miss. They are coopers, manufacturers of barrels for vineyards and whiskey distilleries around the world. They use acres of wooden slats made from white oak -- but no e-mail, no texting and no fancy financial footwork here.
Leroy McGinnis: We don't owe nothing. We don't borrow. We haven't for many many years.
Brancaccio: You don't borrow money for this?
Leroy: I don't borrow money, since 1992 was the last debt we had. I had a million dollar CD in the bank.
Brancaccio: A million dollar certificate of deposit. A CD. I mean, surely you could have put a million dollars into something more fancy?
Leroy: Actually at the time we had about $5 million in the bank and just didn't need it. And so we just got a CD with it; the interest was good.
Brancaccio: I couldn't interest you in, um, a hedge fund? I couldn't interest you in a set of derivatives or something?
Paul Volcker, the former Federal Reserve chairman and now the head of President Obama's economic recovery board has asked for any proof that financial innovation has helped the economy. The one useful example of financial engineering in recent decades, Volcker famously said, is the Automated Teller Machine. McGinnis will use an ATM -- but only to get money that he has made, not borrowed.
Leroy: I guess 'cause I grew up in the Depression. I remember in 1932, we lost the home, we lost the farm, the cattle died in the field. But I've never forgotten that. I still live in that, that period of time.
A tongue of flame cooks the inside of a new barrel, the resulting carbon lining helps mellow whiskey over time.
McGinnis may not believe in leverage, but he does believe in growth, slow steady growth over time. He had $18 million in sales this year and is shooting for $20 million next. I had visited this factory exactly 10 years ago, and since then, McGinnis bought some expensive new kilns for drying the oak and there's a new building so whiskey and wine barrels can be made separately. Over the decade, he's doubled his employees to 135 people.
This conservative approach is not crazy or sentimental.
Dan Gross: That's actually pretty smart.
Dan Gross, economics editor at Yahoo! Finance, says other, bigger American firms have only recently figured out what guys in the heartland like McGinnis have known all along.
Gross: Large corporations today are hoarding cash, right? They are paying down their debt if they're smart. They're keeping a huge amount of cash on hand to ward off any liquidity problems in the future, so this is what big businesses are doing too.
Where McGinnis has been expansive is in cultivating his global markets. Wine barrels for Spain were very strong this year, McGinnis says. Given the euro crisis that may not continue. But he's expecting Chile and Australia to take up the slack. And there is always U.S. bourbon. Just back from visiting customers at distilleries in Kentucky, McGinnis tells a veteran driver they may need a new semi-truck to haul new business.
Leroy: We're gonna be busy.
Truck driver: We're gonna be real busy!
Both men laugh
You can't build long-term growth on financial wizardry with gains on paper and not in the real world. That's the view of Bill Gross, the respected chief of the investment firm PIMCO, in his letter to clients this month. America, Gross writes, "needs to make things, not paper." Things maybe like barrels made of American white oak manufactured without much in the way of financial engineering.
Brancaccio: So you're not also into the, like, speculative wine futures and things like that?
Leroy: No, no, no. I'm very careful where the money goes.
In Cuba, Mo., I'm David Brancaccio for Marketplace.
Moon: Read David's Economy 4.0 blog and follow his exploration of better ways to handle the economy.