The Plunderers

Who are they? You can be sure that they are not the pirates of yore. No, they are the corrupt pirates of Wall Street that devour the small to medium investors and leave them penniless. It takes a Madoff to leave the rich penniless.

Before 1980 corporations were able to get credit from commercial banks relatively easily. After 1980 the rise in interest rates forced corporations to seek out other sources of credit. As a result investment banks reappeared on Wall Street and became the controlling source of corporate money. Earnings projections had to be met or the stock price declined and their ratings dropped. This opened the corporation to a “hostile takeover” and further upset. In order to survive a corporation had to be highly competitive and able to bring a technology to the market that appeared “indispensable”. So in order to obtain venture capital, the corporation had to convince the source of money that it had the skills and talent to provide a high return to the investors. Once a capital institution was convinced, huge amounts of money became available and the new young entrepreneur became instantly and phenomenally rich.

What was the difference between the entrepreneurs of old and the new leaders of business? The “old boys” were hard workers, concerned about the customers and the company’s share of the market. All of this took time and effort. The new young entrepreneur was rich before the business was successful. All he needed to convince the venture capitalist to invest was a viable business plan, sometimes an innovative patent and the right connections. The money then rolled in the door. And since the CEO of this potentially successful business had no self-image problems, he paid himself a huge salary. Instead of pursuing the interests of the company, i.e. the welfare of the customers, employees and shareholders, the CEO looked upon himself as “numero uno”. He was the only one that counted. In short, every man for himself became the pattern. CEOs moved from one company to another attracted by higher salaries and bonuses. Their riches were shameful.

However, in order to maintain that style of life, companies resorted to cooking the books, fraud, corruption and criminality. The company became for some CEOs an unlimited ATM machine, brazenly availing themselves of millions. It was pure and simple looting. They looted their own corporations and the corporation under their leadership looted their employees, their customers and their shareholders. The end result was that everyone except the CEO wound up penniless. Some of the tragic examples are Enron, Tyco and WorldCom. No one blew the whistle, neither the reputable accounting firms nor the rating agencies.

The belief that corporations and financial institutions are capable of policing themselves is a fantasy. Regulators’ refusal to regulate opened the doors to looting for private profit and eventual criminality. Jeff Skilling, former CEO of Enron with a Harvard Masters Degree in Business Administration, was convicted of multiple counts of fraud and was sentenced to 24 years in prison. He fought aggressively against government regulation.

Here’s some “breaking news” that will shock your socks: The CEO of Merrill Lynch, while the company was seeking financial help, was paying his chauffeur $230,000 a year and was redecorating his office at a cost of $1.2 million which included a $35,000 elevated commode. And this was going on at the time of huge layoffs at Merrill Lynch. The purchase of Merrill Lynch by the Bank of America has caused a major crisis for the bank. The stock price has dropped precipitously and the dividend will probably be cut. This will force the price even lower.

Now the CEO of Merrill Lynch has been asked to leave by the CEO of Bank of America because of additional losses not revealed at the time of the merger. And the shareholders of the B of A are now considering forcing the CEO of B of A out because of lack of due diligence.

One wonders how A.P. Giannini (1870-1949), the founder of the Bank of America, originally called the Bank of Italy (1904) would react to the SOBs of Wall Street who are crippling his bank. It was the first bank in the early 20th century to offer banking services to the middle class rather than only the rich.

References:

Galbraith, James. The Predator State. 2008.
Wikipedia

The Supreme Irony

There is a good deal of praise at the moment regarding Obama’s selection of a cabinet. The phrase “the best and the brightest” has surfaced once again as a description of those selected. You may recall that term as the title of a prize winning book by David Halberstam (1972) describing the Vietnam quagmire and those responsible.

Two of the best and brightest were Robert McNamara and McGeorge Bundy. McNamara was Secretary of Defense and Bundy was National Security Advisor. These were the “whiz kids”, men of overweening self-confidence, highly educated at the best eastern schools, top of their class, plutocratic ideologues and a paranoid fear of communism. They believed that communism was monolithic, that all the countries in Southeast Asia would adopt authoritarian communism (Stalinism) and would prevent western corporate investors from developing the natural resources of the areas. The potential loss of profit was an issue.

After all, the cold war was at its height and the best and brightest mistakenly assumed that the Soviets and China intended to control Southeast Asia. Another mistake was the failure to recognize that the Vietnam conflict was a civil war and we had no cause to interfere. Finally, McBundy in particular failed to comprehend the “endurance of the enemy” and that a guerrilla war could not be won by large numbers of mechanized combat troops. Does this sound familiar? (Iraq)

McNamara in his memoir and in the film “Fog of War” admitted that he was “wrong, terribly wrong” about every aspect of the war. And Bundy when questioned whether he agreed said that “it was very unlikely that we were right.”

Another blind spot on the part of our brilliant leaders was the inability to recognize that the communist ideology had split into totalitarian communism and democratic socialism. In the 60’s and 70’s there were a number of third world countries experimenting with social democracy because it was clear to them that socialism could not sustain itself without democracy. A good example in 1970 was Chile where Salvador Allende, a social democrat, not a Stalinist, ran for election to the office of President and won overwhelmingly. It was a mixed economy where major corporations were nationalized and privatization of smaller business continued to exist. The success of the government frightened the power elite, viz. Nixon and Kissinger. Kissinger informed Nixon that the spread of social democracy would endanger our control of the natural resources of these countries and potential world markets. So in order to kill Allende’s government, Kissinger labeled it a Marxist dictatorship, followed with a military coup aided by the CIA and placed Pinochet, a brutal fascist dictator, in Allende’s place. Allende tragically died in the takeover.

Today democratic socialism has once again surfaced particularly in Latin-America. It does not make Washington very happy but there really isn’t much the administration can do about it this time around. We can hardly invade every country now controlled by popular uprisings. And besides our problems at home are overwhelming.

It is ironical that the Obama advisors are claiming that the appointees are the “best and brightest” One observer wryly commented that obviously they “had not read the end of the book.” Can Obama get us out of the current quagmire?


References:

Klein, Naomi. The Shock Doctrine.
Truthdig. Blight, James.
Wikipedia