Who died and left the investors in charge of America’s
future? When did manufacturers, airlines, investment banks, mom and pop shoe
stores (if there are any left) and big-box retailers decide that business
practice didn’t mean anything and business presentation was the whole ball game?
Oops, take mom and pop out of that equation. They
are still providing the sweat equity that built America. It’s the rest of the
business world that has given up sweat in favor of equity. Except for sweating out quarterly
reports. Plenty of that goin' around, but even they no longer make sense; Google makes record profits and their
stock drops; Merrill Chase doesn’t lose as much as they were expected to lose
and their stock goes up.
Slowly, inevitably, unendingly over the past three
or four decades, we have seen our American business model—the finest on the
planet—hijacked by investors. Not customers or clients, but investors. They made themselves King of the Hill. If there’s an unwarranted Freudian slip
toward that ‘hill’ being Capitol Hill, so be it. We deserve, under these maneuvered
and contrived, massaged and outright lied-about circumstances to get sent to
the back of the room until we better understand the free-market system that
made us great.
Free markets are not those markets that abandon
the security and welfare of their workers. Nor should they be free from all
forms of government oversight, allowed to buy and sell Congress as suits their
purpose. No section of the Bill of Rights empowers investors to pocket profits
and off-load losses to the taxpayer. Short-term gains for corporations, manipulated
by relieving themselves of that messy old habit of actually making things and,
in place of that, dealing exclusively in the branding of things once was called
cattle-rustling instead of merger.
Branding, without owning a herd, was a hanging
offense in more sensible times.
A case in point is Larry Summers’ more-than-excellent
assessment of the current rush to bail out Freddie Mac and Fannie Mae, so that
investors will not lose confidence.
Unfinished Business at
Freddie and Fannie--What the Government Should Do if the Housing Giants Can't
Stand on Their Own
Anyone
who cares about the health of the U.S. economy should welcome the enactment of
the Treasury's rescue plan for Fannie Mae and Freddie Mac, along with other
measures to support the housing market. While there is room for argument about
details, the risks to the financial system were too great to allow delay.
OK, Larry, maybe
I agree with the premise, ‘cause you’re a guy with street-cred, at least on
Wall Street. Go on.
No
one should suppose, however, that the issue is satisfactorily resolved, even
for the short term. Emergency legislation was necessary because market
participants were unwilling to buy Fannie and Freddie's debt; investors doubted
that the government-sponsored enterprises, or GSEs, were healthy enough to
repay . . . If their (Fannie-Freddie) debt proves easier to place now, it is
only because this guarantee has been strengthened, not because anything has
changed at the GSEs.
This,
to put it mildly, is a highly problematic posture for policy.
Now I know this won’t make a whole lot of ‘investors’
happy, but suppose—just suppose—we let them take the losses they so richly
deserve and wring the bathwater out of Freddie and Fannie’s tub? Presumably,
what we would be left with is the baby.
If
this preferred alternative (see the entire article) is, as I fear, not
realistic given the state of GSE finances, the government should use its new
receivership power to protect taxpayers and the financial system. In the
process, payments to stockholders, holders of preferred stock and probably
subordinated debt holders would be wiped out, conserving cash for the
benefit of taxpayers. The GSEs' borrowing costs would fall considerably,
helping prospective homeowners. (underlining mine)
I don’t know when the last time was that I heard anyone suggest that taxpayers ought to
be protected and investors made responsible for their (essentially) gambling
choices to win or lose at the great green table of Wall Street. Thank you,
Larry Summers.
The likelihood of meltdown is great, no doubt about
it. The pain of another ’29 style crash is even more painful to contemplate.
But the alternative could be worse. The alternative may be to take a gamed system
that has impoverished tens of millions for the enrichment of thousands—and extend
it. The beast must be put down rather than encouraged to continually lower its
head and turn on us.
America has become a vision of itself rather than an economic engine. We no longer make
anything. Witness the overnight capitalization of Google to 25 times the value of General Motors,
which has divisions on five continents, dealerships worldwide and a mix of product
that ranges from Chevrolets to—ranges. Google (much as I love it and much as I
value the direction American ingenuity allows in the creation of a Google) sells ads
on the Internet.
Brand
has replaced product. Product can be made anywhere—mostly in places you wouldn’t
want to have to find a hotel room for the night. Nike doesn’t make anything! Nike pays Tiger Woods a
hundred million a year to mate his
brand with their brand. The result is
the birth of a super-brand, whose incidental made-by-someone-else shoe cost $4
to make, $40 to brand and that creates (for the investor) $40 in profit.
Where in that mix is a meaningful American job upon
which an American man or woman can support a family?
There is none.
The meaningful job upon which a man or woman can
support a family has been massaged out of
the business formula as companies learned that making stuff was not nearly as nifty and profitable as branding stuff. That, my friend, is the
answer to how company after company can lay off thousands (sometimes tens of
thousands) of employees during a financial glitch. They are to a very large
degree redundant and can be let go
when the phones stop ringing—they don’t
bloody make anything. When (and if) hired back, their benefits are gone,
along with seniority and the wage they made at being let go.
Is this a great system, or what?
Now my premise, back three or four paragraphs, when
I still thought I had a premise—was that
the destruction of this glitz-based chimera of what business actually used to
be, would bring us to our senses. The Harvard Business School (which we have
largely to thank for a Pentagon that has lost its mission, a new paradigm for
waging war, a currency in shambles, a series of ‘bubbles’ that periodically
bring the nation to its knees, a quarterly-profit mentality that defines geed
in place of purpose and—last but not least—parachutes its grads from disaster
to disaster at a raise in pay) may finally be laid to rest as a business model.
What on earth would rise in its place? Old timey
horses and carriages? The return of Ozzie and Harriet? Speaking in that vein to
the narrower issue of Fannie and Freddie, Summers summarizes;
The
stakes here are high. The choices made in the coming months will bear on the
housing market, future taxpayer burdens, the credibility of U.S. financial
authorities in times of crisis and the integrity of the political system. It is
a time for decisive action.
The stakes are higher than that, Larry. Fred and
Fannie are not the only credibility problems we face as a nation, as China
becomes producer to America’s consumer and creditor to America’s debt. Congress
seems unaware that it has a 14% approval rate—half that of the most unpopular president in memory. No Congress in
history has stood at so low an approval rate, but these bozos have made
themselves bullet-proof by gerrymandering districts and raking in the gobs of
money from lobbyists that assure re-election.
Meanwhile, out in the real world, we are at the
brink of tipping into fear and anarchy and Barack Obama was excoriated by the
press for pointing out that obvious fact.
We need somehow to escape the bosom into which we
have been flung—the clutches of investors. We must put resources once again
into R&D in something other than the pharmaceutical industries and rebuild
our infrastructure with jobs rather than selling it off to foreigners. Farming
means more than absentee landlords raising crops and animals on lakes of
sewage.
This country is too good to throw away and we are doing that as surely as God (or Safeway, who can tell the difference?) made little green apples.
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Media comment;
- Wall Street Journal-Notable & Quotable
- Bloomberg-Mortgage Debt Least of Bad Bets as Investing Sinks
- Bloomberg-Freddie, Fannie `Fair Values' Hardly Look Fair
- Washington Post-Who Got What in a Slowing Economy
- Reuters-UK-U.S. Congress approves housing bill
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