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Capitalism And Leprechauns

I am constantly amazed and confused by people that wax poetic about American capitalism. I can’t tell whether they just don’t understand the fundamental principles of capitalism, or if they’re simply not paying attention to what’s going on in America today.

So let’s clear a few things up by starting with the definition of capitalism:

An economic system based on a free market, open competition, profit motive and private ownership of the means of production. Capitalism encourages private investment and business, compared to a government-controlled economy. Investors in these private companies (i.e. shareholders) also own the firms and are known as capitalists.

In order for capitalism to exist, you must have a situation where the shareholders who have invested in a company partake in the profits of that company. We don’t have anything resembling that anymore. We have a system where executives of a company take all the profits that are left after purchasing a congressman, leaving the shareholders with nothing.

Everybody is aware by now, of the exorbitant bonus structures in the financial industry. On the day that the FEC announced that they were filing charges against Goldman Sachs, the company announced that it would be paying out $5.4 billion in bonuses. This, just 15 weeks after they had paid out $16.2 billion in bonuses. If you take a close look at the readily available financial disclosure information for all of the big banks and investment firms in the US, you’ll see a pattern emerging. Executives seem to be shifting most of their compensation into cash pay outs, rather than accepting stock grants. They’re obviously looting the companies for every cent they can get, while they can get it. None of the five biggest banks in America currently have any assets. You read that right, they’re not worth anything. Their liabilities far exceed their assets, making them “zombie” banks. I’m not going to get super financial wonky on you because this would be a really long post, and I want to focus in on what corporate executives are doing to America. But trust me, I’ve done a lot of research into this, and listened to all of the economists that correctly predicted the subprime collapse. They are all in agreement in their assessments that our banks are worthless. They are also all in agreement that another major collapse is eighteen to thirty-six months away. But more important than what these very smart economists with solid track records of forecasting our economic situation, is what the executives are doing. The fact that they’re suddenly shifting compensation packages to cash payouts tells me that they don’t want stock in the companies that they’re running into the ground. If you don’t want to believe the “doomsday” economists, then look at the evidence and apply a little bit of common sense.

So as these executives are looting the companies that they’re running into the ground, they’re royally fucking their shareholders, who are seeing none of the fake profits. I say fake because the banks are leveraging taxpayer bailout money to show liquidity that doesn’t really exist.

Who are the shareholders? That would be anyone with a 401k in America. Your 401k is invested in virtually all of the companies in the Fortune 500. Because of the way 401k investment options are packaged, most people have no idea what exactly they’re invested in. It’s safe to assume that you own some Bank Of America stock and some Citibank stock and some Goldman Sachs stock, as well as bundles of tech stocks and retail stocks. One of the many shitty things about this system, is that Goldman Sachs is moving most of your 401k money around. They are one of the biggest investment firms in the world, which means that they’re steering your 401k investments. They’re the reason why the dotcom bust happened. They were IPOing total crap companies, in an effort to create imaginary money so that they could amass real profits for themselves. When that well went dry, they created imaginary money in the form of inflating the real estate market. They drove up the value of your house by “qualifying” a pizza delivery guy to buy the house next door to yours. It didn’t matter that the pizza delivery guy couldn’t really afford to buy a house. Goldman Sachs figured out that they could sell the pizza delivery guy’s debt to you, by investing your 401k money in real estate bundles that were worthless.

They got you to create debt on the basis of imaginary equity that they then got you to buy! Amazing, right?

And while they were creating huge profits for “the company”, they weren’t creating any profits for you, the shareholder, because they were taking the lion’s share of the profits out and paying themselves enormous bonuses. The more they understood the precariousness of the financial structure they had created, the more imperative it became for them to grab all the cash they could while there was any cash to grab.

This isn’t limited to the financial sector. Here’s a great story that got on my radar thanks to The Young Turks. It’s a story about Abercrombie & Fitch, whose profits have plummeted in the past 2 years. In 2009, the company netted $254,000, way down from $273M in 2008 and $476M in 2007. Their CEO’s (Mike Jeffries) compensation package for 2008 totaled $71.8M. Think about that for a second, he got paid about 1/3 of everything that the company made in 2008! But that’s just his compensation. We’re not even adding perks into what he cost the shareholders. His travel expenses in 2008 were $1.3M! We don’t know what his total compensation for 2009 was just yet (I’m DYING to find out), but we do know that the board of directors took some steps to tighten his belt. They decided to limit his travel expenses to a mere $200,000 per year. But before you start weeping uncontrollably for his terrible fate, you have to know that in exchange for amending his employment contract (which expires in 2013), Jeffries received a lump sum of $4M! Yes, he got a lump sum that amounts to sixteen times what the company made in profits last year, for simply agreeing to amend his employment contract. A little quick math tells me that if he continued his lavish travel through the end of his contract, the cost of the tab to the company would have been $2.6M. By amending his contract, they brought that cost up to $4.4M.The worst part is that he’s going to walk away a very rich man as a reward for bankrupting the company that he works for. It’s the same racket that Carly Fiorina ran with Hewlet Packard. She got a golden parachute which cost the shareholders $45M just to get her to leave! And now this stupid bitch that failed her way to massive wealth may become the next US senator from California? Unbelievable!

See what I mean about looting? And once again, who gets fucked? That would be the shareholder (i.e. you).

We don’t have capitalism in America, anymore than Ireland has leprechauns. We don’t live in a country where hard work pays off anymore. We live in a place where the system is gamed to favor the rich, while sticking you with the tab when they fail.

Take a look at this lovely chart, which shows the ratio of CEO compensation to the average worker’s salary.

Charming, right? A CEO today makes 319 times what the workers in their company makes. I predict that we’re going to see a huge spike in CEO compensation for 2009 and 2010 because of a last ditch effort to squeeze every cent out while there’s a there there.

Oh yes, the people out there screaming for capitalism confuse me. I wouldn’t be confused if they were all Carly Fiorinas, but they’re not. They’re the people who work hard, only to earn less than they were earning ten years ago, while their retirement funds are routinely looted by a handful of very powerful people.

Don’t worry, this post isn’t all about doom and gloom. The good news in all of this is that I still believe we can turn it around (although that window is closing). We just collectively need to realize that we have all the power. We still get to vote every year.

I know that our government sucks. Our system has entirely too much corporate money in it, thereby eviscerating its efficacy to actually do something good for the people. But the alternative view of trusting corporations to do right by us is completely insane. I can’t do anything about Mike Jeffries, but I can vote out Charlie Rengel. I understand that I have more power over the government than I do over corporate executives.

The first thing that we can all do, is to move our money out of the big banks. If our government won’t stop them from becoming “too big to fail”, then we can. Move your money is an excellent resource to help you find a good community bank.

The next thing we can do is to start collecting signatures in each state to put a “clean election” measures on the ballot. If we mandate that our elections are publicly financed, we take the first step in taking back our government. The biggest problem we have right now is that it costs an average of $8M to win a senate seat that pays $175,000 a year. Does anyone else see a problem with this? If our representatives didn’t have to whore for corporate cash just to get elected, they just might start representing you for a change. Keep in mind that this culture of CEO looting didn’t happen without the help of the government.

And lastly, we can keep ourselves informed. We have to keep a close eye on the people we elect. You can’t just assume that your congressman is “the good guy” amid a sea of corrupt politicians. And it shouldn’t matter if your representative is they guy you voted for. That should be more of a reason to keep an eye on them. Democrats didn’t keep an eye on Clinton. What did we get in exchange for our blind faith? We got NAFTA and a massive deregulation of our financial institutions. How did that work out for you? Republicans didn’t keep an eye on Bush. We’re all to familiar with what they got in return. I’m not going to go through all of the damage that he did. This post is long enough!

My point is that we would all be better off if we policed our own party, instead of policing the party that is never, ever going to get our vote. Doesn’t that make more sense to everyone? We’re not getting anywhere with partisan attacks on the opposing team. It’s just not working. We need to let our team know that they’re going to lose a vote that they previously had if they don’t represent us well. And we need to mean it.

I guess what I’m saying is that we need to get proactive! I really believe that if we do, things will get better. We are not as powerless as most of us believe we are.