Government Capitalism

K Street to Look Over the Back of Wall Street

Government Capitalism – more like socialism – is still trying to take a larger and larger administrative role in how Wall Street operates. Wall Street just isn’t going to go along with it. Yes Wall Street was largely to blame for the economic implosion. Now the government wants to step in and regulate how the firms operate and how they pay people. That isn’t the government’s job. They can create legislation empowering the SEC and the Treasury/Fed with powers to force regulations and standards upon Wall Street like the Sarbanes-Oxley act of 2002 but they cannot and will never be able to control the price people are willing to pay for talent. This at the core of Capitalism.

All eyes are focused again on the high pay of executives on Wall Street. Obama will speak today about this very subject and to a lesser amount about the actual regulatory specifics that need to change. Oh by the way – this needs to happen globally too – where the US has no power at all. I know regulations and more power being held by the SEC will happen and a lot of that good to reign in pandemic possibilities and rogue practices but talent is a fluid resource that will go where the money is – and hence take the business and clients with them.

Frankly, if Goldman Sachs didn’t pay out huge bonuses – the people would go to the Bank of Hong Kong for example that would and use their talents there. Why? Because they pay better. 99% of all Americans can’t stomach the hundreds of millions of bonus payments and perks on Wall Street but they would also leave their job in a second if their pay would go up by 50% or even 500% I assure you. The same holds true here although the people just make a lot more money.

Now my opinion is that executives in America in the C suite should all get paid a very modest sum of money. If the team makes money the money goes into a pool. They are all aligned. If they make money for shareholders great they get paid more. If they lose money or the stock plummets under their watch then they don’t get a penny. This should be a free market principal. Shareholders like you and me I think would back companies with this type of profile as opposed to others that don’t adhere to pay programs that create up front pay packages that don’t penalize poor performance.

But despite the free market principles that America was built on K Street just can’t keep their hands off the Golden Goose. Right now financial firms more than ever are pumping hundreds of millions in to campaign coffers, lobbyists and hiring senior political people to help them. Why would DC ever give up that attention now. The wouldn’t – and Won’t. This new direct DC relationship with Wall Street should be entirely arms length but legislation is for sale in America. Expect pay packages and incentives to remain under the capitalist watch while government tries to curb it. Our government and those around the world should be working internally without outside influence to put standards and practices legislation in place – with the rest of the world in total agreement – to make sure the systems and the risky practices are monitored tightly and regulated – that is the only role government should be playing – and not politicizing the whole thing.

Healthcare Continues to Overshadow The Real Problem

The media is the most powerful weapon of the 21st century.

I guess diversion is the best political tool. We are all glued to the political entertainment channel like last night hearing a marketing and advertising speech for healthcare. What the heck is wrong with us. America is broke and here we are selling, pandering a better word, a new system that we all know will be a honey pot for wild politicians to raid. In addition, fiscally it is the worst time in history to get this done.

Without borrowing more money from the world we cannot do this. It is clear the only ideas DC can come up with is to borrow more money to throw at broken systems and further put our way of life at risk. Who is watching the hen house. Rome is burning and healthcare is more kerosene. When a trillion dollars is batted around without a blink of the eye we have to shiver in utter fear and disgust. But the debate hasn’t focused on the program details and moreover the astronomical cost.

So on the stump again the political machine just churns out rhetoric and advertising for the program. I think it diverts society away from the core issue – COST. We all know it will cost more than $1 trillion – I bet $1.5 - $1.75 trillion if it passes. I know I have put out 10 ideas that are rapid and don’t cost money. Every idea I have put forth doesn’t cost money to do. But the honey pot is just too mouth watering for politicians to keep the foxes hands out of. Now the screeching republican “you lie” statement will take over the news an everyone will tune in. Again another diversion for us to look the other way while the political machine cuts back room deals and rams unwanted legislation down our throat.

Every diversion keeps American glued to the TV. Given media is the most power weapon of the 21^st century it is used to sell us and also divert attention away from key issues like how will America survive fiscally. I see no way we can right now with or without healthcare reform. This is the real issue. It isn’t healthcare, the newest product for sale, it is the whole capitalist system. Survival and longevity are all stated clearly for Americans but our survival also depends on America’s ability to stay afloat. Bolt trillions of dollars on the system followed by over $6 trillion of new borrowing and it will be over for all of soon anyway. Borrow all this money for healthcare but I don’t hear anything about replacing the social security money that has been stolen from us. But diversion works and the issues facing our society are just never brought up. Where have you heard a plan to fiscally overhaul America before we die. NEVER.

Good Money After Bad

$60+ Billion for Automakers Down The Tubes

As I have been mentioning the “investments”, really loans from the world to the US to loan and “invest” in the automotive giants, is very unlikely to ever get paid back. Note that GM alone with $50 billion would require a historic increase in their stock value. This is very unlikely to occur as is the case in many of the loans and stock positions the government has taken in big businesses. Although it appears the banking sector is recovering and not reaching out for a lot of new bailouts it is still a challenge at best for the US to recover those positions either. Then there is TARP and that is made up of toxic loans and portfolios so that is also in jeopardy.

It is not like we all haven’t been talking about this for over year and common sense already led us to this point. So now we see the headlines already talking about the probability of the ROI (return on investment) of all the money put into the auto companies alone. Although these bailouts may have been necessary to save companies and entire industries our new stock broker appears to have made some bad choices. The government has been very aggressive in their ownership stakes in the businesses and I like that component because it may juice returns. However, a lot of zero is still zero. We are all hoping the money across all these companies will have gains and losses so in the end the portfolio comes out ahead or at least recover the money but we all know the government has never been able to do things like this.

There you have it. I expect to see more headlines around the assets we now own as shareholders. I know you and I would never make investment like this unless you were a venture capitalist like me. The whole program is hugely risky and I hope the managers of the portfolio are really great. In my opinion I would have or would incentivize large buyout companies, turn around executives and other best of breed people to manage these portfolios for optimum return. The fear I have is that politicians and career academics are managing these things. If money was to be made by making these portfolios really produce returns I suspect the best and brightest people in the world would sign up to help. I certainly would for certain.

Will the SEC be Sued

 

Madoff Negligence Sets up SEC for Madoff Investors

I am certain the Billionaire’s Boys club is using every tool, social, political and economic to wrangle the SEC into a position to help them recover their pilfered monies from the Madoff scam. The recent announcements of negligence and incompetence in uncovering the Madoff ponzi scheme leaves the door wide open for a shareholder class action suit against the SEC for certain.

It already appears to me the powers to be are at work. Having the SEC spit up words like incompetence is a strong indication that behind the scenes pressure has begun to soften the government for another bailout. Powerful people lost huge amounts of money and so did the little guy. The little guy is in good company. I am certain if mom and pop who also lost millions stood up, and they have, to cry foul they words would go largely unnoticed. That is one thing. If a billionaire stands up and cries foul that is an entirely different dynamic.

Money and power go hand in hand. Lucky for all the investors the big boys are playing hard ball and for certain pressure on the political machine that they have probably paid millions into has their head in a vice to do something. It is not some revelation that the SEC missed all this but it is a revelation to see them set themselves up for a fall. It is really unheard of. I strongly believe this has been brought about at least in part from tremendous pressure worldwide to position a recovery of the monies lost. Heck you would be shot in the streets these days for a pair of sneakers. In this case the fall guys are being lined up against the wall in front of firing squad and I bet we will see the SEC in court and forced to cut a deal to pay the investors back.