Greed on Steroids (October 22, 2007)
One score years ago, Greed was just good. Now Greed is God. God is Greed. Those who embrace one seem to embrace the other. Greed is now on steroids.
In theory, Chapter 11 of the Bankruptcy Code addressing business reorganization exists because of an assumption that a “going concern” business is synergistic and provides positive public externalities such as steady jobs, established customer networks, etc. In other words, the business provides some value beyond the price of the individual assets. Liquidating the business rather than rehabilitating it, the argument goes, expunges the possible public benefits. In practice, however, Chapter 11 often is like a second marriage, the triumph of hope over experience.
Today, the hedge fund managers and private equity boys pursue an opposite tack. They take a going concern, sell the assets and vaporize the “going concern” value. They finance the disintegration with OPM (Other People’s Money) and pay reduced taxes for their assault on the public weal. Instead of an “invisible hand” promoting the common weal, we are allowing others to cut off our hands.
America now rewards the destruction rather than the creation of wealth. Once upon a time, risk was the handmaiden of reward. Envy–the desire for something that someone else has–can be a positive incentive particularly if the owner of the coveted item seeks something owned by someone else. Markets develop. In a properly functioning capitalist system, an individual presses his nose against a showroom window and then goes out and puts the same nose to the grindstone to acquire the wherewithal to acquire the good. However, those accumulating money today are not taking any personal risk or making a sacrifice, although their actions risk the stability of a precarious Economy.
In a short time, the hedge fund managers and private equity boys also have managed a non-hostile takeover of both the Democratic and Republican Parties with little resistance. They own C. Schumer and H. Reid and H. Clinton. No one is protecting the public. The SEC (Securities and Exchange Commission) is now a wholly-owned subsidiary of the NYSE (New York Stock Exchange).
Bumper sticker of the week:
Feed The Homeless To The Hungry