• Government vs. American Capitalism

For a generation, now, we have been accommodated with a front row seat to a rigorous and seemingly intractable advance of government into the whole of America’s social fabric, and into the institutions of its capitalist system. Today we are confronted with a wave of negative wind pushing against the capitalism that has brought America its unprecedented success, as it absorbs the blame for the economic meltdown.

I am not equating capitalism with free markets here as is too often done, because that would imply an inclusion of international communities into a common basket, and there has to be balance and common sense in the application of “free trade,” between participants as we have discussed in previous articles.

Recessions inevitably deliver capitalism a bad rap. Making matters worse, there are usually groups or individuals who have taken advantage of power and influence, or who hustle the provenance of panicked confusion into magnified opportunities for fortune creation. All the while, wide swaths of society are struggling to meet basic needs. Visible abuse of the system that leads to wealth concentration provides thresholds over which those so inclined will leap to promote expansion of government and its insinuation into the corporate fiber of the Nation. Such intrusions usually come from those with little grasp of the elements at the heart of economic growth, human nature, creativity and the human spirit. On the other hand, extravagant, unrestrained, and unconscious excess fosters jealousy, and reaction. It can also propel overreaction, which in turn empowers those in government who seek increases in government intervention at all levels of commerce.

Such exercises in reactive belligerence pretending concern for the public “good,” are actually acts of self-interest intoxicated by ideology, or worse, driven by overwhelming ego. The reactive process ignores long term consequences of hysterically applied policies, and absolutely cannot effectively evaluate the secondary or tertiary repercussions.

We lament the often-declared unintended consequences of unctuously presented self-righteous actions such as the promotion of dubiously structured mortgages. It is reasonable to expect a chicken in every pot. It was, however, unreasonable to have politicized the American dream of home ownership into a structural expectation and promoted it as a fundamental right. Somehow, the “home” became the vessel that would bring forth the promise of collective prosperity. Both of the dominant American political assertions, Republican and Democrat, signed onto the program. Both sides of the political isle bent all rules of common sense to exert pressure in effort to curry favor with the electorate, and corporate benefactors, while satisfying expectations of lobbyists.

The department of Housing and Urban Development from the early ‘90s on, pushed minority applicant quotas on mortgage bankers, and set targets for the purchase of less than median mortgages by Fanny Mae and Freddie Mac (FM & FM). With the taxpayer on the hook for trillions in questionable debt, banks and bank executives were dancing in risk-free ballrooms up to the rafter in money. As the trillions accumulated, FM & FM, with the applause of Wall Street financial institutions such as Morgan and Goldman, “creatively-accounted” for the real value of the toxic assets that taxpayers would one day be required to cover. Oversight? Sure there was oversight – oversight that appropriate kickbacks made their way to all of the proper pockets. The Clinton Administration and Congress pushed banks to adhere to the Community Reinvestment Act (CRA) in order to be allowed to diversify. Again, where was the risk? Thank you FM & FM. No, make that, thank you taxpayers. Then along came George Bush with the American Dream Downpayment Initiative (ADDI) signed into law in December 2003 to increase home ownership rates with funds to be provided to first time buyers for down payments and closing costs.

Making matters more fragile, in came galloping the Morgan and Goldman types, smarter and more ruthless than the deplorable dunces at AIG who were easily perverted into insuring Collateralized Debt Obligations, and seducing banks to over-leverage, using complex instruments the bankers didn’t understand. The financial community availed itself self-servingly of the opportunity created by the government’s intervention. Morgan, Goldman and other investment banks made billions selling tainted goods to banks and to foreign governments. Lack of awareness and understanding by the general community encouraged a galvanization of international endorsements for what were worthless toxic assets from the outset. The long-term consequences of this extensive and forceful government intervention will have unintentionally synthesized some extremely substantive burdens on our grandchildren.

What old and repeated lesson has once more been reinforced from this generation-long exercise?

Government is using taxpayers’ money to build powerful infrastructures that will in effect work against them, and encroach on their freedoms. Uncontrolled government intervention and cronyism are destructive potencies that destroy the fundamental bulwarks of the capitalist system, and Washington has been practicing the schemes for too long. In so doing it has eroded the openness and efficiency of America‘s economic broad-wealth creating environment. I say broad because any government reinforcement of excessive concentration of wealth and power is not conducive to the long-term health of the broader society.

Entrepreneurial energies bloom most abundantly in small clusters. The more the better, but each succeeds best without encumbrance of committees, or group designed strategies. Government on the other hand is by its nature a giant mushrooming amoeba, incapable of creativity, requiring endless approvals, with all departments and agencies in a continuous phase of expansion, justified by egos requiring satisfaction and aggrandizing the turf. Government bureaucracy instills dependence upon itself whenever and wherever possible. History shouts that dependence on government becomes dangerously habitual, and leads to loss of liberty. That goes for individuals, as well as for businesses.

Stifling true entrepreneurial spirit will destroy that critical energy at the foundation of the American economy. It is this fundamentally critical energy that strives to anticipate needs or wants of the broader society, then creatively delivers solutions, and augments output. It strives to become educated in order to better understand whatever might advance its ascent along the risky path to success, and endeavors to minimize its assumptions. Above all it applies as much common sense as it can muster to minimize the chances of failure, and improve the odds of producing something greater than what began. As this energy succeeds, many prosper and benefit. Entrepreneurial independence operating within the boundaries of the Nation’s laws has for two centuries differentiated America from every other country on Earth.

It is understandable that not everyone can be an entrepreneur in the strictest sense, however, each can be entrepreneurial in personal practice and mindset, and each one of us can be thoughtful. At the very least, we can all void jealousies that might restrain that spirit in others, or attempt to obstruct their right to exercise positive natural tendencies and capacities. So doing might quell the demagoguery that is inflating the ascent against the private sector, productivity, and the creation of wealth.

We should not accept deceitful rationalizations artfully packaged through demagoguery and homiletics, or allow them to deliver prepackaged thinking on our behalf. We are presented with economic realities which demand reason, and summon our uncompromised reasoning. The economic challenges presented should apprehend the participation of the whole of population. Such participation is occasion for self-education at a very singular level to understand, as much as is possible, all of the causes that led to the events now chastising the country. The comprehension will guide the electorate toward a more judicious discernment, as it navigates through the political passage ahead. Assuming that others “on The Hill,” will have the answers, would be a gross abdication of rights and capabilities.

Capitalism provides the platform for the individual to push the boundaries of creativity and productivity in the creation of wealth. Government’s role is to protect the environment, through laws, and judicious oversight, within which capitalism is allowed to strive. Broad participation is required, without ambiguity, if there is to be sensible pushback on the advancing and infringing hoards from “The Hill.”

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• Dilettantes At The Chrysler Gate

As Obama forces his personal views on the automotive landscape, his injection into the Chrysler debacle is evidence of the lengths he appears prepared to reach for morphing the Presidency into a willful bully-pulpit. Even the media is using words like “rogue group,” to describe the Chrysler creditors holding out for better treatment from the government.

Obama complained that the small “group of speculators,” rejected the government’s 33 cents on the dollar offer. Speculators? What a peculiar denigration of bankers who didn’t feed at the government bailout trough. This is a very serious misrepresentation of the reality surrounding the mess that has swirled around the government intervention into corporate America.

The “holdout group,” which included approximately 20 debt holders, claim they are being treated unfairly. No kidding. They have no seat at the negotiating table, and are required to be represented by recipients of taxpayer TARP money. Where is the common sense here? Why would the UAW and TARP fund receivers be more capable of representing the interests of the debt holders than they are themselves? These rogue investors, representing pension and retirement plans and school endowments, as well as teachers union, placed senior secured loans into the Chrysler coffers. Now Obama calls them “speculators,” as if the term is a dirty word that middle America and taxpayers should accept as such. Speculators are exactly what America’s business engines urgently need right now. Why disparage them?

This is simply misrepresentation and obfuscation floating from a White House seemingly unafraid of twisting perception of reality into support for a profoundly ideological agenda. The serious concern rests in the possibility that the government will corrupt the longstanding bankruptcy code that has stood the smooth functioning of the capitalist system very well. The bully pulpit in the hands of an effective salesman might well inflict permanent damage on the open and free corporate landscape which has fuelled America’s growth for over a century.

Those financial institutions who profited handsomely from taxpayer philanthropy which financed their bailout cash, distributed by the current and previous administrations, are understandably very solicitous of Obama’s demands. The White House accusing the holdouts of acting against the national interest, is injecting the government directly into the management and decision making process governing the funds. This is a pretense that the activity of bankruptcy is somehow unnatural and un-American.

Leaders of the rogue funds should continue to act and conduct themselves in line with what they believe are their fiduciary responsibilities on behalf of their investors, regardless what others in fear of the bully-pulpit might do to pacify the domineering harassment from the White House. The bankruptcy proceedings should be allowed to play themselves out legitimately under the rules and laws that have long proven effective and cleansing in corporate America, and the Administration novices should refrain from interference with management of corporate America and speculator fund management. America is a country of laws. Government should abide by them.

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• Obama’s Salary Cap Red Herring

In effort to appear attentive and accommodating to the crowd’s discontent, Obama has made a big deal of announcing an executive salary cap policy targeting financial institutions that receive exceptional government assistance. Then, the cap will spread.

Obama has every right to claim, “I will not tolerate it as president,” referring to abnormally high compensation during an economic crisis. This restriction will not affect past beggar recipients of taxpayer cash, but will impact future negotiated bailouts.

Why would I dare presume to call this, “a red herring,” when on the surface it seems to be a reasonable expectation?

Obama has been provided a perfect straw-man that presents him an opportunity for demonstration of righteous indignation, effectively used to inject government tentacles into corporate America, and to leverage the passing of an enormous and costly stimulus-bailout package. The stupidity of a few executives running failing companies has put executive pay into play. It has provided the fuel needed for a power-play by the White House and Congress to insinuate government into the Board Rooms of America. Obama could just as easily have made a statement, and required individual contracts to govern each bailout, affecting stipulations for each company. No such agreements will exist and the government is overstepping the bounds of reasonableness. This should be of concern to all, well, … other than to those dependent on government for income.

We all know Wall Street’s compensation is out of synch with common sense, but panicked reaction is absolutely not the right path to correcting the abuse. Exploitation of executive power has been the privy of the heads of Fortune 500 companies and has been exercised for years. It did not create the meltdown we are now enduring, but some corrective measures are needed to curb the excess in certain corners of the capitalist system’s underpinnings. Geithner, the Administration's favorite economist, is considering extension of salary caps to ALL U.S. companies. This, however, will not affect or control issuance of equity to compensate for lowered salaries. Obama has played to public outrage, but has ignored the rights of shareholders whose companies he is now sending the government to infringe on. There are specific actions he should have considered, or somebody in his crowd of experts should have thought of.

A year ago this post urged that consequential changes be made in Board Rooms and in CEO offices across the country. We also addressed a return to common sense on executive compensation and the elimination of stock options, … for good reason. A restructuring of the corporate body, and some of its processes, would be more advisable than government intervention such as Obama, Geithner, Pelosi and Barney Frank are demanding. They appear to lack basic understanding of corporate governance. They should be mandating a fix in the relationship between shareholders and management. There should be reconsideration of accountability – Management to the Board, and the Board to the Shareholders. There should also be an implementation of changes to Director elections. Shareholders should have very direct impact through affirmative votes on both Director election and compensation, as well as executive compensation. The current friends of the CEO, and pay-you-pay-me, style of Board compensation should be trashed, along with any determinations of government infringement.

There is a very uncomfortable incursion materializing into the foundation and fabric of the capitalist system by the White House and Congress. That intervention is misguided, and I suspect they are reading the electorate incorrectly. Red herrings get old quickly. The trend of this new Presidency, as short as it is, appears suddenly disturbing.

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• Should Bailout Beneficiaries Be Outsourcing Offshore?

Congress and the White House have left a moral dilemma for American taxpayers to resolve for themselves. Government has not shown diligence enough to install common sense agreements onto the multibillion dollar bailouts. Should recipients of taxpayer favors continue to send jobs offshore?

In the past year thousands of jobs, some very high paying jobs, have been eliminated across the country in companies receiving bailout money. The jobs have been terminated for U.S. workers, but they have reappeared in other countries. The benefactors? Hundreds of thousands in the Philippines and India, for example. These are beyond the usual consumer service and support types of jobs. These jobs are in research, bill payment and collection, credit analysis, and investment banking.

Why would Citigroup and Bank of America, among others, be gifted tens of billions by American taxpayers, without restrictions or conditions on use of the funds through contracts? Who is really handing out bailouts with no requests for the repatriation of jobs, where possible, such as all those jobs these companies outsourced? Are these stalwarts of American capitalism also receiving “bailout cash,” to swaddle their failures, from India and the Philippines perhaps? Not a chance. Why are senior corporate executives complaining about not being able to find necessary expertise when the competence was fired and replaced with talent on the far side of the globe? Any chance that this is rationalization by CEOs for the hiring of cheap labor?

Companies should be allowed freedom to manage as they see fit, …unless. When the Administration and Legislature decide to put taxpayers on the hook for trillions of dollars to bolster failing businesses, it is NOT right that those very same taxpayers be sent to the unemployment lines by those very same companies.

This lack of interest, ethics, humility, inquisitiveness, attention and duty by the Obama White House and the Pelosi Congress is confusing. Is no-one paying attention? Is leadership delinquent? Is pomp and circumstance the new prevailing flavor in Washington, overriding any expectation of thoroughness over such significant decisions? This leads one to become extremely suspect of the rush to implement stimulus packages. Nothing ever receives proper attention, or is ever effectively implemented behind the leadership of panic. This is not a welcome sign for the onerous road ahead. And don’t bother looking for any other signs pointing to creativity.

Of course, emerging markets have a right to continue flourishing, but this is not a debate on protectionism. This is a questioning of common sense. Taxpayers are not served well with the continuing export of jobs by the very companies they are sinking into debt for. Is the creation of JOBS not the principal objective of a "stimulus package?" It appears the navigators are too unfamiliar with the terrain, and diligence over the cordial doling out of billions is under the administration of extremely poor negotiators.

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• A New And Different Shattering Of Assumptions

You have done your share. You work exhausting hours, sometimes at two jobs, and you have succeeded by any definition in fashioning a good life for yourself and your family. You accepted that while you were taking care of your part, others, some perhaps with more knowledge, power, influence and wealth, were taking care of theirs. Good for you, and well, … not so much.

Assumptions are a foundation of society’s functioning processes. As you travel at 55 miles an hour down a busy highway, you assume. You assume your automobile’s wheels will not suddenly part ways and decide to retire in a roadside ditch. You assume others driving in the opposite direction will continue enjoyment of life long enough to pass by your left window at a relative 110 miles an hour, with no sudden change of heart that might cause your abrupt transition into a hood ornament.

You assume that those you have elected to office will ardently carry their impassioned campaign trail promises to Washington or The White House. You assume that all knowing sages who have been given the keys to the National Safe will be diligent in the management of its contents. You assume that the Harvard educated captains of industry will manage the corporate world in testament to their prodigious capacities. You assume that others must have special insights far exceeding your own on the big picture.

We all assume. We have to. The faculties of human endeavor expect it. Without assumptions, the evolving ritual dances of the social, political and other conventions would disjunct into paralysis. Our behavior holds certain expectations of its ambience. In the event that those expectations are violated, we have enacted laws that will impose a collective retribution.

Current economic, political, corporate and social events are shattering our assumptions with impudent and invasive intrusion into the core of our lives. Our centers of gravity are undergoing some dislocation somewhat similar to that experienced three generations back during the Great Depression. The global interconnection and interdependence allows for a more pervasive impact on the earth’s population by the current version of high anxiety.

Do you remember the day when that parent you thought archaic told you, “Things are rarely as they seem?” This assertion pertained to perceptions. You were convinced that government bailouts were foreign concepts too far down the politically impossible spectrum to warrant serious thought. Now you listen to unwavering shouts from experts telling you that bailing out banks and financial institutions is not only good for you, it is mandatory for your future well-being and peace of mind.

Will the best-connected voices, the CEOs cap-in-hand, be the most rewarded in the bailout line-up? The taxpayer will continue to borrow trillions of dollars to enable these bailouts of Wall Street, and it will be left to our children and grandchildren to figure out how these debts will be repaid. Can’t we just assume that they will? That would be easier. The dogmatic nudging of our perceptions is disquieting. We are perhaps observing, and financing, the dawning of a new capitalistic system and a metamorphosis of the corporate entity.

Surely somebody knows what he or she is doing. The assumptions return. This new Obama administration with its dozens of experts must know something we don’t. It will make things better with a stimulus package on top of the bailout packages. This stimulus package will be the biggest in history, setting new incomprehensible levels of national debt. Shall we assume once again that for that singular reason, this package will work?

The cycles of our presence on this Earth are not all within our control, and these times are an experience along our journey for which our spirits will draw a learning. New assumptions will advance on our percepts, reframing our outlooks and expectations, and your parent was right, things will rarely ever be quite as they seem.

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• CAPITALISM – A POLITICAL PUNCHING BAG

Capitalism is the heart of the American economic engine, and really the core the whole of American society, but capitalism regularly gets pummeled as a provenance of the nation’s moral disintegration. There are, of course, ample specimens selfishly pursuing purposes to the exclusion of other more lofty ideals, however, such are not the majority of individuals and businesses, which provide the sweat that builds a country. The elements in a society that blame the profit motive are those who leach from its successes directly or indirectly, either out of incapacity, laziness or from jealousy. Going after abusers of responsibility, including CEOs whose incomes vastly overreach their real value, or elected politicians who take bribes such as those who took cash from Fannie Mae, is necessary, just like jail terms are necessary for any criminal behavior in a society that seeks some level of security.

Capitalism and the business culture of all societies, it seems, are easy targets for the venting of frustrations that surface during financial crises, such as the current unstable state of affairs. It is abundantly obvious the general media has done its best to fuel these fires, while leaving the legislators to continue along their paths, unscathed, unrepentant, and unpunished. Defaming the business environment and disparaging corporate America may serve the campaign trail to the White House with moral bait for votes. It won’t serve the future well-being of American society, and its systems if such sentiments find their way through the legislative process stifling trade and asphyxiating the entrepreneurial spirit.

At stake is the freedom that was promised upon the founding of America. With all of its strength, America remains a fragile social experiment that requires, and will always require, care, attention and nurturing. While the current administration curtailed some of the assumed freedoms, the nation should not allow the political pendulum to swing so far in the other direction that a greater degradation of freedoms is instituted in plain sight while attention is being diverted to the “straw man” of corruption, the businessman or businesswoman, being pilloried.

Laws provide a country with ample guidelines that pertain to accepted behavior. Today we find ourselves with countries around the world rushing to seek new convoluted systems of “oversight and regulation” in efforts to reign-in capitalism. Some are even proposing the creation of international regulations and ruling bodies. Such efforts should instead focus on setting legal parameters establishing acceptable rules of conduct within America. Doing so, and setting severe punitive retribution for breaking the laws, as well as providing the courts with real teeth will minimize future abuse and corruption. Specific laws emanating from this economic debacle will retain the freedom required for a flourishing capitalistic system while protecting individual rights to pursue personal and corporate financial objectives. Global problem solving is impossible if your own house is not in order.

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• BILL GATES AND CREATIVE CAPITALISM

Bill Gates has discovered a newfound passion, enriching the world poor through Creative Capitalism. Loosely translated, if you follow where he is placing capital, Gate’s definition of Creative Capitalism is the financing of the entrepreneurial spirit in corners of the globe that garnered little attention from the rest of the world’s population. There are other intentions to this sweeping endeavor, nevertheless it may be an indication that somewhere along his path Bill Gates has discovered new and compelling insight and wisdom. It has now been a generation since the days when visionary Gary Kildall claimed that his CP/M operating system had formed the basis of IBM’s first PC operating system (PC-DOS / MS-DOS), and technological history took a major turn.

In January of this year, the Gates foundation announced a $47 million grant to TechnoServe, principally financing a coffee growing project in Tanzania that will strengthen and organize its farmers. TechnoServe promotes the expansion of business opportunities at the grassroots level in numerous African and Latin American countries, and has been around since the late sixties. This commendable effort deserves all the funding it can get, and is evidently in line with Gates’ objective of earning a return on investment while helping people who have been left out of the economic loop.

The challenge is daunting. Such is human nature that individuals will do the self-serving thing eighty percent of the time. Capitalism matches human nature rather well, even to its self-serving first tendencies. Being an executive in a corporation provides further incentive and rationalization for implementing actions that are selfish and egocentric. The profit motive is all that need be quoted for rationalization, and doing the right thing right goes out the window. Microsoft history provides ample examples of such behavior, even to the extent of having provoked government regulatory attention. The market system nevertheless provides a vast platform onto which the new incarnation of Bill Gates can promote his version of benevolence.

While Gates has faith in technological advances to heal the pain of world poverty, the long-term answer really lies in shifting human consciousness, and on the capitalist front, broadly affecting behavior at the corporate level. As he continues to promote progress, Bill Gates should adjust his challenge to include such paradigm shift in consciousness over the longer time horizon. Gates long ago proved he was a master at effective PR. There is no reason why altruism cannot also be part and parcel of the corporate self-interest, gradually transplanting its darker elements of exploitation, or at the very least encouraging doing the right thing right.

Doing the right thing right isn’t always more difficult. It is very often, however, less expedient, and most often less profitable. The necessary factor is that of affecting perception at the top of the corporate food chain. Gates understands that process well. We should all wish him the best in such endeavor.

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• BOARDROOMS NEED RESTRUCTURING, … AND NOT IN A DECORATIVE SENSE

While wondering where the legal extremes of corporate abuse, or less legal malfeasance might next surface, there is one prevailing trend that has swept corporate America and led to Congress scratching its assembled intellect. A gradual shift of control of the boardroom. That is now complete.

For any system to succeed over the long-term it should be tended to and altered where improvements can be affected. Starting at the top the capitalist system is in very urgent need of adjustments and a few repairs. Let’s look at one such fissure in the realm of responsible governance affecting one cog of the system. The Board of Director structure and control.

A Board’s responsibilities, as representative of shareholder interests, are broad. They include oversight of business strategies, their implementations, as well as direction of corporate compliance with laws and regulations. The Board dispenses its fiduciary duties through a management it is supposed to control. Most Boards don’t. Whether they are active, interested or complacent does not really matter much. The shift that has swept through all boardrooms over the past thirty years has made directorships a primarily comfortable and financially rewarding posting.

Instead of Chief Executive Officers (CEO’s) reporting to a Board chaired by a Chairman, we have Boards reporting to CEO’s who are also Chairmen and therefore report to themselves. In a structure where the CEO reports to the Board with an independent Chairman who is only that, a Chairman and not a manager, you have a higher likelihood of Board independence and proper oversight. Directors are more likely to influence corporate direction and guide adherence to laws and codes of ethics. Impact of both subtle and overt pressures change when the Board is structurally the final arbiter of governance between the management of the enterprise and its owners. The Board can therefore more effectively and evidently demonstrate the trust and confidence with which it has been entrusted. Shareholders as well as society at large, employees, customers and suppliers expect it.

A Director should not be a CEO’s friend or associate first, and overseer second, as is currently the predominant situation. Although there is pretense to the contrary, North America’s corporations have become the purview and domain of CEO’s in an absolute and royal sense.

Congeniality as well as pandering to the requirements of a CEO is, for the vast majority of directors, the path of least resistance whether those solicitations are subtly delivered or outright demands. It is also the path to continued receipt of all commensurate benefits requiring little mental energy. Even less appetizing for most outside the boardroom is the fact that since there is widespread cross-pollination of Boards, the qui pro quo and indulgence on CEO remuneration results in the gross examples of unrestrained abuse to which America is being exposed. No need to provide examples here since publications, such as Forbes and Fortune, provide copious lists for stimulation of either aspiration or envy. We can also easily recall being treated to the impact that such ineptitude at the Board level can achieve.

Asking the difficult and right questions is never easy. Such exigence requires effort and knowledge. Demanding that such questions be answered is almost impossible in the current atmosphere of convivial boardrooms. This can only come from independence of appointment and independence of thought. Until that is achieved in the boardrooms, there will be little if any scrupulous and effective monitoring of management for signs of abuse, fraud, or the exercise of basic common sense on behalf of all stakeholders.

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