Gingrich (Almost) Does the Nation a Service
Newt Gingrich, in the effort to depose Mitt Romney as the front runner in the GOP presidential primary, was prepared to sensationalize the practice of corporate raiding in the South Carolina Republican Primary. With ad buys and a half hour “politimentary” movie, Newt was going to paint a picture for public consumption of what it is investment bankers (corporate raiders) actually do to make money. Party pressures, the GOP upper caste was appalled, persuaded the “anti-establishment” Gingrich to drop the topic. Too bad. Too bad for Newt and for the public.
A public debate on the issue of corporate raiding and the business practices arising from the raider mentality is desperately needed, even critical, to understanding what is really at stake but unexamined in our political system. Every single working class citizen has been affected, directly or indirectly, by corporate raiding. The entire economy, even the global economy, has been hobbled by corporate raiders operating under the benign sounding label of venture capitalist or investment banker. In truth, not all investment bank or venture capital operations are corporate raiders, but the skyrocketing wealth gap is evidence that more raiding is going on than ever before.
Corporate raiding is a practice one of it’s early practitioners, T. Boone Pickens in the eighties, euphemized as “making business management more efficient”. In plainer English, that means if you are not in debt up to your ass and have managed to have some money coming in, I’m going to take that money from you and your shareholders will help me do it.
It works like this. Say you’re a CEO of a publicly traded company, have done a great job and you have good revenues and maybe some cash in the bank but your stock price is on the low end of of Price Earnings (PE) ratio. You are a potential target for corporate raiding. A low PE means you are making money, maybe even a great deal of money, but not growing very fast. Stock price is based almost entirely on growth, the perception that a company will grow and be worth more in the future. So the raider’s “job” is to take a stable company and destabilize it to exhibit a different more speculative opportunity to investors.
You, a CEO, are employing people and contributing to the economy, you are making money, but the raider sees a way to make more quicker by raising the perception of earnings growth, most often by slashing people and wages and selling off assets to feign profit growth. Suckers then buy the stock of the resulting company and then eat it when the company fails to grow post raider machinations.
The raider wants to get his hands on any cash, but more important, he wants to exploit the revenue stream of your company. The revenue stream can be used to finance the raid, a take over know as a leveraged buyout (LBO). Essentially, a raider borrows against the revenue stream of the target company to buy the company and give himself a large cash dividend for being so clever to do so. The raider gets cash and the company gets the debt. In a very real sense, the workers of the company are indentured by the raider so that he may fund his payout, indentured without so much as a by your leave on the outcome.
Shareholders and board members go along with a raider in the expectation that the raider will boost net share value of the resulting company, either through breaking up and selling off profitable parts or boosting profit growth with draconian labor practices. The wage gap between the U.S. and China has driven a great deal of corporate raiding in recent years as the easiest means to boost profit growth is to offshore jobs. Higher profit growth means higher stock price.
The raider’s payout comes in a finder’s fee bonus, boosting profits and so share price on shares derived from the buyout that he holds. Make no mistake about it, raiders to do not take over failing companies, they take over successful companies. They take over companies that have the potential to generate more cash when they are chopped up and sold or bled dry in the near term than they could generate cash in the medium term. In the long term, everyone but the raider and insider conspirators lose.
The advent of the corporate raider changed the business climate of the world. Remember T. Boone said he was “making business management more efficient”. CEOs took that message to heart and the business models and practices of our CEOs reflect the fact that they are pillaging their own businesses in the same fashion and to like purpose as external corporate raiders.
The new American business model is not to reward success, but to rob the successful as quickly as possible or somebody else will. Excessive executive pay and bonuses derive from this mentality.
The new American banker/businessman does not want the public to examine this quantum leap in global social Darwinism. So the brakes were applied to Newt. They do not want the public to understand that the defining motive of the modern business class is theft, AKA creative destruction.
Robbery is going on, but who is robbed? The original share holders and corporate board of a raided company get a pay day, although not as often as the raiders promise. Two thirds of all mergers and acquisitions fail to meet goals and perish as companies. People that buy stock in the raided company have a 66% increase in chance of business failure, added on top of the natural vagaries of business investment. But the most egregious theft is from the public at large and the workers left to service the debt attached to them from the LBOs and mergers. The money that might have gone to pay and pension and benefits is now going to the creditors who financed the merger/acquisition. Money that would have been spent in the economy by higher paid workers and more secure retirees is now sequestered in the offshore accounts of the rich players and raiders. It is a formula for economic disaster that is being fulfilled as we contemplate Obama vs. Romney, but it is not to be discussed because the money people don’t want it to be discussed.
So what is the definition of a crime? It’s something that against the law, law formulated by the consensus of lawmakers in government. But as Webster’s also cites, it’s “a grave offense especially against morality”. Our morality nor our law appears to have yet caught up to our genius at crime. As yet, corporate raiding seem the pinnacle of legal, yet to be recognized crime.
It does not stop at Wall Street though. In the election of 2010, state governments were handed over to GOP rule in many formerly purple states. After a few months to a year, those governments revealed their GOP agenda. That agenda was to treat government like one would a company to be raided. Government has income and that income can be tapped to fund takeovers. Entrepreneurs can see that if you privatize primary government functions that there is money to be appropriated just the way raiders do in corporations. Fire all the “overpaid” public employees and replace them with under qualified or desperate substitutes and there will be money left over for business to steal. Break the commitments to pension funds and there’s more to be taken. Hand off tax relief to cronies and push the tax burdens down on the working class and there’s more to stolen.
It is the most grand deliberate suicide of a country that has ever been, at least that might yet be documented. Business and their GOP cohort are bleeding America dry while they fund a trillion dollar a year military to “keep it safe”.
Newt, you are not ever going to be the man that changed America. You are going to be the man who, when faced with the chance to make a real difference, chose to melt away.
Occupying History
All power is derived from the people. It always has been. In the last 600 decades, power has been concentrated and dispersed many times. “Occupy” (everything) is about to accomplish that dispersal again. It’s what this country and it’s people were forged to do.
Some might consider “Occupy” is late to the cause. Voices on the left have augured and pined for a public display for a decade or more. The North African nations led this now global movement to the streets. They led because they had less cushion to absorb further impoverishment at the hands of global banking and business. They did show the future though. How long would it be before an American set himself on fire publically as did Tunisia’s Mohamed Bouazizi, touching off a civil coup de tat of an Arab tyrant, and then another. “Occupy”, never is, though, the only too late.
Retiring the National Debt By Not Destroying the Economy
The GOP proposes social spending cuts in order to fund tax cuts as a solution for our national debt. They, and the Beltway press, are undeterred by the OMB finding that their Paul Ryan authored plan will do nothing of the sort. They are also undeterred by economist’s warnings that social spending cuts are the worst possible cuts in terms of economic impact, that they will shrink the economy and thus actually shrink revenues and make the deficit worse rather than better. Read more
America As Hostage Is Over 5/1/11
First let me say that the raid on Abbottabad to get Bin Laden is historic and a monument to the skill and courage and dedication of our fighting forces. 5/1/11 is the 6/6/44, D-Day, of our irregular warfare military history. Congratulations and well done Seal Team 6, your place in history is sacrosanct.
Why they had to do it, get Bin Laden, at this time and in this way is a subject for epic reflection. At the apogee of feelings instilled by this must be the sense that we will not be held hostage anymore. Read more
Is the Price of Liberty Michigan’s SB 153?
The price of liberty, as measured by history, is most often cataloged in the rolls of those honored for struggling, forbearing personal consequence in protest, and many dying in it’s name. For every nation and every faith there’s a written and oral tradition in praise of those most valued and visible in the struggle for justice and honor among men.
Among those of consequence enough for history are three of our own Congressional Medal of Honor awardees from the Civil War. There have been, to date, 3,468 issues of the Congressional Medal of Honor awarded to U.S. soldiers since the advent of that merit of prestigious service in 1861. Half of them were awarded in the conflict that tested the Union the most dearly to date, our own Civil War. Read more
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Ian Fletcher - Simon Johnson
- Robert Reich
