coporate America being 'just a hovering cloud that really doesn't reside anywhere

R. Law

A basic fact has arisen - our economy has a surplus of bankers which are being subsidized by the U.S. tax-payer. The spectacle begs for some creative destruction, as every investment banker and B-schooler knows. The situation has been exacerbated as traditional investment banking partnerships risking their own capital morphed into public entities run by sorry corporate by-laws, with no change in their business models, despite the warning signs of Milken, Boesky, et al. In terms they definitely understand, we are imposing overdraft fees and may very well raise the interest rate on their accounts retroactively as more and more chicanery is revealed.

This is all a predictable end to the cannibalistic LBO buy-outs which began in the late '70s and were subsequently fueled by massive 401-K inflows, leveraging poor corporate governance into greenmail, phantasmagoric corporate compensation, and un-wise liquidation of America's manufacturing base in pursuit of M & A deals to meet investment banking growth projections, with said liquidations and banking fees more often than not financed by raiding middle class pension safety nets. Capitalism began being systematically looted from the board-room and corporate jet.

If there were a surviving merged entity in one of these deals, it was often loaded with so much debt and had so much revenue stripped out that it descended into bankruptcy if there was the slightest economic hiccup or rise in the price of oil; e.g., Continental Airlines (twice) and the Sealy vs. Simmons contrast as detailed by the NYTimes:


Combined with tax advantages accorded hedge funds, off-shore investment banking vehicles, lack of having to deal with personnel to actually build an enterprise, and 'sitting duck' characteristic of PP&E, many traditional American firms were easy prey, making it even easier for bankers to raise funds from the uber-wealthy for yet more M & A, and the cycle perpetuated itself, juiced for good measure by donation-hungry politicians and reversal of New Deal regulations that had stood the country in good stead for 70 years.

A case in point would be the SEC permission secured by investment bankers in April of 2004 (election year) to lend out their capital 33 times over, something which any neighborhood 10 year-old running a sidewalk lemonade stand would know to be folly, and over 10 times the leverage of the corner community bank's 3-1 captial ratio.

That scenario is over. Many aspects of what happened to Bear Stearns and Lehman indicate the bankers in fact began preying on themselves, fitting neatly with Tom Friedman's 6 points in his 11/20 interview:


most especially his point about corporate America being 'just a hovering cloud that really doesn't reside anywhere' - a point left out of Friedman's 11/22 essay.

Last fall, tax-payers gave these bankers a chance to do the right thing. The bankers have manifestly proven unable to restrain themselves, returning to 'situation normal' at warp speed, and doing zilch towards replacing the America they helped liquidate over the last 30 years, whose remnants everyone agrees must now be supported and re-built. Re-building is harder than liquidating, and harder than maintenance (which is why we rescued GM and Chrysler). The bankers with MBA's are the people who best know how to do that rebuilding and are best trained in managing large financial projects, but it seems they are insulated by the Federal treasury's subsidizing of their compensation from this reality, and further insulated by sorry corporate governance from being forced by their own share-holders to do what the country needs.

The point was recently made that Germany in the 1930's had first experienced a banking crisis, then began choosing more and more Populists in its elections, thus democratically transmogrifying itself due to mismanagement by the bankers.

Considering history, and in the interest of simple expediency, serious consideration must be given to whether Las Vegas is better-suited through existing Nevada Gaming Commission over-sight, better management practices, better risk control, less leverage, better discipline, and PROFIT LIMITS, to be trustee of our banking system and thus deserving of any further tax-payer funding.

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