Saturday 6 August 2011

Insider shading

I am all for capitalism. I believe it is a good thing. It allows us to take risks, and to create. It gives us an opportunity to make a return on effort. And it allows every person in the free world to make a difference. Capitalism ultimately gives us all the chance to wake up early, work hard, take a risk, and hopefully make magic. Create something of value in the world, and people will conspire to reward you. But capitalism only works if we all follow some basic set of rules. A code of conduct that is predicated on right and wrong. The 10 commandments will do just fine to this end. When we start bending these rules, and perverting capitalism, then things start to get ugly. Inside Job (the award winning documentary film), as the name captures, describes a system whereby the American government we all trust, as the leader of the free world, played a role in corrupting the rules that keep everyone in check. And now, there is a big economic mess. If you think that we have been through a crises then you are wrong - it is still coming! I would not be surprised if the Great Depression was renamed the Great Depression I. Because part II is not far off.

I have never met anyone who works hard who has not made money. Hard work always gets results. And if you are lucky and you work hard then you could make a lot of money. But making money and taking money are very different things. Too many of these Wall Street fat cats took money, and didn't give any of it back when the wheels came off. As it was stated in Inside Job "Why should a financial engineer get paid up to 100 times more than a real engineer; a real engineer builds bridges, a financial engineer builds dreams, and when those dreams turn out to be nightmares, other people pay for it."

Money made by hard work and risk taking is always celebrated, but when money is made, by exploiting legal loopholes then this is a tragedy. There is nothing inspired by someone who makes their money be taking advantage of our ignorance and lack of knowledge. When a hedge fund manager makes a billion bucks, it ultimately means someone else has lost a billion bucks. Nothing was created here. No magic was the result of some hard work. It is simply about the manipulation of numbers, and about the exploitation of loopholes. If all these hedge fund managers disappeared tomorrow would any of us care? Sure, I understand the value of a financial consultant and of a money manager, but, when that money manager suddenly has hundreds of millions of dollars in their personal account and everyone they were meant to be looking after is crying, then what is to celebrate there?

The problem we have is that nothing has changed since the sub-prime crises. No one was punished, and the fat cat culture of taking and taking has not stopped. You can't keep taking without leaving something on the table for the next guy. Eventually there will be an explosion. And the kicker is, that these fat cats who have all accumulated so much money have taken no risk! They have perverted capitalism and destroyed trust - they just all helped themselves and their mates, and no one does a thing about it. But the masses are getting angry and the average American now has to work 3 jobs to keep up with monthly payments. The middle class of America, which used to be the backbone of the American dream, are now in debt. And America has an artificially propped up economy with all these bailouts. We are cheating nature ladies and gentleman, and it is going to come back to haunt us. Very very soon.

What so many of these companies did, is what we saw in the dot com meltdown. Revenues were booked now, and services were delivered later. Anyone can make a big profit in the short term with twisted accounting practices. And then, when you start to help yourself to massive bonuses based on these phantom profits, well, them it all goes to shit. Enron is the ultimate example. And these big, perverted banks, like Lehman Brothers and the rest, are all Enrons.

Regulations were there to protect us. Hell, they did back here in South Africa. But in America, the deregulated market failed as greed got the better of everyone. And what is worse, is that the academics of America, the people we really look up to, the teachers and professors, were all in on this "inside job". So many Ivy League professors were getting huge consulting fees, to provide credibility to what was a perverse system. On the America Dollar it says "In God we trust" but, we can we trust America anymore?

Posted by Ronnie Apteker