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A VERY HAPPY 2013!

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THE GOP: UNSAFE AT ANY SPEED...

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The GOP: Unsafe at any Speed…

"This is the beginning of a serious conversation. We won't be taking questions today.”  - The National Rifle Association’s president David Keene

By J.M. Hamilton  (12-25-12)

Publishing in 1965, Unsafe At Any Speed documented severe defects in General Motor’s (G.M.) products, especially the Corvair.  The book describes the life threatening defects, and short cuts made by G.M., from roll over potential to deliberately ignoring safety, so as to enhance marketing and the bottom line.  The immediate reaction from Detroit was denial, anger, and finally, acknowledgement and reform; but not before attempting to vilify the author, Mr. Nader, tapping his phone lines, and keeping him under surveillance, et al. 

Like the G.M. in the middle part of the last century, today’s GOP is reactionary to its core, and basically, fighting a guerilla campaign against change and reform.  But more importantly, it seems as though in its extremism that the Republican Party is on nearly the wrong side of every issue.  Moreover, their positions are inherently dangerous to the long term health of the nation, and its citizenry; the Party’s motivation – campaign contributions from wealthy and entrenched interests – are readily transparent.  Let’s run down the issues, shall we:

1)   The GOP’s blind commitment to the NRA and assault weapons is readily on display with the massacre of twenty Connecticut school children, and an ever-growing body count.  The GOP’s response to this atrocity is to hide, hope that it blows over, and ultimately, more guns.

2)   A lack of courage is always on display when the Republican Party fails to stand up to large and dangerous cartels and monopolies, whether its toadying up to Mr. Jamie Dimon, when he appears before a Senate Committee, or continuing special tax breaks for big oil.  Of course, the Wall Street cartel brought down the global economy in 2008, and the Republican Party has fought a rear guard action against financial reform ever since.

3)   “Borrow and Spend,” best defines the GOP’s fiscal polices, from Reagan to its most recent offering, Mr. Romney.  Its deficit spending has left the nation and the Federal government depleted, in hoc, and severely weakened.

4)   The GOP has forsaken the middle class or roughly 98% percent of the nation, and has embraced globalization, private equity, and laissez faire capitalism at the expense of the nation’s economy, business, and her citizens.

5)   At the risk to this nation’s international prestige, the Republican Party has embraced full-scale wars, throughout Middle-East, which were ineptly executed; hence, leaving the nation weakened, while building up yet another terrorist generation in response to same.

6)   The Party purports to support business, but when the nation’s chief executive officers, en masse, tells the GOP to raise revenue, increase taxes, and to work with the President to avert the fiscal cliff – the Party remains intractable and recalcitrant.

7)   Despite a thorough drubbing in the last national election, the GOP only remains strong in an ever-shrinking pool of red states, and in politics within the hinterland, where gerrymandering, rigged local elections, and homogeneous counties are not atypical.  The Party is exclusionary and demographically challenged, and within a generation – and without change - will be marginalized; the Republican Party’s “Southern Strategy” appears to be based upon crypto-racism.

8)   Even in the face of new information, science and facts, the Party is doctrinaire, highly ideological, and does not tolerate deviance in Party orthodoxy (see Peggy Noonan’s recent plea for the Party to embrace and tolerate free thinking in the pages of the W.S.J.).

9)   It claims to be the Party of Judeo Christian heritage, and yet, it rejects the teaching of Christ on a daily basis, and instead embraces an individualistic nihilism.

10) The GOP is not dedicated to the health and well being of the nation, but rather, retribution and removal of its perceived enemy, the Democratic Party.

11) It decries government assistance for those citizens in need, while overseeing corporate welfare on a scale never before imagined.  By allowing entire industries to be outsourced to other nations, or to be consolidated into monopolies and cartels, it has left the nation weakened and dependent upon an elite cadre.  It has caused a Neo-Guilded age.

This is a Party that is consumed with hatred and fear, and as such it is highly dangerous.  It is intolerant of nearly everything and anyone who dares challenge its authority or orthodoxy.  It is brittle, inflexible and in denial.

There appears to be no William F. Buckley on the scene to drive the crazed and the ignorant out of the party’s ranks - no one to stand up to the fanatics.  Today’s GOP reminds me of antebellum southern whites, the majority of whom did not own slaves, who fought for a cause and an aristocracy/plutocracy that was inimical to their own interests.

I don’t know if today’s GOP reminds me more of the early 60’s Corvair, or the Neanderthals.  My guess is Lincoln would disown today’s GOP.  Whatever the case, I’m glad I am no longer affiliated with the Party.

How much longer can a party dedicated purely to its own existence, and to the detriment of its fellow man, endure?  Truly, this is a political party that is unsafe at any speed.  

 Copyright JM Hamilton Publishing 2012

Geronimo

Destiny

“When politics get chaotic, it is always the people who are sacrificed.” — Toyota Motor President – Akio Toyoda

By J.M. Hamilton (11-21-12)

Christmas came early for some of us this year, with the re-election of President Obama and the defeat of the Private Equity candidate, Mr Romney.

That’s not to say, I expect great gifts from Mr. Obama.  I expect my taxes to go up.

No, the gift that we all have been given is a Commander in Chief, who genuinely cares about 100% of us versus a cad who wrote off half the population.  It seems that the GOP can’t stop the hemorrhaging, with Mr. Romney confirming in a conference call to donors that he really thinks Americans were bought off by Mr. Obama.  Mr. Romney, of course, doesn’t feel that when Bain Capital rigs the rules in it’s favor, from looting legitimate businesses to gaming the tax code, both to the detriment of the economy and the fiscal health of the nation, that Private Equity is behaving in a parasitic manner.  Indeed, Mr. Romney, believes his and private equity’s behavior is a paragon of virtue.

Which goes to explain why a party that is bankrupt of new ideas, and is both obstructionist and exclusionary, is in rapid decline.  It’s no accident that the Romney candidacy and Hostess (the makers of Twinkies, Ho Hos, and Ding Dongs) were both brought down by the greed, rapaciousness, and an utter disregard for humanity caused by…. Private Equity ( the most extreme and virulent form of laissez faire capitalism practiced today).  Hostess will come back, thanks undoubtedly to employee self-sacrifice, what remains to be seen is will the GOP make it back?

One hopes the GOP learns, because the DNC, indeed America, is going to need healthy political
competition.

I’ve learned over the years never to gloat in victory because fate can turn events on their head in less than a second.  A friend of mine once celebrated the seeming demise of an arch-competitor during the height of the 2008 financial crisis.  This company was subsequently bailed out and I believe is still partially owned by the Feds to this day.  What this meant for my friend’s industry was said company, who was grounded on the rocks of bankruptcy in Fall 2008, lived again to fight another day, and was able to underprice their products and services in subsequent years, due to the implicit and explicit backstop and support of the Federal government.  Which was neither good for my friend’s  industry or the company he worked for.

So a rare admonishment from me to my readers:  Never gloat in victory, for Fate is always sleeplessly watching and she’s one cruel mistress.  Turn your back on her at your peril.

President Obama doesn’t appear to be turning his back on anyone these days: he’s reached out to labor, CEOs, and the Republican leadership in the house, in an effort to avoid “the fiscal cliff.”  Why both Political Parties should be so eager to do away with legislation they both agreed upon is beyond JMH?  The cuts to defense spending are long over due, and the Bush tax cuts – which have imperiled the financial health of the nation – clearly need to expire.  By way of comparison, the expiration of the Bush Tax cuts would mean a reversion back to the Clinton era tax rates, which if memory serves was not only a time of late 90′s economic prosperity but also a time of federal budgetary surpluses.  And as Mr. Krugman pointed out recently in the Times – the apogee of Republican nostalgia – the 1950′s –  was also a time when the top income tax rate was 91%.

Despite such high tax rates, the world did not end, the 1950′s U.S. economy did not falter, executives and workers still showed up for work every day, and we lived in more economically egalitarian – less economically predatory society (albeit admittedly, in terms of social justice and civil rights the 50′s were a backwater).  Private Equity would have never been permitted by the 1950′s Republican Party.

The House Republican leadership says they have a mandate too, which is laughable when we consider how badly Mr. Romney was defeated – nationally, and how Dems held onto the Senate – again a more nationally oriented democratic body.  The House, on the  other hand, is more representative of smaller regional preferences, local politics, and gerrymandering, and arguably, is not indicative of national trends.  Mr. Obama should not yield to the obstructionist.

Let the sequestration take hold, embrace the sequester, love the sequester.  Be the sequester!  The sequester is our friend.

And if per chance in the new legislative session the GOP leadership wants to demonstrate they are not the plutocratic party, and reduce taxes on the middle class than that would be nice too.  There’s never a provident time for tax increases or fiscal and budgetary sanity. But your humble blogger can assure you – there’s no better time than now.

Mr. Obama’s legacy is now on the line.  Ideally, his second administration will be the start of a return to fiscal sanity, the end of two crippling wars, and of our elected leaders making hard choices for the long term health of the nation, as opposed for the good of wealthy special interests.  Raising taxes is easy, cutting spending is harder, but the truly difficult part of governing is holding rich vendors, special interests, and corporations – who often profit directly or indirectly from their relations with government – accountable.  Many would argue cleaning out the Augean stables of waste, fraud and abuse is what our government, nation, and our economy needs now; but it is something our elected officials are loath to do.

At the end of the day the nation learned two things this election: one, the American people believe government can be a positive force in society; and two, the fairy tale that tax cuts for the wealthy create economic opportunity for all has been rejected and demoted to the ash heap of history (hence, GOP efforts to quash a congressional research service report, which told us that tax cuts for the rich do NOT create jobs).  This means the party that governs the most efficiently and effectively, to the benefit of the most constituents, wins.  Republicans take note.  Governing is not about “free stuff;” it’s about human dignity, leveling the playing field, and increasing the odds of success for many!

Do you hear that?  That’s the sound of Destiny calling…  Fate’s twin sister.

 Copyright JM Hamilton Publishing 2012

The NRA didn’t create “scorched earth tactics,” they just reinvented and honed them to a sharp point.

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Uncertainty

By J.M. Hamilton 7-28-12 

“In this world nothing can be said to be certain, except death and taxes.” - Benjamin Franklin

“We have met the enemy and he is us.” – Walt Kelly – Pogo

I think it was my father who got me hooked on the Sunday morning political talk shows… if memory serves one was This Week, with David Brinkley.  Loved that guy: urbane, sharp as a razor, and did not suffer fools gladly.  Face the Nation fell in there somewhere and then I usually turned over to PBS and Firing Line.  Hosted by God’s gift to the Republican Party, William F. Buckley, Firing Line was my favorite.  Alas, Buckley and Firing Line are no more.

If we tune into these shows now, perhaps as it always was, the discussion is on the topical and heated political issues of the day.  However, what one notices almost immediately is that there is barely any mention of the financial connections to our elected leaders and their corporate sponsors.  Most of the major networks, of course, are run by huge corporate conglomerates, and the owners and sponsors of these shows are all safely ensconced in the Corporate Hall of Fame. 

Nothing wrong with any of this, but one can’t help wonder does all that corporate money put a crimp in the Sunday morning dialogue, and cloud where this country’s locus of power truly lies?  The talking heads give lofty declamation about Washington D.C., but you hear nary a word about Cupertino, CA and even less so about Fairfield, CT or Decatur, IL.  And none of the pundits mentions the Caymans or Luxembourg.

Why is that?

Republicans have been waging war against the Obama administration ever since the President came into office, saying that his brand of rule creates too “uncertain” an environment for America’s business leaders, and as if on cue, the Chamber of Commerce echoes those sentiments frequently and often (or is it the other way around?).  Many Captains of Industry have seen their balance sheets rise with expanding cash holdings, enjoyed highly inexpensive debt financing courtesy of the Federal Reserve, and a stock market recovery — all under this administration.  Moreover, taxes have not increased under the Obama administration, and in fact, government nationally has shrank. 

All of which probably makes this presidency either the most pro-business Democratic administration ever to enter the White House, or the President has merely switched parties and forgotten to tell the American people.

To read more on the political conservatism of the current administration read, The Ultimate GOP Candidate has yet to Step Forward:

So what exactly is there to be uncertain about? It’s as if the enfant terrible, with its sextillions flowing in from Wall Street banks and corporate donors, had its “lolly” taken away (after calling the shots since President Reagan’s inauguration, nearly a thirty-plus year GOP run).   

Might it be time for the Party to “man up” a little bit?  Might it be time for the Republican controlled House to stop the temper tantrum and assume some responsibility for governing?  How many times can the house GOP engage in political masturbation and vote down President Obama’s healthcare legislation?

As Mr. Franklin told us long ago, wisely and sagely, the only thing certain in this world is death and taxes.  However, I guess if you’re like a handful of CEOs, and Republicans have been sucking on your knee caps for the last thirty years, and you have been told by the Party that your every utterance is a divine right, well then this Administration might appear scary. 

Of course, it’s the Republican Party, and some of their sponsors, who: led the charge over the last thirty years in dismantling capitalism’s rules and regulations; allowed jobs – and American corporate top line growth – to be exported off shore, via free trade agreements; and as the political voice of the Wall Street banks – directly contributed to the uncertainty created for all, businesses and citizens alike, with the past, present and future financial crisis.

Read a recent piece, Malum in se, to learn just how much uncertainty the Republican Party and the Banks have created.

The uncertainty isn’t created by this administration, but rather, it is created by an elite cadre of monopolist, banking, and shadow banking interests, often with interlocking boards — and the politicians and the Republican Party who are sponsored by same.  We’ve seen, daily, that when the Cartel pursues their inalienable right to the profit motive, it has far reaching consequences for America and the world.  Seemingly, these monolithic interests can no longer play in the house without smashing ma’s furniture.

Once again, many of the oligarchy sponsor, own, or own stock in the organizations that control the Sunday morning talk shows and the major news organizations.  Might that be impacting the Sunday morning message?  After all, it would not be good to hear the Sunday pundits discussing the nexus between the real economic and political power in this country, and the law making men and women who reside in the nation’s capital.  That might prove upsetting to many, and fly in the face, to some degree, with the belief that the power in this country rests with people and less so with the plutocracy.

And can you blame the one percent?

After all, life and business are uncertain enough without having Aunt Bessie, in Beaverton, Oregon, attempting to contact Mr. Lloyd Blankfein because her cat is up the tree.

Still, one can wish for the day when This Week is hosted by Mr. Tom Keene, and at the roundtable sits the CEOs, Messrs. Dimon, Cook, and Immelt, and of course, Ms. Woertz.  As informed citizens we should know a great deal more about what the Titans are thinking.  Should we not?

P.S. 

The GOP has been intransigent for some time now, and one might argue learned their favorite political tactic from none other than the NRA.  Yes, the NRA – who perfected in the modern era the political strategy of “scorched earth” or absolutism.  That is one must never yield any ground to the opposition and must continuously move forward on the offensive, no matter how detrimental to society at large.

The NRA didn’t create “scorched earth tactics,” they just reinvented and honed them to a sharp point.  “Scorched earth” has been around for centuries, and as often as not, it is the preferred tool of despots and dictators the world over.

The strategy has its pitfalls… witness the recent number of dictators who have had a falling out with their citizens, and have seen their kingdoms turned up side down.  

If only they had opened up the dialogue, allowed the safety valve of descent and freedom of speech? 

If only they had on occasion compromised?  If only they had abandoned absolutism in favor of democratic reform!

They still might be in power. 

As of late, the catalyst, the spark, for many a dictator’s fall was rising food prices.  

 Copyright JM Hamilton Publishing 2012

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Omnipotent

Omnipotent

Question:  Do you have presidential aspirations?

Answer:  No, I want to be the most powerful man on the earth.  I want to be Chairman of the Federal Reserve.

- Jack Kemp, U.S. Congressman, HUD Secretary (Bush I), and NFL Quarterback- Buffalo Bills

By J.M. Hamilton (12-15-12)

Don’t ask me to cite the above quote… I remember reading it in my youth, and being floored by Mr. Kemp’s revelation.  In retrospect, it all makes sense: bankers control the known world, have tremendous economic and political power, and apparently are immune from prosecution (no matter how heinous the crime or the cost of their nefarious acts to the economy and society).  Taking it up a notch further, central bankers, today, have unprecedented power and can print trillions of dollars, seemingly, without repercussion.  Why Mario Draghi, Goldman Sachs alum, was just named TIME’s person of the year; and the new head of the Bank of England, Mr. Carney, is also a Goldman alum, and, pssst (whispered tone)……don’t tell anyone…. but he’s a Canadian, too.

J.M.H. prides itself on getting many things right, but our call over the last couple of years on pending inflation, was incorrect.  Cost-push inflation has not arrived due to chronic unemployment, and demand-pull has not arrived for the very same reason.  Head-line inflation, that is commodity inflation, has been with us since the crisis began, generated largely by banking and shadow banking speculation, and a geyser of Fed liquidity.  The personages, who appeared to have forecast inflation correctly, or the lack thereof, are two eminent economist, Messrs. Krugman and Galbraith -the former of Princeton, and the latter of the University of Texas.

How could this be?  After all, the textbook case for hyper-inflation was the Weimar Republic, where the German government printed gobs of Reichmarks in an attempt to pay off European war reparations, Post – WWI.  In this classic example, Germans and Europeans fled the currency, exchanging German marks for more stable alternatives, as the German printing presses worked over time.  Soon the German mark wasn’t worth the very paper it was printed upon.  So why not here in America… after all paper currency holds no real value, in and of itself, but is based purely on the faith that its value today will hold for the foreseeable future.

The answer, as far as this writer can tell, is that there are few alternatives to the U.S. dollar. In essence, the Fed chairman has a near monopoly on global fiat currency.  Its only real competitors are the Euro and the Renminbi.  As for the Euro, some question whether this currency will even survive, although the pressure for it to do so has never been greater.  And the Chinese Yuan is as manipulated as the U.S. dollar, so that China can continue to sell inexpensive exports.  Sure there are other world currencies, but there are only two alternative currencies with the depth, size and liquidity to compete with the dollar.  As the Euro and Renimbi have significant issues of their own, this gives the Fed nearly unlimited power to print money, monetize debt, and purchase mortgage back securities.

Just this week, the Fed announced it would produce out of thin air $45 billion in added liquidity monthly, until such time as unemployment is driven down below seven percent.  This is in addition to $45 billion in MBS the Fed purchases monthly.  To date the effect of the Federal Reserves policies (various quantitative easings and twist) has been questionable, particularly for the 99%.  What is not in doubt is that the Fed’s policies have saved the banking cartel – the architects of our on-going crisis, and helped pump up asset prices for the wealthy.  Hence, my recent piece making the case that the Fed’s policies are essentially “trickle down monetary policy.”

Central Bank actions have also provided cover for reckless global government fiscal policies, or appeared to have purchased time for governments to get their fiscal house in order, depending upon one’s perspective.  (Albeit one wonders, if Messrs. Krugman and Galbraith are correct on inflation, and they appear to be highly prescient at the moment – might these two economist also be right on their calls for nearly unlimited fiscal stimulus, given the crisis and the awesome powers of the Federal Reserve to finance same, as described in this editorial?  If so, the political and economic implications of these two eminentos recommendations are staggering!  We could literally put the intangible asset of Fed policy on the asset side of the ledger to offset the abyss of the Federal deficit.  In the short run, these two are likely right.  Longer term, the key seems to be will the world continue to have faith in the dollar?  Then again, as Keynes famously said, “In the long run we are all dead.”)

When the Germans inflated their currency to unsustainable levels, German citizens and europeans were able to hold that behavior in check because there were fungible alternatives; but with European currencies consolidated under an abused Euro, and with the Renminbi not ready for prime time, and not even traded on open exchanges (but for a few test cases), this makes the dollar the only game in town.  Moreover, since the Fed Chairman is buying up U.S. debt this makes it impossible for the market place, and the so-called bond vigilantes (banks, hedge funds, institutional investors, and private equity) to rein in Fed activities.

How long can this continue?  It most likely will continue until such time as there is a viable alternative currency, or a global boycott of the dollar because the world has lost faith.  Whether one agrees with the Fed’s policy on interest rate suppression or not, one has to acknowledge the Fed’s omnipotent power.

Like most things in this world, the Fed has the potential to do good, as well as bad.  J.M.H. has written at some length about monopolies and the Wall Street cartel (as have many others), and the economic and political blessing to this nation and the world if this cartel were to be broken up and forced to compete.  Here, the Fed has the regulatory powers to do just that.  By increasing the reserve requirement of the Wall Street cartel, the Fed could make it very costly for Wall Street to do business.  Bank stockholders already faced with poor returns on equity – would more than likely demand the breakup of these institutions, if this were to happen.  If Wall Street refused to adhere to stockholder demands, the Fed could also sell back to the banks all the impaired assets it had purchased from same (disgorge the Fed and the GSEs of MBS, CDOs and the like) at the list price, audit these institutions at “mark to market accounting,” and foreclose and nationalize the cartel, when they failed the audit.

This would allow the Fed to do what oligarchy management won’t do, break up the cartel for the good of stockholders and mankind.  Once broken up, the banks could be handed back to the private sector.

At the present, arguably, Fed policies have served, and enabled, to make the cartel larger, more powerful, less safe, and far less beneficial to ordinary Americans.

The bottom line, there are no checks and balances on Fed policy (but for the chairman’s quadrennial appointment) and that makes the Fed Chairman, as Mr. Kemp so eloquently stated, the most powerful man on the planet.

P.S.

Is America finally ready to take up legislation on gun control?

With every innocents murder, we all bear indirect responsibility, by not insisting that our politicians take up the gun control debate, and act upon the obvious.  Write you congress person today.

To hell with the fiscal cliff, I want guns off the streets!

 Copyright JM Hamilton Publishing 2012

Correction:  Mr. Draghi was not Time’s man of the year, however, he had been acknowledged by Business journalism and received honorary degrees from Academy.

I Bet on Sure Things…

I Bet on Sure Things…

By J.M. Hamilton (12-1-12)

“Now you’re not naive enough to think we’re living in a democracy, are you buddy?  It’s the free market.  And you’re a part of it.  You’ve got that killer instinct.  Stick around pal, I’ve got a lot to teach you.”

“I don’t throw darts at a board.  I bet on sure things.  Read Sun-Tzu, The Art of War.  Every battle is won before it is ever fought.”

- Gordon Gekko – From the movie Wall Street 

The 2012 election proved that plutocrats can’t buy everything, but fear not because Democrats – believe it or not – are both pro-business, and are often eager to take corporate largesse.  Besides corporations, as often as not, hedge their political bets by laying down campaign contributions to both political parties, albeit in many instances they lean right.  Seemingly, all that Koch brothers loot and all Mr. Adelson’s money could not put the GOP back together again, after its great fall in 2008.  And although some members of the GOP seemed to have turned the corner and have already begun to learn the lessons of the last election, there is always more than a few diehards fighting the last war.

Embittered, angry, and just like the T-Rex, they flirt with extinction.

Enough about government, because it’s all we talk about, it’s all we read and see on the tube and our smart phones.  It’s quite distracting, and even though government deserves our attention, the private sector often does not obtain the degree of macro scrutiny that it deserves.  Conveniently so; that is to say, this is by no misadventure, because the plutocracy doesn’t want us digging into or analyzing their affairs.   Besides private enterprise is sacred.  I know this to be true because I feel it in my bones.

Except… might it perform better?  For the good of women and men, labor, stockholders, fellow businesspersons, society at large and the good of the nation, might private enterprise do better?

Mr. Gekko likes sure bets, just like any successful businessperson, for instance Mr. Warren Buffett. Why assume risk or earning’s volatility, if you can guarantee earnings, profits and dividends?  And in some sectors of the economy, risk – in many instances – has all but been eliminated but at a terrible price.  Indeed, victory over volatility and risk has been achieved, and earnings and dividends are guaranteed.  I write of course, of markets – large swaths of the American economy – dominated by cartels and monopoly.  What is good for the plutocracy, unfortunately, is not always good for the hoi polloi.  

For these massive cartels – which promise sure bets – often embody diseconomies of scale, are Kafkaesque risk management nightmares, and – despite claims of being the living and breathing embodiment of private enterprise – are often dependent upon government for backstop and support.  Since consolidated markets require government approval, these monopolies are creatures of the state.  By way of example then, J.M.H. offers up Big Pharma, Big Oil, and the Wall Street banking cartel.  As these markets are dominated by cartels, their earnings are all but guaranteed; and as demand for life saving drugs, energy, and credit are all but inelastic, these entities can and often do achieve monopolistic profits and returns for their shareholders.  However, these “sure things,” profits, are often taken to the detriment of society at large, and our government.   For the monopolistic profits charged by these sectors of the economy, confiscates money and discretionary income that might flow to other sectors of the economy and businesses; and as real wages have stagnated in this country and throughout much of the western world, monopolistic profits cause the economy to stagnate and leads to gross inefficiencies and misallocations in the economy.

In Republican parlance, monopolies quite simply are job and business killers. And have you noticed (?), there’s always conveniently a shortage of product and supplies in these markets:  whether it be the recent shortage of gas in California, conveniently, because a couple of refineries went down; or a dearth of life saving antibiotics; or cut backs in credit and mortgage financing.  These alleged institutions of efficiency, always seem to fall short.  And my guess is that these “accidents” are quite possibly by design.  For shortages lead to increased dependence, and higher margins, profits and dividends.  There’s that “sure thing/sure bet” we keep talking about.  Monopolistic profits are a tax on society, for which the electorate has no say or representation.

Indeed, the government literally has to bribe these institutions to produce, whether it be the Feds purchase of mortgage backed securities, so that the banks will begin mortgage lending again; or government creating extra financial incentives for Big Pharma to produce the aforementioned antibiotics or vaccines; or absurd tax breaks for big oil, which reaps billions in profits annually.  Monopolies, duopolies and oligopolies have incredible power, both political and financial, with which to sway the government and the public around to their way of thinking.

And because capital – in the form of stock purchases (or bonds) – tends to flow into markets controlled by cartels and monopoly, due to Mr. Gekko’s desire for the lush dividends and sure bets, this crowds out investment in alternative markets.  All of which further reinforces the importance of these institutions, and makes the public more dependent upon these cartels for jobs, which further reinforces their clout and power.  Their power grows, expands, and is self-fulfilling in a Faustian fugue.  No wonder, the pinnacle of success, for many in the business community, is to eliminate your competitor.

Greed, self-preservation, and sure bets are all instinctual, but at the macro level is it all good for America, particularly when left unchecked?

So to sum up:  cartels and monopolies are incredibly inefficient, often predatory creatures, engage in rent seeking behavior, are the incarnation of private taxation without representation, and are often dependent upon handouts from the state… the very thing Republicans are said to abhor.  And yet, we never hear a word about these corporate predations.  Worst still, what these institutions are exceptionally good at is subverting democracy via mercenary battalions of attorneys, to further their interests by:  writing rules, regulations and laws in their favor, which often preclude competition or create barriers to entry; showering massive campaign contributions upon politicians, so that that the pols look out for cartel interests, as opposed to the commonweal; and by engaging in regulatory capture.

By way of example, America has all but achieved energy independence, and yet, Big Oil has begun a massive lobbying campaign to allow the industry to ship energy independence and America’s LNG, refined gas, and petrol products offshore to more lucrative markets (this of course, will also serve to keep prices up here at home).  Instead of developing life savings drugs with its monopolistic profits, Big Pharma continues stock buy backs, mergers and acquisitions, and lobbying congress so as to preclude the government from negotiating competitive rates for Medicare prescriptions.  As for banks, well if you have read my blog over the last three years, or unless you have been frozen in a cryogenic state, the list of predatory behavior is both obvious and seemingly endless; and bank behavior has single-handedly started a global political movement.

So what can be done to protect America, and American business, from cartels and monopolies?

1)  A windfall profits tax would suck some of the lifeblood out of these institutions, and stop the flow of capital in the direction of these various leviathans; but it’s really not a market oriented solution, and only serves to strengthen the state and public dependence upon the state. As such, it is an inefficient remedy. The leviathans after all, would remain, and live again to fight for the tax's abolition.

2) We could regulate these entities, and cap the profits they can make, almost like a utility…. getting warmer here.  Not a bad solution, except the regulators, as often as not, end up going to work for the very industries they are supposed to be responsible for, the so-called “revolving door” in action.

3)  Government, in some instances, could compete quite effectively against the private sector.  For example, since the Fed is giving the banks a massive handout right now by purchasing mortgage backed securities, to the tune of $40 billion per month, and the majority of America mortgages end up with the GSE’s, Freddie and Fannie (both publicly owned), why not cut out the middleman, the banking cartel altogether?  As far as this writer can see, the banks primary purpose in today’s mortgage market is to generate fees (profits and rewards) for themselves, and pass underwriting responsibility (risk) onto public institutions and the taxpayer.  Hence, the banks guarantee the “sure thing,” profits for the plutocracy and bailouts for the public.

4)  Probably the best solution – the more market oriented approach – is to break these institutions up into many and varied smaller companies, so that they can compete against one another.  Smaller institutions would provide a private sector cure for much of the “uncertainty” created by today’s monopolies and cartels.  Moreover, the breakup of these monopolies and cartels would, in many instances, address many, if not all, of the ills described above, and certainly hinder rent seeking behavior, decrease government welfare to corporate entities, and the subversion of our democracy.

Long suffering stockholders, faced with under-performing stocks and valuations at less than the break up value of these institutions, also stand to gain, big time!

The arguments against enacting any of the changes to rein in the cartels are almost exclusively myopic and sophistic; and probably the best argument they can offer is that these institutions throw off “sure things,” dividends, to state retirement and union pension funds, contribute to philanthropy, and of course, hire workers.  That these very same institutions are often experts on tax avoidance, and often prefer to ship jobs offshore, as a form of tax and labor arbitrage, never enters the cartel controlled narrative.  The argument that these institutions have to be this big in order to compete or better service today’s multi-nationals is specious.

No, if we look at the cost-benefit analysis of the break up of these institutions, business wins and the American people win with deconstructed markets, for all the aforementioned reasons.

The only people who lose by the break up of monopolies and cartels are those who like to bet on sure things; but don’t shed a crocodile tear for Gordon Gekko, there’s always that old stand by, and the surest of bets, insider trading.  The tradeoff is clear:  cartels and monopolistic profits for an elite few; or the break up of these institutions for a healthier national economy and jobs market.  You decide, and then vote accordingly.

P.S.

Business leaders and CEOs have been more vocal as of late, in regards government and fiscal budgetary matters; this is only natural and is to be commended and encouraged.  However, it would be better still if these same executives would be less reticent about cartels and monopolies.  The next time the banking cartel implodes and takes down the global economy, there is going to be a strong political impetus to nationalize the cartel, at least in the short run if not longer term.  Therefore, from a libertarian or even the GOP’s perspective, it maybe in the business communities best interest to nudge their Wall Street brethren towards deconsolidation; an ounce of prevention now (breaking up the cartel), maybe worth more than a pound of cure (government takeover), when the inevitable financial crisis occurs, again.

These cartels give capitalism a bad name, and the shortages they leave in jobs, opportunity, and products and services…. Are all too eagerly filled by the government.  Democratic power abhors an economic vacuum, as we saw in the last election.  

 Copyright JM Hamilton Publishing 2012