Wall Street socialism – round 2…
Corporate Socialism: The Government Is Bailing Out Investors & Managers, Not You
ZeroHedge, Mar 26, 2020 – Excerpts:
Authored by Nassim Nicholas Taleb and Mark Spitznagel via Medium.com,
The U.S. government is enacting measures to save the airlines, Boeing, and similarly affected corporations. While we clearly insist that these companies must be saved, there may be ethical, economic, and structural problems associated with the details of the execution.
As a matter of fact, if you study the history of bailouts, there will be.
The bailouts of 2008–9 saved the banks (but mostly the bankers), thanks to the execution by then-treasury secretary Timothy Geithner who fought for bank executives against both Congress and some other members of the Obama administration. Bankers who lost more money than ever earned in the history of banking, received the largest bonus pool in the history of banking less than two years later, in 2010.
And, suspiciously, only a few years later, Geithner received a highly paid position in the finance industry.
That was a blatant case of corporate socialism and a reward to an industry whose managers are stopped out by the taxpayer. The asymmetry (moral hazard) and what we call optionality for the bankers can be expressed as follows: heads and the bankers win, tails and the taxpayer loses. Furthermore, this does not count the policy of quantitative easing that went to inflate asset values and increased inequality by benefiting the super rich. Remember that bailouts come with printed money, which effectively deflate the wages of the middle class in relation to asset values such as ultra-luxury apartments in New York City.
Second, these corporations are lobbying for bailouts, which they will eventually get thanks to the pressure they can exert on the government via lobby units. But how about the small corner restaurant ? The independent tour guide ? The personal trainer? The massage professional? The barber? The hotdog vendor living from tourists near the Met Museum ? These groups cannot afford lobbyists and will be ignored.
Third, as we have been warning since 2006, companies need buffers to face uncertainty –not debt (an inverse buffer), but buffers. …. We do not need to predict specific adverse events to know that a buffer is a must. Which brings us to the buyback problem. Why should we spend taxpayer money to bailout companies who spent their cash (and often even borrowed to generate that cash) to buy their own stock (so the CEO gets optionality), instead of building a rainy day buffer?
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There is a very simple way to level this playing field…
Grant U.S. citizens the same direct access to liquidity that has been, and is now again being provided to major U.S. and foreign financial institutions – by the Fed and U.S. Treasury.
U.S citizens deserve nothing less than the same treatment that the Fed has so generously lathered on the likes of: Goldman Sachs, Morgan Stanley, Bank of America, JP Morgan, Wells Fargo, Citigroup, Deutsche Bank, UBS, Barclays, RBS, BNP Paribas, and others.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
$75,000 per U.S. citizen – Leviticus 25 Plan 2021 (3628 downloads)
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April 2020: “No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable.” – Adam Smith