One of Donlan's better Commentaries but, as I stated in the note to Tom, the answer isn't simply "ethical practice and fiscal prudence". Capitalists should do what ever they can within the LAW to make money for shareholders. What is needed is law to punish very severely what we would call unethical behavior. The problem is that our representatives in WDC are effectively owned by Wall Street these days and our Supreme Court has blessed Wall Streets take over.
One of Doug Casey's Research types offered to following in their latest Freebee:
The Rate of Return on Political Contributions
By Vedran Vuk
When one of our stocks doubles at Casey Research, we’re pretty excited. But even our best picks can’t match what’s happening down in Washington. While D.C. has a reputation for big money lobbying, the actual campaign contributions by individual firms are miniscule. However, the rate of return on this money is enormous.
The Center for Responsive Politics does an amazing job of organizing campaign contribution data. While these numbers don’t include every PR push, non-profit organization, and revolving door deal, they do give us a glimpse at total lobbying.
Let’s take a look at some of the recent bad boys of finance. Goldman Sachs is among the biggest contributors in the financial industry. Over twenty years, it has given $31,462,375 to politicians – that’s an average of $1,573,199 per year.
Although this is large in comparison to other contributors, it’s chump change for a major corporation. The $12.9 billion received from the AIG bailout is a dinosaur-sized return for the $31 million investment. The rate of return comes out to a jaw-dropping 40,900%!
Other big financial players contribute even less to politics. Over twenty years, AIG gave $9,772,862 –practically nothing compared to the heavy hitters. Bank of America’s $17,110,538 is not particularly awe-inspiring either. Compare these small figures to the Capital Purchase Program’s payouts.
Citigroup surprisingly almost matched Goldman Sachs with $27,110,233. Yet, whenever one hears about Wall Street and Washington scheming together, Goldman Sachs is the preferred poster boy. Personally, I think the name sounds more mysterious, conniving, and powerful. This is a simplistic explanation for the company being singled out but probably close to the truth. (Also, having former employees as the Secretaries of Treasury doesn’t help either.)
But what happens if a company doesn’t pay up? The answer is two words, Lehman Brothers. During the 2008 election cycle, these schmucks only gave $555,675 – and that was their biggest contribution to date. Prior to 2008, most Lehman contributions were below a quarter million every two years.
Lehman Brothers must have been confused. Apparently, they thought that we lived in a free market. Well, the company was certainly treated like it existed in a free market – it failed.
Had Lehman Brothers only dined congressmen with foie gras rather than Popeye’s chicken, they might still be around today. AIG and the others understood the D.C. game far better than Lehman – the end result is not surprising.
Obviously, spending next to nothing like Lehman Brothers isn’t wise. But on the other hand, why are others not spending more on politics? Economic theory tells us that abnormal returns attract investment money. With 40,900 percent returns, the low level of spending just doesn’t make sense. Here’s my stab at explaining the disparity.
Financial institutions can’t acquire individual contracts like Lockheed Martin and Northrop Grumman. The financial industry has always been a “we’re all in it together” lobbying group. This was certainly true during the 2008 crash. Even companies that didn’t need the bailout took it anyway.
The financial industry doesn’t bicker and fight over individual contracts – it pools influence. Just look at the Federal Reserve itself; this monster was created to enrich all major banks across the board. Since 1990, the finance/real estate/insurance industries’ total funds have contributed over $2.3 billion in campaign contributions – now we’re talking power. Essentially, this arrangement works like a premier country club. One pays the yearly fees to enjoy the luxury and benefits of the club. If no one pays the fees, there will be no club to attend. But if any person pays twice, the benefits and luxury of the club as a whole will not have greatly improved. For example, Bank of America would not improve its situation by paying an additional $10 million into the $2.3 billion pool.
If Bank of America paid more, other banks would enjoy greater influence at Bank of America’s expense. Most companies don’t exactly want to lay out billions for everyone else. This would explain the gigantic pooled influence while maintaining limited individual contributions.
Thanks to this system, each company only contributes a million or so per year. When things get bad, the club will have their back. Lehman Brothers obviously didn’t have a membership card.
This problem is very similar to the provision of public goods The financial industry creates a conglomerated lobbying effort – its own privately funded public good. However, investing heavily into semi-public goods isn’t exactly the best strategy – even if it hits the jackpot every once in a while. Hence, there’s no point in putting too much money into it. And though the banks enjoy their semi-public good, the rest of us paying the bill can only describe it as a public bad.
Wall Street Money Never Sleeps Update
Last week, I wrote a piece about the return of Gordon Gekko in Wall Street Money Never Sleeps, the sequel to the 1987 movie Wall Street. There’s a new, longer trailer out worth watching. It gives more insight into the plot, compared to the first teaser. Also, since the last article, I had a couple of more thoughts on the subject of Gordon Gekko.
Many Casey’s Daily Dispatch readers have mixed feelings on Mr. Gekko. On the one hand, there is something very honest in his infamous “Greed is Good” speech. But on the other hand, this isn’t the best advertisement for novices to free-market ideas.
Those who already understand markets usually admire the speech. However, a less savvy and informed listener could be completely repulsed – this is reason enough for even a free-market supporter to resent the speech.
Capitalism’s reputation certainly would have been helped had Oliver Stone chosen the words “self-interest” rather than “greed.” But unfortunately, “Self-Interest is good” does not have the same theatrical element as “Greed is good.”
Further, one of our readers, Abe Kane, made an excellent comment on the topic. At some point, greed is not good. Are not politicians and bailout leaders greedy as well? They will hurt anyone or tax anything to win elections or save their companies. In a sense, greed is only good to the point where one isn’t trespassing on the rights of others.
This brings us to another dilemma. Are the sick personalities of politicians and political entrepreneurs really based on greed or something else? To understand the difference, let’s look at Ebenezer Scrooge from the Christmas Carol – the personification of greed and selfishness.
(Side note: Here is an entertaining article from the Mises Institute defending Ebenezer Scrooge.)
Scrooge is uncaring, selfish, and helps no one. But he’s also not robbing people through taxes, using government force to regulate competitors, or mugging his clients at gunpoint. He’s greedy and mean –but not necessarily evil.
For capitalism, Scrooge is the uppermost acceptable limit for greed. He may be grossly selfish, but he’s not trespassing on anyone’s natural rights. On the other hand, look at the president of the United States. Obama is willing to forcefully take money from others to aid his own career and party. Yet, the average person on the street would not describe Barack Obama as a greedy person.
Or take, for example, the difference between a drug-addicted mugger and a drug-addicted beggar. Both want money just as badly, but each has a different means of acquiring it. Something other than greed and desire motivates their respective “career paths.”
Damaging and disrespecting others’ lives and property is sociopathic behavior. It is much closer to pure evil than greed or extreme self-interest alone.
When greed and the willingness to use force combine, these two characteristics produce the worst human beings to have ever walked the Earth. But these individual characteristics are not the same thing. One can be as greedy as Scrooge without crossing the line of force. So, what’s best for capitalism? Greed and self-interest are fine to the point that one keeps his hands to himself.
Gordon Gekko’s speech is in desperate need of a footnote.
And as my colleagues say… That, dear reader, is that for today. Thank you for reading.
Vedran Vuk
Casey Research |
