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Global
Strategic Bargain: Positive Reality Therapy for
America's Critical "States of Denial" (short version)
by
Econotech
October 10, 2006
October 30, 2006October 27 –
(Econotech FHPN) (This article is the first eight sections (approx.
5,400 words) of a longer article (approx. 16,000 words) consisting of
the 18 sections listed below. This abbreviated version can be accessed
at link,
the full article can be accessed at link.
There is also an extensive set of news summaries for the past month
from the mainstream media posted on Oct 24 at link.)
* A New Global Strategic Bargain of Energy and National Security
* Time to Reconsider Worldview Based on U.S. as Hegemonic Sole
Superpower
* Historic American Political Realignment Needed
* Attempt to Explain America's Massive Denial of Basic Economic
Reality
* It's the Hyper-Speculative Global Financial Markets
* Return on Leveraged Legal Looting (ROLLL)
* Self-Described "Schmucks" of the Financial World
* Historical Context for a New Global Strategic Bargain
* World More Dangerous With Loss of U.S. Power and Domestic Political
Stalemate
* What Would Happen Politically If the Housing Bubble Really
Collapsed?
* Billions of People Without Clean Water, Basic Sanitation, etc.
* Equity Markets Keep Rising, Regardless of Short-term Rate
Expectations
* No Domestic Opposition to Global Hyper-Speculators
* Europe and Japan Offer Little Opposition to Global Hyper-Speculators
* Whither China?
* Whither Russia?
* Time to Regain America's Moral Authority, Credibility and Trust
(added)
* Any Hope for the Dismal State of Politics in America?
“North Korea's declared nuclear bomb test program will increase the
incentives for other nations to go nuclear, will endanger security in
the region and could ultimately result in nuclear terrorism …
demonstrates the total failure of the Bush administration's policy
toward that country. For almost six years this policy has been a
strange combination of harsh rhetoric and inaction.” (William J.
Perry, Secretary of Defense from 1994 to 1997, later Clinton’s
Special Adviser on North Korea, WP, Oct 11)
“the Bush administration sees diplomacy as something to be engaged
in with another country as a reward for that country's good behavior.
They seem not to see diplomacy as a tool to be used with antagonistic
countries or parties, that might bring about an improvement in the
behavior of such entities, and a resolution to the issues that trouble
us. Thus we do not talk to Iran, Syria, Hizballah or North Korea. We
only talk to our friends -- a huge mistake.” ("Bush's Blunder
in North Korea," by Donald Gregg, was a CIA official since 1951
and a liaison to President Carter's NSC and, National Security Adviser
to VP George Bush and U.S. ambassador to South Korea from 1989 to
1993, now chairman of the board of the Korea Society, WP, Oct 9)
“[North Korea’s] test appears to represent a stunning failure for
the Bush administration's stated goal of blocking the spread of
weapons of mass destruction, the foundation of its security
policy." (WSJ, Oct 9)
“the American era in the region has ended … Much more likely is
the emergence of a new Middle East that will cause great harm to
itself and the world … What brought it to an end? Topping the list
is the Bush administration's decision to attack Iraq and its conduct
of the operation and resulting occupation … Other factors include
the demise of the Middle East peace process, a failure by traditional
Arab regimes to counter the appeal of radical Islamism, and
globalization.” (Richard Haass, Director of Policy Planning in
Powell’s State Dept, now President of the Council on Foreign
Relations, FT, Oct 17)
“With the Middle East immersed in its worst crisis for years, we
call for urgent international action towards a comprehensive
settlement of the Arab-Israeli conflict. The outlines of what is
needed are well known.” (Newspaper ad signed by numerous famous
former global leaders, FT, Oct 4)
“Israeli officials and politicians across the political spectrum are
convinced Iran represents an existential threat … Saudi Arabia, in
what was considered a dramatic move several years ago, offered to get
much of the Arab world to recognize Israel in exchange for a
withdrawal from all territory Israel occupied during the 1967 war.
Israel rejected the idea.” (WSJ, Oct 3)
“Senate Majority Leader Frist said Monday that the Afghan war
against Taliban guerrillas can never be won militarily and urged
support for efforts to bring "people who call themselves
Taliban" and their allies into the government. [Frist] said he
learned from briefings that Taliban fighters were too numerous and had
too much popular support to be defeated on the battlefield. "It
sounds to me ... that the Taliban is everywhere."” (AP, Oct 2)
A New Global Strategic Bargain of
Energy and National Security
N. Korea’s nuclear test, the ongoing deep morass in Iraq,
Afghanistan, very high and very volatile energy prices, among many
other things, indicate two critical facts about the state of the world
today which should by now be crystal clear to anyone not in a deep
“state of denial” (to borrow what I consider to be the inaccurate
title of Bob Woodward’s new book, explained at the end of this
article).
First, the U.S. can, and should, not attempt to police and remake the
whole world unilaterally. Second, leading nations need to more
rationally, fairly share access to energy, to help create more just,
sustainable global economic development.
With a rather belated recognition and acceptance of this glaring
reality by the world’s leaders, I believe that there would be the
possibility of a global new strategic bargain between, most
importantly, the U.S. and China, with the EU, Japan, Russia, India,
Saudi Arabia and others also playing critical roles. It would not have
to be negotiated nor presented as such, I would prefer gradual but
steadfast diplomacy with this bargain in mind.
Bluntly put, the U.S. can not ask, let alone try to pressure or
cajole, major powers such as China, the EU and Russia, to act on
America’s behalf against its own designated enemies, e.g. N. Korea
and Iran, which these other powers may not necessarily wish to
confront to the same extent as the U.S. does right now, without
offering something very significant, beyond its market access and
appreciation, to these major powers in return.
“Because of North Korea's track record as an eager exporter of
weaponry, some experts are more worried about the government in
Pyongyang spreading nuclear technology to other "rogue"
nations than about the possibility of it launching a nuclear attack
… most experts said the country would probably refrain from doing
so." (LAT, Oct 21)
“Whether the NPT survives this combined assault depends on how the
big powers rise to the challenge: by co-operating to press both
regimes to abandon their nuclear exploits and uphold the rules, or by
competing in the wider struggle for regional influence … North Korea
is dangerous, but isolated. An Iran with nuclear weapons, says one
senior Bush administration official, would be a “game-changer”.”
(Economist, Oct 19)
“Ms. Rice's immediate challenge is to get real cooperation from
North Korea's neighbors. Yet she appeared to make little progress on
that front during her Asia trip, which ended Saturday.” (WSJ, Oct
21)
“As Rice left China today for Russia, her goal of uniting Northeast
Asia in a strong, unambiguous punitive stance against North Korea
remained elusive … Rice sought Friday to lower expectations …
Beijing believes that if it is identified too closely with a U.S.
hard-line stance, it loses the opportunity to broker a solution in the
future, with the international prestige that entails.” (LAT, Oct 21)
The essence of a possible grand bargain is that the U.S. will greatly
scale back its so far unsuccessful efforts at regime change in the
“Axis of Evil,” to remake the Middle East, Northeast Asia, etc,
and rather share control of critical regions with major powers,
including regional ones.
In the case of the Middle East, this would modify a sixty-year U.S.
policy of hegemonic domination of by far the most important source of
oil. In the case of East Asia, it would simply accept the reality of
China as a leading power with its own strong interests and influence,
and try to make the best of it.
In return for this change in current U.S. policy, the other major
powers, especially China, the EU and Russia, will fully, unreservedly
commit to do all that they can to help stop nuclear weapons
proliferation, starting with N. Korea, while the world transitions
over the next decades to more sustainable sources of inexpensive,
clean energy.
I have long believed, and my web site’s tag line, “finance
innovators, not speculators” reflects this, that the most important
struggle in the world today is not Bush/Cheney’s “war on
terror.” It is about who will control the “commanding heights”
of the global economy in the 21st century, via its monetary/financial
and energy systems.
These global production and financial networks need to be closely
linked as part of this new grand bargain, in which the U.S. will once
again earn its way, rather than relying upon much of the world’s
development capital. The “war on terror” and nuclear
non-proliferation will naturally be part of global economic
development and security, there can not be global prosperity without
global peace and security.
“Global leaders must find a way to unravel lop-sided trade and
investment flows or risk a slump in the U.S. dollar that would create
havoc for the world economy, ADB Chief Economist Ali said. An
international agreement along the lines of the 1985 Plaza Accord ``on
a bigger scale'' is needed to unwind the imbalances that have resulted
in the U.S. current account deficit swelling to a record $805
billion.” (Bloomberg, Oct 3)
Whether or not this "Plaza II" suggestion is a way to go
I'll leave to the true international economic and monetary experts,
the unbiased ones that is. I believe that, as I wrote in my Sep 26
article link:
“Reforming the monetary/financial system to make the U.S. earn its
way once again, as it had proudly done for two centuries, would
profoundly change everything, including the low image of the U.S. in
the world and the social/political mass culture of this nation.
Wouldn't U.S. corporate innovation become focused on what the rest of
the world really needs? And wouldn't Americans be proud in doing so?
Wouldn't that be a more positive image and vision for the world?”
Frankly, by running such unprecedented current account deficits, which
draw upon the world’s savings that could otherwise go towards global
economic development, and by its less than 5% of the world's
population consuming about 25% of the world’s oil, the U.S. has lost
much moral authority in the eyes of the rest of the world (along with
other reasons).
The U.S. asking the rest of the world to do its bidding is like a
credit card junkie telling his card companies what to do. Likewise
with energy, how could the U.S. with a straight face tell China and
others which nations are politically correct enough for it to cut
energy deals with?
Not only is the U.S. heavily dependent on East Asia, and the Arab
Persian Gulf, for financing its massive twin deficits. It is also
heavily dependent on the former, most especially China, for its supply
chains and productions networks.
Indeed, it may not be completely far-fetched to say that East Asia and
the Arab Persian Gulf are essentially helping to finance, via the twin
deficits, U.S. military operations in regions whose stability is of
paramount importance to those major powers with their own strong
interests (and influence) in those regions and in stable economic
development.
This is an unprecedented situation for a country purportedly trying to
dominate the world as the hegemonic sole superpower, and is clearly
not a sustainable strategic position. Rather, it means that the U.S.
and its creditors and producers will need to cooperate ever more
closely in the future, especially on key issues involving energy
security and nuclear proliferation.
Time to Reconsider Worldview Based on U.S. as Hegemonic Sole
Superpower
Most, perhaps all, in the U.S. foreign policy “establishment”
would balk at this bargain, especially when it comes to sharing U.S.
power in the Middle East.
One of the biggest “states of denial” that extends clear across
the ideological spectrum of the U.S. elite, from Kissingerian
“realists” to neocon “idealist” Jacobins, is that the U.S. is
the world’s unquestioned, unchallenged superpower or hegemon
(sometimes called hyper- or uber-power in Europe), its current global
dominance greater than even the Roman and other (in)famous empires of
the past.
Since the breakup of the Soviet Union, I have never read, heard or
seen even a single solitary public dissent (what is said in private
I’m obviously not privy too) from a leading economic, foreign policy
and national security expert, of any ideological persuasion, from this
characterization of the U.S. as unprecedented, virtually unlimited
superpower, regardless of how strongly critical various members of the
elite may be of important aspects of U.S. foreign/military policy at
any given moment.
Yet it is precisely this hubristic delusion of America’s
unprecedented, unlimited, and unchecked power on the part of Bush,
Cheney, Rumsfeld and the neocon’s that has now gotten the U.S. into
the huge mess described by leading bipartisan former government
officials and mainstream "establishment" experts quoted at
the very beginning of this article.
The harsh reality is that the U.S. of today has nowhere near the
economic, industrial, technological and most especially financial
power in the world that it did in 1945, when an ailing FDR met with
Saudi Arabia’s first monarch, Ibn Saud, on a Navy ship in Egypt to
seal the foundation "oil for security" deal of the postwar
era between the two nations, nor even in 1980, as U.S. industrial
descent was already picking up steam just before the disastrous
precipitous decline in Reagan's first term, when the “Carter
Doctrine” of unchallenged U.S. control of the Persian Gulf was
explicitly declared.
The accelerating decline in key economic parameters of U.S. power,
military excluded where the U.S. almost outspends the rest of the
world combined, since that time has become so glaringly obvious by now
that it seems to me it takes almost deliberately willful blindness on
the part of the U.S. elite to continue not to see the evidence and
deny it. How can one read any leading news publication without
noticing what is happening to the underpinnings of U.S. power? One
could find many quotes any week from the mainstream media like the
following recent ones:
“During the past five years America has accounted for only 13% of
global real GDP growth, using purchasing-power parity (PPP) weights.
Asia has accounted for over half of the world's growth since 2001.
Even in current dollar terms, Asia's 21% contribution exceeded
America's 19%.” (Economist, Oct 19)
“IBM has moved its global procurement headquarters to southern China
from New York to ``capitalize on emerging market opportunities.'' IBM
spends 30 percent of its $40 billion annual procurement in Asia. This
is the first time the company is moving the headquarters of one of its
biggest divisions to China … The move ``places us closer to the core
of the technology supply chain.”” (Bloomberg, Oct 12)
“Azim Premji, chairman of Wipro, the Indian outsourcing group, has
warned that the US faces a more acute skills shortage in information
technology than India, blaming failings in America’s education
system and restrictive immigration policies. “Math is not considered
as important, and students are not getting a premium when they
graduate as engineers,” he said.” (FT, Oct 26)
“Global trading in futures and options contracts on lending rates,
currencies and stock indexes increased to $484 trillion from $429
trillion in the first quarter, the Basel, Switzerland- based BIS said
in a quarterly review.” (Bloomberg, Sep 11)
To put the last quote in context, U.S. current dollar annual GDP is
$13.3 trillion, $3.3 trillion per quarter, compared with $1.9
quadrillion in annual derivatives trading, 147 times as much.
As best I can tell, it seems that the U.S. elite actually believes
that Wall Street, along with its City of London ally, dominating this
orgy of global derivatives trading and structured finance is THE
viable basis of U.S. economic power.
Historic American Political
Realignment Needed
For many years now, the current U.S. political party alignment has
proven to be incredibly dysfunctional. E.g., the two critical issues
of Iran and N. Korea have been barely mentioned by either party in the
current election, yet both will be sure to have major consequences
following it.
To head off the possibility of increasing internal and international
conflicts based on genuine frustration and anger, a new historical
political realignment is needed.
A critically needed political realignment can be done simply by
combining the moderate, progressive, centrist majority of the two
major parties into whichever party decides to come to its senses first
(don’t hold your breath), rather than allowing the sensible majority
to continue to remain divided, frustrated and trapped in two separate
parties, due to the heavy influence in both parties of their extreme
wings.
Such an obvious realignment would leave the anti-evolution right of
the ultra-cynical Rove and the ultra-liberal left of Hollywood to stew
in their own self-made minority juices. The vast majority doesn’t
believe either extreme has a self-proclaimed monopoly on morality and
is fed up with the extremes’ imposing their personal versions of
that in Rove's highly orchestrated "culture wars."
I think it would be a mistake to get down in the mud and fight Rove's
"culture wars" on his divide-and-conquer terrain, as some
seem to advise doing.
Rather, a progressive majority realignment would produce a durable,
powerful, ethical coalition of business people and labor force focused
on innovation for real, sustainable, fair wealth creation, hopefully
relegating Rove’s “culture wars” to history’s trashbin, and
pre-empting any ridiculous charges of "class war" also.
It seems increasingly likely that, barring a huge pre-November
election surprise, Rove’s pipedream of a durable realignment may go
up in smoke, not so much because of Foley or Iraq, but rather because
it was based on a very negative, inherently unstable coalition of the
anti-evolution right and “conservatives” who didn’t want to pay
taxes but did want pork-barrel, not “free market,” handouts and
subsidies, to the point of corruption.
A new progressive realignment would be historically similar to the
Republican industrial ascendancy in the 1896 election and the
Democratic social safety net one in 1932, less similar to the racial
“wedge issue” Republican "Southern strategy" realignment
in 1972, the clear precursor to the even more dismal negative politics
of Rove in this era.
These major political realignments seem to occur every 30-40 years,
along with significant economic/financial crisis.
Perhaps it was no historical accident that the creation of Lincoln’s
Republican party, which was based on promoting northern industrial
capitalism, came with the great crisis of the Civil War; McKinley’s
Republican industrial capital consolidation with the major
economic/financial crisis in the 1890s; FDR’s “New Deal” with
the 1930’s “Great” Depression; and Nixon’s 1972 racial
“Southern strategy” with the 1971-73 collapse of the Bretton Woods
post WW II monetary system and the end of the era of ultra-cheap oil
with the assertion of the Opec cartel's
power.
Attempt to Explain America’s Massive
Denial of Basic Economic Reality
For years I have found it almost impossible to believe that elite
policy-makers could seriously think that the U.S. is performing a
great service for the rest of the world by being the global “shopper
of last resort.”
The only explanations for this massive denial of basic economic
reality by both elites and the average American that I have been able
to come up with over the years are the following, I’m sure I’ve
missed other crucial ones.
First, the CEOs of U.S. global corporations no longer have significant
incentives, most especially financial, for national self-interest, so
the U.S. skill gap, decline of industrial competitiveness, etc. simply
doesn’t matter too much to them. Even the corporations of those few
well-meaning leading CEO’s who consistently warn about such dangers
to the U.S., such as IBM’s Palmisano and Intel’s Grove and
Barrett, must constantly shift their resources and efforts to outside
the U.S.
Fifty years ago American industrial CEO’s actually believed that
“what is good for General Motors is good for America,” as GM’s
CEO and Secretary of Defense "Engine Charlie" Wilson said in
1955, so for example, a perceived lag in science and math education,
especially following Sputnik in 1957, was actively addressed.
This is no longer the case today. What is good for any major global
corporation is now good for its CEO stock options and hedge funds,
which inevitably has meant massive outsourcing offshore, not building
up U.S. domestic capabilities.
That is a major change in mindset, and until it changes, there is very
little hope that the growing problems of the U.S. can and will be
altered, because there is not the power, money and incentive to do so
in corporate America.
Second, the U.S. has become a nation of middle-class homeowners who
are doubling as inadvertent (mostly) speculators, especially in real
estate, whose economic self-interest in their home equity makes it
virtually impossible for them to tell, or even beware aware of, the
difference between real economic wealth creation and the paper
version.
As I've previously mentioned a number of times, the same applies to
their political leaders and pundits, especially in the liberal “blue
states,” where real estate speculation has been most egregious.
Their financial self-interest makes it all but impossible for them to
see how U.S. economic policies are negatively affecting the rest of
the world they usually sincerely would like to help, because it seems
almost impossible to honestly understand the huge negative impact of
the rest of the world funding the U.S. massive twin deficits, when one
is sitting on huge real estate capital gains resulting from those twin
deficits and the policies that helped create them.
Again, this is particularly difficult for liberal leaders, pundits,
advisors, even economists, to come to grips with (not to single them
out, there's plenty of blame to go around), but until they do, the
prospects of truly meaningful change is very limited, if not
impossible.
Third, somewhat related, the average American doesn't know a great
deal about subjects that have rapidly become in just the past few
years critical to his future, such as China, derivatives/structured
finance, the Middle East, N. Korea, etc., etc., , in part due to the
abysmal oligopolistic state of the mainstream mass media and two major
political parties.
It’s one thing if decades ago voters, let alone the highest
government officials, didn’t know much about the differences between
Sunni and Shia, Iraq and Iran, it’s quite another for that to be the
case when the U.S. now has a declared national security strategy of
pre-emptive/preventive undeclared, in the Constitutional sense (which
doesn't seem to bother the "strict constructionist" faction
on the Supreme Court), war all over the globe.
Fourth, key parts of the technology elite in the U.S., which I've long
considered perhaps its "last best hope," as reflected in my
site's name, "econotech," now actually seems to believe that
the 24/7 narcissistic obsessive social networking of MySpace, YouTube,
etc., combined with relentless massive media advertising and branding,
is the economic and technological equivalent of developing leading
edge advanced industrial capital goods, new genuinely high-tech
sources of cheap, sustainable energy, and affordable, good quality
basic consumer goods and services to help raise desperately low global
living standards.
Again, the financial self-interest of massive stock options, usually
to unjustified excess, even backdated at times, and IPO’s seems to
have something to do with this Silicon Valley shift to the fantasy
worlds of Hollywood and Madison Ave.
I guess what all four reasons boil down to, in the final analysis, is
that if humans can get a "free lunch," which the U.S. has
been able to do since 1971 with its paper dollar, then it is simply
hard-wired in their nature to take it, and then make up all sorts of
plausible-sounding reasons, at least to oneself most importantly, and
hopefully to one's close family and friends, for why that's not what
they're actually doing.
Modern academic psychology has shown the amazing power of humans to
delude themselves in this way many times in small lab experiments, so
why should it be any different on the scale of the global economy?
It’s the Hyper-Speculative Global
Financial Markets
James Carville said after the 1992 elections, "It's the economy,
stupid," often attributed to Bill Clinton. I've updated that
slogan for this era, leaving off the "stupid."
Perhaps one of the most fundamental of America’s states of denial is
the simple failure to admit the obvious, i.e., that the U.S. economy
and government is now mainly one of, by, and for hyper-speculators,
not the people.
A simple way of trying to show this is that Wall Street’s estimate
before third-quarter results started coming in was that “the
financial industry will account for 48 percent of the S&P 500's
third-quarter growth, according to Thomson.” (Bloomberg, Oct 16)
The other nine sectors of the economy together add up to the other
half. This probably understates the role of finance in the U.S.
economy, as many large non-financial corporations make significant
profits from their financial activities.
Regardless of the exact percentage after all the results have been
reported, finance now occupies the “commanding heights” of the
U.S. economy after a thirty-plus year transformation.
The same conclusion is shown looking at tax receipts. Bush closed the
budget gap this year because of much greater than expected capital
gains taxes. Payroll tax receipts increased far less.
Bottom line, the U.S. is not a service, information or any other fad
term economy, but rather a hyper-speculative one.
It is also very self-delusional and even arrogant, not surprisingly
for those who don't like advanced math and science, to label the
hyper-speculators, and those who do very well-paid professions in
their service in some way, as somehow more creative than those
designing, engineering and manufacturing the actual products and
services we use.
Return on Leveraged Legal Looting (ROLLL)
Global finance now means what I have labeled ROLLL, return on
leveraged legal looting, by hedge and private equity funds and the
largest investment and commercial banks, usually in private,
deliberately opaque non-transparent, even to the regulators,
transactions, and usually at the expense of the public in one way or
another, which has long since superceded the emphasis on
“shareholder value.” E.g.,
“The current situation has created an arbitrage that is being
exploited by private equity groups at the expense of public
shareholders. Either defaults begin to rise and corporate credit
conditions tighten again, limiting the scope for buy-outs, or
companies will inevitably conclude that they should be more aggressive
in their borrowing.” (FT, Sep 26)
Much of modern finance, based on innumerable arbitrage games,
doesn’t create real economic wealth, as most corporations do through
innovation, but rather simply redistributes it to the super-wealthy,
via their control and use of the credit system with which to
expropriate real wealth. Calling this looting financial innovation
doesn’t change its essential nature.
ROLLL has been based on a few obvious one-time tricks, some of which
may not be repeatable, at least on the same scale, such as the global
real estate bubble. Unfortunately, by the time that becomes more
obvious to most people, whatever breathing room these tricks have
bought the U.S. over the past decades to begin to transition to a much
more healthy U.S. economy will have disappeared.
Here's a timely example of hyper-speculators’ big gains. I discuss
in a section below on China how long it might continue to play along
with the Goldman's of the world.
“The first-day stock gains give Goldman Sachs, the world's most
profitable securities firm, a paper gain of $4.9 billion on its
investment. Goldman paid almost $2.58 billion in April for 16.48
billion shares of ICBC for itself and its employee- and client-owned
private-equity funds.” (Bloomberg, Oct 27)
“[Goldman’s] China bonanza is the result of more than 70 visits by
former Goldman Chief Executive Officer Paulson, who became U.S.
Treasury Secretary last June.” (Bloomberg, Oct 23)
“Goldman will announce on Oct. 25 its new class of partners, who
will join the 287 who currently hold that title. Last year, that group
shared more than $2 billion, or about 20% of the total compensation
Goldman paid. That averages out to about $7 million per partner.
Goldman's partners also are offered opportunities to invest beside the
firm when it buys stakes in other companies, which can be
lucrative.” (WSJ, Oct 13)
Politically, splitting actually economically innovative corporations,
and countries for that matter, those that create real products and
services, away from control by global hyper-speculators, in the case
of corporations via CEO stock options and buy-outs, will be critical.
The purpose of the changes proposed in this article is to encourage
everyone to get very wealthy the “old-fashioned way,” by actually
creating something of economic value, not as the hyper-speculators
have done.
Good business is a very morally uplifting endeavor, it's all about
creatively meeting the needs of customers with innovative ways of
providing products and services. Good business is thus the essence of
creativity and connection, the two things that psychologists have
shown are the keys to personal happiness. Therefore, we want as many
people as possible to be involved in business in a creative and
connected way, so that they will be as happy and fulfilled as possible
by "doing well by doing good."
“Former NYSE chairman Grasso must return tens of millions of dollars
in compensation to the exchange, a New York state judge ruled on
Thursday. Mr Spitzer filed a high profile law suit in 2004 arguing
that the $139.5m in salary, bonus and benefits paid to Mr Grasso in
2003 for his eight years as NYSE chairman violated New York law
requiring that compensation for executives at not-for-profit
organisations be “reasonable” and “commensurate with services
performed.”” (FT, Oct 19)
I only mention Grasso’s case because, if I recall correctly, in a
recent tv interview perhaps the most celebrated, respected CEO of the
prior two decades defended him, before the verdict, on the grounds
that no executive would turn down huge sums of money if legitimately
offered by its board.
But are these offers really legitimate, even when perfectly legal most
of the time? Buffett recently said of current corporate morality:
“many perpetrators of corporate scandals acted because they felt
others were doing it.” (FT, Oct 10)
Corporate morality is not going to change by hiring more moral CEO’s
and MBAs with ethics classes. It is critical to break the systemic
link of corporate America, the repository of crucial talent, know-how
and technology, that is tethering it in its now more than two-decade
alliance with the global hyper-speculators. (See my April 10 article,
"SOX counterproductive; Corp America responds to distorted
incentives," link.}
Self-Described “Schmucks” of the
Financial World
The larger ROLLL becomes, the worse off America’s and the global
future ultimately will be, as capital/savings is siphoned off in pure
hyper-speculative activity solely designed to line the pockets of the
super-wealthy, with no useful or redeeming economic value whatsoever,
rather than being rationally invested to raise global living
standards.
Who are these hyper-speculators, and what drives them? A revealing
self-description was in the lead article on page one of the Sept 30
WSJ:
“Mr. Tepper, 49 years old, is head of Appaloosa Management, a $4.5
billion hedge fund that owns 9.3% of Delphi's stock. Mr. Tepper has
gotten rich investing in America's broken companies and declining
industries … Mr. Tepper says he is not causing economic pain -- he
is just capitalizing on it … Delphi wants to close many plants and
lay off thousands of people. It also intends to cut wages and benefits
… On [Tepper’s] desk sit three plastic pigs. He jokes that he
rolls them for guidance on difficult trades. If all three snouts point
down, in the eating position, it's a signal to buy. "The media
says that hedge funds are the new masters of the universe," he
chuckles. "We're just a bunch of schmucks."” (WSJ, Sep 30)
Tepper’s amorality is not an aberration, it is the norm. The
world’s financial system is being run by people who make the 1987
character played by Michael Douglas, Gordon “Greed is Good” Gekko,
seem benign (despite their philanthropic activities of returning some
of the legal looting).
There is now a whole MBA army of Gekko’s on financial steroids and
with very little adult supervision whatsoever, a key point as to who
might possibly restrain these “masters of the universe,” that I
will get back to shortly.
Historical Context for a New Global
Strategic Bargain
At the risk of seeming even more hubristic and self-deluded than the
elite that I've just criticized, such a global bargain as the one I
sketched above would be of the same historic importance for
long-lasting peace and prosperity in the 21st century as the creation
of the post WW II Bretton Woods institutions and economic
reconstruction along with security alliances.
Sixty years ago, the latter without the former could very well have
ended up in yet a third round of the 20th century’s extended
“Thirty Years’ War,” with even many more tens of millions dead,
this time in nuclear holocausts. Everything possible must be done ASAP
to avoid going down that path toward international anarchy today.
This grand strategic bargain should have been attempted thirty years
ago during the huge energy, monetary, foreign policy and political
crises of the 1970s. If it had, perhaps a great deal of unnecessary
pain and suffering could have been avoided, and a huge amount of
global development achieved.
But global leadership on all sides, trapped in a Cold War mindset,
clearly was nowhere close to being up to the task back then. Hopefully
this time around they will be, better late than never, although as a
result the U.S. has already unnecessarily squandered huge amounts of
historically earned goodwill and prestige, “soft power” if you
prefer, or "political capital" as Bush might put it.
For the rest of the full article, please go to this link.
Thanks very much.
© 2006 Econotech
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