- Politics and Social Issues
No Free Market With Crony Capitalism
Take a minute to google “Crony Capitalism.” Within thirteen seconds an astounding 3.9 million hits will pop up. Obviously, the subject is a hot topic among internet users. People are talking, writing, and reading about it. Unfortunately, in the United States, there are still relatively few adults who understand the meaning of crony capitalism beyond the basic definition given by any dictionary.
Most people understand the practice to be one of businesses maintaining close relationships with government officials. What they don't understand is just how much the practice hurts the American economy. They don't understand that ever increasing rates of practice are wiping out the little guy's bank account and fattening those of the government, as well as the mega corporations. I use the term “practice” loosely, as it's quite obvious that the practitioners have become experts. The cronies involved are quite adept at their game, and play it well.
But just who are these cronies? There has been a lot of finger pointing in the last several years, and with the coming presidential election, the fingers are jabbing frantically in an effort to place negative attention on the opponent. Liberals/Democrats are claiming that the Conservatives/Republicans are to blame for the negative impact of cronyism on our economy, and vice versa. So, who's right? The answer doesn't reside in one party or another. Crony capitalism is alive and well in both parties. Government officials getting rich from the game come from both sides, and corporations don't have a party affiliation in the same vein as an individual voter may carry. Frankly, corporate entities don't give a hoot who's providing the means for them to exceed in their endeavors, so long as they are successful in meeting their goals. They simply grease the palms of whomever is in a position to help them achieve success, either through campaign contributions for specific politicians, or job offers for highly paid executive positions.
Otherwise Known as Insider Trading
The hot debate of what's become known as Obamacare created a furor in the immediate months preceding it becoming law. However, before the American public was aware of Obama's specific intentions, our Congress and Senate was dividing the spoils to be won through insider trading based on knowledge the little people didn't possess. Our politicians had advance knowledge of which companies would be impacted by the mere fact that they were involved in writing the legislation that would instigate the changes to be faced. Many of them cashed in on their advance knowledge, to the tune of millions of dollars.
Corporations strive to protect themselves by employing lobbyists to help shape legislation. It is the lobbyist's job to sway legislators to write provisions which will provide a healthy bottom line for them in whatever industry to which the corporation is related, or to exert some damage control if the legislation is perceived to be negative. When meetings between industry representatives and the legislators are held to determine who wins and who loses in regards to the proposed legislation, the doors are closed. Such meetings are not for public consumption.
A prominent player in the Obamacare game was none other than Senator John Kerry who serves as a member of the Health Subcommittee on the Senate Finance Committee. While Kerry was busy pushing and promoting the healthcare bill, he was equally busy purchasing stock in private healthcare and pharmaceutical companies, as well as dumping stocks deemed to be on the losing side of the legislation. During his career, he has made millions trading stocks related to legislation he's been involved in shaping. Records of his transactions show an “uncanny” pattern of perfect timing for reaping the highest returns or evading a major loss.
In his book, “Throw Them All Out”, author Peter Schweizer named a dozen politicians who manned prominent positions on committees directly related to the healthcare legislation. They were both Democrats and Republicans, and they traded stocks netting themselves millions of dollars. The stocks in question were all healthcare and pharmaceutical related. Had anyone of those listed been employed as an executive of a corporation, he would have been in the sights of the Security and Exchange Commission. Most likely, he would have been fined and jailed for insider trading. But the SEC, a government agency, does not fine and jail their own. Power certainly IS money!
Bailouts = Bonuses
With all this talk of stocks and insider trading, power and money, we have to address how the financial industry has become so closely associated with the US government. From 2007 to 2010, financial institutions such as banks, Wall Street houses, hedge funds and insurance companies, to name a few, spent about $600 million in campaign contributions and lobbying. In the years preceding, those running such institutions became aware of the benefits doing so would award them.
Beginning with Bill Clinton's bail out of banks involved with the Mexican Peso Crisis, financial institutions have come to expect the Federal government to subsidize their reckless gambling in the markets. Bill Clinton, Alan Greenspan, Larry Summers and Robert Rubin were the genius engineers of the bailout who did not have approval from Congress for the $20 billion taken from a Treasury fund. The money was paid out simply to rescue certain big banks from suffering the repercussions of bad loans they had written. It was one of the first lessons teaching bankers that they do not have to fear failure from making risky decisions. The American taxpayer will be forced to bail them out.
During an interview with David Stockman, the Reagan appointed budget director, Bill Moyers stated, “Following the 2008 economic meltdown came the mother of all bailouts,” referring to the plan for economic recovery through expenditure of $700 billion, better known as TARP (Troubled Asset Relief Program). Under this program, the Bush Administration came to the rescue of some of our country's biggest financial institutions. General Electric, Morgan Stanley, Goldman Sachs, etc. were all bailed out. The bailouts lead to what's come to be known as the Bailout Scandals, where executives of the institutions receiving TARP monies rewarded themselves with huge bonuses.
One scandal centered around the insurance giant, AIG, but if anyone wants to know the real scandal that was hidden in plain sight, check out:
Bailers and Bailee's Appointed to Leadership Roles
In the end, taxpayers had had enough. A new government was elected into office, believing the wished for change would take place under the guidance of Barack Obama. Unfortunately, change of the magnitude necessary isn't going to take place with Obama as the helmsman. He appointed Larry Summers, who was a central figure in the Clinton led Mexican bailout, as Director of the White House United States National Economic Council. He appointed Timothy Geithner as Secretary of the Treasury. It was Geithner, who as president of the Federal Reserve Bank of New York, directed the Federal Government's spending of $350 billion in TARP funds...the same monies that went to AIG, Morgan Stanley, Goldman Sachs, etc. In Stockman's words, “The cronies of capitalism are in charge of policy.”
And then there's Jeffrey Immelt. Last year, Obama appointed him to the President's Economic Recovery Advisory Board for the purpose of advising the president with advice for fixing America's declining economy. He's been appointed chairman of the Council on Jobs and Competitiveness. This guy is the same guy who is currently the chairman of the board and CEO of General Electric. He's the same guy who recklessly funded a lot of assets at GE Capital and suddenly needed a Treasury funded bailout in 2008. He's the same guy working for a corporation that has outsourced more American jobs than any other corporation, cutting the American GE workforce to 150,000 while employing 300,000 worldwide.
Care to read more horrors about the policies this guy has supported and helped bring to fruition?
“We now have an entitled class of Wall Street financiers and of corporate CEOs who believe the government is there to do what is ever necessary if it involves tax relief, tax incentives, tax cuts, loan guarantees, Federal Reserve market intervention and stabilization. Whatever it takes in order to keep the game going and their stock price moving upward. That's where they are.”
~~~ David Stockman~~~
David Stockman also makes the observation that true free-market capitalists would never go to Washington with their hands out, would never expect the Federal Reserve to hand out cheap or free money for them to continue making bad and risky decisions. They would expect to weather the storm of their own making, or at the very least, if a helping hand were offered, they would expect limitations and boundaries to be set against them. They would expect to lose bonuses, maybe jobs, even complete failure of their firm.
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Closing The Door On Cronyism
If free-market capitalism is truly over and the truth is that today our government is dominated by the power of money, how do we turn it around? There have been two popular suggestions on that front.
The first is to place term limits on our elected political figures. It's believed that shorter term limits will halt the back scratching between elected officials and representatives of corporations looking to line their pockets through legislation and federal regulatory agencies. Supporters of term limits believe that lengthy years spent in elected positions is what opens the door to corruption and graft. They believe career politicians are more able to forge relationships with others in equally powerful positions, and that these relationships are detrimental to the public at large. Those opposed to placing limits claim that stability and efficiency would be sacrificed, as well as professionalism. It's believed those who make a career out of politics are more likely to make sound judgments because their track record is what leads them to re-election.
The second and more likely to be successful at closing the door on crony capitalism is to ban corporations from making campaign contributions altogether, and to disallow them the right to try to sway/influence elections. Nothing will change unless the money factor is removed from elections, which means the way elections are financed must undergo restructuring.
So, then what can we do about the insider trading resulting from politicians using their advance knowledge of legislative endeavors? We can demand that personal assets be made available to the public for scrutiny. We can demand that those who have succeeded in their bid for an elected position be banned from engaging in financial activities related to pending legislation. We can also demand that any politician with responsibility toward shaping a piece of legislation, not have possession of assets associated with the proposed legislation.
Some may argue that we already have a mechanism in place to help avoid conflicts of interest...the blind trust. However, just because a politician has placed his assets in a blind trust, it doesn't mean he isn't feeding information to the trustees that can be used in making financial decisions. The only thing a blind trust will accomplish is the hiding of personal assets, preventing the public from recognizing any conflicts of interests.
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