Up w/ Chris Hayes panelists Marcellus Andrews, professor of economics at Barnard College; Joe Weisenthal, deputy editor of BusinessInsider.com; Amy Goodman, host of "Democracy Now!"; and Karen Hunter, MSNBC contributor, debate whether the private equity industry is inherently toxic to the economy, in the content of the Obama campaign's attacks on Mitt Romney's record at Bain Capital.
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Over the past decade, Americans watched in bafflement and rage as one institution after another – from Wall Street to Congress, the Catholic Church to corporate America, even Major League Baseball – imploded under the weight of corruption and incompetence. In the wake of the Fail Decade, Americans have historically low levels of trust in their institutions; the social contract between ordinary citizens and elites lies in tatters.
How did we get here? With "Twilight of the Elites," Christopher Hayes offers a radically novel answer. Since the 1960s, as the meritocracy elevated a more diverse group of men and women into power, they learned to embrace the accelerating inequality that had placed them near the very top. Their ascension heightened social distance and spawned a new American elite--one more prone to failure and corruption than any that came before it.
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The segment comparing the tax treatment of corporate financing with debt or with equity was incredibly instructive and amazing. While it's pretty complicated, I don't think that most people understand that the bank practices of taking on so much debt to make risky investments essentially caused the big collapse and recession of 2008. Not only did we, American taxpayers, give them a gigantic bailout, but their use of debt financing was actually treated favorably by the tax code. That blows me away! None of them have faced legal penalties, they are making more money than ever, and, as evidenced by the recent $2 billion loss by JP Morgan, they are given license by our government to keep doing it!!!! We are so screwed.
Your comments remind me of the Ford Pinto case. The car had proven to be unsafe and the company calculated or made a trade off decision between a recall and an estimated expense in legal claims. They were punished for their unethical behavior. Banks did the same thing. They knew it was bad business but it made them a ton of money. They calculated the risk of future claims and figured that the balance (income NOW minus financial claims in the future) was still profitable. Moreover, they hedged their risk with credit default swaps. This is pure opportunism. Since when do we call opportunism good business?
Hats off for shining a light on this issue. You raised a very legitimate question although I believe that the most basic and fundamental question to discuss is: what is the purpose of a (for profit) business? Is it making money or satisfying needs of buyers?
In other words, the question is about winning. How do you define winning or what are you aiming for? This raises the question why do you start a business in the first place? Or, what is driving your passion to go through so much trouble of starting, developing and managing a business? The passion is defined in a VISION, which by definition must be about other people. Moreover, there is only one business in the USA that legitimately "Makes Money" and that is the US Mint. All other businesses must EARN money in an exchange of products/services for cash.
The longevity of such exchange depends on giving more in USE-value than one takes in CASH-value. The more buyers value doing business with you, the lower your cost and higher your profit margin. Who does not want to pay good money for really great products/services? Profits are thus NOT the purpose of a business but the applause for a job well done; its a Critical Success Factor for staying in business. The fact that results are measured in monetary equivalents does not imply that the Purpose of that business is to make money. We should not confuse means and ends.
A business system that is aimed at making money (its proclaimed end, reason for operating in the market place) will do so by hook or by crook. Basically, it implies that they expect clients to subscribe to their purpose of transferring money from clients' bank account to their own at the lowest possible cost and risk!
Now, does that sound like a beneficial proposition for getting our economy back on track? I don't think so. What happened to quality? Lets discuss the fundamental difference between DEVELOPING a QUALITY business SYSTEM in order to realize a compelling vision of service to others and growing the bottom line for the benefit of owners and shareholders! High quality lowers cost and raises profit margins. Operational efficiency erodes a business system's capacity and capability to satisfy client needs. When will we learn from Dr. W. Edwards Deming what he did for the Japanese Motor industry more than 60 years ago? If not now, when?