The Biggest LBO Of All Time

Barack Obama likes to say words should mean something. He is absolutely right. Words should mean what the generally accepted dictionaries say they mean. Personally I have never cared much for the labels conservative or liberal as applied to the two contending political philosophies that have dominated American politics for nearly a century and a half. That is because the working definitions of each don't really address competing points of view.

There is usually more than one definition of most words. Webster's College Dictionary did not have a good definition of Conservatism, so I referenced the Merriam-Webster Online Dictionary for a better one. Their definition of Conservatism that seemed most appropriate to me is "a political party based on tradition and social stability, stressing established institutions, and preferring gradual development to abrupt change, specifically, such a philosophy calling for lower taxes, limited government regulation of business and investment, a strong national defense, and individual responsibility."

Liberalism, according to Webster's College Dictionary, is "a political and social philosophy advocating individual freedom, representational forms of government, progress and reform, and protection of civil liberties." Except for the lunatic fringes, most folks in America would not see any major contradictions in either definition, and would advocate both of those philosophies. Maybe its just me, but I don't see where conservativism and liberalism are mutually exclusive. It seems one can be both liberal and conservative if they believe in the idea's contained in the respective definitions. To me, Liberalism means a nation based on democracy and freedom. Conservatism means we want to keep it that way.

When it comes to definitions of economic systems, however, there are distinct and profound differences. Webster's College Dictionary defines Capitalism as "an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations." Socialism is "a theory or system of social organization in which the means of production and distribution of goods are owned and controlled collectively or by the government." Those are certainly distinct and opposing economic philosophies. Communism takes it a step further, defined as "a system of social organization in which all economic and social activity is controlled by a totalitarian state dominated by a single and self-perpetuating political party."

It has long been assumed we are all capitalists in America, except again for that lunatic fringe. Maybe it would be a good time to sit down and consider what is going on in America today. What we may be witnessing is the biggest leveraged buy-out of all time as the government is clearly taking over our economy, and perhaps the end of capitalism as we have known it.

Private equity firms maintain that their business structure is a more efficient way of financing and managing large enterprises than public companies whose shares trade on a stock market and are owned by public individuals and institutions. In the private equity structure, all decisions can be made by a select few who answer to no one. They have relative freedom from regulation, and do not have to open themselves to outside monitoring by shareholders or financial journalists. They accomplish their buy-outs by using massive amounts of borrowed money, and the leverage allows them to become fabulously wealthy.

Basically, the growth of private equity is the economic equivalent of a political retreat from democracy to a small but powerful aristocracy. Instead of ownership by many and responsibility of management to generate results for the wide spectrum of stakeholders, it becomes ownership and unaccountable decision making for the benefit of the few. In the private equity world, companies (and the economy) are at the mercy of the top executives, just like the politburo in a communist country.

The Democratic Party and its wealthy supporters understand this. And no, Barack Obama was not the candidate, and now president, from Main Street as the Democrats like to propagandize. Nor was he the stealth candidate from Manchuria as some Republicans like to believe. He was not even the candidate from MLK Boulevard or Wall Street. He was the candidate from the billionaries of Greenwich and East Hampton, and the media moguls of Bel Air. And he was the candidate of the career bureaucrats revolving between government posts and Ivy League faculties or policy institutes as well as special interest group lobbyists residing in the wealthy counties surrounding Washington, D.C. After all, who is getting bailed out from their billion dollar mistakes, who is taking over the top jobs in government, and who is first in line to grab all the goodies the Obama regime is handing out.

The folks at the top of the financial and government food chain are working hard, and succeeding, in doing a gradual leveraged buy-out of the American economy. Starting with the largest financial organizations and automobile makers they will soon move on to the health care and energy industries. This stealth LBO effectively takes the economy private, producing a giant enterprise totally controlled by a self-appointed, unaccountable aristocracy - and the irony is they are doing it not with their own money but with taxpayer's money.

I don't know what the proper political label is for those now in charge of the U.S. government. They definitely do not fit the definition of conservatives, and given their disdain for the people who elected them I do not think they qualify as liberals, either. What they do seem to be working toward is a system of social organization in which all economic and social activity is controlled by a totalitarian state dominated by a single and self-perpetuating political party. And that folks, is the definition of communism.

Civilization Lost

There were several articles in today's Wall Street Journal (April 14, 2008) that makes one wonder about the state of our society. One was about elderly folks on fixed incomes throughout the country who are losing their homes through foreclosure because slick talking mortgage brokers persuaded them to unnecessarily refinance mortgages, obtain reverse mortgages or take out home equity loans. Many of these people had lived for decades in their homes and had built up substantial equity or had completely paid them off. A lot of them were victims of fraud as the unscrupulous brokers filed false loan applications and did not advise the homeowner of the high fees, adjustable rates and other explosive terms involved in the refinancings. Since the borrowers incomes are so low, usually just monthly payments from social security, they do not qualify for government sponsored mortgage relief programs.

On the flip side, we read that Goldman Sachs, a company that received bail-out funds (and generated a sizable first quarter profit), is issuing $5 billion of new shares so they can pay the government back. While it is admirable they want to pay back the money they apparently didn't need, the reason for doing so is to release their executives from the compensation restraints imposed by the government on financial organizations receiving bail-out funds. This will allow them to quickly increase their pay from the paltry minimum of $1 million that nearly a thousand of them received last year to their more traditional multi-million dollar levels.

There is something very wrong with a country that uses taxpayer money to bail out millionaire bankers and financial advisors while letting low and middle class folks lose their modest homes to foreclosure, particularly when the foreclosures are the result of financial fraud.

Another article discussed how pilots at American Airlines are demanding that their average salaries and benefits be increased by 50% from the current $225,000 per year to $337,500 per year. Granted that airline pilots have some of the most awesome responsibilities of any occupation (certainly significantly more than Goldman Sachs investment bankers), but is this a good time to be demanding big increases given today's economic environment? And for any occupation, when is enough enough?

Perhaps it is time for Americans to pause and reflect on what our country's culture and principles have evolved into. We are no longer a society that believes in fairness, integrity, compassion and justice. Americans are now all about unrestrained greed, self-centered narcissism and gluttonous hedonism. We demand it all and we demand it now, and the hell with everyone else. And when the bubbles burst it seems to me that our government could have displayed a little more compassion and support for the victims of the financial frauds and Wall Street excesses by helping those lower and middle class folks who did nothing wrong instead of bailing out and sustaining the lifestyles of the rich and famous.