Long Live Gordon Geckoin HPN Blog
To help celebrate May Day and Cinco DeMayo, the NY Times published a piece in their weekend Magazine section entitled “The Purpose of Spectacular Wealth, According to a Spectacularly Wealthy Guy” by Adam Davidson
In it, Edward Conrad, formerly of Bain Capital and one of Mitt Romney’s friends and larger contributors explain the true purpose of wealth matriculating into the hands of the 1%, or in his case, the .01%. In brief, here is Edward Conrad’s thesis.
Greed is good.
There is a little bit more to it than that, and, quite honestly, as a Entrepreneuralist pig (as opposed to a Capitalist pig which is a good description of Brother Ed), I can see (part of) his point of view. That said, it must also be pointed out that Edward has done some seriously shallow thinking on some rather deep subjects.
According to Edward, the fabulously wealthy deserve to be that way and grow to ever larger proportions that way because people like Edward “risk capital” to bring greater benefit to the little people. We get a little dispersed across hundreds of millions, and people like him get big bucks to further their lifestyles and attitudes.
It’s kind of like those Goldman Sachs ads extolling all of the wonderful things investment bankers do. Case in point, Sandisc. No one can doubt that memory stick maker Sandisc has done great things to make the 99’s lives better. I don’t think anyone would deny that the developer of this technology deserves to be the beneficiary of this sort of creation of wealth. The technology serves a lot of people and service to others is a good thing.
What no one will say though is that venture capitalists, through Goldman Sachs, as a condition for helping the true innovator develop his truly innovative idea, demanded some 80-90% (or more) of the equity in exchange for the money to develop the technology. Among inventors and entrepreneurs, those guys are referred to as Vulture Capitalists and the whole system which they command as Vulture Capitalism.
In 1914, Louis Brandeis published a little book called , “Other People’s Money and How Banks Use It”. In it, Brandeis, who went on to become a Supreme Court Justice, dissects the entire banking industry in his signature concise manner. Wikipedia sums it up this way:
The book attacked the use of investment funds to promote the consolidation of various industries under the control of a small number of corporations, which Brandeis alleged were working in concert to prevent competition. Brandeis harshly criticized investment bankers who controlled large amounts of money deposited in their banks by middle-class people. The heads of these banks, Brandeis pointed out, routinely sat on the boards of railroad companies and large industrial manufacturers of various products, and routinely directed the resources of their banks to promote the interests of their own companies. These companies, in turn, sought to maintain control of their industries by crushing small businesses and stamping out innovators who developed better products to compete against them.
The only thing that has changed from then to now is the setting. Instead of gas lights, we have a nationwide power grid. Instead of a movable type printing press, we have the internet. Otherwise, nothing has changed. If you examine the make-up of these companies, you find interlocking directorships, buyout of the founders of the technology or asset for a fraction of its value and ever more accumulation of money into the coffers of the large financial institutions. Wash, rinse, repeat.
Edward tells us that the “Art History Majors” need to get off their dead asses and start to sup at the table of greed. As he sees it, if there were more risk takers, we would have ever expanding wealth, more millionaires and more people like him. He blames the crash not on the system, not on the high crimes and misdemeanors perpetrated by the banking institutions peddling empty mortgage backed securities and their even more empty derivatives, all of which he extols as good things, but instead, he blames it on the fact that there was a run on the bank.
I can accept the “run on the bank” thesis because it is true. Throughout history the bankers have repeatedly done the same thing. They take true assets, usually gold, issue more paper against it than there is gold and when the population starts to sense something is out of kilter, there is a run on the banks. Ooops, not enough “real” money to go around.
The same thing happened in the summer of 2007. It was July, and someone in the repo market (repurchase, not repossession) thought to look and see just what was backing up the securities which they were thinking about buying for their short term needs. It was a classic situation. Everything is fine until someone thinks to ask. Then they realize they are holding an empty bag and it’s a rush for the exits.
I recall reading in the WSJ during this time about an investment banker explaining what was happening. “No one knows who has a turd inside their briefcase.” Turns out it was nothing but turds and there was the classic rush for the exits –a run on the banks only this time, it wasn’t too much paper with no gold to back it up, it was too much paper with not enough houses and mortgages to back it up. As Ellen Brown says, your house became the Gold Standard of the Shadow Banking System and Mortgage Backed Securities are the Fractional banking practices thereof.
Edward Conrad is clearly very bright but his thinking is shallow, self centered and self serving. He refuses to take into account the destruction his ilk has foisted upon not just this nation, but the entire world and instead gaffs it all off on a “run on the bank” without bothering to consider the true causes of the run.
Edward is good friends with, was mentored by and is a big supporter of Mitt Romney. Edward and Mitt the Robot, heck, the Republicans in general see the solution as ever greater de-regulation forgetting that it was de-regulation which caused the problem in the first place. They see opacity, not clarity as the solution. With opacity, no one can look inside to see the moth eaten purse and it lessens the chance of a run on the banks. In other words, if we make even easier for the banks to be greedy and not get caught, then everyone will be fine.
Greed is good. I am sure you can look through the wreckage of your life to understand that. Long live Gordon Gecko.