The Invisible Hand
The Nobel Prize-winning economist Joseph E. Stiglitz, says:
"the reason that the invisible hand often seems invisible is that it is often not there." [7][8]
Stiglitz explains his position:
Adam Smith, the father of modern economics, is often cited as arguing for the "invisible hand" and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world.
But unlike his modern-day followers [bobble-heads], Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best.
As I put it in my new book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there.
...
So much much for the idea, that Capitalism always works out for the "benefit of the many".
I would add to Stiglitz's thesis:
The Invisible Hand, when there working behind the scenes, is usually only lobbying "for the benefit of the Wealthy Few" ...
The Benefit of the Many is too often held hostage, and traded away, for the Benefit of those at the Top, who really don't need the extra help, anyways.
Of course, this all happens behind the scenes, in smoke-free rooms of the wheelers and dealers -- because economic Regulatory functions in government, have been wearing their Invisibility Cloaks too.
When the Inmates are running the Asylum you can end up with a few unexpected "Market Distortions," eh ...
The Goldman Sachs Group, Inc. Prospectus
Fiscal 1998 Compensation Information
Henry M. Paulson, Jr., $12,700,000
1998: Co-Chairman and Co-Chief Executive Officer
(1999: Director, Chairman and Chief Executive Officer)
"Silver spoons," "golden parachutes," "revolving doors" ...
The Invisible Hand is quite adept at handing those out -- to lucky few on the Inside, with connections ....
The Goldman Sachs Group, Inc.
Common Stock
This is an initial public offering of shares of common stock of The Goldman Sachs Group, Inc. This prospectus relates to an offering of 55,200,000 shares in the United States and Canada.
Per Share, Total
Initial public offering price $53.00 $3,657,000,000
Prospectus dated May 3, 1999.
Shares Beneficially Owned
Prior to [Goldman's Common Stock] Offerings --
Directors and named executive officers:
Number, Percent
Henry M. Paulson, Jr. 4,132,235 1.1%
4,132,235 shares x $53.00 offer price = $219,008,455.00
Henry Paulson: 1999 Goldman Director, and Instant Billionaire, since 1998 -- AND primary Architect of the unprecedented Wall Street Bailout giveaway, and the guy who made Goldman Sachs the prime benefactor.
Adam Smith told us, Markets would be "Self-Correcting" ... and this was the Mantra of Greenspan too, for the last decade -- during the entire era of Deregulation.
So how's that "Self-Correction", working out for you, people?
Here let Alan, explain his "little oopsie" -- in his own self-righteous smug way.
http://www.youtube.com/...
THAT is what we American Dupes get, for Accountability --
in this day and age, where Invisibility is more than a mantra -- it's a way of life for the wealthy.
"Sorry about that folks; my bad. ... hope you can pick up the pieces.
Okay ... see ya -- I wouldn't want to bee-ya. -- Suckers!"
You know what all "good capitalists" say, Caveat Emptor
"Let the buyer beware"
... IF you're TOO-BIG-TO-FAIL -- Markets can be coerced to Correct, to your own personal Benefit.
(Just ask Hank Paulson, and his and his band of merry helpers.)
BUT, if you're TOO-SMALL-TO-NOTICE -- Markets can destroy YOUR personal Nest Egg, in a blink of an eye, no less.
Just ask anyone on Main Street ... who's just looking for a "fair shot" at life.
Some Captians of Industry still have a "Patriotic streak" -- they're still motivated to actually help the country which has given them so much
-- but they are becoming rarer all the time, the Forces of Capital Competition, being what they are ...
PBS' Bill Moyers with Vanguard Funds founder John Bogle
Short Recap
Entire Moyer's Interview
BILL MOYERS: This story in THE NEW YORK TIMES this week. What do you think when you read a story like that?
JOHN BOGLE: Well, first, it's a national disgrace. Simply put. And there are some things that must be entrusted to government and some things that must be entrusted to private enterprise. And what we see there, at least in my judgment, is that we've taken medical care, healthcare and going from making it a profession in which the patient is the object of the game — preserving the patient "first do no harm" as Hippocrates would say or would have said and turn that into a business. And so, it's a bottom line. I've often said we're in a bottom line society. We're measuring the wrong bottom line.
BILL MOYERS: What does it say to you that the real owners of the nursing home, the private investors have created this maze of smoke and mirrors that make it virtually impossible to find out who the owners really are?
JOHN BOGLE: Well, that's so typical of much that's going on in American finance, the way we structure these financial instruments, which are stock certificates or debt instruments. But it's the same thing of the removal of your friendly, local neighborhood bank holding the mortgage and being able to work with you when you fall on hard times to some unnamed, often unknown, financial institution who couldn't care less.
BILL MOYERS: These private equity firms that own these nursing homes wouldn't even talk to THE NEW YORK TIMES. They won't talk to reporters. I mean, there's no accountability to the public.
JOHN BOGLE: There's no accountability. And it's wrong. It's fundamentally a blight on our society.
[...]
JOHN BOGLE: Actually, I think it's fair to say it's in jeopardy. But there's one sense that it's not in jeopardy. And that is, ultimately, the system will correct. The bigger the boom, I fear, the bigger the bust. In other words, you pay the price. It's not a self sustaining system at this kind of a level.
BILL MOYERS: Do we need new rules?
JOHN BOGLE: One thing is, I believe, to have a federal standard of fiduciary duty for money managers. They've come from eight percent ownership of American business to 74 percent ownership of American business. It's staggering, over unbelievable change. Without any rules as to how they're supposed to behave. We have state laws of proven investing and fiduciary duty and things of that nature. But they don't seem to be working. And our founding fathers actually thought about having a federal statute -- a federal corporate chartering statute. I think we probably need one because if some of the states step up and say improve their governance provisions, corporations will move to another state. So the state system I don't think can prevail.
So a federal standard of fiduciary duty which demands that our pension trustees and our mutual fund directors make sure that those pension funds and mutual funds are operated in the prime interest of those who have entrusted their money to them.
Diarist Note: WTF!!?? We need a law for this ??? That's what it's come to apparently ...
And that includes responsibility for corporate governance. And it will ultimately turn to be focused more on long term investing.
When I came into this business in the 1950's, it was a business focused on the wisdom of long term investing. We changed in that period to a business that is focused on the folly of short term speculation. And think about this for a minute. If you're a true investor holding a company for the long term, you're well aware that the value in that company is company's earnings compounded over time, developing new products and services, developing efficiencies -- trying to size up the proper corporate strategy, you know, making the company more valuable. But, in the folly of short term speculation, you're just thinking will that stock be worth more or less six months from now or a year from now?
[...]
Now, what is the job of a corporation when they buy into a mutual fund management company? It's to earn a return on the capital they invest in that company. It's not to earn a return on the capital of the investors who invested with that mutual fund. Now, in fairness, they want to earn as much money as they can for the fund shareholders. But, not at their own expense.
What we've done is have you know, what I call in the book, a pathological mutation of capitalism from that old traditional owners' capitalism to a new form of capitalism, which is Manager's Capitalism. The evidence is quite compelling that today corporations are run in a very important way to maximize the returns of its managers at the expense of its stockholders.
BILL MOYERS: Its CEOs.
JOHN BOGLE: Its CEOs, well, the upper level of five or six top officers. And they get enormous amounts of pay for actually doing very little. I'm a businessman. Listen, we all-- we chief executives get an awful lot of credit that we don't deserve. Real work in companies is done by the people who are getting themselves together and doing the hard work of making companies grow--
BILL MOYERS: And, yet, these--
JOHN BOGLE: every day.
BILL MOYERS: These are the people who most often get laid off, right?
JOHN BOGLE: They get laid off. And, of course, the ironic part of that is they often get laid off — used to be called downsizing. But, of course, in today's America, it's called right sizing. They get laid off. That reduces expenses. That increases earnings and that means the CEO gets more.
http://www.pbs.org/...
SOOOO, Super-charged Capitalism is "Self-Correcting", again, for WHO, exactly?
Perhaps for those Money Managers with their hand of the lever?
Perhaps the CEO and Preferred Shareholders, who reap the benefits of all that "downsizing" -- all that trimming "the Fat".
Yet executive decisions made in the shadows, may lead to very unhappy consequences, for those on the TOO-SMALL-TO-NOTICE side of the Ledger -- you know us meager Taxpayers. We, who must bear the brunt, of whatever our Capitalistic Captains, DECIDE America should Mutate into next.
which bubble to inflate, which sector to exploit, which invisible Lobby to fund ...
which Free Market piggy bank to raid ... NEXT.
We used to say the Free Market Economy was Alive, Thriving, Growing.
These days, that same "Free Market" is on life support -- it barely has a pulse ...
WHY?
What happened to that "rising tide take would lift all boats" ... that "morning in America" ... Supply-sider Ronnie promise us?
The last time I checked, the Sun does NOT rise, ONLY on the Wealthy Few.
Adam Smith (and Greenspan) taught us, Markets are "Self-Correcting" ...
Experience has should have taught us Otherwise ...
yet still the "American Exceptionalism" Band, plays on ...
http://www.youtube.com/...
Free Markets have a sickness.
Free Markets have a parasite.
Free Markets have a contagion -- one that threatens to end in utter chaos for the many ... if people of good will can not correct it ... root it out ... apply Tax Constraining medicine ... (ie. something called the FTT: a Financial Transaction Tax). That's what the Doctor ordered.
Too bad the patient, does even realize, they're sick ...
Goldman's secret moral pathology
15 symptoms of a Wall Street disease destroying democracy and capitalism
By Paul B. Farrell, MarketWatch - Nov 24, 2009
MarketWatch -- In "The Battle for the Soul of Capitalism" Jack Bogle no longer sees Adam Smith's "invisible hand" driving "capitalism in a healthy, positive direction."
Today, his "Happy Conspiracy" of Wall Street plus co-conspirators in Washington and Corporate America are spreading a contagious "pathological mutation of capitalism" driven by the new "invisible hands" of this new "mutant capitalism"
[...] Wall Street's secret contagious pathology, with insiders like Lloyd Blankfein, Henry Paulson and others pocketing billions more of the firm's profits than shareholders, evidence the new "mutant capitalism" has replaced Adam Smith's 1776 version which historically endowed the soul of American democracy as well as our capitalistic system.
[...]
Today we'll paraphrase news reports about 15 symptoms spreading "soul sickness" beyond the boundaries of this Goldman case study: These are the 15 signs of a moral pathology undermining not just banking but American democracy and capitalism.
- Gross denial of any moral damage caused by their rampant greed
- Narcissistic egomaniacs with secret 'God complexes'
- Paranoid obsessives about secrecy, guilt and non-disclosure
- Power-hungry need to control government using Trojan Horses
- Borderline personalities who regularly ignore conflicts of interest
- Pathological liars incapable of honesty even with own investors
- Sole fiduciary duty to insiders, not investors, never the public
- Moral issues are PR glitches, violations of 'don't get caught' rule
- Charitable donations are tax and PR opportunities, not moral issues
- When exposed in a massive fraud, feign humility, fake an apology
...
for the last 5 signs of the Mutant Capitalism
Once again, we've been warned. ... but too many are chasing the Dream; too few bearing witness the Fallout. The wreckage that unseen Capitalists, leave in their tracks.
Instead we would rather focus on "The Spectacle" ...
Behold what Capitalism has created!
It's alive! It's Alive ...
(sort of ... maybe for the greed-infested few.)