classical economics
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and policy design

Under America's Rulers

Defending Only the Defensible
By Wayne Jett © January 19, 2012

    Capitalism under attack in America is nothing new. In 1880, the best-selling economics book ever declared that “the power of a vast and dominant pecuniary interest … in every country … writes laws and molds thoughts [based on] elaborate fallacies and misleading theories.” A century later, the widely revered economist Milton Friedman credited the book’s author for “the least bad tax” ever designed.
    More to the point, Henry George’s Progress and Poverty was an able and eloquent defense of capitalism and free markets. So, then, what was the “vast and dominant pecuniary interest” about which he warned us?
    Certainly it was not capitalism. George championed capitalism and free markets as the path to prosperity for the productive class. No doubt, the “vast and dominant pecuniary interest” was the shadowy cabal of the nature which installed and toppled governments during the Dark Ages through the poisonous political-economic system called “mercantilism.”
    Mercantilism, as readers here know, is the mortal enemy of capitalism. Those who push the mercantilist agenda see the productive class and democracy as detestable obstacles to their own roles as global rulers. To achieve return of society to the two-class system, these dominant elite fully intend to destroy capitalism, democracy and, thus, the productive class which rewards merit.
An Elaborate Fallacy
    One elaborate fallacy which advances these ends is the notion that the U. S. financial sector is the essence of capitalism. In fact, the U. S. financial sector as it exists in and radiates from Manhattan is the antithesis of capitalism. Capital markets are supposed to serve investors and producers. But, in New York, London, Europe and elsewhere, capital markets have been captured by mercantilists who have turned them to serve truly sociopathic purposes.
    The productive (middle) class invented the private corporation as a tool for organizing investment capital on a scale capable of competing with mercantilist monopolies. Financial markets and stock exchanges are vital to productive, vigorous use of corporations. Tragically, the mercantilist enemy recognized the crucial role of financial markets to their arch-competitors –the middle class – and gained a choke-hold on this isthmus of capital flow.
Crown Jewel of Mercantilism
     In 2012, the U. S. financial sector is a crown jewel of global mercantilism, masquerading as capitalism. Every evil, destructive thing done there – certainly including fraudulent looting of capital earned and invested by the productive class – is blamed on capitalism. Or, more precisely, it is described as part and parcel of the efficient, ruthless way free markets and capitalism operate.
    To illustrate how threads of fallacy are woven to create an impervious blockage of understanding, the classical economist Adam Smith is widely portrayed as conceiving “survival of the fittest,” devil-take-the-hindmost business practices. It was Charles Darwin, an icon of the elite, who authored a theory of evolution, which inspired mercantilists’ demand for “natural” leeway to destroy competition through monopolization.
Main Street and Back-Office Capitalists
    Capitalism is distinguishable from mercantilism, but it requires a degree of care. Capitalism includes main street business and private commerce of every kind, which serves the public by supplying products and services at competitive prices. And, each participant must operate according to laws prohibiting deceit, violence and other perceived infractions against public and private rights.
    Back-office businesses which raise and deliver capital from investors to producers comprise an essential feature of capitalism. The premise, however, that such a vital feature of general economic prosperity can function only in dark, dank solitude – walled off from public transparency – is an atrocious fallacy with a destructive goal. Bringing this capital gathering and distribution function into full daylight would add vitality to the U. S. financial sector and to the general economy – vitality which is presently at low ebb.
Financial Mercantilism
    Mercantilism is imposed top-down by the dominant elite, who control so much capital they put governments into place. The U. S. public interest is subjugated in precisely this manner. FDR wrote in 1933 that “the truth is” every administration since Andrew Jackson (who left office in March, 1837) had been dominated by powerful interests centered in the financial sector. FDR’s own presidency epitomized mercantilist rule.
    Contrary to fallacies still flowing from the Establishment, FDR himself served the dominant elite without fail. He betrayed the poor and middle class voters who elected him. According to observers working closely with him, FDR fooled a majority of the electorate by using skills of a professional actor. He was assisted by Establishment media which shaped myths of his good intentions.
     So we bring this discussion to a point of debate in the Republican Party presidential primary contest. Is the business commonly called “private equity investment” in all cases purely an exercise in capitalism? Obviously, the answer must be no.
    A private equity investment (“PEI”) business may be operated for entirely criminal purposes or for entirely mercantilist purposes. In neither case should the activities be termed “capitalism.”
    For example, a PEI firm which plans and executes a scheme to commit armed robbery of money or property certainly does not deserve exoneration based on a claim of “making money through capitalism.” Neither does a firm which gains property through mercantilist practices.
Naked Short Bear Attacks
    Though largely denied by financial media, the U. S. financial market is riven by large-scale financial fraud known as naked short selling – essentially selling non-existent corporate shares. Naked short selling drives down the share price by flooding the market with fake shares which exist only as electronic entries in brokerage accounts. When predators who do this hold the share price down long enough, the “troubled” target company becomes easy pickings for a PEI buyout.
    Free market capitalism does not normally produce “opportunities” to buy a company with assets having a market value of, say, $200 million, for a hurry-up, buy-out price of $30 million. But U. S. financial markets, under the glazed gaze of the Securities & Exchange Commission, have served up such outcomes time-after-time for years.
Ivy League grads appear especially brilliant when designing PEI schemes to grab such assets by buying the underpriced shares for cash. After restoring the business as a private company, the PEI can reap the capital harvest by issuing new shares in the public markets, and then move on to the next target.
    Another popular PEI design for acquired company assets is to borrow money using the target company’s assets as collateral. Then the PEI often sucks the borrowed cash out of the company by charging “management fees” for the buy-out and for arranging the loan. A third design: strip out the assets and sell them, either at fair market price or to a related party at a negotiated price . The possibilities are endless.
The Vital Hand-off
    Whatever design the PEI selects, its buyout of the target company greatly benefits naked short sellers which beat down the share price to produce the buyout opportunity. When the buyout closes, the naked short sellers cover their short positions by buying back the fake shares at the fixed buyout price. Risk the share price might recover ends. The naked short sellers’ destruction of the target company’s share price is locked-in and rewarded with a big-time payoff.
Is any of this capitalism? Certainly the naked short sellers are not capitalists. They are, in a just society, robbers by deceit, whose crime is assisted by complex systems and regulations designed for the purpose.
    Can a PEI, created to “capitalize” on this systemic larceny, be any more legitimate as true capitalism when they capture the targeted company? Ignorance of facts may differentiate crimes, but does not turn mercantilist corruption into capitalist enterprise. Naked short selling is so widespread as to be present in every case resulting in private equity buyout. In some cases, surely the PEI knows of the naked short selling and is complicit with it.
    In the mercantilist environment of the U. S. financial sector, what principal or customer can be fully insulated from the endemic deceit? Every business firm with operations and markets touched by mercantilism has great difficulty operating as capitalist.
What Currency Swap?
    The most immense creation of currency in human history, previously reported here, has not yet appeared on the financial report of the Federal Reserve. As of January 12, 2012, the Fed’s H.4.1 statistical release shows total “central bank currency swaps” as $92.3 billion. The $645 billion described by Robert A. Mundell, one who should know, as created on December 21 by a Fed-to-ECB currency swap, is nowhere to be found, so far.
    Why is the European Central Bank continuing to buy sovereign debt, despite Germany’s public objection? The answer remains the same as when Mundell spoke about the currency swap. Central banks exercise power over elected governments, just as the U. S. president and elected officials of other governments act outside the bounds of enacted constitution or law.
Exit Morgan Chase; Enter Citigroup
    William M. Daley became White House chief of staff January 13, 2011, and resigned from the post during the first week in 2012. He came from the board of directors and Executive Committee of J. P. Morgan Chase, the number one power behind the Wall Street throne. Big media called him President Obama’s connection to the business community, but he was one of many Wall Street operatives in the Obama administration.
    Don’t be surprised if Daley’s resignation as Obama’s White House chief of staff is related to the M. F. Global scandal. Customer funds of $1.2 billion were misappropriated by M. F. Global officials. Federal law enforcement has not acted to recover and restore the money and assets to lawful owners.
    What might Daley’s connection with M. F. Global be? The “missing” $1.2 billion almost surely is in the possession of J. P. Morgan Chase. This has been implied by anonymous reports from federal investigations for weeks, while media and judicial officials treat the stolen funds as if they are mere details of a financial enterprise fallen into bankruptcy.
    White House chief of staff involvement in shaping federal response to embezzlement of $1.2 billion from several thousand businesses is not beyond the realm of possibility, especially when the $1.2 billion or some substantial portion of it is in the hands of the chief of staff’s former employer. This particular former employer is arguably the most powerful financial firm in the U. S., if not the world, and Goldman Sachs is again involved.  ~