Depending on Mugs

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"It’s a financial system that depends on mugs," says our old friend, Martin Spring, " — lenders willing to risk their capital for low returns, voters who think they can enjoy state benefits without paying for them through taxes, shareholders who believe that balance sheets are geared up for their benefit rather than executive rewards, consumers blind to the risks of personal debt."

Martin did not even mention the muggiest part of it: America’s daffy system of imperial finance, wherein the homeland shuffles towards poverty in the happy fantasy that spending more money makes it wealthier.

But the mugs are ready to believe anything. They are the people Oscar Wilde was talking about when he said they "know the price of everything and the value of nothing." We love them; they make our work so entertaining.

One poor mug is highlighted in today’s papers — Bernie Ebbers. The fool believed he could roll up the telecom industry without actually knowing anything about the telecom business. He thought it was all about stock promotion. He was mostly right. Now the fellow faces 25 years in the hoosegow.

Even dumber were the mugs that bought the stock. They didn’t know anything about the telecom business either. All they knew was that the stock was going up…and some other mug had told them to buy stocks went they went up.

We feel sorry for Ebbers. What he did surely deserves public humiliation…and he should be forced to make financial restitution — to the extent he is able. But why make a criminal case of it? Stock market mugs should have known better. And what is the stock market for but to separate fools from their money? Why do people howl so when the work is done? If the investors think they were misled, let them come forward and see what he can get out of Ebbers’ hide. We so no reason why the taxpayers should have to feed and house the man for the next quarter century just because investors were mug enough to buy WorldCom stock.

But the argument is that Ebbers committed a crime against society; we must make an example of him to discourage misconduct in others. If we don’t, every Tom, Dick and Harry will be cooking the books and Americans will lose faith in Wall Street. If it were it not for a few rogues like Ebbers, say the dreamers and prosecutors, investors could put their money into Wall Street with as much confidence as buying a beer in an Irish pub. But anyone who believes that is a mug, if not a mental defective.

We bring up a couple of items from today’s International Herald Tribune as evidence — if any were needed.

First, we note that the "wage gap widens" between people who earn a living by working for it, and those who get their money from "finance." The poor working stiffs are working more than ever — just to keep up appearances. "Bulk of workers are treading water," says the IHT, summarizing. But people nevertheless seem to have more money to spend — from refinancing houses, Microsoft’s $3 billion dividend payment, and other sources:

"Robert Mellman, an economist at J.P. Morgan, noted that the increases recorded in wage income in the last quarter of 2004 and first quarter of this year were principally the result of a flurry of exercised stock options," says the paper.

The investors who actually bought the stocks didn’t notice that their shares had been diluted. But that is the sad state to which modern American capitalism has been reduced. It’s the workers, managers and financial hustlers who get the loot — not the capitalist mugs, whose pockets are picked without them even knowing it.

• Investors aren’t the only ones losing faith in American capitalism — The Conference Board’s latest survey of CEOs shows that chief executives across the country are significantly less confident about the U.S economy now than they were in the first quarter.

"While overall confidence remains relatively positive, the latest reading reflects growing concerns that U.S. economic growth may be slowing down," says Lynn Franco, Director of The Conference Board’s Consumer Research Center. "And, while the outlook for corporate profits remains optimistic, rising interest rates and oil prices may curb business leaders’ projections."

The survey also illustrates that the majority of CEO’s don’t expect economic conditions to improve in the short-term, either.

Hmmm…when "Captains of Industry" start acknowledging the dismal state of U.S. economy, we know things can’t be good.

• "The oil prices just seem to keep climbing and climbing, and new records for retail gas prices seem to keep popping up across the nation. Florida prices just hit a new all time record of over $2.30 a gallon on average," Kevin Kerr tells us, reporting from hurricane country.

"Let me tell you the tension can be cut with a knife down here in the Caribbean, as people scramble to protect their belongings. Shipping rates are skyrocketing as terminals brace for what could be a very chaotic season, as the newest threat, Hurricane Emily approaches the islands.

"From all accounts, the locals, one of whom I spoke with last night seemed to have the wisdom of the ages, she said that all expectations are for a very rough tropic season in the Caribbean and Gulf…and that may spell even higher gasoline prices.

"The scenario now seems very possible based on the idea of two quick devastating hurricanes in rapid succession hitting the Gulf Coast. Just three major facilities like the BP rig, going under and $3 gasoline is highly likely — if not even more. $75—80 crude oil would certainly be possible if disruption was significant, and it would be. Science fiction…hardly! More like science fact…

"The truth is, this whole oil production system is hanging by a fine thread, and there is little room for major error, and those that see it differently are living in fantasy land."

• "Bush is monitoring the housing boom," reads a headline in today’s Washington Post…don’t you feel relieved now, dear reader?

Bill
Bonner [send
him mail
] is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st Century
.

Bill
Bonner Archives

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