6/20/2004

6-20-04 - 1

6-20-04

I'd like to do a series of history books like "What Really Happened, 1968-1972". I'd use all the new research and de-classified government papers to document the reality of the major world events in those years. The difference with other books would be that I wouldn't just focus on the crimes and scandals and revelations, it would really just be a summary of the major world events and political figures, but telling the truth instead of the official story. The problem with current expository books is that they don't summarize the history, put it in context, remind us what the official line was. Kids these days coming out of college have almost zero knowledge of recent American history, which is either a shame or an intentional scandal, and even if they did have much knowledge it would be a thin sanitized version of recent US history. I would say most kids know more about Grover Cleveland than they do about Jimmy Carter, which is stupid. The focus of education on the ancient past is a huge mistake; sure, it's good to know ancient history, but not nearly as important as modern history.


The NYT today cautions that the S&P 500 is getting too heavily weighting with financial service stocks. I disagree; that's not some anomaly or mistake in the balance of the index - it's just a reflection that American business is more and more just financial services. We are the puppet master, the controllers of money flow; we make nothing, do nothing, we just own the people who do. I read another interesting figure recently. These days, the amount of money (liquid assets) that are transferred around the world each day is roughly equal to the total amount of hard liquid assets (cash and cash equivalents) in the world. In other words, 100% of the world's wealth is transferred each day. That's quite astonishing; that percentage has been going up rapidly since 1900. Even in 1950 it was below 10%, and in the last 50 years it has grown nearly exponentially to the current 100%. The way that so much money is transferred is because our financial institutions are very highly leveraged; they control many times the amount of liquid assets as the amount of hard cash they can back it with; those liquid assets are in the form of debt ownership, bonds, loans, stocks, etc., and it can be transferred and purveyed into further leveraged assets. This is part of why small problems in any part of the world can cause massive disasters in the financial markets. Let's say some country suddenly can't pay out the bonds its issued to cover its debt; all the finance companies were relying on taking that payout and rolling it back around to other loans; suddenly they have to cover their contracts some other way, so they start calling in their bonds and loans, a chain reaction forms where people have to cover their funny paper with real money, and there's a massive short-fall of real-money; the market instantly tightens up like a python, and crashes catastrophically.

Part of the problem with corporate governance these days is that there's basically no downside to taking ludicrous risks. Let's say I'm some CEO guy; I get the job running a nice solid company like Johnson&Johnson. Now, I could just run it well, stay in our core business, and make money and give jobs to lots of people. The problem with that is it doesn't make me massively rich. Furthermore, the stock holders are pushing for massive increases in the stock, not moderate growth, but big jumps. The only way that can happen is if I go into new businesses, take big risks. So, let's say I see some opportunity; 50% of the time, we'll be massively successful; the other 50% we go out of business. Well, that's really a win-win situation for me; if we're a big success, great; if we go out of business, I get a nice big severance payment, perhaps a massive retainer for "continuity" when the company goes into bankruptcy, I can take a few years off, and then get a new job as a CEO somewhere else. Of course all the staffers get screwed, but it doesn't affect the executives who make the decisions. There needs to be way more connection of management's personal wealth and happiness to the success of the companies they run. This is the principle of "personal capitalism".

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