Makers and Takers
The Rise of Finance and the Fall of American BusinessBook - 2016
"Eight years on from the biggest market meltdown since the Great Depression, the key lessons of the crisis of 2008 still remain unlearned--and our financial system is just as vulnerable as ever. Many of us know that our government failed to fix the banking system after the subprime mortgage crisis. But what few of us realize is how the misguided financial practices and philosophies that nearly toppled the global financial system have come to infiltrate ALL American businesses, putting us on a collision course for another cataclysmic meltdown. Drawing on in-depth reporting and exclusive interviews at the highest rungs of Wall Street and Washington, Time assistant managing editor and economic columnist Rana Foroohar shows how the "financialization of America" - the trend by which finance and its way of thinking have come to reign supreme - is perpetuating Wall Street's reign over Main Street, widening the gap between rich and poor, and threatening the future of the American Dream. Policy makers get caught up in the details of regulating "Too Big To Fail" banks, but the problems in our market system go much broader and deeper than that. Consider that: ¿ Thanks to 40 years of policy changes and bad decisions, only about 15 % of all the money in our market system actually ends up in the real economy - the rest stays within the closed loop of finance itself. ¿ The financial sector takes a quarter of all corporate profits in this country while creating only 4 % of American jobs. ¿ The tax code continues to favor debt over equity, making it easier for companies to hoard cash overseas rather than reinvest it on our shores. ¿ Our biggest and most profitable corporations are investing more money in stock buybacks than in research and innovation. ¿ And, still, the majority of the financial regulations promised after the 2008 meltdown have yet come to pass, thanks to cozy relationship between our lawmakers and the country's wealthiest financiers. Exploring these forces, which have have led American businesses to favor balancing-sheet engineering over the actual kind and the pursuit of short-term corporate profits over job creation, Foroohar shows how financialization has so gravely harmed our society, and why reversing this trend is of grave importance to us all. Through colorful stories of both "Takers" and "Makers," she'll reveal how we change the system for a better and more sustainable shared economic future"--
From the critics
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Former Novartis Pharma-Unit Head Joins Venture-Capital Firm
Novartis’s former pharmaceuticals head has joined a biotech-focused venture-capital firm, in what is becoming a well-trodden path for drug-industry bosses.
This headline from the Wall Street Journal should be all you need to know about the corrupt and incestuous relationship between the real world and the the world of finance.
And yet, by increasing inequality and undermining economic growth over the last several decades, financialization has actually only made those questions [of who gets what in our society] more pressing. . . .
"The one percent in America right now is still a bit lower than the one percent in prerevolutionary France but is getting closer." -- Thomas Piketty.
"We've indulged [ourselves] in this fiction that we can build a vibrant economy by deregulating the financial sector, and cutting taxes, and putting off investments in things like infrastructure and education and our kids." -- Senator Warren.
During my reporting for this book, one consultant who worked with the firm joked to me that Pfizer was really a "financial strategy in the form of a company," since it made most of its revenues acquiring other firms that actually knew how to create drugs, rather than investing in its own drug discovery. Another consultant said that Pfizer would be better off taking all the money it spent on R&D and burning it to heat its buildings in winter, given the general level of payoff from the firm's own research efforts.
Bogle [founder of Vanguard]: "I remember one of the guys from some big [fund manager] firm said, 'We all know what you're trying to do, Jack. Why don't you just leave it to the markets? Leave it to Adam Smith's Invisible Hand[?]!'
"And I said, 'Don't you realize that we [mutual fund managers] ARE Adam Smith's Invisible Hand?'"
"The staggering economies of scale that characterize money management have been largely arrogated by fund managers TO THEMSELVES, rather than shared with their fund shareholders," concludes Bogle [founder of Vanguard]. (My emphasis)
Or, as the great economist Paul Samuelson put it presciently in 1967 [! ! !], "I decided that there was only one place to make money in the mutual fund business -- as there is only one place for a temperate man to be in a saloon, behind the bar and not in front of the bar. And I invested in . . . [a] management company."
If the markets are an ocean, private equity firms like Blackstone are the great white sharks that have perfected the use of debt, leverage, asset stripping, tax avoidance, and legal machinations to maximize profits for themselves at the expense of almost everyone else -- their investors, their limited partners, their portfolio companies and the workers in them, and certainly society at large.
Yet private equity brings its own very significant risks to the housing market, as well as a business model that is the very epitome of financialization -- one where the only motive is profit for its own sake, not wealth creation in the broader economy. . . .a business model that is designed to extract as much wealth from every target company with as little capital or risk to themselves as possible.
. . . the percentage of Americans who can call themselves homeowners is still declining from its peak in 2004, and many experts expect it to fall further as credit continues to be tight, young people struggle with higher-than-average levels of unemployment, and baby boomers begin moving into retirement housing.
Fixing this housing crisis, as Warren Buffett once told me, is a fundamental prerequisite for fixing our economy.
The national housing market is in recovery, but. . .it is incredibly bifurcated. . . .the top 10 percent richest markets, ranked by the aggregate value of owner-occupied homes, held 52 percent of housing wealth, equivalent to nearly $4.4 trillion. The bottom 40 percent, by contrast, held only 8 percent.
. . .one Fitch analyst said that "the growth is being propelled by INSTITUTIONAL MONEY" rather than the growing wealth of households. (my emphasis)
The CFTC [Commodities Futures Trading Commission] has certainly done its best to make it harder for US financial institutions to hang their dirty laundry in the Caribbean.
As if Wall Street's ability to buy as many grain or oil futures as it wants -- often with our retirement money -- and contribute to run-away inflation weren't enough, there's another problematic wrinkle that finance has brought to the commodities market: Today bankers can both trade commodities AND buy up the physical goods being traded. . . .
It. . . puts them in direct competition with the businesses that actually need such raw materials to make products. . . The financialialization of commodities markets means that AMERICAN BUSINESS NOW HAS TO COMPETE WITH ITS OWN BANKERS.
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