Tuesday, June 7, 2011

Wall Streeter Games

In this article I explore assumptions about Wall Streeter and banker games that do not help black Americans. The information provided is designed to question underlying assumptions. It is provided to help readers think critically and participate in an online dialogue. We all want effective programs that truly help black Americans, but successful programs have to be based on valid assumptions. Programs based on invalid assumptions will not achieve desired results.

To explore these assumptions it is first necessary to discuss what is meant by “wealth.” Consider the following example. Two business people have $100,000 of their own money and borrow another $100,000 to create a business. Start-up costs include: renting a facility, securing business licenses and permits, paying for facility remodeling, paying for advertising, purchasing equipment, hiring staff, purchasing inventory, paying for power, heat, air conditioning, etc. They operate their business for one year. All start-up expenses created jobs for the people from whom they purchased goods and services, for the people they hired, and for themselves through paying themselves a monthly salary. At what point do they make a profit? At what point do they create wealth?

A reasonable business answer is: They make a profit, they create wealth, when they are able to pay their bills, pay their employees and themselves a monthly salary with benefits, and pay off the $200,000 used to start the business. When these conditions are met and they make one more dollar, they have made a dollar in profit (created $1.00 in wealth). If during the first year of operation the business were to fail, the partners have artificially stimulated the economy and artificially created jobs but created no wealth. When the business fails the partners have lost their investment and still have to pay off their debt or go bankrupt.

This example outlines the standard situation for any small business owner. One of the great challenges for small business owners, including black Americans, is that we continue to experience dramatic swings in the economy. These swings hinder effectively doing anything about the fact that many black Americans live on the bottom of the economic heap. When the economy swings up and black Americans do better, we hear “a rising tide raises all ships,” and the media and government cheer! When Wallstreeters’ and bankers’ house of cards falls many black Americans lose their jobs or businesses and their homes. And media and government focus is on rebuilding the same house of cards so we can do the same thing all over again.

One of the factors in these swings is that government allows large corporations to operate on different standards from those describe above for small businesses. For example, on April 26, 2011, the New York Times reported that Ford Motor Company made a quarterly profit of $2,550,000,000 ($2.55 billion). The same article reported that Ford’s chief executive is being paid $26,500,000 ($26.5 million) a year. (See http://www.nytimes.com/2011/04/27/business/27ford.html?_r=1&ref=fordmotorcompany). But it requires much internet searching to discover that Ford had a long term debt of $101,640,000,000 ($101.64 billion) on 3/31/11. (See http://ycharts.com/financials/F/quarterly_balance_sheet) How can a business claim to make a profit of $2.55 billion while still owing $101.64 billion in debt? And it is not uncommon for corporations with similar debts to pay share holders a dividend when the corporation hasn’t really made a profit. This practice allows corporations to channel borrowed money to share holders.

Why play this game or any of the other shell games played by Wall Streeters and bankers? The fundamental issue is that they want people to buy and sell “things” in their markets. Their “things” include stocks, bonds, derivatives, etc. They don’t care about the fundamental value of what they sell. The more attractive they can make purchasing their “things,” the more fees they can charge. The more ups and downs in the markets the more people buy and sell.

Regardless of the real value of what they sell, fees are their source of income. Their income is used to pay Wall Streeters and bankers huge salaries and bonuses. As long as these people are allowed to play their games, they will continue to channel money into their personal accounts while not creating real wealth for the American people. And they will do nothing to provide meaningful help for advancing black Americans into the mainstream economy.

Using the money from their personal and corporate accounts these people donate large amounts to political campaigns. They donate to candidates in both parties and, to a certain extent it doesn’t make any difference who wins. They have great influence with either candidate going into an election. Without regard for what should be done for black Americans, Wall Streeters and bankers only care about maintaining their games and the very large sums of money that flow into their personal accounts. As long as voters continue to allow themselves to be distracted by meaningless fringe issues that make up most campaign noise, economic swings that benefit a few will continue. Until American voters make it clear to politicians that changes must be made, nothing meaningful will be done for black Americans. What do readers think about this? Joseph L. Bass, Ed.D.

1 comment:

Noshi said...

This was a wonderful article. I learned a lot! I think this can apply to the general American population as well. We are all being screwed over by Wall Streeters and bankers.