Friday, June 24, 2011

IBG–YBG: Owning vs. Managing—Democracy vs. Kleptocracy

There’s a saying in Chile: “La vaca engorda bajo el ojo del amo”—“The cow grows fat under the watchful eye of the owner.”
Are you keeping an eye on her?

I bring up this saying because of a financial scandal we’re having down here: There’s a retail chain called La Polar—fairly big, catering to lower-middle- and lower-income consumers—that’s been caught cooking the books.

Ordinarily, a financial scandal in a second-tier retailer in an out-of-the-way Latin American country doesn’t rate much of a reaction. A shrug, maybe, but that’s about it.

However, it seems to me that the La Polar scandal illustrates something not just about corporate governance, but about political governance as well. And not just in Chile—more to the point, it reflects corporate and political governance in the United States and Europe today.

This trivial financial scandal reflects why the political and economic leadership of both Europe and the U.S. are not acting in the long-term best interests of their countries. Rather, they are acting in the short-term best interests of themselves—to the detriment of the nations they are responsible for.

The reason is simple: IBG–YBG.

Let me recap the scandal first.

The La Polar scandal blew from actually two different directions: On the one hand, consumer protection advocates were seeing how La Polar was unilaterally “renegotiating” store-card balances, and tacking on huge interest hikes, fees and penalties. Some people started complaining how one missed store-card payment meant their balances were summarily “renegotiated” by La Polar—in some cases multiplying what they owed the retailer by three or four or even five times the original amount. A US$200 washing machine could wind up costing a lower-income family US$1,000 when all was said and done.

Consumer advocates started making a fuss about a few isolated cases of this blatant gouging—

—and then promptly discovered that all of La Polar’s store-card holders were being gouged in similar fashion: It was a systematic process.

On the other hand, the Chilean private-pension fund managers—the AFP’s (which I wrote about here, discussing how they are structured and how they operate)—private-pension funds with big positions in La Polar—were noticing that the store’s balance sheet numbers didn’t add up, or were radically different from competitors’ numbers. So back in March-April, they put a whole lot of pressure on La Polar and eventually took over the board of directors of the company—

—and then promptly discovered that the books were cooked like a burnt Thanksgiving turkey. Specifically, their store-card numbers were way off, with the number of delinquent accounts far higher than the industry standard. Which of course made La Polar’s bonds way dodgier than what everybody thought.

Turns out, La Polar had had its own version of the sub-prime mortgage mess: In a blind pursuit of profits, the store had drastically lowered its store-card lending standards, offering their lower-income customers so much credit that some of these customers—a lot of these customers—had defaulted.

As the defaults rose and became a flood, La Polar found itself drowning. So the retailer’s management had done two things: They tacked on outlandish fees, interests and penalties on their still-performing store-card holders—trying to squeeze every last drop of blood from these lower-income consumers—while simultaneously hiding the actual number of their delinquent customers. La Polar’s management had even gone so far as to set up a separate server system with the actual numbers, so as to hide the truth from their auditors, and of course their shareholders.

On discovering this fraud, the AFP-appointed board members went straight to the financial authorities, while at more or less the same time, the consumer advocates got the attention of the prosecutors.

All hell broke loose.

It turned out that the management team at La Polar were more akin to a street gang in bespoke suits than proper businessmen. According to reports, the managers had basically been involved in a “pump-and-dump” scheme: Inflating the retailer’s earnings and sales, and then selling stock in the company—making out, well, like bandits.

Aside from the stock manipulation, apparently there were huge bonuses, disproportionate perks, “loans” to senior management, et cetera, depressing et cetera: Basically the worst parts of corporate malfeasance.

At the end of the day, La Polar’s balance sheet hole is looking to be in the neighborhood of US$893 million. As a percentage of national GDP, imagine that K-Mart or Sears had a $52 billion hole—you get the picture how big this is. La Polar’s stock took a beating on the exchange—then was suspended outright. Its bonds dropped off the ratings map. There’s now criminal investigations, outrage, political fallout, lawsuits—you get the picture.

What struck me about La Polar’s story is not that there was fraud—there are thieves everywhere, be they mean-street back-alleys or mahogany-lined boardrooms.

What struck me about this story is that La Polar is the only major business in Chile that does not have a controlling owner.

A few people in Chile have noted this fact as a curious footnote . . . but I think it points to something larger—something important.

Chilean corporate law is similar to other countries’: More shares in a company buys you more seats on the board. With 50%+1 of the shares, you control the board. And with a 66.66%+1 share in a company, you can change the corporate charter of a company—so in other words, with 67% of a company you pretty much have absolute power over it.

Now, every major company in Chile—“major” being defined as being worth more than US$500 million, whether public or private—has a controller: One individual (or family) that owns and/or controls 50% of it. In some cases, the 67% absolute-control stake is owned by partners working in concert. In a few cases, it’s one man or one family.

But La Polar was unique in Chile: There was no controlling interest. There was no controlling partnership. There was no one man or family who controlled it.

The controllers of La Polar were its managers.

The man who is being fingered as responsible for this scandal is Pablo Alcalde. From 2002, he was the CEO of the retailer, before crossing over in 2009 to the post of Chairman of the Board in 2009. In that time, he grew La Polar from 12 stores to 45, including an expansion into Colombia—the guy was La Polar.

In the Chilean newspaper of record, El Mercurio, Alcalde was interviewed this past Sunday as saying that he has no idea who was responsible for this mess—he only dealt with the information he was given by his managers, and assumed it was accurate.

This is the My-Underlings-Ate-My-Homework line of corporate defense: Patent bullshit, of course—

—but not unprecedented: Not Alcalde’s defense, nor his arrogance in thinking that bullshit and a nice suit can get you out of trouble.

But most of all, it’s not unprecendented that the management of a company essentially crashes that company in order to make a buck along the way.

After all, the entire MBS crisis and subsequent Mortgage Mess scandal was predicated on exactly that managerial approach: Making loans to prospective home-buyers whom the lenders, the loan processors, the investment banks, the ratings agencies, and everybody else in the chain of this process knew—beforehand—would eventually default.

Same with banks that have lent money to sovereign states which they knew would eventually default—but which added huge commissions to their bottom line at the time. Same with insurance companies that wrote credit default swaps they knew they couldn’t make good on—but which added huge commissions to their bottom line at the time.

In fact, most of the problems we’re currently experiencing end with the tag-line “but it added huge commissions to their bottom line at the time.”

During the Mortgage Mess, I read somewhere that a low-level guy at a bank realized the loans they were making would eventually blow up. When he mentioned this fact to a senior guy, the colleague turned to him, smirked, and said the following:

“IBG–YBG.”

Those inscrutable letters say it all, once you decipher the acronym:

I’ll Be Gone—You’ll Be Gone.”

In other words, by the time this mess blows up, we’ll be out of the picture, and therefore scot-free.

By the time this blows up, it’ll be somebody else’s problem.

By the time this blows up, we’ll be enjoying the riches we took, sipping piña coladas on a white sandy beach, while some other chumps will be left cleaning up the mess we left—a mess we knew beforehand we would eventually be leaving behind.

IBG–YBG

Of course, the IBG–YBG mentality doesn’t exist with someone who actually owns their company—or someone who’s spent their life building a company. In the case of La Polar’s competitors—Cencosud, D&S and Falabella—they are all controlled by either their self-made founder (Horst Paulmann in the case of Cencosud), or the children of the self-made founder (the Ibáñez brothers with D&S, the Falabella sisters with Falabella). None of these companies subscribe to the IBG–YBG mentality—of course not. And they especially don’t subscribe to it as they are all self-consciously leaving their businesses to their offspring.

The cow grows fat under the watchful eye of the owner.”

Many people wonder why investment banks went haywire in the last twenty years—but the answer is obvious: Before Salomon Brothers opened the door to the corporatization of investment banks in the mid 1980’s, all the investment banks were owned by the partners who ran them. And the governance rules were such that, when a partner retired and cashed out, he didn’t get all his money at once: It was spaced out over time, and depended on the continued success of the investment bank.

So the partners all had a vested interest in looking after the long-term health of the investment bank—thus they never would have dreamed of doing any of the crazy deals all these other banks have carried out, carried out in order to pump up that quarter’s stock price of the bank, or prop up their numbers for their year-end bonuses.

But that’s all that the corporatized investment banks care for—which is why they blew up in 2008.

And why they will likely blow up again with the Eurozone Crisis.

That’s why I recommend to my clients at the Strategic Planning Group that they work with private bankers—exclusively—and I explain how to set up such an account. My reasoning is quite simple: A private bank’s liabilities are guaranteed not merely by the bank’s capital, but by the personal capital of its partners. That’s why it’s called a “private bank”: It is privately owned, privately held, and if it makes stupid bets and loses its customers’ money, its owners will have to pay for it.

They won’t be down in a villa in Costa Rica, while regulators untangle the mess—

—and they certainly won’t trip over the same stone twice.

Why do I say that? Because it’s looking like the corporatized banks wrote a whole lot of credit default swaps. Again. Because selling CDS’s of Greek, Irish, Portuguese and Spanish debt was so lucrative that they couldn’t resist—

—and after all, the guys who cut those CDS deals even after the 2008 meltdown and even as they knew that Greece and Ireland will likely default, were not thinking about the long-term health of their banks.

They were thinking about cashing out their stocks.

They were thinking about their year-end bonuses.

They were thinking, IBG–YBG

So much of the problems we are having stem from the disconnect between the people running the institutions, and the long-term well-being of those institutions.

The people running these institutions don’t have a long-term vested interest: They just want to make a short-term splash, and get out with the biggest bundle that they can.

And it’s not just retailers or banks—it’s governments.

The men and women governing the Western democracies—North America, Europe—have no compunction about going into all sorts of expensive domestic programs, all sorts of pointless, self-aggrandizing wars, all sorts of monstrous debts—all in the name of looking good in the short-term, confident that once they leave office, there will be no consequences of any sort, not even for the most egregious violations.

Hence they go into massive sovereign debt that will weigh down future generations—generation-s plural. The U.S. has, what, about USD$15 trillion in debt? Roughly 100% of GDP? If we cut the deficit completely—then further cut the Federal government budget in half, whereby one dollar of tax revenue goes to fund government operations and one dollar of tax revenue goes to pay off the Federal government debt—it would still take 20 years to pay off the U.S. Federal government debt!

That’s a debt that belongs to all of us—the shareholders in U.S.A., Inc. But it is a debt which our successive management teams have foisted on us—the costs we bear for their pointless wars, their unworkable social programs, their grandiose promises which simply cannot be kept except with the most massive debt ever issued.

Now, why has this happened?

Easy: Just like the management of La Polar—just like the men running the corporatized banks—when the political leadership of a nation does not think it has a vested interest in the outcome of its decisions—or if they believe there will be no punishment for their bad decisions—then they will make short-term decisions for their own benefit, rather than for the long-term benefit of the nation.

Today’s leadership knows that it can promise anything, do anything, carry out the most egregious corruption, violate every sacred principle—and there will be no punishment. There will be no reckoning. Alan Greenspan crashed the economy with his 24-year money-subsidy. Michael Chertoff makes millions exploiting people’s fear of flying. George W. Bush and Dick Cheney set the Constitution on fire and used the Bill of Rights as toilet paper, while Barack Obama is carrying on their policies—except more, expanded, bigger, better.

Will any of these men face any consequences for their terrible actions and decisions?

IBG-YBG.

One of the problems we are experiencing as an outgrowth of the Sixties’ mentality of “do your own thing” and the conceit of Relative Morality is, if we as a nation do not have a common goal, and if we as a nation do not have a common moral metric by which to gauge our individual actions, and if we do not have punishment for the evil and corrupt actions of our leadership—as we currently do not—then it is inevitable that our nation will not merely flounder, not merely decay, not merely decline: We will crash—outright.

The cow grows fat under the watchful eye of the owner”: Indeed.
If you are interested in a discussion about how to exit America, please visit The Strategic Planning Group’s home page, as well as the Membership Preview and FAQ page. Thank you.

31 comments:

  1. nice essay, GL. this specific form of irresponsibility is what makes me feel like a member of a different species. how can people not see that the world they are creating thereby is entirely not worth living in. it's the tragedy of the commons.

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  2. Well done GL.

    Isn't crony-capitalism wonderful?? :-)

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  3. It all comes down to whether the head of a company and senior management are God fearing folks (i.e., they believe in a real HEAVEN and a real HELL).

    If they are not God fearing they will lie, steal, backstab with no sense of guilt. Honor and chivalry are alien concepts to these demonic beings.

    It is critical that after the system collapses we prosecute these scumbags and put them in jail as well as taking from them their ill gotten gains.


    A dozen executions by military firing squad of these scumbags would send a message that will stop other demonic beings from breaking the laws of God and Men.

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  4. I blame the Baby Boomers. Their collective generational outlook is exactly as you've described - live for today, and act as if tomorrow will never come. They did it blowing their minds with drugs in the 60's, they did it by breaking up homes with divorce to find themselves in the 70's, they did it by utterly failing to solve these problems in the 80's when they had the power and the chance, they did it by loading up on as much debt as possible during the 90's and the 'Oughts, and they're doing it today by looting everything in sight while they still can. It's sad to say, but they're going to be very surprised when the generations they're crushing under their weight, one of which I'm a member of, takes their philosophy to its logical conclusion and starts snuffing them out to save themselves.

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  5. You started so well ... and then you went off the deep end talking about government debt. I came here from Jesse's Cafe, because he is one of the few gold bugs who makes sense in this respect (not too many of them who don't think FDR is the devil).

    Government debt is a side show. The size of government relative to the economy, the level of corruption in government, trade deficits, wealth distribution ... all these are fundamentals ... government debt in a fiat currency world is only ever a pen stroke away from simply disappearing (at the cost of inflation). A pen stroke which will have to come if we are ever to get out of this mess.

    Because if government grants you the austerity you seek I can guarantee you one thing ... the concentration of wealth and land ownership will still increase and only the top couple percent will see their living standards improve. With the economy collapsing they will have more time for leisure, all the nature parks "bankrupt" governments put on the market for new summer homes will provide them with nice distractions.

    If you're part of that 1%, well bully for you ... but for the lower and middle classes austerity will be a bloody disaster.

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  6. Management must be assigned a lifetime, PERSONAL responsibility for the decisions made while they were in charge of a public corporation.

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  7. >>but for the lower and middle classes austerity will be a bloody disaster.<<

    As will inflation. There is no way out.

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  8. This was written some time ago but add Freddie and Fannie to the mix and you will find that the Full faith and credit was behind the mortgages s they went through Freddie and Fannie and the Congress and Clinton Administration ordered the banks to make more minority home loans or be sued for redlining.

    How about some history and the banking collapses of the 80's and 2005's

    I would not believe Mr. Roberts. He was on the deck when the banks loaned so much money to the Foreign governments that they were technically bankrupt. Nine out of the top 10 money center banks were bankrupt at the end of the Carter era. Their delinquent loans to Russian nations, Mexico, South America and even some Asian nations exceed their share holders equity. In other word they lost the total worth of the bank they were worthless.

    I was leaning very hard on Senator Chic Hecht of Nevada and Senator Barry Goldwater to take action before we had a full fledged commercial bank collapse. I received a call from Senator Hecht the morning the Continental Illinois bank of Chicago was seized by the FED. He said this was not as I thought the tip of the iceberg as I proposed but a isolated case.

    Well upon review of the assets of the failed bank it became apparent why the Congress used the FED to pay all creditors even those with more than the $ 100,000 insured limits. If they allowed the bank to fail and the assets sold on the open market they actual real value of all the bad foreign loans would be established and the other money center banks would be required to write down their loans to the lower market value. This would cause a run on the banks and a total financial collapse.

    Now comes Mr Roberts and companies ideas to continue the super high interest rates created under Carter (16% one year treasury bill) fully knowing that it would bankrupt all the nations Saving and Loans which is exactly what happened.

    Saving and loans were bankrupted the day Carter signed off on removing usury rates on lenders. S&Ls were forced by laws to have most of their deposits invested in home loans which were payable a under 6% over 30 years. Now to raise capital they had to pay more than the 16% rate so they were doomed. To help stall this known result the Reagan people changed the rules and allowed S&Ls to become developers and take huge risks so they might have a chance to pull it out.

    Well this was all a stalling move that permitted the money center banks to earn enough money on these super high rates to turn them around and save them from collapse. This was simply a indirect tax on the people to bailout the financial sector.

    Does any of this sound familiar? Same bad loans same leverage again - history does repeat itself because we are uneducated.

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  9. I wrote something in the same mode recently: "I can understand why liberals resent the "rich". It is not just envy. I think it is probably true that many business owners and government controllers have a callous attitude toward laborers and voters, see them as meaningless inputs to their machine. They don't allow that these folks have worth beyond what they can do to leverage the owners/controllers ambitions. So they are expendable. The laborers and voters, of course, resent being expendable."

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  10. Gl Thank you for a moment of clarity in this strange world we live in today. The lack of personal accountability is indeed the foundation for the world we find ourselves living in today. I along with the electorate of the rest of the democratic world need to look in the mirror when we want to see who is at fault. It was the voters of the USA who elected Kenedy, Carter, Bush, Clinton, Bush, Obamma and the members of the senate and house of representatives. We the stakeholders of the country have blindly trusted the two major political parties (street gangs at best) to find leadership and put it forward. Both parties in the USA are guilty of systemic self dealing.
    The same is true in Europe and Australia.
    WE THE PEOPLE need to stand up and loudly announce the need for change and demand accountability. The elected officals of our country, the political parties and their close friends the bankers are the real terrorists of the 21st century. Only self accountability and courage can bring about the change we so desperately need.

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  11. Congratulations on a very important essay. As you rightly point out, the last generation or so, I think beginning with the anything is justified in order to win mentality that came with the military-industrial complex, the murder of John Kennedy and the Cold War, has seen an almost universal breakdown in the quality of governance -- across virtually all institutions around the world, both public and private. Corporations these days serve neither the shareholder, nor the consumer, nor the community at large, and much less the employee. Corporations these days serve the immediate interests of their top management. Period. Government institutions serve the interests of their corporate paymasters, unions those of their corrupt leadership, and it´s even become hard to find a not-for-profit or a religious organization that isn´t equally deformed by its corrupt governance system.

    The problem, as you also rightly point out, lies in the almost complete collapse of a coherent and credible ethical system that is capable of guiding our decisions and both the individual and the institutional levels. The fact is, you CAN get away with practically anything -- whether it´s the murder of a President, the fabrication of one pretext or another to justify war after war after war and the indiscriminate killing of hundreds of thousands of innocents in the pursuit of dominance and profit, or merely the rape and pillage of the world economy for the benefit of a few and to the detriment of generations to come.

    Without some coherent and credible ethical construct capable of compelling respect for the value of human life and the equal rights of other human beings, anything goes. And so it will continue.

    I wish at this point that I had an answer as to how to restore a compelling ethical basis for conducting human affairs on Earth. For me personally, ethics and morality are based on a deep-seated "prejudice" and profound reverence for the incomprehensible and innately "sacred" gift of life, human and otherwise. But, if you don´t share that prejudice, if you take a more instrumental view of your fellow human beings and other living things, there´s not much I can do to change that. I guess only to preach at every opportunity, in an attempt to share, to reach out and to teach.

    Unfortunately, however, I don´t think the approach you seem to be endorsing, based on a reversion to a world of individual or family control of at least our private institutions -- figuring out how to get owners to do a better job of looking after their cows -- is either possible or likely to be effective. We live together in a large and complex system these days, made up of large and complex institutions. We must find a way to restore a much higher standard of governance to these institutions, in this world, and that, in my view, obliges us to squarely face the failure of traditional ethical systems to give us the means to develop morally to the extent needed to bring about responsible governance in a world society that also values freedom.

    Thanks again for the good work you do.

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  12. Larry $ilver$teinJune 25, 2011 at 1:08 AM

    Since someone mentioned DEMONIC BEINGS,
    I thought I'd throw in my two cents and say:
    "Once you lived in America--
    Then 911. Now, bankrupt in Iraq,
    You live in NEOCON KIKESTAN !!"

    Hey--Goyim, I got my $7,000,000,000.00!
    Not bad for an AshCan NAZI.

    Now I own the Sears Trade Tower in Chicago-1100feet!
    Can lightning strike twice? I better up the insurance.
    That THERMITE sure works good! What NORAD?
    That cruise missile on the Pentagon-a stroke of genius!
    Just wait until 7/4/11. NWO Independence Day.

    Good "Boy" Rahm! Where are those ARAB patsies?
    Are 10 of them still alive in Egypt? Great Satan! Let's fix that next time!
    Put Options-we made $100MM in 12 hours. Oy Vay!!
    Anthrax sent only to the 2 Senators who voted AGAINST the Patriot Act. That'll teach em to shut up.

    KABOOM! False Flag. IRAN DID IT! NUKE IRAN! WW3.
    And FEMA Camps for you 911 "Twoofers". Kill List.

    What happened to that last guy that talked about World Peace, brotherhood and love?
    He threw out the moneychangers...revealed "The father of lies--the Synagogue of SATAN".
    Oh yeah, WE CRUCIFIED THAT FUCK!!
    But, we made sure that Judas got paid!

    Excuse me, I've got to go down to City Hall now to change my name.....to Goldstein.

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  13. There is a very simple method of fixing this problem. Make market share of > 1% de facto evidence of antitrust activity. Any company exceeding 1% should be dismantled and spun off into either 2 competing companies or 2 supporting companies.
    Prohibit interlocking directorates and cap officer and director salaries. Make an established tenet of corporate law that states that no more than 1% of a corporations gross profits can be expended as salary or benefits for each officer. That money's supposed to go to the stockholders as dividends anyway.

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  14. America is looking a lot like the third world countries... Big money managers paying off government officials for a blind eye to abuses. Just follow the money and you will see that it goes all the way up to the executive branch. Until the people realize that liberty requires constant vigilance, the abuses will continue.

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  15. Most of the lower and middle classes are net debtors ... as long as their wages keep up with inflation they benefit.

    Now of course the market is not going to raise the wages at the moment, so give the lower and middle classes tax benefits instead (replace minimum wage with negative income tax while you're at it). I'd just ignore what it does to federal debt at the moment, just pretend you're going to make good on it (you won't but it's important to pretend) while trying to get rid of the trade deficit ... once you run balanced trade, then you can kick inflation into a still higher gear for a bit to soft default in earnest. Followed by land taxes and capital controls to correct the remaining wealth inequality four decades of corrupt governance has created, and a balanced budget.

    Running a balanced budget is important, although but less important than running balanced trade. We have the resources inside our borders to provide humane labour intensive care for the weak in our society, so there is no reason not to because of numbers on paper ... just change the system to make it work, and don't worry too much about the numbers on paper in the mean time. We don't have the resources to pay for our current level of consumption of foreign produced goods, and no way to change the system to sustain that level ... because it's not internal to our borders. It's causing distortion in our economy and it removes our ability to make sovereign decisions, a trade deficit might also be called a trade dependency, so it's something we should fix ASAP.

    A balanced budget is something a government should run to sustain an equilibrium ... but it can not fix what 4 decades of corruption wrought. That can only be fixed by wealth redistribution by government ... or wealth redistribution by guillotine. I think government is the better option, but revolution the more likely outcome.

    The following blog rings mostly true for me, even if I think the whole fourth turning thing is new age pseudo science ... violent revolution is very likely coming, especially in the US (thanks to all the guns).

    http://www.theburningplatform.com/?p=16575

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  16. Nicely presented, GL.

    The "love of money" and the "love of power" has been a recurring theme throughout the history of mankind. It's no different now than it was thousands of years ago.

    The next six to twelve months are going to be very, very interesting as well as very, very dangerous.

    Store food, store water, store ammo and be prepared to defend your loved ones. It's about to get sickingly dangerous.

    Prepare, adapt, overcome and persevere.

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  17. Very well said, GL. Kudos.

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  18. The next "I'll Be Gone/ You'll Be Gone" scenario is being created as I type this.

    Insurers are hitting the wall on how much pension-fund liability they’re willing to take on. Last year JP Morgan and Prudential established a trade group to create and standardize a secondary market for "longevity risks."

    The vampire squids have sucked the wealth out of the US housing market. They are laying the groundwork to securitize our pensions. They'll get government to guarantee against losses. Academia is making noises about how the next financial meltdown can be prevented by allowing the Fed to control not only short term interest rates, but also long term interest rates. What starts in academia ends up in public policy.

    If our pensions are securitized and the Fed controls long term rates, they will suck the wealth out of our pensions, just like they sucked the wealth out of the housing market.

    Lather. Rinse. Repeat.

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  19. A few comments: If you remember, it was Reagen, member of the so called "greatest generation" along with his WWII side kick, Bush the First, who started the debt ball rolling in the USA, both for government and for households. That's not something somebody called "Baby Boomers" did who controlled exactly nothing at the time, just like young people today control pretty much next to nothing. Keep wages stagnant for thirty years, blow asset bubbles, inflate everything, deregulate everything, and then offer debt as a solution. And what we have is what we got. Now remember this: All that was a political choice enacted by policy makers serving particular economic interests, not a "collective generational outlook" thing. So let's get real.

    Moreover, there is no such thing really as a "collective generational outlook" Way too fuzzy. Remember, for any generation, itself a very difficult thing to define - if it can be done at all except for those who dwell primarily in the sound bite world - there are the responsible and the irresponsible, the liberal, conservative, libertarian, educated and uneducated, empathetic and non empathetic, moral and immoral, the cultured and the "pop cultured". Forget about "collective generational outlook". Think maybe various collective political outlooks which shape policy in order to direct spending and subsidies toward politically favored groups, and/or reduce taxes for some at the expense of others. Blaming some generation allows those playing a smart game of this kind of politics TO PLAY YOU.

    I say, stop the wars, adopt a single payer health care system, slash the war budget in half, stop the bailouts, junk the security state, stop the corporate subsidies, stop the corruption (good post GL), and you'd be shocked at how much money the USA would have to do all kinds of things. Austerity for the long run is the slogan of a society in decline. Austerity for the long run is for losers.

    On to something else: Don't think civil war, think secession. Lot's of people want out of America. I wanted out and we got out, and now have permanent resident status and live in a nice friendly, and polite, first world western country with a good economy and educational system etc, etc. It's nor perfect, but we feel very lucky. Most people can't do that. So think secession as the way OUT for most people when things blow up. Vermont, Texas, Alaska, California, the Northwest (Cascadia), the South aka Jesusstan, etc, all very very different places. But they all whisper or shout the same thing these days.

    What they will all have in common is that they will each calculate that they will be better off without the federal government, and its taxes, wars, security state etc. This may not be peaceful. Lots of population shifts.

    America looks like a very bad bet going forward, and most Americans know it. They may want out the only way they can get out.

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  20. Ownership percentages aren't a perfect guarantee for avoiding IBG, but it does help.

    Most of HP's problems started when the Hewletts and the Packards lost control of the company. Now, Apple makes more off of one PC than HP makes off of 7. OTOH, Jobs has taken ownership of Apple, even if he doesn't own a lot of Apple stock.

    WalMart is having similar trouble. The Walton family has ~48% of the stock, but they're not running the company. Several members of the family are selling their stock to fund their charity work. OTOH, the Ford family (especially Bill Ford) decided that Ford was in trouble, and flexed their muscles to put Bill in as CEO. They decided to keep ownership.

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  21. Reading this, I could see myself again working for the national, aka incumbent, telecommunications company in one of the Scandinavian countries before and after the organization was "privatized" and then quickly sold by the ruling politicians and their cronies to its worst competitor, operating in the neighbouring kingdom... All of a sudden, I found myself fighting for survival in Wild East where, overnight, the management had sort of hijacked this national heritage with about 350 years' traditions and nobody reacted, all this happening in broad daylight, in one of the "clean" and ethical Scandinavian democracies as they say. What a nasty and devastating experience it was.

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  22. Side bar comment about the "god-fearing" comment above:
    you don't have to believe in god to learn and understand the difference between right and wrong. I am basically agnostic/atheist at this point but am strongly guided by the principles of individual sovereignty, rational selfishness, etc. I know and value what is "right" because I can use my brain to come to that conclusion, not because there is a policeman in the sky and eternal burning below.

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  23. Dylan:

    It might be the Devil, or it might be the Lord,
    but you're gonna have to serve somebody.

    The shits about to hit the fan.

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  24. Spot on. I was just earlier tonight posting a similar thought about the absurdity of organized labor "negotiating" new contracts with managers when both are merely employees with shared interests utterly different to that of the company owners. Same for government labor "negotiations" between state employees (workers and managers) entirely beyond overview or control by taxpayers. Who cares in either case? IBG-YBG sums it up.

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  25. I try to put it in one word: accountability.

    Glad to see you back, GL.

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  26. Good essay. Dealing with the corruption is basic and necessary. If it is not dealt with we will end up with a small group of "vampires" fighting each other to suck the wealth from those few who still possess any.

    SO WHO WILL BELL THE CAT?: How do you force honesty on corporations that own or control the media, the politicians, the elections and the governments? Those politicians thinking of reigning in the cartels tend to get offed (JFK, RFK etc) if character assassination won't work.

    Generational warfare just plays into the hands of the cartels as they make serfs of the survivors. Pensions and entitlements are money that can go to cartels instead of recipients. Offshoring and robotics create disposable workers. So why not have these groups war with each other to reduce the "usless eaters" , manage the conflict profitably; and use it to eliminate enemies of the corporatocracy?

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  27. IBG .. YBG. This speaks volumes to how we got here.

    And we, and our children's children, must now reap what we have sown.

    A solution? How about State leaders who refuse to grovel to a bankrupt Federal Government?

    Individuals who refuse to be taxed by a tyranical government whose appetite for spending is insatiable?

    American citizens have a choice. They can in mass refuse to pay the debt of a Federal Government gone mad.

    Perhaps now is the time to join in the Great American Taxpayer Revolt of 2011?

    jg

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  28. I think we live in an "IBG-YBG culture". Controlling ownership of businesses is almost as much a throw-back, today, as royalty and feudalism. Not only governments, institutions and corporations, but even ownership of a house or car is NOT ownership the way it used to be. Nowadays, ownership of anything you buy (with a loan) is a hair-trigger away from re-possession by the lender. And even when the loan is paid off, you'd better have enough income to cover real estate taxes; or else the government will take away the house you so painstakingly paid for. So, we're all getting used to that we really own or control nothing except temporarily and precariously, and so we care less and less, even about ourselves.
    GL mentions the owners' long term interest as wealth transferred to their progeny via inheritance; but even ignoring inheritance taxes, I'd like to point out that even our progeny isn't so much "our own" as it used to be. Don't believe me? Back in agricultural days, when most people were farmers, herders or otherwise worked with their hands according to their learned skills, your children apprenticed with you, learned the ropes of your business, then worked for you for free --YES--, or almost for free (a time that was looked forward to, as it was a golden opportunity to expand the business); and once they grew old enough to take over your business, they took care of you until you died. So, your progeny REALLY was an *investment*.
    But today, parents know damn well that their children will not likely take care of them in old age; --more likely they'll throw them in an old folks home, out of their way AND sight. In fact, when children grow up they will pay tribute to their government, in the form of income tax; NOT to their parents. So parents take an IBG attitude towards their children's wealth and education --"let the government invest in *their* future tax revenue (i.e. let them pay for my kids' schooling (by guaranteeing their (un-payable) student loans), if they hope to collect good taxes from them)".
    Of course, we all hear emphatic lip service paid to "being responsible for your kids", etceteras, but this is no longer rational nor appropriate, whether in theory or in practice; given that your kids have really become the property of government, not of their parents. They are born into government debt; perpetual tax slaves. This is so much so that, if people were fully aware and awake, they should be demanding to be paid cash for each child they bring to life... "Want a new taxpayer, Sam? I'll make you one for 50G's. How about it?" Heck, if some politicians would have their way, they'd make contraception illegal, to make it almost impossible for people not to produce new taxpayers for the government, for free.
    Education, besides, has become so bad it's pretty much worthless. Hire a newly graduated Electrical Engineer, and to speak of "lack of practical knowledge" would be a total understatement. They often have no theoretical knowledge either. Even when they know how to solve particular problems, they may have zero understanding of what those problems, and their solutions, mean. They might manipulate figures for voltage and current without having a feeling for what a voltage is (like pressure), or what a current is (a measure of flow). All their knowledge is often a floating abstraction; --hundreds of equations memorized without an iota of understanding for what they mean. As long as they can calculate resistance from them, they pass the exam, even if they got no idea what resistance IS, either.
    (Continued below...)

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  29. (... continuing...)
    The problems of education began with "objective testing" and the "standardization of knowledge", which began as the standardization of curricula; followed by the standardization for educational performance metrics. All these things becoming more and more "objective" has left no room for "subjects", like you or I. Similarly, morality has been standardized into laws; and whether you are good or bad has more to do with your outer behavior than with your inner self or consciousness, and accompanying conscience; just like your school performance is judged by objective skills, without regard for your understanding.
    The problems with the environment, similarly, are IBG-YBG-based: NOTHING will be done for as long as climatologists speak of "50 years countdown to disaster"... "I will be gone in 50 years, anyways..."
    But it's actually much worse: We are so bombarded with TV brainwash telling us what we want, as to forget to ever ask ourselves what we want. Do we want wealth?, power?, knowledge?, or mere safety? Most of us probably don't even know. We just "get by". The ideas we often think are our own are not; they were fabricated by think tanks and plugged into TV talk shows where everything ends being left or right, democrat or republican, and discussed to a time-limit guaranteeing that no resolution or conclusion is ever reached. You absorb these thought-tokens from TV shows, and later regurgitate them when triggered by certain keywords. That's what today's intellectual life has been reduced to.
    And if we can't answer what we want for ourselves, how could we answer what we want for Humanity? What IS our goal, or ideal? Do we want food and housing for all? Well, that's hardly possible, and if it were, it would lead to a rapid population growth, and THEN it would become impossible. And yet, when people discuss economics, they all seem to take for granted that "if we were to remove these problems, everyone would be happy"; but we can't be happy if we don't even know what we want first of all... --how'd we go about getting it?
    Someone proposed tax revolt; but I'd say the first revolt that needs to take place is a philosophical and cultural one: We need to dump our TV's from the highest balcony into big trash containers below... --be sure they are destroyed for good. This is not a joke; I believe this would be a ground-shaking cultural revolt that would send shards of fear down the spines of the power$ that bee... like saying to them "your propaganda crap will no longer be accepted". Massive dumping of TV's would demonstrate that the people are ready and willing to wake up. Tax revolts would then be a palpable possibility.
    Think of the movie The Matrix: Imagine if massive numbers of sleeping people were to suddenly sit up and start un-hooking the wires from their heads... The Matrix would know that the game is over; there's no need to break glass or throw stones. Just show a willingness to awaken, to know the truth, and the power$ will know that their game is over.
    But I'll be gone...

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  30. @ chuck,

    Astute observations and comments, especially when it comes to dumping the TV (the omni-directional sludge pump, I call it, which I would have no problem dumping altogether were it not for the fact that my woman is hooked on shitty soap operas and gag-me-with-a-backhoe "reality" programs). But beyond the TV, there is so much about this disease called western civilization which sickens me, that I don't know where to start, although I suspect that a dismantling of the debt based monetary system (the ponziconomy) which reared its ugly head in 1913 would be a good start (if one accepts that money is an integral part of our lives and that it does form a foundation upon which the rest of society is constructed, why is it difficult to believe that society (the house) is in such a mess given the fact that the monetary system (the foundation) is crap?). Man, there are times when I look at some of those so called primitive peoples still residing in the Amazon, and I envy them (a place for everyone and everyone in their place, with no thought of murdering or screwing your brother just to possess what he has). But what's the point, really, in trying to wake others around me, per the matrix, when (from what I've seen) the bulk of the population is content with the web of lies and contradictions that is their life and choose to look upon me as a tin foil hatted idiot, which may in fact be the case? Nah, I'll just look out for myself, live my life my way, and let others live their lives the way they see fit. Seems fair enough. Ok, that's enough verbal diarrhea for now. G'day.

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