Obama's One-Trick Wizards

by Spengler - November 25th, 2008 - Asia Times

One wants to ask the Wall Street wizards who comprise the talent pool for the incoming administration, "If you so smart, how come you ain't rich no more?"

[snip]

Without leverage, the clever folk around Barack Obama are fleas without a dog. None of them invented anything, introduced an important new product, opened a new market, or did anything that reached into the lives of ordinary people. They wore expensive cufflinks, read balance sheets, exercised regularly, sat on philanthropic boards, and assumed that their flea's ride on the Reagan dog would last forever.

This is an interesting article. It zeros in on the reality that "leveraging securitized mortgages" and selling insider knowledge are the two main drivers of the Wall Street wizards who got rich during the 90s selling hype. It focuses in on the Reagan revolution and its freeing up the creative energy of small business in America to create wealth by ending capital gains and vastly reducing the regulatory load that disproportionately hampers small business.

I think it overlooks the secondary wave of productivity expansion driven by the World Wide Web of Tim Berners-Lee, probably the single greatest short term productivity engine that the world has ever seen. America got in on that boom early, but then rode the world wide expansion of productivity as well.

However though investment banks and mortgage brokers went from small profits to huge profits by riding these two growth cycles of the late 80s and through the 90s, based on an explosion of increased leverage, they never really deserved the nearly 40% of corporate profits that they were getting at the end. Leveraged to the hilt, they could not survive the minor correction that we have started to experience.

The solution that they have demanded, government infusion of cash to keep the leverage cycle going, will trigger massive inflation and do nothing to return profits to companies which produce value. To do that we must not load companies down with taxes and red tape. The merger and acquisition process of the Wall Street types is just another form of leveraging companies into bankruptcy over the long haul.

As noted in the article, Rahm Emanuel, who studied ballet, is not going to understand how to produce new products that will drive the next generation of economic growth. The $16.2 million he earned in two and a half years at a company, providing nothing of value except schmoozing, is not a form of training that will lead to providing the Marxist Messiah with any understanding of how wealth is created. The Wall Street types only know how to "redistribute" wealth themselves. The evil era of corporate socialism of the recent past is ending and about to be replaced with an even more evil era of government socialism. It is not going to be pretty.