In the land of the free, who would have thought. Capitalist risks are socialized. Managers of the world, unite (and grab)!
The world is full of small, and not so small, ironies. Here are a couple of big ones. The first argues that American capitalists have been greatly helped by Chinese communist, the second argues that the risks of the rich are socialized in the US.:
The unprecedented boom (until a year ago) in US profits is achieved with the help of communist China. How’s that? Well, consider the following:
- China’s trade surplus needs to be recycled, they bought absolutely massive amounts of American Treasury Bills, keeping US long interest rates lower than they would otherwise be, a boon to capitalists
- Many a US firm has benefited from outsourcing to China, profiting from it’s cheap, abundant, and docile labour fource
- Even the threat of this is enough to keep the negotiating positions of US unions and labour in check. Notice the considerable concessions unions have given Detroit car manufacturers on healthcare and pensions, for instance. Notice how real-wage growth in the US has lagged productivity growth, the difference went to corporate profits
- The influx of cheap manufactured product from China has kept inflation lower than it would otherwise have been, enabling lower short-term interest rates in the US, a further boon to capitalists.
Basically, China has made labour more abundant relative to capital, western capitalists should thank Chinese communists!
And how about the following irony:
US capitalists are not only helped by Chinese communists, but while the gains of their efforts are private (very private), the losses will be socialized. This happens in a couple of ways:
- Management has seen it’s enumeration increase tremendously. Not only salaries, but pension benefits, severance pay, options, incentives, etc.. has continued to go up whilst real wages of the average worker has hardly grown, but when the big bets go wrong, those doing the betting end up with golden handshakes and those average employees are laid off in large numbers
- If the whole company fails, then there is always the Fed to the rescue, lowering interest rates, providing outlandish amounts of cash, they throw anything at the markets to get them up again, signaling in the mean time that it’s save to bet again. Faites-vos-jeux!
- And if that’s not enough to get things going they might even bail you out (Bear Sterns) or even considering nationalization (Fannie May and Freddie Mac).
Here is a profitable trading strategy, if things look bad, but they’re not going down as swiftly as you might have hoped, you could always spread nasty rumors and sell short (if you’re high enough in the food chain, you don’t even have to borrow the shares first, or at all).
Your selling will make it look like your rumors were right on the mark. At last there seems to be a bit of a crackdown on this latter, most criminal version, some people are being subpoenaed in relation to these doings, and they are considering the requirement for pre-borrowing shares before shorting them.
In the 1980s, the saying was that if reincarnation existed, you would wanna come back as the bond market, as that scared everybody. The new scary people are the hedge funds. Leveraged to the hilt, greatly enabled by the liberalization and deregulation of markets, and they even enjoy a special low tax regime to boot.
It’s a funny old world. Socialism in the US, but it’s socialism for the rich. They can play in the eternal casino. Heads: they win, tail: you loose.