Saving Jackpot Capitalism: The Real Reason Why the Banks Are Being Bailed Out
Martha Rose Crow, M.S.
Regular return on investments is for the little people. The greedy elite and elite investor groups must have more. They must save their private, un- or under regulated way of making secret kings’ ransoms.
Shadow Financial Entities
They stay out of the light as much as they can because they don’t want the world to know how Big and Powerful they really are and they don’t want the public to know how ruthless they are to make high returns on investments for their elite masters.
Last week, there were all kinds of brouhaha about Bernie Madoff’s trial and subsequent sentencing for 150 years in prison for operating a ‘Ponzi’ scheme. What Madoff was really guilty of was not investing his clients’ money in the murky, shadowy world of uber or super capitalism: Capitalism under a private umbrella that has few or no restraints.
Bernie Madoff’s business was a ‘market maker’. Wikipedia explains what a market maker is: A market maker is a firm that quotes both a buy and a sell price in a financial instrument or commodity, hoping to make a profit on the bid/offer spread, or turn.
This arena of secret capitalism is the world of the ‘Big Players’: hedge funds, private equity, market makers, real estate investment trusts and other esoteric and exotic investment clubs. It is a ‘private’ wealth-making world so it is not under public eye and government scrutiny like ‘public’ companies are. Investors are more ‘partners’ than stockholders. All investment ventures are limited partnerships so if the venture fails, the investors lose but the financial entity remains in business. Only the elite and elite investor groups can be members. Again, this economic game is not for the regular investor.
As manufacturing companies become more like financial players, real financial
players such as private-equity funds, hedge funds and real estate investment
trusts (REITs) have become significant short-term owners of manufacturing and
services companies - acquiring, restructuring and disposing of these companies
as liquid assets regardless of actual productivity and profitability. Over the past
decade private-equity funds have mobilized trillions of dollars for the acquisition of companies in virtually every industrial and service sector, leading The Economist to declare: "Today, the private-equity industry has moved from the fringe to the centre of the capitalist action.”
Workers in virtually all sectors face the threat of rapidly changing ownership and the imposition of restructuring plans and short-term targets that are based on a financial market logic that places no value in real production, productivity or jobs. In just the first eight weeks of 2006, hedge funds and private-equity funds made over 4,000 deals involving the acquisition and disposal of US$473 billion in assets. Among the ‘assets’ exchanged were manufacturing and service
operations employing hundreds of thousands of workers.
Ironic, if Bernie Madoff had invested all his clients’ money (minus management fees) and lost it all, he would never have gotten into any legal trouble. Hedge funds and private equities work the same way. They make money whether their investments make money. First, they get ‘management’ fees, then they get 20-30% of the profits and the investors get the rest.
In this world of dark predator capitalism, the money institutions of the elite are protected by other elite in government. These institutions have traditionally given the uber investors a 16-20% investment return. They are holy cows and holy cash cows that politicians hate to touch because most high politicians are invested in them whether directly and/or indirectly.
Politicians are under pressure by government investment groups (pension funds, ‘rainy’ day funds, so forth) to ‘do something’ to save their portfolios. There are over 82,000 of these groups and when they combine their assets together, they are a powerful investment force. To learn more about government as investor, see www.cafr1.com
Rich politicians are behind the reason why this shadow capitalism gets special tax treatment. They pay a capital gains tax instead of the normal tax percentage that investors of transparent investments pay. There have been attempts to change this special tax treatment of Jackpot Capitalism, but it hasn’t changed so far and probably won’t be changed unless enough people understand what is going on and pressure their rich politicians to change the laws.
Almost every member of Congress and the Senate is at least a millionaire. A few are billionaires. They protect their financial ass-ets over the assets of the people they are supposed to serve.
To keep and grow wealth can be a hassle. Banks are FDIC insured for $100,000 so if you put more than a $100,000 in a bank account and the bank fails, you lose it all but that $100,000 and you usually get that back after many years.
This means that all investments are risky: stocks, property, retail, bonds, so forth.
Having a large amount of money is a hassle in other ways. If you trade it for gold, you can always be robbed. If you stuff it in mattresses and the walls of your house and the house burns down, the money burns with it.
Since the wealthy can’t safely save all their money in banks, plus they’d get a dull return of 1-3% and every investment is a risk, whether low or high, they invest in their own Jackpot Capitalism Clubs, specially designed for clients like them
The media has been covering the Bernie Madoff spectacle but never dug deeper into what kind of business he ran. Corporations themselves, the major media has no reason to explose market makers or the other members of the Jackpot Club.
The predator pirates who run these private, elite financial entities are called in the business world, ‘Masters of the Universe’. Google it and find out how many entries there and how ruthless the players are. They leave devastation and ruin in their wake but usually laugh all the way to the bank with the extraordinary profits they make.
Although the coporate-owned media blames the borrowers instead of the architects of the sub-prime crisis, many people are now starting to blame ‘Big Business’ or the multinational corporations and the banking sector for this Greater Depression. What people don’t know is that private equity firms are more wealthy and powerful than the top ten multimationals:
Despite their extensive control over manufacturing and service companies globally, these investment funds are not recognized as multinationals by the UN Conference on Trade and Development (UNCTAD). If they were, "they would easily displace the top 10 corporations" on UNCTAD's top 100 non-financial multinationals, the IUF's Peter Rossman and Gerard Greenfield write, adding:
"General Electric, ranked first in UNCTAD's list, controls less foreign assets and employs fewer workers overseas than either Blackstone, Carlyle Group, or Texas Pacific Group [three leading investment funds]."
Further, employment figures are also incomplete in national data, since statistical agencies still have no category for the relatively new financial institutions. "Up to one-fifth of non-public sector workers in the United Kingdom, for example, are now employed in companies controlled by private-equity funds," Rossman and Greenfield report. http://www.senser.com/07-05-01.htm
Private equity and private investment firms borrow a lot of money from banks for their money-making, neo capitalism schemes.
When credit was easy and interest was low, many banks gave these shadow financial entities big loans with little collateral. The banks collected fees to process the loans so they were making money two ways. Three ways if they became a partner in a limited partnership.
Money poured out of banks to bankroll this new mutant form of capitalism. For example, a private equity firm raising $1 billion from elite investors as ‘collateral’ could go out and borrow $8 or 9 billion for their new ‘venture’. This is the stuff the media is not telling us because no agent for capitalism in the capitalist world wants to shed any spotlight on shadow financialization.
Saving the Jackpot
Financialization is a relatively new term used to discuss the emergence of a new form of capitalism in which financial leverage and exotic instruments tends to override capital (equity) and in which financial markets dominate over the traditional industrial economy.
Jackpot Capitalism – Financialization – is the way the elite and elite investor groups make the high returns on capital and if they should fall, private equity investors like Nancy Pelosi would be forced to invest in lower yield investments. But the banks are in trouble. They loaned the Captains of Financialization untold billions and if they fall, so will shadow financialization.
Since the beginning of the world, the socially-dominant elite have always tried to make great fortunes so they could have greater power over everyone else. Like Balzac said, “Behind every great fortune is a great crime.” For capital firms to make high returns on ‘investments’, they have to be ruthless in their pursuit for profit: They must have cheaper labor (modern slavery), cheaper materials and natural resources (cause of many wars), agreeable governments (western foreign policies ruling the world) and higher prices for higher profits.
When politicians continue to protect the financial sector over the needs of their constituents, they are protecting their portfolios for transparent investments and opaque investments. This means that the banks must be raised up from the dead by throwing money at them.
If the banks go down, so does the elite’s Private Pinocchio Profit ‘Play Lands’. It will be the end of Jackpot Capitalism as they know it because the financialized shadow sector they benefit so handsomely will go down with the banks as well. Then there will be public scrutiny and they know it.
Of course, someone will devise a new ‘creative’ way or calculus ‘formula’ to squeeze high returns for the elite but only if we continue to let them get away with it.
Only we can stop this new kind of secret, violent capitalism that is pillaging the world. Only we can stop it from ‘morphing’ it into something else. Otherwise the private shadow investment entities will remain, ‘Same leopard, different spots’.
For more information, I recommend:
Private equity - a new capitalist mutation
Private equity deals - fight free-market vultures
EU socialists demand private equity regulation
Private Equity: The Return of the Masters of the Universe
How the private equity buyout industry works
The Greed Game
Hear it from the Beast’s hell-pers themselves:
Davos Annual Meeting 2008 - Private Equity