Subject: What is the Real Agenda of Our Regulators? From 2004
Friends,
I have wondered what the real objective of our regulators and Government officials is in today's world. They must have some scheme as to what it is they want the capital formation structure of the United States to look like, and how they want it to mesh with the rest of the Financial and Political World.
I can posit one possible scenario of what the objectives of our Institutional authorities is, but it is relatively terrifying in its implications.
A clear bias has been demonstrated to the favor of professional merchant bankers over traditional merchant bankers, to electronic brokers over traditional broker-dealers, to the neutering of traditional fundamental research to the favor of settlement interests, and to the support of major structured finance to any kind of speculative investment.
I have said before that if a Microsoft, Cisco, etc., were to be created today, they would never be allowed to succeed, nor would any principal be allowed to accrue the great wealth of the entrepreneurs of that generation.
Reactionary forces in major companies have always feared the creation of a technology that would put them out of business. I could recite literally dozens of stories of major companies that blew it when new trends emerged, including Xerox, IBM, et al. Today, the very companies who created enormous new markets out of thin air (digital switches, personal computers, et al) now fear the next technology that could potentially make them the next generations' Xerox, IBM, etc, including Apple, Microsoft, Cisco, etc.
It is clear that the Government wants more stability, even if it is at the price of lost opportunities, which few bureaucrats care about anyway since they are paid by Government scale. The technical revolution that created the financial behemoth that is the Modern United States has always come from small companies working with admittedly limited resources, run by entrepreneurs willing to risk it all. Today, virtually none of the Companies that could create the next Microsoft or Apple would have a snowball's chance in hell of being successful.
Where our Regulators seem determined to lead the US is to a European style "Financials First" system of integrated banks and brokerages, who feed internal and external merchant banking and arbitrage activities that have none of the risk profiles of entrepreneurial investments. They seem to be compelled to take this path, even if they have to restrict the rights of the individual investor so as to be violated wholesale, and to attack title to property so as to be made dramatically less meaningful.
So what has such a structure done for Europe? England, France and Germany are economic wastelands. The national bank of one of these countries, made wildly successful from the deposits of its citizens, is now redlining its own country, adopting an attitude that the Bank's assets are its first, and that they must seek the best risk adjusted returns without consideration of the interests of their depositors. Unemployment is at all time highs throughout Europe. There is no small company capital formation process of any significance, and not one of these countries has managed to produce so much as a single Apple, Microsoft, Cisco, etc. Before they lend money to a small technology start-up, they would rather sell arms and munitions country to country, and their own countries be damned.
Is that what American's want done with their deposits? The State Bank of France is an unfiled bankruptcy. Deutsche Bank's international headquarters is in London. Britain has no major bank of any credibility, unless HSBC is called British, and British unemployment is over 40%, half of it permanent and hard core. Germany is on the verge of an economic meltdown thanks to its socialism. Russia is 100 years from a real capitalistic democracy, about the same time it took the US to sort this system out. German unemployment is over 50% in real terms. It admits to 25% unemployment, but that is only of workers who are protected under their socialist system. The real number is double that, because like the US, anyone unemployed more than one year falls off the statistic. Also, but not like the US, 65% of all German workers are independent contractors, not covered by socialist benefit programs. I am informed by reliable sources that as many as half of these workers are without employment. You do the math on real unemployment in Germany.
Technical start-ups in England, France and Germany? You could count the ones of significance on two hands. This is particularly stunning when you consider the brilliance of Germans at an engineering level. That brilliance has been more directed at process engineering of plants for production of WMD's than consumer technology. Siemens, one the technology lights of Europe, is another unfiled bankruptcy, being carried by Socialist policies.
Our representatives and regulators must be told in no uncertain terms that this is not what Americans want for their future.
We have been given every possible signal of the direction and intent of our Government. Simply begin with the orchestrated 2000 Bear Raid/Crash, to the current shorting scandal. Look at the Mandarins of Venture Capital and Law. The arrogance is literally stifling.
It is time for Americans to WAKE THE HELL UP, JACK. If you can't see what is going on, then I suggest you get off your collective asses and go see what exactly is going on in the rest of the world.
It was only five or six years ago that Bank America and Nation's Bank agreed to a $350 Billion penalty to be exacted in the form of new loans, for red-lining its own customers all over the country. What kind of event causes US Banks, led by our Federal Reserve to stop lending to us, and choose to lend to businesses in China, India and Bangladesh over US Companies because they have better labor costs? We are really there now. Where is real seed investment? Who the hell thinks the Venture Capital Community really makes seed investments of any significance? Draper Fisher, Jurvetson brags on their web site that they fund about 15 transactions out of some 12,000 sent to them every year.
Does anyone really believe that there were only 15 deals worthy of funding in such a set? Worse, does anyone believe that the 15 selected will have any higher success rate than other start-ups (which few of the 15 truly are)? We need tens of thousands of start-ups every year if we are to maintain any sort of standing in the emerging economic and technical world. We should be happy if only two-thirds fail. Similar failure rates made this country what it is. It is the Babe Ruth analogy. He was the home run King, and the strike out King at the same time. Our capital formation structures must be highly diversified, and able to support every ounce of creativity this Country is capable of mustering. As we shut down and limit such creative process by limiting access to necessary capital, we signal the end of our democracy and our capitalist system.
We are so close to such a scenario of severely limited opportunities that it is tough to imagine. The problem is that if everyone waits until it happens, they will have a Humpty-Dumpty scenario, a system so broken the pieces can't all be put back together again resembling the real thing.
Bud Burrell.