-Caveat Lector- http://www.yellowtimes.org/article.php?sid=521
"Economics 101: Turning water into wine" Printed on Wednesday, July 24, 2002 @ 00:40:00 EDT John Brand By John Brand, D.Min., J.D. YellowTimes.org Columnist (United States) (YellowTimes.org) - Dissection is not comprehension. In high school biology class we dissected frogs. All the parts were neatly laid out. There were the organs, the muscles, the skin, and the bones. However, knowing all that and having it neatly labeled did not help us to understand very much about the frog. We had no idea what constituted life for a frog from merely knowing its parts. We did not comprehend what is meant to be a frog. Parsing is not understanding. Parsing a sentence from Hamlet gives us no understanding of the tragedy of the Prince. We might know everything there is to know about the grammatical structure of a sentence and have absolutely no understanding of the character. We can know all the parts and still have no wisdom about the whole. This column seeks to comprehend and understand, not dissect, a significant area of American life. It deals with the nature of the stock market. I am certainly not a financial wizard. I lay no claim to owning an economic crystal ball. But I do know this: we can analyze a financial report until death do us part and never know the substance of the financial condition of the company. Where in the report does it show how expenses are hidden as long-term investments? Where does it show how many offshore companies are used to hide the true financial health of a company? I learned about the ways of the world of high finance in 1987 while on a trip to Grand Cayman. While there I attended a Rotary Meeting. After we were called to order, the Presiding Officer said something like this, "George, I heard you argued with your wife last Tuesday. We don't tolerate that. That will be a $1,000 fine." George walked up to the platform and handed the Treasurer $1,000. "Jim," the Chair continued, "I don't like your tie. That will be a $500 fine." Jim smilingly handed over $500. As the meeting continued more and more members were cited for supposed misconducts and paid big dollar fines. It certainly does not take a genius to figure out that I tried to make myself invisible. Finally, the monetary bloodletting stopped and the regular meeting proceeded. After the meeting I asked a fellow Rotarian at my table, "What in the world was that all about?" He laughed and said, "In 1786 (or some such date) a member of the British Royal Family was on a ship floundering on the rocks near the Island. Brave locals saved his life. In gratitude the King decreed that taxes should never be imposed upon Grand Cayman. Of course, we have to support our local government. So we have chosen this way to do it. We collect fines to support our schools, maintain our roads, pay for our local government." I must have had a puzzled look on my face, so he continued. "You see this Club has members from all the big banks on the Islands. We know ahead of time who will be called upon to pay a 'fine' and the amount of the fine." Still not understanding what went on, the gentlemen continued, "We can afford to do this because about $30,000,000 a week is deposited in our banks by people from the United States and Europe. Our banking laws are similar to the Swiss laws. There is total banking privacy." Now I understood. Corporations and individuals deposit money in Grand Cayman to escape paying taxes and to escape public disclosure. The amount may have been $30,000,000 every two weeks or whatever. But to an old country boy - and even to someone like Kenny Boy - it was a lot of money - whatever it was. Most folks I know do not have a bank account in Grand Cayman or in Switzerland. However, we may very well invest in companies that do. We can study their financial statements until we are blue in the face but we have no idea about their hidden assets or their hidden debts. We assume that honest and honorable accounting firms certify financial statements as being true. However, we have no ideas which accounting methods they use. We had no idea that Wendy Gramm (wife of Texas Senator Phil Gramm) as the lame-duck chair of the Commodities Future Trading Commission and one other Commissioner permitted Enron to exempt their energy future derivatives from Commission oversight. I wonder if Senator Gramm taught that neat trick to his economic students at Texas A & M? Or did Mrs. Gramm think that one up all by herself? And so we dissect the financial statements and don't know beans about the company. So why are Americans duped into believing that the stock market is the way to fiscal security and to a safe and prosperous retirement? Why even the present President of the United States wanted workers to be enabled to invest a part of their Social Security funds in the stock market. There may have been a time when the stock market was a proper investment tool. But somewhere along the trail, corporate executives, stockbrokers, accountants, and fiscal managers decided that there would be no direct relationship between actual productivity and the value of shares of stock. The market took on a life of its own, totally unrelated to the value of good and services produced. Stock prices were artificially manipulated. We have all heard of brokers who believed a certain stock to be a bad investment - yet they peddled that stock. Now, I am not a financial analyst. But then who is? You have all these highly paid TV gurus reporting on the market, the editors and writers of the Wall Street Journal pontificating their economic know-how, the certified, authorized, licensed stock brokers advising people where to put their money. Yet how many of these "experts" predicted the present decline? There were not very many. It is interesting that Thorstein Veblen, University of Chicago, many decades ago, suggested that there is no such thing as "economics." He was probably the first person to use mathematical modeling to understand the market place. Veblen opined that there is only the people's psychological reaction to the market. So from an ignorant layman's point of view, what makes sense in this situation? A situation properly named CORPGREED. Maybe this incident will provide some behavioral insight. When I worked for an independent oil and gas company, the president of the company, on most days, would be the first one in the office and the last to leave. On paper he was worth a lot - I said a lot - of money. I had gotten behind on a project and in order to catch up, one morning I came to the office at about 5:00 or 5:30 a.m. I could see a light in Jack's office. Surely, I thought, someone just forgot to turn it off. I went into the office and there was Jack behind his desk working away. I said, "Jack, what in the hell are you doing in the office? You have more money than you know what to do with. Your kids have trust funds coming out their kazoos. What is all this?" He got up from his desk, put a fatherly arm around my shoulder and looking straight into my eyes he said, "John, you just don't understand, do you? It's bragging rights, John - bragging rights." I told him, "Jack, I thought you were smarter than that." In the evening these Captains of Industry gather at the Country Club or the Petroleum Club and start reciting their accomplishments. And if Joe Blow made more money than Jack, then Jack felt a deep need to hitch up his pants and figure out a way to beat Joe by the next evening. Money to almost all of these folks has no value as money. It simply becomes the means of exerting psychological leverage over one's competitors. To most folks in America, money is a matter of buying the baby's proverbial pair of shoes. It is the means for buying food and paying the mortgage or the rent. None of this exists in the dictionary of the wheelers and dealers. Money equals status. Money equals compensation for a sense of personal inadequacy. Yes, that's what I said. Money equals compensation for a sense of personal inadequacy. I have been around a fair number of corporate executives in my life. My personal feeling is that many of them have a real sense of inferiority. Now that sounds odd, doesn't it? There is something gnawing away at the inside of their guts. There is a feeling that they are not measuring up. Please, I am not saying they are all that way, but I do say that a large number are dealing with personal demons. And the way they try to tame these internal monsters is to amass more than someone else. In their books, the value of a man or a woman is not judged by character and integrity, it is judged by how much money they have made. And, of course, the stuff that money can buy, which is almost everything except maturity, wisdom, honesty, and dignity. But where is the money coming from to sustain an ever-growing demand to best one's peers? Ah, this is where the stock market has become a convenient tool! The financial community has convinced the American public to invest in the market. "Get a piece of the dream!" "Secure your retirement!" "Retire when you are 48!" Sounds exciting? You bet. And so the public buys stock. They or their financial advisor have analyzed the balance sheets. They didn't know that their analysis is not a comprehension of the company's financial state. And the money flows in. The insiders know what is going on. Kenny Boy, the President of Worldcom, in spite of his protestation, and all the other insiders who sold their stock before it plunged, surely knew the real story. Can you imagine the character of a human being who forbids his employees to sell their stock while he is unloading his? He has to make a quick few million bucks because his sense of inferiority is eating him alive! If Enron were the only corporation where this sort of thing happened, we could chalk it up as an aberration. But it has happened and is happening in company after company, after company. It is as though a disease had infected the corporate world. Just last week, Johnson and Johnson is accused of some unethical deal. My God, when you can't trust the manufacturer whose oil you put on your baby's behind, whom can you trust? The money for this psychological feeding frenzy comes from the little guy! The small investor is just cannon fodder for the big guys. I am not saying that some small guys don't do all right in the market. I am saying that mostly little guys stuff the wallets of the big boys. Then when suspicions are aroused, when the light of reality breaks into the murky corners of dishonest financial statements, insider trading, hanky-panky between business and regulatory bodies, the U.S. President steps in trying to save the day! Now that's a hoot, isn't it? Here we have a President who wants government to get off the people's back and out of our lives. And what does he do? When the bubble is about to burst and the market is in a downward slide reaching a loss of about 400 points, our Savior steps up to the microphone. President Bush, who wants government out of everything, now uses the full faith of the government to interfere in the "free" market place. And as though water was being turned into wine, the downward slide stops. The market reverses itself and when the final bell has rung only a minor "correction" has happened. Big, big question, "Where is all that money coming from to buy stocks to stop the downward slide?" The impression is left that the President's speech reassured the American people. The power of his intellectual insight into the nation's economy made everyone feel warm and fuzzy on the inside. And the beat goes on. Question: where does all the money come from that turned the market around while our Lord and Savior spoke from the Mount of Salvation? Of course, we really don't know. There are some sources claiming that Alan Greenspan heads an economic Emergency Response Team or some such thing. This team doesn't give a damn that the pharmaceutical companies can be compared to the highwaymen of the Old West. It doesn't give a damn when Enron bilks Californians out of billions during the trumped-up energy crises. But let the stock market go sour and they start wetting their pants. Whenever it seems that the stock market is going for a ride, the Team steps in and keeps the bubble inflated. What is the source of all that money? Well, it doesn't come from the little guys. Rumors have it that they tap such funds as the Social Security Trust Fund, the Medicare Fund, a few hundred millions from the bloated Defense Department, and maybe a few millions here and a few millions there. See, I was wrong. It does come from the little guy. It may well be that our tax dollars keep the bubble intact so Kenny Boy et al can pocket a few more millions. Those who dissect things ought to see if they can get on the inside of that assumption and then put all the elements on the table. Of course, with a President who issues executive orders denying access to vital papers, it may really be hard to dissect this situation. Isn't that even more reason to be suspicious? So, the President's speech for a few moments turned water into wine. But I don't believe it was his speech. I suspect the Team had something to do with it. It probably wasn't a miracle after all. And the next day the market again began on the downward slide. Now enters St. Peter, a.k.a. Alan Greenspan. Miraculously after he starts his speech, the market reverses its downward trend. But then quite suddenly, there is another reverse. The market starts to go down again and keeps on going down. There is no more snake oil in the old medicine chest. On July 17, the Dow-Jones increases a few points. Then, July 19, the market took a $390 hickey. For that week, it was down about 8 per cent. What will be the source of the next miracle? How will the President turn a few loaves and fish into enough food to feed a multitude? Don't hold your breath. I don't think the Europeans are going to invest much more in America. After all, the euro is a little bit ahead of the dollar. And, as I understand, there is a little gold backing the euro. Our greenbacks are backed by the good faith of the United States government. Let's face it, belief in that "good faith" has been eroding pretty steadily in Europe. The Japanese have their own banking problems. There just "ain't no there, there - no more." I wish those who are good at dissecting stuff would find out just why the market showed such a remarkable turn-around while President Bush spoke. The second question would be why the market started to recover when St. Pete spoke but somehow or other it ran out of juice and then three days later it tumbled almost 400 points. The day before it took a hickey of almost 133 points. Maybe my comprehension that there is really no economic reality in the market is totally goofy. I sort of think it exists for Corpgreed. Have you a better a better explanation? [John Brand is a Purple Heart, Combat Infantry veteran of World War II. He received his Juris Doctor degree at Northwestern University and a Master of Theology and a Doctor of Ministry at Southern Methodist University. He served as a Methodist minister for 19 years, was Vice President, Birkman & Associates, Industrial Psychologists, and concluded his career as Director, Organizational and Human Resources, Warren-King Enterprises, an independent oil and gas company. He is the author of "Shaking the Foundations."] John Brand encourages your comments: [EMAIL PROTECTED] YellowTimes.org encourages its material to be reproduced, reprinted, or broadcast provided that any such reproduction must identify the original source, http://www.YellowTimes.org. Internet web links to http://www.YellowTimes.org are appreciated. <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! 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