Crony capitalism is another reason we need a Revolving Door Tax (RDT).
Would this be a money-making proposition, allowing an investor a piece of the upside as the companies use the power of the government to their advantage? Or would it be a money-losing proposition, because the companies whose CEOs are spending their time cultivating government relationships are doing so only as a desperate tactic because their firms are otherwise unable to compete successfully in the marketplace on the basis of the value they offer their customers?
So I spent some time running the numbers. Suppose one began this strategy at the beginning of the Obama administration, buying one share of each publicly traded company with an executive appointed by the president on February 6, 2009 to the President’s Economic Recovery Advisory Board. That would be UBS, GE, CAT, and ORCL. In the nearly two years since then (using the Monday February 7 closing prices, and using Yahoo! Finance historical price data that adjusts for splits and dividends), the gain would have been 145% — far outperforming the 52% return of the S&P 500 Index over the same period.
Suppose that later that year, you decided to buy one share of each American publicly traded company that had a top executive attend President Obama’s first state dinner at the White House, in honor of Prime Minister Singh of India. GE and CAT are on the list again, along with Honeywell, Pepsi (CEO Indra Nooyi) and Ethan Allen (ETH) CEO Farooq Kathwari.The return through day’s end February 7, 2011 would have been 46%, versus a 19% gain for the S&P 500 over the same period.
Or suppose you wanted to invest in the publicly traded companies whose executives President Obama appointed on July 7, 2010 to the President’s Export Council. Buying UPS, Boeing, Met Life, Disney, Pfizer, Dow Chemical, Ford, Verizon, United Airlines, ADM, and Xerox would have earned a 30% return over a period in which the S&P 500 gained 24%.
So far, it looks like a pretty good way of outperforming the market.
Some caveats: It doesn’t always work. The president invited executives of Morgan Stanley, Bank of America, and UBS to his May 19, 2010, state dinner for the president of Mexico. Those three companies, together, have since then underperformed the S&P 500 by about 7 percentage points.
Watch what they do, not what they say.
And don’t forget GM and Chrysler.
Yesterday, the House Oversight and Government Reform subcommittee held a hearing to look into executive compensation “at bailed-out firms that is egregiously out of line with what the President committed to the American people,” as Chairman Jim Jordan said. Jordan recalled that the President had committed “that top executives at firms that receive extraordinary help from U.S. tax payers will have their compensation capped at half a million dollars.” That clearly wasn’t the truth. Yesterday, we heard that GM CEO Dan Akerson, for example, made $9 million in 2012 and wanted $11.1 this year. Jordan said that “Treasury’s failure to protect tax payers is part of a disturbing pattern in which this administration makes promises to the public but the does not live up to them.” That’s not the only pattern that is disturbing.
Oh, and the “Sage of Omaha” Warren Buffett, crony capitalist par excellence.
If you’re an amoral person with political connections, it’s possible to make a lot of money.
Warren Buffett lined his pockets by making a government-subsidized investment in Goldman Sachs during the financial crisis.
The rest of us suffered and he got richer, but the left seems to be okay with that perverse form of redistribution because he supports class-warfare tax hikes. Sort of like buying an indulgence in the Middle Ages.
Hey, nice work if you can get it.
But Buffett may be an amateur compared to the crony capitalists at Citigroup.
The just-confirmed Treasury Secretary Jack Lew was given a huge bonus for leaving Citigroup several years ago. Did the company give Lew a bonus because they were happy to shed his $1.1 million salary after he presided over gigantic losses at the firm’s alternative investments division?
Don’t be silly. He was showered with money specifically for leaving the company to take a “high level position with the United States government.”
Again, nice work if you can get it.
But Lew’s loot is pocket change compared to the $115 million that former Clinton Treasury Secretary Robert Rubin received for helping to steer the company into financial collapse.
. . .
And let’s not forget what Goldman Sachs “earned” by “investing” in the previous Treasury Secretary, Tim Geithner.
Mockery, truculence, and minimalist living are best, then enjoy the decline. We also need a Revolving Door Tax (RDT) and to prosecute politicians and staff and their “family and friends” who profit from insider trading.
Tags: ADM, Alan Mulally, Andrew Liveris, Archer Daniels Midland, aristocracy, Bank of America, bctRYvUJKe4, Bill Ford, Bob Iger, Boeing, Brian Moynihan, Caterpillar, Charles Holliday, Chrysler, Citigroup, corporatism, crony capitalism, David Cote, Disney, Douglas Oberhelman, Dow Chemical, Ethan Allen, Farooq Kathwari, Ford, GE, General Motors, Geomagic, GM, gSgUENZ9O94, Honeywell, Ian Read, Indra Nooyi, Jack Lew, James Gorman, James McNerney, Jeff Fettig, Jeff Smisek, Jeffrey Immelt, Larry Ellison, Lowell McAdam, Met Life, Morgan Stanley, Oracle, Ozymandias, Patricia Woertz, Pepsi, Pfizer, Ping Fu, qiMaipssKt4, RDT, revolving door tax, Robert Rubin, Sergio Ermotti, SovALlOhSg8, Steven Kandarian, UBS, United Airlines, Ursula Burns, Verizon, Warren Buffett, Whirlpool, Xerox