Capitalism Does Not Always Work, Witness Richard Fuld

Capitalism and free markets do not always work.  Witness the recent financial melt down.  Over stretched homeowners lose their shirts when energy prices became the proverbial straw on their back.  But, the hedge fund operators who made leveraged bets on the home owner walked away with gold parachutes.  Lehman Brothers CEO, Richard Fuld, made $480 million..  Now I thought capitalism was supposed to reward those that do a good job.  Obviously, since his company crashed and both shareholders and homeowners were damaged by his leadership, he did a sucky job.  Walking away with that much dough when his judgment cost others their homes and livelihood should make him feel bad.  It should have made him want to work with homeowners in trying to sort out which ones with a little help could have been saved.  But, guess what, I bet he didn't even try.

It is simple, being apart of the good old boy club that runs American companies has little to do with being good.  There are hundreds of smarter and more capable people in every single company than there are slots in good old boy club.  So, how do you get in.  It is more like getting into a fraternity than getting a job.  In short, others in the club have to let you in.  You are tested first.  You have to show that you can make money in your own right, take one for the team, and sometimes  do the dirty work -- like laying people off after the good old boy club screws up.

In capitalism, money flows in a circle.  Plants makes stuff, pay workers, workers buy stuff.  When those at the top, or anywhere else, suck too much money out of the system, by say diverting money to fat salaries that are not earned, see above, then workers don't have enough money to buy all the stuff from the factory and then the factory has to be slowed down and workers get laid off, etc.  Downward spiral.

Emotions have always be part of the market place.  But, markets have been always been protected by a lack of information and different information flowing to everyone.  But, now we have emotions on steroids, its called the internet.  Global panic in one day, in one hour is possible.  In process control, it is like a feedback loop with the gain turned up to high -- look it up.  It means panic feeds panic.  Like when you get feedback with you call into a radio station and then stand in front of the radio and talk.  Try it.  That is what is happening  now in the market place.

So now, our wise leaders, are going to get us out of all the problems by spending money.  Spending money we don't have, which is very similar to how we got into this problem, by spending money we, as a people and a country, did not have.  We borrowed it, either from a bank, or China, etc.  So now, our leaders tell us, we are going to get out of the problems by spending more money we don't have.  And where did they spend the first pile of money, to the broke homeowners.  Nope, to guys like Richard Fuld.  That makes me feel better, I am sure they care.

Anyway, perhaps you are starting to see that all is not okay at the big corral called capitalism, or free trade.  Well, really this is not free trade or capitalism.  What we are seeing here is another example of an age old principle, those with Power abuse their power and hold onto it.  The vehicle of that power is often money as it is now, but that will be another blog.