by Allen Laudenslager & Bryan Neva
Rana Foroohar, who is the Global Business Columnist and an Associate Editor at the Financial Times, in her 2016 best-selling book Makers and Takers: The Rise of Finance and the Fall of American Business, makes a compelling case about why Capital Markets no longer support business, and that Finance and not just poor economic theory is mostly to blame for our current economic problems. She makes a point that from Presidents Carter through Obama, most Presidents have slowly deregulated the Financial Services sector of our economy. She also argues that the Dodd-Frank law, enacted after the 2008 financial meltdown, made everyone feel a bit better, but didn't really change the way the Big Banks and Wall Street operate due to so many loop-holes written into the law (mostly by their lobbyist). This is a prime example of crony capitalism hard at work! She argues that only by enacting new, stricter laws and regulations can America break the stranglehold the Big Banks and Wall Street have over our economy.
In a note in the 2017 paperback edition of the book, the Author writes:
President Trump has sold the American people on any number of falsehoods—that immigration is a leading cause of our economic woes, that globalization can be curbed and that tax cuts for the rich will lead to greater prosperity for all. Despite these untruths, the President’s unprecedented rise to power from political no man’s land was fueled by a fundamental grasp of our nation’s central economic dilemma: there is no room on Wall Street for Main Street.
The current economic “recovery” period, which has been underway since 2009, is a sham. GDP growth is anemic. Corporate debt and leverage are at record levels and stock price indices have shattered past peaks. Scarier still, the top 1 percent of Americans have captured 52% of real income growth since 2009. For the towering glass financial castles of the financial elite, yes, wealth has been restored. But for the vacant store fronts, the abandoned warehouses and condemned homes of the forgotten makers of the American economy, the nightmare of the 2008 financial crisis has never ended.
In 2008, the United States experienced the biggest market meltdown since the Great Depression. NOW, NEARLY A DECADE later, the key lessons of that financial crisis still remain unlearned—and our financial system is more vulnerable than ever. Many of us know that our government failed to fix the banking system after the subprime mortgage crisis. But what few of us realize is that the majority of the financial regulations promised after the 2008 meltdown were either not passed, or are in danger of being repealed by the Trump White House and a Congress bought and paid for by Wall Street.Dr. Mark Mizruchi, and Dr. Howard Kimeldorf, Sociology Professors from the University of Michigan, in their article published in 2005 in the Journal Political Power and Social Theory titled, “The Historical Context of Shareholder Value Capitalism” offer an explanation of the rise in prominence of Institutional Investors and Securities Analysts as a function of the changing political economy throughout the late 20th century. The crux of their argument is that their rise in prominence can be credited to three significant forces: organized labor, the state, and banks. The roles of these three forces were abdicated and can no longer keep corporate abuse in check.
We believe there are two fundamental issues here. First, despite what the Supreme Court has ruled, corporations are not people! (When was the last time you saw a corporate officer go to jail for the misdeeds of their company?) Rather they're an aggregation of people with many of the drawbacks of a mob and none of the strengths of an individual. Second, the concept that shareholder value is the single measure of a company’s success. It's not! Rather, stakeholder value is the measure of a company's success. (We've written in depth about this previously.) When the Big Banks, Wall Street, or Corporate America don't share the wealth with Main Street America, our economy as a whole suffers.
There is an old military aphorism, “The troops do what the commander checks,” used to remind military leaders they need to check that key things are being done by their troops. It can also illustrate why our economy is in such disarray. Government regulations are the "commander's checks" on business. And with corporate efforts to tailor those regulations to enhance the industry's profits, either the checks are not being done or the government is checking the wrong things. Government regulations are supposed to be intrusive! They're supposed to help ensure that business doesn't harm society as a whole - sometimes at the expense of profits.