Ben Stein on Business Today

A few days ago, a man from a slick new magazine about business sent me an e-mail. He wanted me to do a column for him about what was “new, hot and exciting – or terrible – in business today.” The only catch was that he did not want me to complain about the rich. This is what I sent him:

Here is what's new and hot and exciting (or terrible) in the world of money today:

The average wage of the American worker adjusted for inflation is lower than it was in 1973. The only way that Americans have been able to maintain their standard of living at the middle and lower ends has been to send more family members to work and to draw down savings or go into debt or both.

The most sought after jobs in the United States now are jobs in finance in which basically almost no money is raised for new steel mills or coal mines, but immense sums are raised to buy companies, recapitalize them -- which means pay the new owners immense special dividends and other payments for going to the trouble of taking over the company. This process results in fantastically well-paid investment bankers and private equity "financial engineers" and has no measurably beneficial effect on the economy generally. It does facilitate the making of ever younger millionaires and an ever more leveraged American corporate structure.

An entire new class of financial entity has been created called "the hedge fund." It is new not in the sense that there were not always funds that hedged by selling short or buying assets uncorrelated with other assets. The new part of this phenomenon is that it is based on a demonstrably false premise: that these entities can consistently outperform wide stock indexes. They have not and cannot, and yet their managers and employees for a time are paid stupendously well.

As with the private equity function, the main effect is to siphon money from productive enterprise into financial manipulation. Or, to put it another way, to siphon money from Main Street to Greenwich or Wall Street.

Starting MBA's at hedge funds, which are basically gaming enterprises, get paid multi-six figure sums. Starting teachers in the state of Florida get paid $28,000 a year.

Here's what else is new and exciting (or terrible) in money: there is real poverty among the soldiers who fight our wars. There are fist fights to get children into $30,000 a year kindergartens and pre-schools in the right neighborhoods in Manhattan. There are 40 million Americans without health care insurance. There are almost 40 million baby boomers with no savings for retirement. There is a long waiting list for Bentleys at the dealership in Beverly Hills.

There are soldiers' wives selling blood to buy toys for their kids. There is a man selling non-functioning body armor who threw a $10 million Bat Mitzvah for his daughter.

In Brentwood, where the houses start at $3 million, the housewives complain about what a terrible country America is. In Clinton, South Carolina, where the textile mill closed fifteen years ago and there is real hardship, the young men still believe in America and their fiancees at Presbyterian College wait for them while they fight in Iraq.

This is a small part of what's new and exciting (or terrible) in America in the world of money right now.

I never heard back from the man at the slick new business magazine.

http://www.spectator.org/dsp_article.asp?art_id=11130

I think there are two key problems, both of which are directly due to provisions of corporate law, that interfere with the markets’ control of executive comp. And they both relate to “captured” boards.

First, anti-takeover provisions allowed under most states’ corporate law entrench management to a ridiculous extent, particularly against hostile takeovers. Things such as staggered board terms and poison pills should be disallowed as a matter of public policy.

Second, shareholders, or groups of shareholders holding a de minimus amount of shares, say 5%, should be able to nominate directors for election whether management supports them or not – and should have access to all shareholder records to mount an effective proxy fight (this subpoint will become much less important with online proxies).

I don’t think this level of access is necessary for shareholder proposals on matters of running the company, but it is key for election of directors.

I think that if you had those reforms, executive comp problems would largely be solved.

One of the solutions I would like to see would be incentive compensation in the form of phantom-stock rights that tracked an index composed of competitors of a company – say 20 companies in the same industry (generally for conglomorates) and/or comparably sized.

The value would be based on beating that index, so a good CEO who found his sector getting hammered would still be rewarded, but a crappy CEO who was in a hot industry wouldn’t get a huge, unearned windfall.

Do the patriots realize the poverty their wounded heroes come back to?

Yea, the American Dream.

Ben Stein has always been on of my favorites. Very insigtful guy.

I’m not a big fan of taking away the free market manipulations that influence the benefits for CEOs, although somehow tying it to an index sounds very interesting. I am a fan of regulating the board functions and elimination of poison pill/bankruptcy protections.

I’ve personally been involved in having a large public company (over $1B in market cap) go belly up, restructure (leaving the shareholders/creditors holding the bag)keep the same management team and re-emerge allowing the board/senior management to become flush with a stock that now hovers in the $50 range. Makes me sick.

I think to biggest problem overlooked is the saving rate and credit consumption. If the US as a whole were viewed under the same microscope as a medium sized business is by lenders/inventors, we?d be out of business by now.

Good thread.

There is a whole lot wrong with corporate CEOs and Boards of Directors.

They make far too much money. I don’t know what the fix is but I really don’t see anyone trying.

I am glad my company is employee owned.

[quote]LIFTICVSMAXIMVS wrote:
Do the patriots realize the poverty their wounded heroes come back to?

Yea, the American Dream.[/quote]

I am a veteran and have come back to the greatest country in the world. I have made the most of every opportunity I have gotten, instead of making excuses and whining. Thank you for speaking on behalf of us, but we can speak for ourselves. I do appreciate you calling me a patriot though.

By the way, there is nothing like the American dream, I don’t think the Cuban dream quite touches it, I know it pains you to hear that, but it’s true, it’s damn true!

[quote]LIFTICVSMAXIMVS wrote:
Do the patriots realize the poverty their wounded heroes come back to?

Yea, the American Dream.[/quote]

If it is so bad go somewhere else. There are plenty of socialist and communist states that you can go to. We want stop you.

[quote]jumper wrote:
LIFTICVSMAXIMVS wrote:
Do the patriots realize the poverty their wounded heroes come back to?

Yea, the American Dream.

I am a veteran and have come back to the greatest country in the world.

[/quote]
Good for you. Now go visit some of your disabled brethren with no health care.

[quote]jumper wrote:
If it is so bad go somewhere else. There are plenty of socialist and communist states that you can go to. We want stop you. [/quote]

This is the lamest argument. If I leave then I have wasted all my time trying to change what I think needs to be fixed.

[quote]Zap Branigan wrote:
Good thread.

There is a whole lot wrong with corporate CEOs and Boards of Directors.

They make far too much money. I don’t know what the fix is but I really don’t see anyone trying.

I am glad my company is employee owned.[/quote]

I don’t see one coming for a while. There are a few politicians that would like to see change, but assholes like Ted Stevens shit bricks at any sign of reform. The fact is that corporations have far too much influence over politics these days.

If anyone wants a good read, checkout a book called Jennifer Government. Basically a “what if corporations ran everything” and has some crazy thoughts, like an employee being promoted but getting sued because his replacement wasn’t as efficient as he was!!