Shut Out of the Aristocracy of Pull

Well, the Aristocracy has revealed a financial services firm who isn't on their list. CIT, a company I hadn't heard of before this week, looks like it will go under this week barring some big infusion of private capital. The firm is a big lender to small and medium-sized businesses. I didn't think much about it, until I saw this WSJ article: The CEO Left Off the Lifeboat. According to this article:

On June 17, Jeffrey Peek, chief executive officer of CIT Group Inc., spoke at a conference in the nation's capital where the keynote speakers were Federal Reserve chief Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair. His real mission there, Mr. Peek told others, was to raise his profile among Washington's movers and shakers.

This week his politicking foundered, as the U.S. spurned pleas for financial aid from CIT, one of the nation's largest lenders to small and midsize businesses.

Yep.

CIT had been trying for months to improve its connections in Washington. It spent close to $90,000 last year on lobbying, and $60,000 in the first quarter of 2009. It brought onto its board of directors former Congressman Christopher Shays, a Connecticut Republican.

One day I will conduct a study on the use of politicians on boards of directors. It's a really scary trend. And finally, there was a description of CIT's CEO that was one of those paragraphs that makes you double-take, and question you were reading a description of Jim Taggart, a description that is becoming far too ubiquitous:

He installed CIT's top brass in a glitzy office building on Manhattan's Fifth Avenue, eschewing the company's historical base near a big shopping mall in Livingston, N.J., and brought CIT into his high-society orbit as well. CIT became a sponsor of the New York City Opera. Its role as a donor to the Metropolitan Museum of Art may have helped Mr. Peek win a prestigious spot as a museum trustee in 2008.

Mr. Peek threw parties both at the office and in his home. At an Edwardian-themed fete at his home on Valentine's Day 2008, male guests donned top hats provided by the Peeks.

Mr. Peek is a "personable, likable guy" who showed incredible recall for names and personal details, said one former top CIT executive. When he arrived, Mr. Peek criticized CIT's culture, which he deemed too cautious, says the former executive. He hired a psychological-evaluation firm to "understand us," the executive recalled, and used the results to hire hundreds of new sales people who didn't fit the old CIT mold.

Not that there's anything wrong with supporting the opera, but you get the idea. I suppose it's a good development that the Powers have stopped finding "systemic risk" around every corner, but it could simply be that none of them had the requisite number of connections to this guy and his company. I don't really know what to read into this development. The whole situation is just kind of sad.

In other, better news, Mark Cuban is off the insider-trading hook. That's good.

A Couple Newsworthy Items

As part of the U.S.'s continuing endeavor to accumulate more czars than a Russian graveyard, His Royal Highness has appointed yet another overseer to make sure that we, the people, don't make too many decisions on our own. Yes, that's right, it's now time for the nation's first "Pay Czar" to take center stage. You heard me; a gentleman by the name of Kenneth Feinberg is going to be named to "interpret" the many conflicting TARP pay package restrictions that the foaming-at-the-mouth Congress passed in the last nine months. He's going to make sure that greedy capitalists who took (read: had foisted upon them) public money aren't taking too much home. What is too much, you ask? Shut up! Stop asking questions. Actually, I shouldn't call him a czar. The title being floated by the Administration is--I shit you not--"Special Master for Compensation." Honestly, sometimes I don't think they realize how often they parody themselves.

On a happier note, Amity Shlaes, the author of the magnificent Great Depression history, The Forgotten Man, has a good article on Bloomberg.com about Atlas Shrugged, its relevance, and its influence in today's culture. If you haven't read her book, stop what you're doing and go get it. Especially today, when the Obamanons appear dead-set on repeating the mistakes of the Roosevelt administration, it is crucial that people educate themselves on what really happened in the 1930s. In the Bloomberg article, Shlaes at one point compares Shwarzenegger to one of the politicians from Atlas. It's pretty dead-on.

20th Century Motor Company, Anyone?

Okay, so today, GM announced its plan for how it's going to emerge from its current dilemma. Here is what the brains trust has produced:

Under the plan, GM is asking the Treasury Department for an additional $11.6 billion in loans, on top of the $15.4 billion it has already received. It envisions giving the government at least half ownership of the company as payment for half of the loans.

At the same time, GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a United Auto Workers fund to cover retiree health care. That stock would leave the union owning about 39% of GM.

Um...what? So, if the Obamanoms own over half of the company (making it a government agency, right?) and the union owns 39%, what exactly is GM? Apparently 11% is left for whatever brain-dead shareholders want to go along for Mr. Car Czar's Wild Ride.

Believe it or not, I see this development as a good thing. GM abandoned maximizing shareholder value (the only valid purpose of a firm) as its guiding purpose long ago, in favor of a "stakeholder" position. This was not the shareholders' fault, really. The government has forced GM to comply with almost as many regulations as the financial industry must contend with. And labor makes sure that what little money GM makes from cars goes directly to them. This new arrangement simply makes explicit what has been the case for years.

In the same vein, Chrysler has now agreed to cede a majority share to the UAW, with big Gov taking a 10% stake. So, basically, the inmates are running the asylum. May U.S.G.M. and U.S. Chrysler get exactly what they've bought, I say.

As a side note, Ron Gettelfinger, the UAW's chief executive, is a graduate of the Indiana University School of Business. Thus, I'm sure he'll be more than capable of guiding these firms to success. Right? I guess it could be worse. He could be from Purdue.

What I want to know is, if the union is going to own Chrysler, and the government owns GM, who will the workers threaten to strike against?

Rand in the Journal

Dr. Yaron Brook, President and Executive Director of the Ayn Rand Institute had an op-ed printed in the WSJ today. Here's the link. It's a very good, very concise explanation of why Rand has become so popular recently, and what her major contributions are to the national discourse. I think Brook really gets it, more than his intellectual predecessors, that pushing an ethics of rational self-interest in the context of the current crisis is the way to go. As opposed to getting up in front of a group and talking about Objectivism as a whole, talk to businesspeople and related audiences about what they know: their own interests. Then, when they're ripe, you can talk about metaphysics and the rest.

In Times of Economic Peril, Invest in the Rights to Atlas Shrugged

A delightful little article in this week's Economist discusses a phenomenon obsessive Objectivists like me have already noticed: sales of Atlas Shrugged have been increasing steadily, spiking with each new government intervention. This month, Atlas climbed to 33rd on Amazon's bestseller list, briefly surpassing Obama's The Audacity of Hope. I suppose this is the one bright spot about the current crisis. Since we knew it would happen one day, at least this time the American people are armed with a moral defense of capitalism they lacked the last time the economy took a nosedive and a charismatic leader tried to shove a bunch of government programs and economic hurdles down their throats.

Now is an excellent opportunity to take advantage of the attention on Rand and Objectivism and write in to radio shows and newspapers, extolling the Objectivist perspective in your area of interest. I plan to submit a guest op-ed to Indiana's student paper next month.

In other book news, Rainelle and I went to the local library's used book sale yesterday, and in addition to copies of Friedman's There's No Such Thing as a Free Lunch and P.J. O'Rourke's Eat the Rich, I found a good-condition, hardcover copy of George Reisman's epic economics tome, Capitalism, for $1. This book retails for $95. I cannot express how excited I am.

What Happens When You Let Jim Taggart Run Your Company

As I sat in my Management class this morning, wavering from side to side and staring out of focus due to lack of coffee (I was running late) I glanced down at my Wall Street Journal and at the beginning of this front page article, I spied these nauseating sentences:

In a recent phone call with a senior government official, Citigroup Inc. Chief Executive Vikram Pandit revealed who's on top in the new world of American finance.

"Don't give up on us," Mr. Pandit said, pleading with the official not to push out top management. "Give us a chance to execute."

If I might channel John Stossel for a moment, "Give me a break!" Really, Pandit? "Don't give up on us"? "Give us a chance"? What a little whiny bitch. Is this what business in America has become? Apparently, if you accept the Journal's estimation in the first paragraph. Reading about Citigroup or GM or Chrysler, I can just hear the voices of Jim Taggart or Orren Boyle screeching from the pages of Atlas Shrugged: "Give us a chance!" "It's not fair!" "We need a chance to succeed too!"

What, I wonder, would giving up on Citigroup constitute exactly? Letting them fail? Not a terrible proposition. Breaking them up into little Citipieces? An even better idea. It seems that Pandit, on behalf of his shareholders, is intent on perpetuating the illusion that Citi is still a private enterprise. News flash: it isn't. Honestly, and yes this is me saying this, I would prefer all out nationalization of Citi to this farcical capital injection Beckett-esque production. Maintaining a nominally private institution just to serve as a vehicle for politicians' policy fantasies is worse than the government taking over a bank. The government takes over insolvent banks and turns them over all the time. On the other hand, the former situation is exactly what transpired with Fannie Mae and Freddie Mac. And look how well that turned out.

Bottom line: If you can't run a successful (aka profitable) business on your own without begging feckless bureaucrats to "give us a chance," then you do not deserve to be in business. End of story. Pathetic displays like this one only perpetuate the government and the public's perception that businessmen are bungling idiots (don't get me wrong, some are). Meanwhile, the remaining capitalist heroes are too busy attempting to navigate the socialist waters to stand up for basic principles. That's our job.

Chicago Derivative Party?

Some acquaintances posted this video on facebook, and I thought it mighty appropriate to link to it here. I can't show the video on my site, but I highly encourage everyone to watch it. It's only about 5 minutes long. So go watch the video. I'll wait...Go!

Assuming you've watched the video, I'll continue. The sight of a trading floor full of capitalists shouting their disapproval of Obama's attempt to socialize home ownership just warms my heart. Frankly, I think the idea of a Chicago Tea Party, complete with tossing worthless derivative securities into Lake Michigan, is a fabulous idea, and I'm ready to hop in the car right now if they try it. It's good to know that out there, in the financial trenches, capitalists who love freedom and love money still exist, and they are PISSED OFF.

This raises an interesting issue, which is that as mad as we are about the rising tide of collectivism in this country, we do not go on strike (Colorado isn't the inviting wilderness safe from government snooping that it used to be) and we don't fight back. Sure we write op-eds and letters to the editors of major newspapers, but those fall on deaf ears, save for a few exceptions. The reason for this is that as bad as things are, our lives are still better (or at least more stable) than they would be if the country were hurled into all-out revolt. The question then becomes "How much is enough?" How much will the general populace (Objectivists alone would stage a pretty pathetic revolution) put up with before they fight back? Where is the breaking point?

I must admit, it would take a lot for me to want to set aside my long-term personal and professional plans and pick up a gun. It would, in fact, require that those plans become no longer viable. For some people wanting to go into medicine, that point might be fast approaching. For me, the intellectual, I think I have time. Still, with the way our country is progressing, it might not actually be that long.

Happy Birthday Ayn

I often wonder in these trying times how Ayn Rand would comment on the current goings on in business and politics. I imagine something north of a conniption fit, infused with flawless logical rhetoric, of course. Since Mama Bear is not around for us to pick her brain (she died in 1982, for those of you keeping score) and since today marks the 104th anniversary of her birth, I thought I would offer some pertinent bits of her timeless wisdom, taken from this blog's namesake, Francisco's Money Speech. Here are a few to settle your stomach while you're digesting the latest news out of Washington:

It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow....Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money.

Money is made before it can be looted or mooched--made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can't consume more than he has produced.

Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money? (I dedicate this quote to Citibank, AIG, GM, Ford, Chrysler, and all the rest of the boys)

Men who have no courage, price, of self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich--will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt--and of his life, as he deserves. (Emphasis added, in case Warren Buffett is reading.)

And finally, a quote that all conscientious individuals should remember, both for its eloquence and for its chilling accuracy:

Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.

Too many of these conditions are becoming reality. Congress is threatening to force banks to lend, even though no one wants to borrow. Businesses can't move without asking for permission. It is important never to forget these words of wisdom, lest they become prophetic. This February 2nd, go pick up your copy of Atlas Shrugged, or buy one for a friend, and flip through the pages, just for your own benefit. In trying times such as ours, art can give us the resolve to march on, no matter how bleak the future might look.

Happy Birthday Ayn, and thanks.

P.S.: Feel free to post your favorite money speech excerpt if I've failed to include it.