It’s not as if we haven’t seen this movie before. The Big Short, Wolf of Wall Street, Wall Street, Wall Street: Money Never Sleeps — actually, they all generally boil-down to a sordid tale involving the moneyed classes ostensibly “working” on that most ballyhooed of streets.
So it comes as no surprise then that pundits, investors, and moneyed elites are decrying Apple’s recent investor letter citing the ongoing trade war with China, slowing sales due to extrinsic circumstances such as lack of consumer demand and consumers maintaining their devices beyond the desired life-cycle, and what the company is calling “Emerging Market Challenges” (likely coded language for China and other countries’ failure to prosecute manufacturers of copycat products for trademark infringement, intellectual property theft, and brazen corporate espionage). Coupled with the fact that Apple has swung from a peak market-cap valuation of one trillion US Dollars during Q3 2018 down to a soul-crushing two thirds of its valuation only 6 months later, it should be abundantly clear to anyone with two neurons to rub together that market valuations mean literally nothing.
To be clear: I’m not making an argument that this type of abrupt market valuation swing is good — a lot of ink has already been spilled on making this argument. I’d instead like to posit that this very public scenario is symptomatic of a deeper instability in the structures that exist to provide stability to publicly-traded companies and organizations.
Instead, let’s start with the literal elephant in the room: the fact is that since the Reagan era, deregulation of the stock market, loosening regulations on financial institutions, and relaxation of tax code have created a cataclysmic series of events in American and world history that we have only recently begun to critique and assess with any real honesty or humility.
In 1981, with then-President Ronald Reagan’s explicit approval (and fierce advocacy) of supply-side theory and a “laissez-faire” approach to economic regulation and policy (which is to say: as little as was palatable to voters and corporate backers), a forty-plus-year wave of deregulation and failure of oversight began. Termed “Reaganomics” by advocates and opponents alike, the strategy attempted to supplant existing Keynesian economic theory. Implementation via the United States Federal Reserve was concerned primarily with monetary policy at the Federal Reserve and fiscal policy within the Executive and Legislative branches of the United States government. By building on populist frustration from a prior decade-long period of “stagflation” where wages and growth remained low, unemployment remained statistically-high, and inflation either increased or remained high, the Reagan Administration was able to push for a large-scale tax-cut for the majority of taxpayers of around 25%. Barely a year later, with economic and budgetary pressures mounting, Reagan was forced to roll-back at least one third of those tax cuts.
While the tax-cuts were the primary focus of that particular thrust, the practice and implementation of supply-side economic theory (as often espoused by devout adherents to Milton Friedman) during the Reagan Administration gave economic and political shills the veneer of respectability they were so desperately looking for in order to publicly advocate for and enact policies of deregulation and austerity.
Austerity economics is an entirely different kettle of fish and many people have done a far better job of explaining it than I ever could. In all seriousness, reading those two books will do more to destroy your notions of Libertarianism and laissez-faire capitalist economic policy than any hackneyed diatribe of mine could ever accomplish.
Beginning in 1994, true deregulation became the proverbial hill that every
free-market fetishist would choose to plant their proverbial flags atop. That year, the Riegle-Neal Interstate Banking and Branching Efficiency Act would effectively eliminate restrictions on interstate banking and branching, allowing all manner of bank mergers and acquisitions across the United States. Following this, in 1996 the Federal Reserve re-interpreted the Glass-Steagall Act over several months, removing a significant number of the protections that the act provided in the first place. What followed was a bonanza of investment from banks unfettered and unmoored from any requirements to protect depositors’ money from investment (and eventual loss). Topping it all off, in 1999 the Gramm-Leach-Bliley Act formally repealed the Glass-Steagall Act — all the while, the Dot-Com Bubble was rapidly inflating and sucking up money faster than anyone could have believed.
Then came The Crashes.
Starting in March of 2000 the arguably blind and malicious Invisible Hand, doing what it did best, lost billions of dollars in technology, retailers, and telecommunications companies. Losses during this period decimated consumer confidence in banks and investment firms and eroded trust in government institutions and legal bodies. Additionally, several high-profile accounting scandals such as Enron in October 2001, Worldcom in June 2002, and Adelphia Communications Corporation the following July effectively re-shaped the public’s view of corporations and their effective position in the market in terms of priority.
In the interest of being as blunt as a two-by-four to the face, large portions of America should have been shaken wide-awake by the failures of the market and the alarmingly-criminal behavior of legislators and corporate executives. What should have been a cautionary tale was largely forgotten in the run-up to what would be referred to as the Housing Bubble and the Great Recession.
The so-called Housing Bubble was a confluence of several unbelievably destructive factors. Extremely lax financial regulation, a failure to preserve the protections created by the Glass-Steagall Act, and mortgage lenders (as well as home buyers) over-leveraging themselves in housing transactions all led to a crash that affected more than half of the United States and whose impact could be felt in markets across the world. Sub-prime or “alternative mortgages”, sold primarily by predatory lending organizations but also used extensively by more legitimate institutions, were insured and bundled into risky investment instruments called Collateral Debt Obligations or “CDOs”. These instruments were often rated “A” or “AAA” by financial and insurance institutions selling them among each other regardless of the actual state of the collateral or the debt being serviced far underneath those instruments by laypeople (homeowners attempting to pay their mortgages). By the time the dust settled in 2008, several sources indicated that the foreclosure rate in 2008 had shot up over 80% compared to 2006 and 2007.
Finally — The Great Recession.
Between the late 2000’s and the early 2010’s, several factors coalesced that helped to push a global economy that was already veering and gesticulating wildly into a near-free-fall. Trade imbalances between dozens of nations, ineffective (bordering on criminal) monetary policy, skyrocketing private debt levels, and increasingly lax lending standards among banks and investment firms effectively ripped the bandage from the surface of the still-festering wound: the Housing Bubble. Income inequality, student loan debt, and private household debt was revealed in several reports among financial institutions and government investigations to have been indicators of prior instability in the US economy, whose impact rippled across the rest of the world.
So, where are we now? It’s 2019. Buckle-up.
Tech companies are posting multi-billion-dollar valuations before the ink is even dry on IPO filing paperwork based on spurious products and service definitions. Financial institutions have, whether through lawyerly guile or regulatory acrobatics, been given tacit approval to take Grandma’s hard-earned savings and Social Security deposits and go play at the Wall Street Casino. Regulatory bodies have been defenestrated or remorselessly de-fanged to allow grifters, cheats, and their ilk to run roughshod over any semblance of fiduciary responsibility in public and private organizations.
And the cause célèbre? Shareholder profit above all else.
To that end, investment and venture capital have made their indelible mark on the state of our economy: no start-up or private company gets anywhere near that sweet, sweet Initial Public Offering (IPO) money (referenced un-ironically in most circles as an “exit”) without a nod and signatures affixed in the blood, sweat, and tears of vulnerable employees.
I’d like to think that the literary character Faust would be aghast.
What’s more troubling is what happens after the Initial Public Offering. Boards are “elected” by shareholders (most often with zero input from employees working for the aforementioned), governing documents are re-written (or discarded entirely), and the overall direction of the organization becomes something that is dictated from an unaccountable board of shareholders by virtue of that board’s specific and explicit power over the executive suite of that organization.
In the abstract, one could argue this is textbook capitalism. Contracts negotiated, money exchanged, labor reimbursed in exchange for services rendered and products created.
In the real world, the truth is much more complicated. Dozens (if not hundreds) of companies’ boards can share the same “members” by virtue of a venture capital fund having its hands in many different pies. Lone investors, whose personal net-worth may lie somewhere in the billions of US Dollars, may sit on the boards of a handful of companies. Regulators often turn a blind eye to conflicts of interest and are often courted by lobbyists from hundreds of different industries.
Most galling of all, this all happens with approval and encouragement from established political figures and policy. Regulations, conflict of interest, or even Emoluments Clause be-damned.
Which brings me to the primary point and the reason for this argument in the first place: the enshrining of the fallacy “shareholder value above all else” and the subsequent failures, fallout, and economic turmoil that has been borne thusly.
Savings banks, credit unions, and large-scale financial institutions (such as Wells Fargo, Bank of America, and others) now largely freed from regulatory “burdens” such as Glass-Steagall legislation and the Dodd–Frank Wall Street Reform and Consumer Protection Act, are free to gamble-away consumer deposit funds without a care in the world as any hedge-fund or private equity firm would do separately.
The Consumer Protection Financial Bureau has been largely made impotent by the actions of a sitting President whose future is in legal question and whose legal liabilities are long, storied, and many.
C-suite executives have been made to “adapt or die” (or in this case “adapt or be fired”, often with a tremendous Golden Parachute benefit in the millions of US Dollars) in the face of increased pressure to maximize shareholder profit quarter-over-quarter and year-over-year regardless of the needs of the organization (while completely ignoring the needs or situations of employees ground beneath the treads).
And finally, with all of the economic deregulation and hand-wringing/pearl-clutching in all quarters by economists, pundits, and demagogues alike, the working-, middle-, and professional-class are finally waking up to the fact that wages largely have not kept pace with productivity or inflation since the Carter Administration. Since 1979, wages have become decoupled from both productivity and inflation and have not re-adjusted or corrected since. Unemployment has “gone down” largely due to unemployed individuals’ benefits having run out (often those same people seeking employment have largely given-up). Health insurance is out of the reach of those most in need of it, people below the age of 40 have broadly lost hope that they will ever retire, own a home, or get married, and savings is a pipe-dream for anyone who isn’t already among even the moderately-wealthy.
Neither major political party has any plans on how to substantively address any of this.
Actually, most Republicans and hard-core laissez-faire capitalists have a plan: let them drown. It’s the plebeians’ fault for not knowing how to negotiate and for not having capital laid-down for them before they were old enough to know what the word “capital” meant. It couldn’t possibly be the fault of nouveau-riche investor class, the politicians and policies they support with their money and their back-room dealing, or their failure to understand that a system that ceases to operate well for the other 99% of the economy ceases to operate at all.
No, couldn’t be. Perish the thought.