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Molly Ivins: The Suicide of Capitalism

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Posted on Jul 17, 2006

By Molly Ivins

Editor’s note: In this column, Molly Ivins notes that when the Long Term Capital Management hedge fund went belly up in 1998, it nearly wrecked world markets. So why, she wonders, are we allowing well-connected Republicans to prevent the SEC from staving off the next catastrophe?


AUSTIN, Texas—In case you haven’t got anything else to worry about—like war in the Middle East, nuclear showdowns, global warming or Apocalypse Now—how about the suicide of capitalism?

Late last month, the U.S. Court of Appeals struck down a new rule by the Securities and Exchange Commission requiring mandatory registration with the SEC for most hedge funds. This may not strike you as the end of the world, but that’s because you’ve either forgotten what a hedge fund is or how much trouble the funds can get us into.

These investment pools for rich folks are now a $1.2-trillion industry (known to insiders, I am pleased to report, as “the hedge fund community”). Hedge funds are now beginning to be used by average investors and pension investors. Back in 1998, there was this little-bitty old hedge fund called Long Term Capital Management. Because hedge funds make high-risk bets, Long Term Capital got itself in so much trouble its collapse actually threatened to wreck world markets, and regulators had to step in to negotiate a $3.6-billion bailout. A similar fiasco at this point probably would break world markets.

The Securities and Exchange Commission under William Donaldson (appointed after the Enron mess) had tried to regulate hedge funds. But Christopher Cox, current SEC chairman and no friend of regulation, said he would consult other members of the administration about whether to appeal the ruling, which “came on the same day as disclosures,” reports The Washington Post, that the feds “are investigating Pequot Capital Management, Inc., a $7 billion hedge fund, for possible insider trading.” Nice timing, judges.

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This is the third time in less than a year the appeals court has blocked the SEC from acting beyond its authority. According to The Washington Post, “Former SEC member Harvey J. Goldschmid, who voted to approve the plan, yesterday urged regulators to appeal to the U.S. Supreme Court, members of Congress or both. In the Pequot case, a former SEC lawyer who worked on the Pequot investigation before being fired by the agency has written a letter to key members of the Senate banking and finance committees alleging that the SEC dropped the probe because of political pressure.” The lawyer said he was prevented by political pressure from interviewing a top Wall Street executive. Sources said the executive was John J. Mack, once chairman of Pequot and now chief executive of Morgan Stanley—and a major fundraiser for President Bush’s campaigns. I’d say the guy’s wired.

So what we have here is yet another case of ideological decision-making (“all government regulation is bad”) being applied despite the most obvious promptings of common sense. Come to think of it, that’s exactly the pattern this administration has followed with war in the Middle East, nuclear showdowns, global warming and Apocalypse Now.

Well, if the administration won’t do something, how about Congress? Reps. Barney Frank, Michael Capuano and Paul Kanjorski are co-sponsoring a bill to reverse the court decision—and to gather more information about how hedge funds affect the economy. This would seem a peppy response, except Congress seems quite determined to do nothing at all these days, having already beaten the record of the “do-nothing Congress” of the Truman era. As near as can be figured out, the Republican “game plan” is to do absolutely nothing between now and November. This doesn’t improve anyone’s opinion of the Republican Congress, but has the happy effect of dragging the Democrats down with them.


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By pauline warren, July 24, 2006 at 7:12 pm #
(Unregistered commenter)

Of course you can understand economics, you’re just “not supposed to.” Plus the fact that you’re too busy trying to keep soul and body together to spend much time trying. Proff. Domhoff has a pretty good web page, in fact the graph of todays division of wealth will blow you all away. So much for the Great Emancipator’s “trickel down theory.”
Story:
In the early eightys I work for Ticor Title and Insurance, in Newport Beach CA. It was a 102 hundred year old institution then. In the black, all buildings paid for, nation wide, great work force, CEO, and the VP made good salarys, but so did everyone else, and it paid dividends. A person by the name of Harold Geneen (one of the first corporate raders and his gang of thugs)took over. It took that man just 3 years to suck every dollar of equity out and put it into bankruptcy. He started by firing everyone who knew who, what, when, where and why, sold all the buildings and leased them back.
End of that story.
This was repeated with every corporation that was in the black for years, and made possible by the removal of the regrulations against such antics.
My question, Where did all that equity go from all the good corporations, and we did have some good ones you know.
I’m not sure but I think the crash of 29 was brought about by speculation on futures, and hedging, altho it might have had a different title then. These boys always know what each other are doing and why, and it is always for a dollar, nothing else. They don’t dance around the Boehemian Grove, and other such places for no reason. If our creditors call in the bonds, or just stop buying more, just what do you all think will happen. Even that silly Hondo person will be on the street. Molly is giving you all a
heads up.
It’s time tho for a little less talk and a little more do. I make my own postcards, they only require 24cents and people read them along the way. Wouldn’t it be fun to paper this administration, the bad corporations, the congress, the agencies, the pentagon in such a fashion? But be polite, or they will be ignored.
You are all smart, and much better educated than I will ever be. It wasn’t necessary for women to be “educated” when I went to school. We’ve come a long way since then, we musn’t let these ......people take us backwards, they will you know, if they can, and they really have grabed most of the money.
This is the first time I have written on a blog, hope I didn’t bore you all to death.

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By Geronimo, July 23, 2006 at 12:26 pm #
(Unregistered commenter)

What’s to know about economics?  Past-due, that’s what. Past-due that we the people change the world. And we can’t put this off any longer because it was 117 in the San Fernando Valley yesterday, the hottest day that’s ever been recorded there. Yes, it would be nice if all of us knew something about economics before we make our collective move, but there just isn’t enough time left before the mad dash to the only habitable places that’ll be left on earth, the North and the South Poles; unless, of course, we do something about global warming.  First things first!

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By Twilighttime, July 22, 2006 at 10:17 am #
(Unregistered commenter)

Any and all scams for the theft of pension funds will be aided and abetted—not stopped.

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By steve, July 21, 2006 at 1:03 pm #
(Unregistered commenter)

Once, long ago, there was the “IRON AGE”. Now we are in the “AGE of IRONY”. That the entire planet can act out the fulfillment of the prophesies of doom found in the christian AND muslim religions, by the cretins on both sides who are overjoyed to prove that THEIR prophesy is the RIGHT ONE,...well, it would be funny, if it wasn’t so nauseatingly stupid. The leaders during the Iron Age drug the whole world down into a prehistoric economic state with war, and these new fools appear bound and determined to do the same. The main horrifying difference is that the new fools are going to change the world climate so that a renaissance will be impossible. I see the future, and it ain’t good.

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By deb, July 21, 2006 at 9:24 am #
(Unregistered commenter)

Molly, if you do run for President, we’ll run you on the slogan “She can’t Say That, Can She?”  Takes care of all those Howard Dean Moments.

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By TruthPlease, July 21, 2006 at 3:50 am #
(Unregistered commenter)

One of the biggest problems in this nation of many problems is the ignorance about Economics by the ordinary american - The Economy affects us all - interest rates, jobs, wages, savings rates, pensions, social security, outsourcing, fraud…..how can anyone believe that knowledge of this subject isn’t crucial for our survival.  Yet schools rarely teach it anymore, except at the college level, and we’re taught by our messenger god, Television, that all we have to do is get another mortgage and clear it all up with a phone call—- don’t miss a payment if you lose your job - you’ll be one of the growing homeless. It’s as though the ability to think and plan ahead for financial independence has atrophied due to lack of use. Scary. Has anyone remembered lately about the “other Bush brother” Neil, and the Savings and Loan scandal of Daddy Bush’s administration - all conveniently swept under the rug. I know it’s ancient history but I want to know - Where’s Neil now?  Not only did GW outdo his Dad in killing Iraqi citizens to raise the family oil profits, but he has outdone his brother in dollars ripped of from all of us - wake up, folks!  It’s one thing for bad people to pull big scams on unsuspecting citizens, but they’re doing the same kind of things all over and no one seems to notice that it’s a bad re-run!  Can anyone tell me how to change the channel?  I’m tired of Horror flicks.  Keep on keepin’ on Molly - I’m a registered voter just waiting for you and Bill Maher to “rapture” us from this mess.

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By G. Anderson, July 21, 2006 at 2:24 am #
(Unregistered commenter)

Suicide for Capitalism?

In America capitalism has long been dead, few American corporations would ever risk it now.

America’s corporations decided long ago that to sell dreams of products, through commercials, was more profitable than actually selling the real advertized products themselves.

Corporate propaganda makes us believe we have capitalism, but that dream is just what were supposed to think.

Rather than actually do “business”, the corporations would rather dominate our government, and use it as a tool to prevent competition. Regulations thought to protect the consumer are instead used by the corporations, to stifle inovation and competition, while at the same time they narrow the market place to the head of a pin. 

Our corporations actually produce very little in the way of products, instead they have focused on producing only capital, that most ephemeral of all commodities, that can be erased by just one bad day on wall street.

So I suppose it’s nice to have the money to hedge your bets, and even nicer when the SEC remembers, who it’s supposed to work for, even if it gets shot down.

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By Ion C. Laskaris, July 20, 2006 at 12:09 am #
(Unregistered commenter)

Good for Molly! My ideal ticket for presidential choice in 2008 would be Ivins/Moyers as in “I’M bidin my time…” in a new party we might call
“CACA” - Citizens Against Capitalist Assholes.

Having voted for Nader twice, and Republican shit
never, and resolved not to vote for Demicans ever again at any level, my options are few indeed.
That is also true of the reported 79 million who
didn’t or couldn’t vote in 2004.

Any chance Truthdig could conduct a poll of its
readers for favorite regeneration tickets to get us started, now that DailyKos is resolved to asslick to Reid & the DLC til death do them part.

Who the hell is game for revolutionary change?
Ion C. Laskaris + iclrevusa.com

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By deb, July 19, 2006 at 7:27 pm #
(Unregistered commenter)

I have a friend who walked into the city the A-bomb was dropped on 1 hour after it exploded, want to see the pictures?  We are going to regret that George W. Bush is from Texas before this is over, and I for one already do!

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By Gregory Wonderwheel, July 19, 2006 at 6:16 pm #
(Unregistered commenter)

Capitalism regulates greed.
Socialism prohibits greed.

The fundamental question about any society’s economic system must address its relation to greed as a basic aspect of human consciousness. When I look at capitalism and socialism in this light it seems obvious that the basic goal of capitalism is to regulate greed while the aim of socialism is to prohibit greed.

Capitalism thus approves, authorizes, sanctions, and regulates greed in what it’s proponents see as socially acceptable ways. Capitalism says that greed as a motivator is a social utility and without it there would be no “progress” in human development.

Socialism, on the other hand, views greed as fundamentally flawed and denies any inherent social utility of greed. Instead of merely regulating greed so that the greedy can have free competition to acquire as much as possible, socialism sees that the desire, attempt, and actions to acquire property beyond what is actually needed for health and comfort are all causes of a multitude of social problems, not the least of which is the basic fact that, when property is finite, the more one person has the less is available to others.

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By Gerry, July 19, 2006 at 2:30 pm #
(Unregistered commenter)

For the really big capitalists their golden rule is: privatize the profits and socialize the losses.

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By Christy K. Sweet, July 18, 2006 at 10:28 pm #
(Unregistered commenter)

Hedge Smedge…
Molly Ivens is da BEST but we all know how corrupt and incompetent BushCo and how greedy, unsrupulous and connected WorldBushCO are.
Until we, the biggest consumers on the planet, Americans rein in our compulsive shopping, eating, wasting, etc, NOTHING will ever change.
You don’t need to understand professorial economics to make a change.
Cut these capitalist PIGS off at the knees. STOP SPENDING !
  Every THING I do , you do, we all do….makes a difference…a ripple becomes a wave that surges into a tidal change.
Get solar hot water or just recycle a bottle. Buy homeless a lunch. STOP consuming. Learn to eat happy animals or no animals at all. Stop eating junk food that is all packaging and shipping…
Barter when you can. See money as what it is, a tool of violence and control..

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By Christy K. Sweet, July 18, 2006 at 10:20 pm #
(Unregistered commenter)

Hedge Smedge…
Molly Ivens is da BEST but we all know how corrupt and incompetent BushCo and how greedy, unsrupulous and connected WorldBushCO is.
Until we, the biggest consumers on the planet, Americans rein in our compulsive shopping, eating, wasting, etc, NOTHING will ever change.
You don’t need to understand professorial economics to make a change.
Cut these capitalist PIGS off at the knees. STOP SPENDING !
  Every THING I do , you do, we all do….makes a difference…a ripple becomes a wave that surges into a tidal change.
Get solar hot water or just recycle a bottle. Buy homeless a lunch. STOP consuming. Learn to eat happy animals or no animals at all. Stop eating junk food that is all packaging and shipping…
Barter when you can. See money as what it is, a tool of violence and control..

Report this

By rachelle, July 18, 2006 at 5:09 pm #
(Unregistered commenter)

Hedge funds:

http://tinyurl.com/en7ru

Check the articles at the bottom… the subject defeats me too. I suspect, perhaps wrongly so, that a certain lack of ethics is a prerequisite for this kind of stock manipulation.

Thanks again, Molly!

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By paul kibble, July 18, 2006 at 3:47 pm #
(Unregistered commenter)

I’m still reeling in disbelief: is the irrepressible and irreplaceable Molly Ivins actually suggesting that Pequot Capital Management, Inc., and its possible partners in crime could represent Long Term Capital Management redux?

Is she likewise suggesting that the Bush administration has learned nothing from history?

Would that be “history” in the sense of “the past”?

Would that be “the past” in the sense of “those who do not remember the past are condemned to repeat it”?

Would it be fair to say that the current occupant of the Oval Office has a somewhat less than sophisticated grasp of the past, particularly in its American form?

Would it in fact be fair to say that my five-year-old son has a more sophisticated grasp of said American past—-not to mention the risks of unregulated free-market capitalism, or the dynamics of the global economy, or simple human decency—-than the current occupant of the Oval Office?

Oh, OK then: never mind.

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By brodix, July 18, 2006 at 2:26 pm #
(Unregistered commenter)

The old golden Rule; Those with the gold, rule.

The problem with running the economy like a game of Monopoly is that when one person does run everything, the game is over. In history this is usually when the peasants are surrounding the castle with torches and pitchforks.

One of the overlooked factors of virtual money is that its structure is still the property of the institution that has to guarantee its value. Essentially it is a form of public commons for economic exchange, rather then private property. It is much like the highway system is a public commons for transportation. As such, it should be governed for the greatest benefit of the greatest number.

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By felicity smith, July 18, 2006 at 1:56 pm #
(Unregistered commenter)

#14154 - you are so right. I am painfully ignorant when it comes to economics so the following is probably a stupid question. Is this true?  The bigger the hedge fund, the bigger the bail out?  Maybe the fat cat hedge- fundees are just hedging their bets that waiting until the hedge funds get bigger, involve more small investors and threaten to break world markets, the bail-out will have to be massive and the big guys can walk away richer than Midas?

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By albiegf13, July 18, 2006 at 12:32 pm #
(Unregistered commenter)

I’m happy to see that there is someone who understands this.  We rarely see these financial topics being discussed in these progressive sites… However, there is a much larger disgrace and that is the backdating of the options as they relate to executive pay…. Come on folks, we need to educate our audience… We need to cover the world of finance and the “community” that lurks in that world…. That’s what it’s all about, that’s where it all starts…  They are the gatekeepers at the Beltway…  It’s all about the money and what it buys in and out of the Beltway…  If you follow the money, you will catch the rats, the dark puppeteers…. It’s that simple…  I know, I was there….

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By deb christy, July 18, 2006 at 11:29 am #
(Unregistered commenter)

okay, here goes, Molly run for president instead of Hillary.  You would win Texas, Women’s vote, the voter’s who still have their Kerry/Edwards stickers on the car, ME!

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By SamSnedegar, July 18, 2006 at 10:22 am #
(Unregistered commenter)

what is this about? it oughtn’t take more than a paragraph to describe what a “hedge fund” is and how it works, and why it is capable of such herculean destruction.

oh I guess it’s just like stem cells: no one we know is smart enough to know what they ARE, let alone why messing with them is bad medicine.

in an ordinary democratic society I would recommend buying oil stocks today, but knowing as I do that the market is rigged by the big time players, I figure that they will fix it quickly so that even though profits skyrocket, oil stocks will remain firm so that there is no way the little guy can get a dime’s worth of profit out of today’s oil company gouges.

you’d think that with all that obscene profit making going on, the little investor would make some money, but the little guy is never going to get a piece of the action. what happens is that the oil companies “water down” the stock by issuing vast quantities of it with which to pay off crooked executives who “cash in” their stock options with fake stock like counterfeit money that is actually worthless, but devalues all the rest of the currency anyhow.

too bad.

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