Friday, January 30, 2009

The Disastrous Toll of Fictitious Value

The world of fictitious value mesmerizes itself by using a strange language. Financial operations refer to their "shop," as if they were standing over a workbench shaping metal or wood. Then they talk about "value creation."

What does that mean? Suppose I start a private equity company. People give me money to create value. I can create this value by taking over a company with very little of my own money. I need a banking accomplice to give me a bridge loan and a compliant company management. Then I can "unlock" the firm's value.

Once source of untapped value is a pension fund. Workers can be granted stock in the company as compensation. I can take over the firm, then use the pension fund to pay for some of the money I own. I can load the firm up with debt and charge it exorbitant fees. Now I have begun to "unlock" value.

Next, I can fire lots of workers, including those whose pension fund financed my takeover. By doing so, I can show that I am creating efficiencies. Once I cook the books to make the firm look profitable and sell it to a unsuspecting public.

Should anyone be surprised that many of these companies have been going bankrupt? And the workers whose pensions were central to the process? Well, they have some pretty paper.

Ain't capital wonderful?


Shag from Brookline said...

Sometimes capitalism is averse to truth.

Michael Perelman said...

Financialized capitalism depends on dreams of wealth rather than the real world.

TheTrucker said...

I know that I am a religious nut case about my Labor Theory of Cost. But the point I am trying to make is that value that is unearned should be equally distributed.

Land (natural resources) are not "earned" and my religious position is that such value cannot be "rightfully" privatized. The religious position is that "rightful private value comes into being in the hands of those who produce it". This merely assumes that "goods" (commodities) will have been created by human effort (labor).

Like land, money is not earned. There is no labor component. Money is created on a keyboard at the Federal Reserve. This lack of earning is the commonality between land and money. Where land is fixed and natural, money is infinite and totally unnatural. Yet the common trait remains -- unearned. Neither land nor money have costs.

This implies that the value of money must be controlled by a central government such that it can be used as a medium of exchange and a store off value while preventing the actual privatization (hoarding) of it. At present we have had a creation of money and the retention of that money in the hands of the very wealthy Republicans. They now seek to hoard the money and to thereby remain very rich forever. The more "depression" there is, the more valuable the money becomes. The money they have was "swindled" and not earned.
And the only redress is to make that money worth much less than it currently is. That should be the true objective of stimulus. If we also create some infrastructure then that would be a bonus.