The Anonymous Analyst

Commenting on technology & communication issues around the world with focus on USA and India. Also ramblings on other subjects.

Monday, June 05, 2006

American Corporate Greed

I had posted earlier about this.

There is nothing new here. The capitalistic system promotes wealth accumulation and makes this the ultimate goal in life. I recently read Andy Kessler's book, Wall Street Meat, which is a pretty good expose of investment banking and the so-called expert analysts and it also shows how much influence (undeserved and unwarranted) they wield. They form an almost incestous nexus with company managements, high networth individuals, ultimately screwing the retail investor. Even if the retail investor does not invest directly, his mutual funds do and there too, at least in the US context, the winner is the MF Advisor, if one goes by the poor returns of the majority of the funds.

The recent option backdating is another example of this greed. Are CEOs really worth the hundreds of millions which they are given in salary, benefits and incentives? Why do they need so much, how much is really enough? $1 mn can give a monthly income of $5000, which can help maintain a decent lifestyle anywhere in the world (maybe most places except Tokyo, SFO etc). So how much is enough? Defintely not in the several hundred millions, but reduce it by a factor of 50 or so. Now the American business press is good at coming up new theories which support these obnoxious salaries, which they should since they gain from this.

The investing sage, Warren Buffett, is a major opponent of large pay packets for CEOs and his companies have not suffered for it - anyone who invested in Berkshire has only gained. Looks like all those who invested in Berkshire Hathaway have gained. Not sure if his employees have gained too.

But in the end, it is all about selling and making a fast buck, the emphasis being on 'fast'. It is this emphasis, which is the greatness of the capitalistic system as well as its bane. If you a smart (as in Brin, Gates, Dell, Cuban etc), you make lots of money. If you are dumb (as in the home flippers who got into the game in 2005, who got into the stock market in 99 end to 2000), you get burned. If you are in-between, you still make good. You make it really good, if you become a CEO or else you get fired as a CEO.

This is
a pretty good cover story from the Economist. These kind of inequalities will cause the re-rise of communism, in the long run.