The New Capitalism

It has been said that Capitalism, as an economic system, is not up to the challenges which face humanity in the 21^st Century; that due to the emphasis on delivering a product at minimal costs to maximize profits do not take environmental and other factors into account.  There is a cry out for more government interference into the business community to solve the problems of the environment and of ethical matters in general.  I argue that government regulation is not only unnecessary but that it is also an impediment to solving the problems facing us today; business being monitored by a free press in an educated society is totally sufficient for solving these problems.  This is because government regulation essentially involves forcing someone to comply with the governments edicts rather than using true leadership skills to achieve ones goals.

When I was a boy, my grandfather had given me a book about Abraham Lincoln.  I read that book over and over again; I was amazed by how this man who was born in a log cabin became president of the United States.  In the end I cried when Lincoln was shot and killed.  I also wondered what happened to all of the Abraham Lincolns.  I had been told that today if you were born poor, you stayed poor and could possibly even have to become a criminal in order to survive.  The friends that I grew up with were all middle class as were there families.  What had happened to the American Dream?

Buckminster Fuller (1895 – 1983) was an American architect, inventor and philosopher. When Fuller was a young man, he had experienced a personal tragedy where his young daughter had died of an illness. Fuller blamed himself, became despondent and was about to attempt suicide. Instead, with nothing left to loose, he embarked on a lifelong study to see how much of a difference one man could make for humanity.  He then went on to create inventions and philosophies such as the Geophasic Dome, Dymaxian Car and Spaceship Earth. In 1980, Fuller had stated, “For the first time in history it is now possible to take care of everybody at a higher standard of living than any have ever known. Only ten years ago the ‘more with less’ technology reached the point where this could be done. All humanity now has the option of becoming enduringly successful.” (Fuller, 1980, http://www.worldtrans.org)  In 1983, The Buckminster Fuller Institute was established to continue his work.   “The Buckminster Fuller Institute is dedicated to accelerating the development and deployment of solutions which radically advance human well being and the health of our planet’s ecosystems. We aim to deeply influence the ascendance of a new generation of design-science pioneers who are leading the creation of an abundant and restorative world economy that benefits all humanity.” (www.bft.org)

The United States of America, in 2003, had begun an undeclared war on Sadam Hussein’s, Iraq.  At that time I had begun an inquiry as to how humanity could eliminate was as a solution to its problems; we have used it since the beginning of time and it did not make sense to me.  I was wondering what we could do to stop war.  One night I woke up in the middle of the night with a thought blaring through my head, “It’s bad business to kill your customers,  they can’t buy anything from you if they are dead!”  I remembered how Ronald Reagan, on one hand called the Soviet Union an Evil Empire but on the other hand traded with them to the point of having KFC and McDonalds in Red Square.  The Soviet Union then collapsed and the cold war ended without a shot being fired between the United States and the Soviet Union.  My own conclusion to this is that world trade leads to world peace.

Key to a system of ethics is if it is rights based, utilitarian based or rights based on utilitarian principles.  Utilitarianism is doing what works best for the most number of people.

Another point that is very important to me is that people have the freedom of choice rather than being forced into taking a particular action.  An example of being forced into a particular action is how our government handles victimless crimes.  They do not give someone the choice to do drugs or not, they try to force people to not take drugs by incarcerating people who use them.  It doesn’t matter that the act of taking drugs itself hurts no one but the person taking the drugs, The Government would rather bear the costs of throwing them into jail or forcing them to go into rehabilitation then it would to provide the educational materials and let people decide for themselves.

Economics has been defined as, “The study of choice under conditions of scarcity.” (123helpme.com, 2009)  This definition limits are thinking to scarcities but what if we took on the viewpoint that Fuller suggests that there is plenty of stuff to go around for everyone; the technology is available to harness the sun and wind for energy.  With modern hydroponic technology you don’t even need to grow food.  The internet allows us to communicate with someone in Mali just as easily as you can communicate with someone in Montana!  In the twenty first century, no one need go hungry! So what part do businesses have in taking   advantage of these new technologies so that they are a part of changing the world along with making a difference?  That is what I call, The New Capitalism.

To best understand the New Capitalism, it is best to understand the difference between mercantilism, capitalism and socialism.  Basically, in Socialism the mantra is “From each according to his ability, to each according to his needs.” This phrase was coined by Karl Marx in his book Das Kapital published in 1867.  Das Kapital is the treatise on communism, a philosophy that was followed by mass murderers such as Joseph Stalin, Mao Tze Tung and Pol Pot to enslave millions or kill millions of people in Asia, Russia and Eastern Europe.  The problem with communism is that when you don’t reward production there is no reason for anyone to produce anything, so in order to get anything done, you have to use threats and force so people will do their job.  If one excels at their job they just get according to their need, if one does lousy at their job they still just get according to their need so someone has to say, “Do your job or I will blow your head off;” something that the Stalin, Mao and Pol Pot regimes said and actually did to millions of people.

Capitalism, on the other hand, is an economic system that was developed by Adam Smith in the late eighteenth century.  Until Smith came along, the government licensed all business activities for the good of the government.  This system was known as mercantilism, per Smith, mercantilism was a system whereby the economy operated for the good of the government. (LaHaye 2008)  I would say that the system could best be described as, “from each according to his ability, to . . . the Government!”  Some would argue that mercantilism went out of vogue in the nineteenth century, I disagree with that.  If bailing out financial institutions and car manufacturers and having them owned by the government such as AIG, Chrysler and General Motors.  The reason the Government bailed them out was because of  the greater good of the country; those businesses were “too big to fail.”  That viewpoint is classic mercantilism.  Furthermore, since ours is a government run for, by and of the people, our twenty first century mercantilism is in fact, socialism, and if allowed to continue and expand will have the same results as socialism since force and intimidation will need to be used in order to get anything done.

Capitalism is an economic system where those who do the produce items that are of value to others are rewarded for their actions by the unseen hand of the market.  The items have to be of value that others will exchange for.  Today, you could toil day and night making buggies but the only ones who will buy them are a handful of Amish in Pennsylvania.  For the capitalist economic system to work there needs to be numerous buyers and sellers who can freely enter and leave the market, who all knows what, each other are doing.  The products in the market must be similar to each other; the buyers cover the sellers costs they all maximize their utility and there is no government regulation.  Recently, Capitalism has been getting a bad name; people are blaming the current economic crises on insufficient government regulation; I’ll argue that there was in fact, too much Government Regulation.

Maurice (Hank) Greenberg had been the CEO of insurance company AIG for over 40 years; he had built the company from a small insurance company into an insurance giant.  In 2005, New York State Attorney General Elliot Spitzer told the AIG Board that he would be indicting Greenberg and would also indict the board members if they did not fire Greenberg.  Greenberg was fired and it was his successor who allowed the company to get involved with the credit default swaps which in 2008 would bring down the company along with the entire finance industry.  Spitzer did not ever indict Greenberg nor anyone else from AIG.  In 2008, Spitzer was forced to resign as the Government of New York State as the FBI had caught him patronizing high priced call girls.

What some people do not realize is that the United States of America has more of a mercantile economy than a capitalist economy. There are three car manufacturers, that is not numerous sellers.  When someone starts a business, they can’t just open shop and start doing business; they have a bunch of legal and government paperwork to do.  All buyers and sellers are not utility maximizers since a good percentage of the profits go towards taxes; businesses are even forced to take United States Currency, which isn’t even really money but a promise from the United States Government to pay you money.  Capitalism has never actually been tried in the United States as the government has always somehow had regulations regarding business.

The New Capitalism has to do with placing long term profits on par with short term profits.  If everyone in New York City were to die from a tidal wave caused by global warming, that is bad for business.  If we underpay our workers and they have no money to buy anything that is bad for business.  If we make cars that have exploding gas caps, people will buy cars from your competitor, bad for business!  It can be argued that Adam Smith, the founder of modern capitalism, had the viewpoint that capitalism could transform the world.  James Alvey (1998) argued that Smith did have such a view of the world and that his system would satisfy all the needs of human nature.

A population that is educated, especially in economics and a free press are essential to the success of The New Capitalism.  With proper economic education, people would not be surprised when the value of their houses goes down because they would know about the cycles of the economy.  With this knowledge they might not take actions like taking Adjustable Rate Mortgages on their homes, even if the chairman of the Federal Reserve Board says it is OK and they wouldn’t be expecting a bailout from the government when their risk failed.  With a free and aggressive press, companies engaging in unethical behavior would be found out and the public could buy someplace else.  Bernie Madoff was not brought down by any government agency but rather by his sons.  Richard Nixon was brought down through the efforts of Woodward and Bernstein and the staff of the Washington Post,  Congress then took action on their initiative.

Another criticism of Capitalism is that it concerns itself with profits and taking care of the environment may not be profitable.  That is true only when the only thing that matters to people is making money and saving money.  If this were true, however a differentiation strategy would not work.  A differentiation strategy is when you market a product as to its unique features rather than its low cost. (http://www.1000ventures.com/business_guide/differentiation_strategy.html)  If customers want products that are good for the environment and do not cause global warming they will pay for them, it is up to the companies selling the products to show people why the feature is important.  In this method, you are allowing people a choice and giving them freedom rather than forcing the product on them, which is what essentially is happening with government regulation.  Another question one might ask is what about discrimination?  Let’s say you have a company that discriminates against a segment of the population.  With a free press, this would be reported and that segment of the population, along with likeminded people could always protest and arrange boycotts against those companies that do discriminate.

The basics of The New Capitalism are firstly a paradigm of abundance rather than scarcity; with the technology of the twenty first century there are plenty of resources to go around to everyone.   Also, there has not really been a capitalistic economy in the United States of America, at best we have a liberal form of mercantilism and with the economic bailouts, which were begun by former Republican President George W. Bush and continued under current Democratic President Barack Obama, that have been prevalent since October 2008, and we, along with both political parties, are actually moving towards socialism.  Capitalism, when you equalize long term and short term gain provides the most freedom and choice to society while allowing the little guy or the big guy to succeed or to fail.  A free press and a top notch educational system are the way to ensure ethical businesses in a capitalistic society without the slavery of socialism impinging upon all of our rights.  I have shown that by having Free Ethical Enterprises we can have a society that operates on a paradigm of abundance rather than a scarcity can bring us a society where poverty is non-existent and everyone has the opportunity to excel.  How can we know whether capitalism is up to the challenges of the twenty first century when we have in fact never actually tried it?  Yes, the American Dream is still possible and The New Capitalism is a way to achievement.

References

123HelpMe.com (July 09) Economics, Scarcity and Choice downloaded 7/20/09 from

www.123helpme.com

Alvey, James E.  (1998). Adam Smith’s higher vision of capitalism. Journal of Economic

Issues, 32(2), 441-448.  Retrieved July 20, 2009, from ABI/INFORM Global.

(Document ID: 30719311).

Ashford University. (2008) Student Guide PHI 445 Personal and Organizational Ethics.

Retrieved from   http://ashford.blackboard.com/

@EF6FEDF2E9049720EC1F5188C78BA997/

courses/1/OMJ0922B/content/_4702695_1/PHI445.Online.SG.2008.V4.1103.dkr.pdf.

Fuller, B (1971) Operating Manual for Spaceship Earth New York, Penguin

Kotelnikov, Vadim Differentiation, retrieved from http://www.1000ventures.com/business_guide

LaHaye, Laura. “Mercantilism.” The Concise Encyclopedia of Economics. 2008. Library of

Economics and Liberty. Retrieved July 20, 2009 from the World Wide Web:

http://www.econlib.org/library/Enc/Mercantilism.html

Levine, Jeffrey (2009) AIG, A Case Study of Government Intervention Out of Control. The

Creation of Affluence Blog, retrieved July 20, 2009 from

http://jeffrey1959.wordpress.com/2009/04/15/aig-a-case-study-of-government-

intervention-out-of-control/

Marx, K (1887) Das Kapital Moscow, Russia, Progress Publishers retrieved from scribd.com,

July 20, 2009

www.bfi.org

www.worldtrans.org

My Afternoon at the Money Factory

The other afternoon, my wife, my father in law and I visited the Bureau of Engraving and Printing, aka  The Money Factory, in Fort Worth Texas. I learned two interesting lessons about money from taking the tour:

1) When I was a boy, one of my father’s favorite sayings was, “Money does not grow on trees.” Being the wise-ass that I was I would answer, “Yes, it does, Dad, money is made out of paper and paper comes from trees!” Dad would tell me that no one likes a wise ass and to emphasize his point he would smack me one across the mouth! Well, dad was right! I learned that the paper that they print money on is made out of cotton and other fibrous materials, not trees! Dad, if you keep up with this blog from the afterlife, please accept my apologies!

2) On the tour, I saw them printing thousands and thousands of dollar bills, ( no they did not give out any samples!)  One pallet of five dollar bills is over 5 million dollars. The tour guide told us that the presses run through three shifts. it was totally amazing!

My point, first after all these years I am still a smart ass and second, I cant figure why we think money is scarce after how much money they print? There is an abundance of money out there, go out and get your share!

Gay Pride Day: Personal and Economic Freedoms

Those of you who keep up with my blog may know, I do not believe in Government Regulation. What some of you may not understand is that this includes our personal lives as well as in business. It is just as bad for the government to tell me I can’t marry another man as it is for them to tell me I can’t short sell the stock of a financial company. The government is there to keep the playing field free of derbis so we can freely negotiate with each other the rules of the game. I have been happily married to a woman for close to 11 years. With this in mind, on Gay Pride Day, I urge the people of California to get rid of Proposition 8 by any peaceful means possible. I urge the people of the world to accept the fact that love can be genderless and if you can not accept this to stop imposing your view on others and just not attend any same sex weddings. You don’t have to go to their house for barbeque on Sunday afternoon! Respect their rights to love whomever they please and they will respect your right to not like them.

The Sequel to Fiddler on the Roof

The musical,  Fiddler on the Roof, is about a man Tevye being forced to confront changes in the institution of Love and Marriage.  First, he has to deal with his older daughter wanting to marry the man she loves, not the man he picked for her.   Then he has to deal with his second daughter marrying a Marxist Rebel despite what he thinks.  Then he has to deal with his third daughter marrying a gentile; he has a hard time dealing with that but at the end, he tells the couple that G-d should be with them.

On Tuesday, May 25, 2008 at 10:00 AM, the California Supreme Court will be dealing with the same issues that Tevye dealt them;  on one hand, the people voted to ban same-sex marrage, but on the other hand who is anyone to tell anyone else who to marry.

Personally,  Just like Tevye could not understand marrying for love, I can’t understand same sex marriage.  To my friends in same sex relationships, don’t get me wrong, it’s not that I don’t support you, I just don’t understand and don’t think I will ever understand, BUT WHAT RIGHT DOES THAT GIVE ME TO TELL ANYONE ELSE WHO TO BE IN A RELATIONSHIP WITH AND WHAT RIGHT DOES THAT GIVE ME TO TELL ANYONE WHO TO LOVE!

If same sex marriage bugs someone that much, dont go to the wedding and don’t buy a wedding gift.  I am hoping that the CA Supreme Court thows out Proposition 8 this Tuesday and when it does, the fiddler will still be playing.

Alan Greenspan: Architect of a Financial Colapse part I

In February of 2004, Alan Greenspan, then chairman of the Federal Reserve Board, gave a speech before the Credit Union National Association where he strongly recommended that Americans get ARM Mortgages.  He said that Americans would save thousands in interest compared with traditional thirty year fixed loans.  I remember, at the time, wondering why the chairman of the Federal Reserve would be interested in what type of mortgages people were getting.

The Federal Reserve Board (Fed) was an entitity created after a recession (then called a Panic) in the begining years of the 20th century.  Although the members of the Fed are chosen to serve by the President with the advice and consent of Congress and serve 4 year terms, it is essentially a private company who controls America’s money supply;  after the members are chosen,  The President can not fire them and if he wants to get rid of one of them, he has to wait until the end of their term.  Greenspan was first chosen by President Reagan in 1987 as chairman and Stayed on through Bush I, Clinton and Bush II, when he retired in 2006.  During that time period there was the Dot Com Bubble followed by the dot bomb, the Real Estate Bubble and the beginings of the burst (to be continued)

AIG: A Case Study of Government Intervention Out of Control

The following is a paper I wrote for a class I took at an on-line university:

In 1962, Maurice “Hank” Greenburg became the head of a struggling insurance company, American International Group. By the time Greenburg was forced to resign he had transformed the company into the largest Insurance Company in the world. Only three years after his resignation, in 2008, that company was at the eye of a financial storm that would shake the world economy, requiring billions of “Bail-Out Money” from the government. Although it was its financial services division that caused the mess, the ramifications have occurred throughout the company. I will explore the changes that happened, the persons involved and the ramifications of those changes. I will also show how sometimes change in an organization is not predictable and thus Richard Axelrod’s engagement paradigm not appropriate in dealing with unplanned, unpredictable change.

There is an old fable about the Emperor’s New Clothes. In this fable, the Emperor of a kingdom commissions some tailors to make him a new set of clothes. The tailors, who are con artists, tell him that the clothes are special because the clothes were invisible to all those but the intelligent so no one wanted to admit that they saw nothing. One day this kid yells out, “Why is the Emperor naked?” and the whole scam fell apart. I met that kid in 2006 when I was a life insurance agent attending a conference being held by a American General Life Insurance Company, a subsidiary of AIG and during lunch this older agent was rambling on about how real estate prices could not continue to rise and when the bubble burst in the housing market you would start seeing defaults in all the subprime mortgages that were being written. He said that the economy was so leveraged into those mortgages that the effect would be like dominos falling causing the worst financial crises since the great depression. Although we were all being polite, as soon as this guy left the room everybody snickered at him. Two years later, the reason that the government had to bail out AIG was that, in a nut shell, AIG had insured those mortgages. Is this something that a man like Hank Greenburg would consider to be a smart business move?

Elliot Spitzer was the attorney general for the state of New York from 1999 until he was elected Governor of in 2006 when he was elected largely on his reputation for cleaning up Wall Street. The Dot Bomb, a situation where there was a bubble in the NASDAQ in tech stocks due to a proliferation of internet companies had occurred. When the bubble burst, Spitzer, who unbeknownst at the time had a penchant for high priced call girls, had decided to use the dot bomb for his political gain by investigating brokers and companies that he felt should pay for “the innocent people who lost money in the dot bomb.” I worked in the financial services industry at that time for Sun American Securities, a subsidiary of AIG from 2003 to 2005 and then for Allstate Financial Services from 2005 to 2007, the CEO of Allstate at the time was Ed Liddy, the current CEO of AIG. In both those firms executives and compliance officers were terrified of Mr. Spitzer.

One of the targets of Spitzer’s investigations was AIG and its CEO, Hank Greenburg. Spitzer did not like the way AIG was doing its accounting and wanted Greenburg gone, “Spitzer in 2005 set out to get Maurice “Hank” Greenberg, then chairman and CEO of AIG insurance company, and he coerced the AIG board into firing Greenberg by threatening to file criminal charges against the company as a whole, a corporate death sentence. Then, before charges were filed, he went on national television and accused Greenberg of “fraud” that was “illegal,” the only question being whether it was civil or criminal. But Spitzer never did file charges.” (March 13, 2008, McClatchy Business Tribune News) In 2005, the AIG Board of Directors did remove Greenburg, the man who had built them into an insurance powerhouse in order to get Spitzer off of their backs. By February of 2008, the value of AIG stock had fallen vastly in the post-Greenburg Era, “Trading above $72 in February 2005 before it was Spitzerized (sic), AIG shares closed yesterday at $39.57. The company’s directors defend themselves by saying Mr. Spitzer gave them little choice but to dismiss Mr. Greenberg. Whether that was true at the time, they — and Mr. Spitzer — owe an apology to AIG shareholders.” (Freeman, May 16, 2008) Actually, Mr. Spitzer owes an apology not only to the AIG Shareholders, but also to the AIG Employees and to the American People, to whom his witch-hunts ended up costing billions over 100 billion in bail-out money.

One of the items that exacerbated what was a crises in subprime mortgages into a global crises was the use of Credit Default Swap (CDS) Per Economicshelp.org, the way a credit default swap works is “The buyer of a credit default swap pays a premium for effectively insuring against a debt default. He receives a lump sum payment if the debt instrument is defaulted. The seller of a credit default swap receives monthly payments from the buyer. If the debt instrument defaults they have to pay the agreed amount to the buyer of the credit default swap.” (Nov 11, 2008, EconomicsHelp.Org) When real-estate prices were on the rise, these were great for the buyer who was receiving a monthly income from these instruments. When the real-estate market crashed and defaults and foreclosures started becoming more prevalent, the buyers came to collect the money from the sellers which the seller, companies we have heard a lot of the past few months, AIG, Lehman Brothers, Merrell Lynch, Goldman Sachs, did not have. Some of those companies, like Lehman Brothers, were allowed to go bankrupt; others like AIG were bailed out with billions of dollars by effectively being taken over by the government; The United States Government now owns over 80% of the company. In February, 2009, Greenberg, still AIG’s largest individual share holder, sued AIG claiming that they had dismantled the controls on these Credit Default Swaps that he had in place, “Greenberg contends in the suit, filed in the Southern District Court of New York on February 27, that his successor Martin Sullivan “presided over the rapid increase of AIG’s volume of CDS. Most of the increase involved CDOs exposed to subprime mortgages [and] as of December 31, 2007, CDS issued by AIG hedged the default risk on at least $527 billion in debt, including debt securities backed by subprime mortgages.”

When AIG was bailed out by the Government, Former Sec of Treasury Hank Paulson turned to the former CEO of Allstate, Edward Liddy. From 2004 to 2006 I was an Exclusive Financial Specialist at Allstate. All of the agents I worked with hated Ed Liddy because one day Ed had called all of the agents into a meeting fired them all and made them independent Contractors. Had they not agreed to be independent contractors, without any benefits, they would have lost their retirement, which was essentially their book of business. Hank Greenberg actually did the same thing at AIG in the early 1960s. Nine years after Allstate did this there are still lawsuits pending against Allstate. (Dale March 23, 2009)

Liddy’s actions at Allstate definitely indicate he is not an “employee’s man.” Currently executives in the Financial Products division of AIG are already claiming that when Liddy came on after the bailout he told the employees of that division that he was committed to paying them their bonuses. Once there was outrage though, Liddy did not appear to stay committed to his word and asked them to give at least half the bonuses. Liddy was the man the government brought in to make sure it would get its investment back from AIG, which is an interesting choice since evidence has emerged that after Hurricane Katrina, Allstate, under Liddy, had overcharged the federal flood program for wind damage (Schearer, March 20^th 2009)

The division of AIG that got the company in trouble with the Credit Default Swaps was it Financial Services Division. AIG has several other divisions and subsidiaries. One of which is American General Life Insurance Company. American General is rated in the top brackets by AM Best, Moody’s Fitch and Standard and Poor’s (www.aigag.com) That subsidiary had nothing to do with the credit default swaps and was in good shape as witnessed by its high ratings, even though the parent company was essentially taken over by the government to keep it out of Bankruptcy. The situation with the parent company however, is still having its effects on American General. It is common practice in the life insurance industry for companies to reward their top producing independent agents. These agents are all independent contractors and thus are free to enter into contracts and do business with any company. An insurance agent does have a fiduciary responsibility to their clients to get them a policy that fits their needs. One of the rewards that the company uses is to have conferences for the top agents at vacation places like Los Vegas, Hawaii or even Athens Greece. Every insurance company has several of these a year for their independent agents.

Two weeks after the Government Bailout of AIG, American General had one of these events in Orange County California at the St Regis Monarch, where rooms cost in excess of $565.00 a night. (www.democraticunderground.com) This caused quite an uproar at the time. The appearance was that the government paid for the party with part of the 80 billion in bailout money and the American Taxpayer was outraged. It did not matter that American General had nothing to do with the situation with credit swaps, and in fact none of the bailout money had actually gone to American General, nor did it matter that the party was not for AIG employees but rather independent agents and that throwing those types of parties were standard practice in the life insurance business. One change that American General Agents will be seeing is a big reduction in these types of functions; Of course, the agents are free to do business with any company so American General is going to need to figure out other ways to get agents to do business with them. Maybe they will even consider introducing better products at a lower price than its competitors.

Another subsidiary of AIG is the 21^st Century Insurance Company. 21^st Century sells property and casualty insurance products such as Auto and Home Insurance. The company has been in business since 1958 and it was acquired by AIG in 2007 and its name was changed to AIG Direct. 21^st Century has a business model where it does not utilize agents, people buy it’s policies by phone or on-line meaning that although they can sell their policies for less, customers also do not have an agent to service their policies and if they should need help must rely on an 800 number. Under this business model, they advertise on Cable TV Stations. This has the surreal effect, in October of 2008 of while watching Fox News coverage of the AIG Bailout, seeing commercials for AIG Direct auto insurance. In November, 2008 the name of the company was rebranded back to 21st Century. In March 2009, the company sent out a happy talk letter to its customers about how well they were doing and how they had not used and were not going to use any of the bail-out money. On April 3, 2009 they announced the layoffs of over 500 employees along with the closure of several offices. Sales are down and part of the problem is the public backlash against the AIG Bailout (Colker 2009, April 3)

The AIG subsidiaries will probably be sold or spun off in order to generate the money that they need to get the Government out of an ownership position. Nowhere in the United States Constitution does it mention anything about the Government being allowed to own insurance conglomerates, even if they are too big to fail. The Soviet Union and Peoples Republic of China tried government ownership of businesses and that clearly didn’t work. Great Briton tried socialism in the 1960s and 1970s and their economy was in a tailspin until Margaret Thatcher dismantled it in the 1980s. Socialism is an affront on humanity as it denies the basic dignity of a human being and replaces responsibility with blame. It takes responsibility away from the individual and gives it to a made up group. It did not work in China, Russia or Great Briton in the 20^th Century; it is not going to work in the twenty first century for the United States either. What Ronald Reagan said in the 1980s hold true today, “The most feared words in the English Language are I am from the government and I am here to help you.” If you don’t believe me just walk into your local Department of Motor Vehicles.

The changes that occurred at AIG were to some extent external. Neither Spitzer nor his successor ever brought any charges against Greenberg or any AIG official; Greenberg lost his company without due process. We can speculate but it was unknown if Greenberg would have participated in the investment of Credit Default Swaps to the extent that his successors did. As with several bubble before that there was a feeling that real estate prices would continue to rise so that they were a safe investment. Hindsight, as we know is always 20/20. Ed Liddy has also shown himself to be a top down style of leader. He did not consult with the agents at Allstate before making them all independent contractors. In the situation of AIG and the changes that it faced the Axelrod engagement paradigm was not applicable.

At the time of the bailout, AIG could not pay what it owed for the credit default swaps. No time was available to call a meeting of its thousands of employees, allow everyone a chance for input, have lunch, sing We are the World then do a walk about to catch the people who were not at the meeting. There wasn’t even time to do a webinar to at least allow people to buy into a solution, an on the spot decision needed to be made. That is one of the characteristics of a leader. They have to be willing to make the tough decisions that no one else is willing to make. Under Hank Greenberg, AIG had strong leadership. When that strong leadership was taken away, arbitrarily by an over-zealous state official, the company faltered and since it was “too big to fail, “ it brought down a portion of the economy with it”

When the company is broken up into its subsidiaries, each one will need to have a mission statement and a vision. At that time it would be a good idea to bring in some of Axelrod’s engagement paradigm and allow the stakeholders to participate in the creation of their new companies. Each company should have a meeting to let everyone say what they need to say regarding the fall of AIG so that the company is buried and everyone can just get on with it. Then they should get input and have another meeting to go over results and ensure there is a consensus on the mission and vision of the new companies.

The story of the fall of AIG teaches us several lessons. One is about the dangers of allowing a government official too much power. The board of AIG, acting out of fear, allowed Elliot Spitzer to remove Maurice “Hank” Greenberg as CEO of the company.(even though whether AIG would have still invested as much as it did in Credit Default Swaps is unknown and hindsight is 20/20.) It also shows us that there is no such thing as a sure bet and that sometimes change is not predictable and whether a company can successfully make a change is not always guaranteed.

References

Ashford University (2007) Organizational Change San Francisco, McGraw Hill

Axelrod (2002) Terms of Engagement, San Francisco, Berrett Kohler

Colker (2009, April 3) AIG Subsidiary 21^st Century Insurance is Downsizing, Retrieved April 6, 2009 from www.latimes.com

EDITORIAL: Spitzer put the bully in ‘bully pulpit’: He ignored moral code that defined his career. (13  March). McClatchy – Tribune Business       News,***[insert pages]***.  Retrieved April 5, 2009, from ABI/INFORM Dateline database. (Document ID: 1445055241).

Freeman, J.  (2008, May 16). Eliot Spitzer and the Decline of AIG. Wall Street Journal (Eastern Edition),  p. A.13.  Retrieved April 5, 2009, from ABI/INFORM Global database. (Document ID: 1479480381).

Former AIG chief fingers successor for CDS woes. (2009, March). Credit, 10(3), 6.  Retrieved April 5, 2009, from ABI/INFORM Trade & Industry database. (Document ID: 1666308741).

Schearer, H (2009, March 20^th) Who is Ed Liddy and What Did He Do Before AIG Retrieved April 3 2009 from www.huffingtonpost.com

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www.democraticunderground.com

http://www.economicshelp.org/blog/finance/credit-default-swaps-explained/

Passover, 2009

I usually don’t talk about religious stuff on this blog but this evening begins the Jewish Holiday of Passover which celebrates G-d freeing the Israelites from slavery in Egypt to freedom. Once they were freed, it was amazing how much whining they did. Everytime things looked a little tough, they wanted to go back to Egypt where they may have been slaves but they were comfortable. One time, they even complained about the food, wanting to go back to Egypt where they had meat to eat!

Fast forward several thousand years to the United States in the twenty first century. No country in history has ever existed where there is that large a degree of freedom over our own lives, “Oh no, housing prices are down, the stock market is down, executives are making way too much money. Bail us out, regulate those SOBs. . . ” The complaining goes on and on

AIG takes governent bailout money. Before, when someone complained about executive bonuses, the company had the freedom to pay its executives whatever it wanted to. Now that it has excepted government bail out money they do not. This is only an example.

Because of their slave mentality, the israellltes had to wait 40 years before taking possession of their land. What will occur to the 21st century people of The United States?

Who is to blame?

have you ever asked yourself the question, “Who’s to blame for this “Economic Crises?”

Is it the greedy lenders who made those bad loans?
Is it those stupid people who took out those bad loans?
Is it George W. Bush for not regulating the industry?
Is it Greenspan for encouraging those loans?
Is it those morons at AIG for doing credit swaps?
Is it the Supreme Court for giving Bush the 2000 election?
Is it Bill Clinton because, quite frankly it’s fun to blame stuff on Clinton whether it is really his fault or not. He takes it so personally

We could go on with this. If you want to get technical, none of this would have happened had someone in England a long time ago hadn’t decided to tax tea. And if there never even was a big bang. . . .

I know, it’s G-d’s fault we are having a recession! That sounds pretty absurd, actually, it’s pretty absurd to blame anyone. It doesn’t make any difference to anyone who’s fault it isThe question we should be asking is “What can I do right now to improve the quality of life on earth for myself and others in my community?” and then go and do it!

Republican Budget Plan

I just read that the Republicans are coming out with their own budget plan. Guess what? They want to cut people’s taxes!

My first thoughts on this were “All right! We pay too much in taxes anyway! If we just got rid of those people on Welfare. . . “

Then I came back to reality and remembered that I had my best income ever when Bill Clinton was President and that I would love to pay the taxes I paid back then because it would mean that my income was what it was back then

. . . and just for the record, AIG probably received more money  being “bailed out” than a welfare mom will have in her entire life!

Are We Maybe Going Too Far?

The CEO of General Motors, Rick Wagoner, has resigned at the request of President Barak Obama!

I just checked and double checked my constitution and I couldn’t find the part where we gave The President the power to fire the CEO of a private company.  The President doesnt even have the power to fire the Chairman of the Federal Reserve!

You could argue that the man was incompitant, that he ran GM into the ground and he should have been fired by the company’s board of directors though, not the President of the United States!

Where does this government involvement end.  Do we have to look forward to government officials replacing the owners of the corner hamburger stand because somones burger was overcooked?