Corporate fraud….and then some

Hey, corporate fraud is up 22%!  Hoorah!

I can totally understand it after hearing today’s news.  Let’s see…..the government will buy up all the bad debt out there.  That means that large companies who made bad decisions won’t bear the full responsibility of their lousy business decisions.  I wonder if the managers of those companies will have to give their salaries back….?

Probably not.

If you know you can get bailed out, which is something that’s become an established norm around these parts, why the heck would you do the right thing?  Bailout is right around the corner.  Right?

Well, for some the bailouts are there.  What happens to all of us who have invested prudently and haven’t over spent.  I’ll give you that answer now.

Your dollar will be massively devalued.  Your savings are getting eroded every time our government prints money.  What you did right will not be rewarded, it will be punished.  Hmmmm….that seems like a common theme in our society now, doesn’t it?

The biggest issue with this new type of policy in our country is a simple one.  Markets are no longer allowed to clear.  Without market cycles we don’t get to have choices available between winners and losers.  The losers are kept afloat and investors will pour good money after bad.  If markets cleared the bad companies would go, and what would remain would be stronger organizations that are not prone to mis-reporting their earnings and covering up their liabilities.

We sure have stepped beyond a democratic / capitalist society.  A very strange hybrid indeed with blended socialism and outright market management steered by our government and quasi-government bodies (i.e. the Fed).

So, how do you pick investments and financial strategies into the future?  You don’t.  Not unless you know what organizations are favored by the powers that be, and what organizations aren’t.  It makes understanding the economy even tougher.  Gosh, looking through the Constitution I can’t find the part where our government was supposed to be in the business of picking winners and losers in business.  I must have skipped a paragraph or two somewhere.

In the end, this doesn’t bode well for average folks.  Our earnings and savings will be devalued to salvage companies that lied, manipulated their market value, and then expected a bail out.  Risk was wiped out in the managers’ minds, as they knew they were “too big to fail,” so they conducted very shoddy business practices.  Only when true risk is re-introduced will we see the markets work toward stabilization.  Unfortunately that’s not the approach we’re going to take any time soon.

On other economic thoughts…..

Granny J sent along an interesting article the other day that is well worth a read.  If you’re interested in statistics, the recent games played in the economy, and part of how we got “here” take a run through.  For a guy who enjoyed and understood graduate level econometrics I find myself agreeing with the intro…..Statistics can fool you.  Heck, you can prove a lie to be true with them if you so desire.  Or you can convince yourself there’s no risk involved with your current financial path…..bet the staticians are working over time right now!

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Published on: September 19, 2008

Filled Under: Notes from Rich

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