Perhaps trying to run a country more like a successful business sounds like an appealing prospect.  Well you are off on the wrong track already.  I tricked you by inserting the word “successful” in there.  It all depends on what the meaning of success is.

Perhaps in your utopian world, a successful business makes a product or sells a service that people want and need.  It finds out how to sell the product or service at a low enough price that the customers are willing to pay it and yet at a high enough price for the business to make a profit and fund its growth.  The business keeps its debt within bounds so that it can continue in business for a long time and it can weather the ups and downs of its markets and the economy.  It also pays a dividend to its shareholders, and it pays its managers and other employees well.  It even manages to pay its fair share of taxes.

Wouldn’t it be great to live in a country run that way?  Maybe it would, but there is another way to define a successful business.  This can be called the Reagan/Bush/Bush/Romney plan.

In the RBBR plan, you form a Vulture Capital firm.  It finds well run companies that are fiscally sound, but are currently undervalued by the stock market.  Of course this works just as well finding companies that are not so well run, but the stock market undervalues them even taking into account their poor management.  (In a non-RBBR world, this would be sort of like buying a fixer-upper house that costs less than its intrinsic value to you.  In the RBBR world, this is like buying a building whose copper plumbing is worth more than the cost of the building to you even if the plumber is still owed money for those pipes.)

Companies usually have liabilities and assets that are of roughly the same magnitude in size.  This means that their net worth, whether positive or negative, is much smaller than the size of their assets alone.  In other words, some, or all, or more than all of their assets are offset by liabilities.

In the RBBR plan, you turn all the companies assets into cash and pay them out to the RBBR owners and or managers.  Never mind that there are creditors and employees that have prior claims on these assets.  What they can’t get their hands on will never hurt you as owner/manager.  The RBBRers get stinking rich and the rest are left to ask, “What happened to my life savings and income?”  By the RBBR definition, the RBBRers have run a successful company.  Just look at how rich they are.  Isn’t that the very definition of success?

When they have piled up enough money so that they and their descendants can live in the lap of luxury for generations, they philanthropically turn  from their business success to turn their attention to politics and running a country according to this prescription.  Maybe they can do for the country what they have done for their business.

They may find the following politico/economic situation from which to rescue us. The previous administration has left the country with nearly balanced liability payments and income.  The income comes from taxes and also from payments into pension benefit and health care benefit plans.  Let’s call these Social Security and Medicare.  On the payments and debt side, there is the cost of providing infrastructure such as roads, bridges, education, police, and fire protection that any ongoing business, er government, needs to pay for.  Then there are the payments to the people who are now ready to collect on their Social Security and Medicare benefits that they paid for.

However, these clever RBBR politicians, who learned their business from Harvard Business School (what snobs), see all those assets going to waste, when they could be used to weigh down their own pockets.  So they convince the people that they (and supposedly you) know how to spend these assets better than the government does.  Who cares if other people have prior claims to these assets.  If they can strip them from the government and pay them out mostly to themselves with a few crumbs to you, what are the people with the prior claims going to do?  Are they going to go to the police (called the SEC, the Justice Department, and other regulatory agencies)?  Even if those agencies are now run by honest politicians when the voters wake up that their bank has been robbed, what are these agencies going to do?  The money is already gone.

The job creators (called robbers in any normal use of the language) are too big to fail even if you could claw some of their ill gotten gains back.  Better to take your lumps, call it a lesson you won’t soon forget (well at least not for 50 years), and try to repair the damage these people did using whatever resources they may have left you.  Asking the RBBRers to contribute anything to help would just be unfair.

I am just applying the principles described in Vulture Capitalism Explained to running a government.

Maybe the title of this post should have been “How A Bully Would Run a Country Like His Business”.  Almost reminds you of Teddy Roosevelt and his “bully pulpit”, but I don’t think that is what Roosevelt had in mind.  Or maybe I am wrong about Teddy Roosevelt of the “Speak softly, but carry a big stick.”

Market Watch has an article Obama spending binge never happened based on data from the Office of Management and Budget (OMB), the Congressional Budget office (CBO) and Haver Analytics.

As would-be president Mitt Romney tells it: “I will lead us out of this debt and spending inferno.”

Almost everyone believes that Obama has presided over a massive increase in federal spending, an “inferno” of spending that threatens our jobs, our businesses and our children’s future. Even Democrats seem to think it’s true.

But it didn’t happen. Although there was a big stimulus bill under Obama, federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s.

Thanks to Tangelia Sinclair-Moore for posting the link to this article on her Facebook page. As she pointed out Market Watch is an outlet of The Wall Street Journal.

I made the following comment on her post:

It is funny how stuff like this can appear in the news sections of Wall Street Journal outlets, and yet on the editorial page they will still say the things that have been debunked by their own news.

One might consider it to be quite damaging news that Obama who claimed to want to rescue the economy did not manage to increase spending enough to do the job. The only thing I can think of in his defense is to say that despite all the pressure from the wrong-headed Republicans and blue dog Democarats, he at least managed to prevent a decline in spending. That would have been a disaster on Herbert Hooverian dimensions.

I tried explaining this in my previous post Marissa DeFranco Misses The Mark.  I’d like to try to make it even clearer in this post.

Suppose there is a company with $400 million in liabilities and $300 Million in assets.  What do you see in such a company?  You might say, a company that will surely go bankrupt if it doesn’t have a huge offsetting income stream.  You certainly wouldn’t invest in such a company if you had a normal (or is that moral) view as to what capitalism and business is all about.

Vulture capitalists see something that you do not see. Vulture capitalists have learned to focus on one thing only, $300 Million in assets.

Without the vulture capitalists, if the company went bankrupt, the assets would cover 70 ¢ on the dollar of their liabilities to their creditors.  When a vulture capitalist buys such a company, the idea is to turn that $300 Million in assets into cash that can be paid out to the vulture capitalists.  Then they let the company follow the path that it already was on toward bankruptcy.  The only difference is that the vulture capitalist comes away with $300 Million and the creditors come away with zip, zero, nada.

What do you suppose happens to some of the creditors who considered a large part of their assets to be the debts that they expected to be repaid by the company to which they sold their goods and services?  Some of them go bankrupt, too.  The vulture capitalist who stripped the assets of the first company now has inside information, because of the temporary ownership or management of that company, as to which creditors of that company to look for as the next victim.

There is nothing magic about a company having a negative net worth (liabilities greater than assets).  The only advantage to such situations for the vulture capitalist may be that the rest of the world shuns the company’s stock and it will be cheap to take it over.  In reality, even companies with positive net worth may be more valuable to a vulture capitalist to strip out the assets than it is to run the company as an ongoing business.

Clearly, the possibility of  a vulture capitalist coming in to strip the assets of a company is such a frightening possibility, that even many well run companies hesitate to build up a large surplus of assets.  So even a company that wants to have a well funded pension plan for its employees, does not dare to do so.  Such an asset would be a very inviting target to the vultures.  If a recession or a depression hits, these well run companies are not in as good a position to weather the storm as they might have been had they not had to alter their plans to ward off the vultures in good times.

We have allowed the laws and regulations of this country to fall into such a state of disrepair and lack of enforcement that the very good parts of capitalism have been turned up-side-down.  The normal incentives to make a company turn a profit and grow and thus provide benefits to the economy as a whole as a natural part of its existence, have been turned into incentives to strip out the assets and leave the economy without jobs and without productive capacity.  Many of the other countries in the world have followed our silly example in a race to the bottom of the heap.  The fact that multi-national companies have become more powerful than most nations may play a role in this nearly universal behavior.

Sharon says to me that you cannot expect politicians who are not business people themselves or who have not studied business to explain these intricacies to the voters.  I remind her, that I am not a business person either, but here I am writing this explanation.  Why is it that I can see this so clearly, and yet, in all the years since I have come to understand this (30 or more), there has been no politician who can get up on his or her hind legs and tell people what is going on in words that they can understand?

Aside from the fact that NECN stupidly labels this video as Will gay marriage be an anchor for President Obama?, Marissa DeFranco gave a very disappointing performance on the key issue of vulture capitalism.

It is not, as the Republican said, a matter of some companies fail and some succeed. It is a matter of vulture capitalists like Bain raiding corporate pension funds, retiree health care funds, plundering the company assets, loading up the company in debt, and then walking away with hundreds of millions of dollars in profits. The employees are far worse off after the Bain “rescue” than if Bain had not stepped in and had let the company fail. Whatever profits Bain made were stolen from the employees, the company, and the new creditors that Bain enticed into lending more money. When you borrow money with no intention of repaying it, that is called fraud if little people like us do it to a bank. When wealthy people like Romney and company do it, it is called capitalism at its finest.

There is also nothing wrong with labor unions investing their pension funds in venture capital which funds the creation of new companies. This is a far cry from vulture capitalists that raid corporations of whatever assets they have not withstanding the fact that these companies already have more liabilities than assets. The fact that Bain may have done both kinds of activities does not absolve them from the part of their activities which should be illegal.

How could Marissa DeFranco fail to make this very important point?

I am afraid that the rabble rouser in Marissa DeFranco has lost the battle for dominance with the publicity and fame seeking Marissa DeFranco.

This reminds me of Marissa DeFranco’s former disdain for Democrats who make a very weak case for their own most important issues.

Inspired by a pin on Marissa DeFranco’s web site