The American Election Is Really A Battle For The Future Of Capitalism

I found the article The American Election Is Really A Battle For The Future Of Capitalism in the British web site of The Guardian. I first liked it for the opening:

‘Look, if you’ve been successful, you did not get there on your own. When we succeed, we succeed because of our individual initiative but also because we do things together.” So said President Obama, campaigning in Roanoke Virginia, last week. He went on: “If you were successful, somebody along the line gave you some help”.

This British newspaper adds more detail about what Obama actually said in Virginia than made it into the Boston newspaper that I quoted in my previous post In Roxbury, Romney hits Obama’s business message. In the Boston paper’s version, the enough of the President’s words to make his meaning clear did not come until over 20 column inches into the story.  I guess you have to read the British press (not Murdoch) to find out what is going on in the U.S. country.

Beyond the opening remarks, I also liked The Guardian story because it explains the impact of Romney style capitalism.

The public understands that if you finance buying a house with a bank providing 90% of the asking price, and the house doubles in value, then your own 10% stake multiples elevenfold. Romney would apply the same logic not to the wealth-generating activity of starting innovative companies but to buying existing companies. Banks were only too keen to lend vast sums of money for such schemes, as they did right up to the financial crash in 2008. The companies’ own profits would service Bain’s debt.

Bain Capital would make the company more valuable – taking production offshore to low-cost countries, selling off redundant land, slashing research and investment budgets. And the general rise in property prices would help matters still more. When the companies’ profits had risen, they would then be floated on the stock market for a much higher price and, hey presto, everybody got very rich.

If you need someone to do the math of how you get an elevenfold increase in your investment when the asset doubles in price, just ask, and I will provide.  Otherwise, consider it as an exercise for the reader.  If you fail the exercise, you ought to seriously consider whether you are qualified to comment on capitalism and economics.  (Look at the numbers 200, 110, 90, and 10 to see if you can find the elevenfold relation there somewhere and what those other numbers have to do with it.)

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