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One more on financial capitalism

by ValentinD Thu Oct 30th, 2008 at 08:10:44 PM EST

I'm not a big fan of the well known French daily, Le Monde - especially so since the "La face cachée du Monde" (The Hidden face of Le Monde) by two journalists - Pierre Péan (more about him here ), and Philippe Cohen.
Yesterday though, newspapers were not distributed in Paris due to a strike, and Le Monde was made available free of charge on their website, as a PDF file.

Upon a quick browsing on occasion, my attention was drawn towards this article here (aproximative Google translation here).

It reveals one more example of what some (amongst whom president Sarkozy) call the immoral (financial) capitalism.

We knew about "toxic" derivative products, used to repackage and spread around the risk of default of other financial entities. Or about stockmarket speculators, who reportedly helped push up commodities prices recently (claim not entirely founded, according to The Economist, who published a series of articles on the matter - an example
here). About huge bonuses paid by investment banks in 2006 and 2007 for deals that proved actual disasters in 2008 (or, say, $ 400K parties at AIG just after being bailed out by the taxpayer). In a word, cases of financiers losing touch with reality.

One other example went like this (particularly in France and Germany): predator funds buying companies, getting what is called "activist" and managing to break them up and sell them piece by piece in order to realize a nice return quickly.

In the article linked above, Alain Godard makes the case about the investment banks' "pernicious" business in originating unjustified structural changes to businesses that were until then doing just fine.
The issue would consist in 3 parts: the need for two-digit remunerations on certain financial products;  the solution found: transfer the hot potato to shareholders of big industrial actors; and last but not least, the how: "convincing" the management to take action accordingly.
The action, the article exemplifies with the history of the French holding Rhone-Poulenc, which ends up being broken into pieces in spite of industrial and economical logic, under investment bankers' pressure -  themselves under the pressure of two-digit short-term stockmarket performance. The cherry on the cake comes at the end:

"In the name of what have these holdings been torn apart and fired thousands of workers? The answer can mostly be found in the bonuses the golden boys got for each of the strategical movements" they counselled.
"Since the crisis questions all dogma, let us imagine a  global tax agreement according to which gains on stock held for less than 3 months would be taxed at 80%, less than a year, at 50%, and over 3 years, at 10%.
Undoubtedly, investor arbitrages would be different, and CEOs would no longer impatiently wait, every evening," for the value of their stock options at  stockmarket closing.  They would have to focus on long-term industrial strategy instead.

 


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This is an excellent on-the-ground example of the harmful preponderance over the real economy of the financial sector and its return-on-capital requirements. It's at the heart of what is known here on ET as the Anglo Disease.

Concerning Le Monde, I wrote a brief history of the newspaper here.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Oct 31st, 2008 at 02:47:58 AM EST


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