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Phoenix World Views Digest

A Phoenix Capital Research Publication MAy 28, 2010

Political
Lessons
from
the
Walang
Kulit,
Pt
2


While
most
of
us
have
to
choose
which
candidate
to
vote
for,
big
business
typically

backs
both
parties
to
insure
that
whoever
wins
is
“in
their
pocket.”

Consider
the

donations
from
Commercial
Banks
in
the
2008
election:


Total
 Donations
to
 Donations
to
 %
to
 %
to

Donations
 Democrats
 Republicans
 Democrats
 Republicans

$37.5
million
 $17.9
million
 $19.5
million
 48%
 52%




The
public
consensus
is
that
Republicans
are
the
“big
finance”
party,
but
the
above

numbers
clearly
show
commercial
bank
contributions
are
split
evenly
between
the

two
parties.



This
is
nothing
new.
Indeed,
even
if
we
include
all
commercial
bank
contributions

going
back
to
the
1990
elections,
the
total
amount
($221
million)
is
still
split
41%

vs.
59%
between
Democrats
and
Republicans:
hardly
a
skewed
breakdown.
And

when
you’re
talking
about
donations
in
the
hundreds
of
millions,
even
10%
of
this
is

still
a
HUGE
amount
of
money
compared
to
what
US
individuals
donate.


Below
is
a
list
of
the
top
25
corporate
donors
from
1989
‐2009.
Only
a
third
of
these

are
uneven
(those
are
bolded).
The
remainder
(2/3)
of
contributions
are
roughly

equal
(anything
greater
than
a
60/40
split
was
deemed
uneven).


Rank Organization Total '89-'09 Dem % Republicans %
1 AT&T Inc $44,361,209 44% 55%
2 Goldman Sachs $31,612,375 64% 35%
3 Citigroup Inc $27,179,418 50% 49%
United Parcel
4 Service $24,333,183 36% 63%
5 Microsoft Corp $20,221,604 53% 46%
6 JPMorgan Chase & Co $20,129,053 51% 48%
7 Time Warner $20,059,030 71% 27%
Verizon
8 Communications $18,868,752 40% 58%
9 Morgan Stanley $18,585,734 45% 53%
10 Lockheed Martin $18,545,123 43% 56%
11 Pfizer Inc $18,355,232 29% 70%
12 General Electric $18,172,909 51% 48%
13 FedEx Corp $18,134,041 40% 59%
14 Bank of America $17,316,442 47% 52%
15 Blue Cross/Blue Shield $16,670,269 40% 59%
16 UBS AG $15,571,924 40% 58%
17 Merrill Lynch $14,336,680 37% 61%
18 Boeing Co $14,224,472 47% 52%
19 Reynolds American $13,417,652 24% 75%
20 BellSouth Corp $12,993,782 45% 54%
21 Credit Suisse Group $12,634,176 44% 54%
22 General Dynamics $11,909,089 46% 52%
American Financial
23 Group $11,474,005 18% 81%
24 GlaxoSmithKline $11,167,939 29% 70%
25 Altria Group $11,025,201 39% 60%

With
this
understanding
of
the
US
political
process,
it
is
obvious
to
me
why


every
major
economic
policy
introduced
or
maintained
in
the
last
30
years
has

largely
benefited
Big
Business,
specifically
executives,
and
no
one
else.



Oligarch
Management:
All
Moves
Lead
to
More
Pay


Over
the
last
30
years,
I
believe
corporate
management
strategies
have
been

dominated
by
the
following
themes:


1) Outsourcing

2) Mergers
&
Acquisitions
(leveraged
profit
growth)

3) Greater
Executive
Compensation


Executives,
like
everyone
else,
act
based
on
self‐interest.
So
it’s
no
surprise
that
all

of
these
practices
and
their
offshoots
had
one
specific
goal
in
mind:
greater

corporate
profits
resulting
in
higher
executive
compensation.


Let’s
delve
into
each
of
these
in
detail.


I.
Outsourcing



“Outsourcing”
is
the
practice
of
moving
jobs
from
“in‐house”
to
outside
contractors,

usually
located
abroad.
There
are
many
reasons
to
do
this.
The
most
obvious
ones

are:


1) You
don’t
have
to
pay
contractors
benefits
(greater
profit
margins)

2) You
don’t
have
to
pay
severance
(lesser
future
obligations)

3) International
wages
are
usually
lower
than
in
the
US
(greater
profit
margins)

4) Increased
customer
care
(having
an
office
abroad
allows
for
24
hour
care)


Numbers
one,
two,
and
four
are
both
obvious.
Number
three,
however,
is
worth

examining
in
detail.
On
that
note,
the
below
chart
compares
the
average
salaries
for

Computer
Programmers
both
in
the
US
and
abroad.



As
you
can
see,
a
US
corporation
can
move
is
Programming
work
to
Canada,
Ireland,

or
any
number
of
developed
countries
and
save
big
on
wages.
Moving
to
semi‐
developed
markets
such
as
China,
India,
or
the
Philippines
results
in
even
bigger

cost
cuts.
Small
wonder
that
this
practice
took
the
corporate
world
by
storm
in
the

‘90s.




Detailing
exactly
how
big
the
outsourcing
market
has
become
is
not
easy.
A
survey

by
CIO
Magazine
reveals
that
as
early
as
2002,
69%
of
companies
were
outsourcing

their
Information
Technology
(IT)
services.




Indeed,
a
study
by
Wharton
School
of
Business
and
NY
University
finds
that
the

practice
of
outsourcing
IT
work
has
become
endemic
in
corporate
culture.





Gauging
the
economic
impact
of
outsourcing
is
extremely
difficult.
According
to

Plunkett
Research,
outsourcing
was
a
$500
billion
industry
in
2008.

If
we
go
by
the

latest
Census
data
(2002),
US
firms
produced
$22.8
trillion
in
sales
that
year.
I

realize
this
is
not
an
ideal
data
set
to
work
with
(2002
and
2008),
but
it
sets
the

economic
impact
of
outsourcing
in
the
ballpark
of
2%
of
total
corporate
sales
for
US

businesses
US
($500
billion/
$22.8
trillion).



Moreover
if
we
use
the
Programmer’s
salary
chart
above
as
a
proxy
for
the
kind
of

money
saved
by
moving
IT
work
abroad,
then
that
Plunkett
Research’s
estimate
of

$500
billion
spent
on
outsourcing
could
very
easily
be
the
equivalent
of
$500
billion

or
more
in
cost
savings.
Granted
this
is
not
anything
like
a
clear
picture
of
real

numbers,
but
even
at
this
level
it
is
clear
that
outsourcing
can
result
in
a
MASSIVE

amount
of
money
being
saved
(which
ultimately
means
greater
corporate
profits).


In
terms
of
jobs,
Forrester
Research
believes
that
as
many
as
3.3
million
US
jobs
will

be
lost
to
outsourcing
by
2015.
That
sounds
pretty
bad,
but
other
estimates
are
even

worse.
Robert
Scott,
an
economist
at
the
Economic
Policy
Institute,
estimates
that

2.4
million
American
jobs
were
lost
between
2001
and
2008
as
a
result
of
increased

trade
with
China
alone.

The
below
chart
shows
this
practice
has
impacted
every

state
in
the
union
with
the
hardest
hit
being
California,
Oregon,
Florida,
and
New

Hampshire.



By
cutting
costs
via
outsourcing,
US
corporations
were
able
to
dramatically
increase

their
profits
in
the
last
30
years.
Greater
profits
means
more
money
in
the
bank
to

acquire
or
merge
with
competitors…
which
in
turn
leads
us
to
our
second
trend
in

corporate
management
strategies:
Mergers
&
Acquisitions.


II.
Mergers
&
Acquisitions
(leveraged
profit
growth)


Starting
in
the
late
1980s,
large‐scale
US
businesses
had
the
perfect
set‐up
for

attaining
massive
profit
growth.
This
set‐up
included:


1) A
Federal
Reserve
that
was
pro‐loose
money
and
easy
credit

2) A
Federal
Government
that
was
pro‐deregulation
and
privatization


As
US
corporations
began
to
see
increased
profits
courtesy
of
outsourcing
and

renewed
trade
with
China,
corporate
management
(the
Oligarchs)
began
focusing

more
and
more
on
obtaining
profits
by
any
means
necessary.
The
most
common

strategy
was
what
I
called
“leveraged
profit
growth”
or
profit
growth
via
mergers

and
acquisitions.
After
all,
with
cheap
money
abundant,
it’s
much
easier
to
acquire

someone
else’s
profits
and
revenue
streams
than
focus
on
organic
growth.


The
follow
two
charts
chart
illustrate
this
practice
in
plain
terms.




As
you
can
see,
corporate
profits
rose
marginally
during
the
first
three
decades
of

the
post‐war
period.
However,
once
we
hit
the
late
‘80s
there
was
no
looking
back.

Profits
erupted
higher
going
absolutely
parabolic
at
the
start
of
the
21st
century.


Below
is
a
chart
illustrating
M&A
activity
for
the
last
20
years.




As
you
can
see,
M&A
activity
rose
10‐fold
in
the
late
‘90s.
It
took
a
hit
during
the

Tech
Bust
but
came
back
quickly
to
regain
its
former
high
soon
after.



By
paying
employees
less
(real
incomes
in
the
US
fell
from
1972
onwards),

corporations
were
able
to
produce
greater
profits.
With
Alan
“loose
money”

Greenspan
at
the
helm
of
the
Federal
Reserve
for
most
of
the
last
30
years,

corporations
were
able
to
use
these
greater
profits
in
the
“leveraged
profit
growth”

strategies
of
merging
and
acquiring
other
firms.


This
in
turn
resulted
in
even
greater
corporate
profits
and
industry
consolidation,

which
meant
those
at
the
top
of
the
corporate
food
chain
(the
Oligarchs)
obtaining

an
even
greater
concentration
of
power
and
influence.
Corporate
boards
(also

Oligarchs)
were
only
too
happy
to
divvy
up
more
of
the
“rewards”
to
the
“genius”

executives
and
management
members
responsible
for
this
growth.



This
brings
us
to
the
final
big
trend
in
corporate
culture
of
the
last
30
years:

increased
executive
pay.


III.
Greater
Executive
Compensation



For
most
of
the
20th
century,
the
average
executive
made
20‐30X
the
salary
of
the

average
worker.
But
once
outsourcing
took
off
and
corporate
profits
began
growing,

executives
saw
an
unprecedented
increase
in
pay
courtesy
of
stock
compensation

and
other
means.



Indeed,
by
the
time
2001
rolled
around,
the
average
CEO
was
making
300
TIMES

THE
AVERAGE
WORKER.
This
number
took
a
hit
during
the
Tech
Bust
(falling
to
the

still
astounding
level
of
143
times
average
worker
pay),
but
quickly
bounced
back,

despite
clear
evidence
that
the
private
US
economy
was
not
growing
(incomes
and

private
sector
jobs
were
falling).





As
executive
pay
soared,
a
larger
and
larger
concentration
of
wealth
was
shifted
to
a

smaller
and
smaller
group
of
people.
This
shift
was
further
promoted
by
the
Federal

Reserve
blowing
serial
bubbles
in
asset
prices:
the
wealthy
can
leverage
up
their

participation
in
capital
markets
thanks
to
their
high
net
worth.



The
graph
below
courtesy
of
the
Economic
Policy
Institute
summates
the
entire

situation
beautifully.
In
1979,
the
top
10%
of
income
earners
took
in
67%
of
all

capital
income
(income
from
stocks,
bonds
and
the
like).
By
2006,
this
group
was

snagging
over
80%
of
all
capital
income:





And
thus
was
born
the
corporate
Oligarch
class:
a
group
of
individuals
who

managed
companies
based
on
their
own
self‐interests,
pursuing
corporate
profits

and
performance
by
any
means
possible
(including
using
financial
instruments
to

manufacture
earnings
and
hide
debt),
in
order
to
increase
their
net
wealth

exponentially
via
participation
in
asset
bubbles
they
themselves
helped
create
due

to
their
influence
at
the
Federal
Reserve
and
Congress.


Failure
Never
Paid
so
Well


Now,
I
am
in
no
way
against
a
meritocracy
where
one
can
work
his
or
her
way
to
the

top
due
to
strong
work
ethic
and
smart
business
strategies.
However,
what

distinguishes
the
US’s
current
system
from
a
meritocracy
is
the
fact
that
once
one

enters
into
the
Oligarch
class,
they
almost
never
leave
even
if
their
professional

decisions
take
down
an
entire
company
(or
the
financial
system
for
that
matter).



The
reason
for
this
was
the
creation
of
“Golden
Parachutes”
and
other
massive

severance
packages
(all
approved
by
corporate
boards
which
were
comprised
of

other
Oligarchs).
The
term
“Golden
Parachute”
stems
from
the
metaphor
that
a
CEO

is
similar
to
a
pilot
flying
a
plane.
Should
his
or
her
decisions
result
in
the
firm

taking
a
nose‐dive,
he
or
she
may
be
forced
to
“jump.”
The
only
difference
between
a

corporate
CEO
and
a
real
pilot
is
that
when
the
CEO
“jumps
ship”
he
takes
three

years’
compensation
as
severance
(hence
it’s
a
“golden”
parachute).




Consider
the
Wall
Street
Crash.
Every
CEO
from
a
failed
entity
ended
up
walking
out

with
millions
in
compensation.
While
Wall
Street
represents
the
greediest,
most

loathsome
elements
of
the
Oligarch
class,
similar
payouts
go
to
those
overseeing

massive
failures
in
other
industries
as
well:


Walk-away
Executive Company
pay
Stanley O'Neal Merrill Lynch $160 million
Philip Purcell Morgan Stanley $43.9 million
New York Stock
Richard Grasso $140 million
Exchange
Douglas Ivester Coca-Cola $120 million
Robert Nardelli Home Depot $210 million
Source:
MSN
Money
Central


All
of
the
above
individuals
oversaw
massive
failures,
frauds,
and
feuds.
And
yet,
if

you
Google
any
of
them
today
you
will
find
they
remain
firmly
entrenched
in
the

Oligarchy.



 O’Neal
is
on
the
Board
of
Directors
for
Alcoa.


 Purcell
is
head
of
a
private
equity
firm.


 Grasso
seems
to
be
retired.

 Ivester
is
on
the
Board
of
Directors
at
SunTrust
Bank
and
is
President
of

Deer
Run
Investments.


 Nardelli
left
Home
Depot
to
became
CEO
of
Chrysler
(another
failure)
and

is
now
at
Cerebus
Capital
Management.


In
plain
terms,
these
guys
NEVER
go
down
no
matter
how
big
the
bust,
how
bad
the

scandal,
or
how
much
money
is
lost;
they
ALWAYS
end
up
at
some
high
paying

position
within
the
Oligarchy
whether
it’s
the
corporate
sphere
or
on
the
economic

council
for
a
politician.


In
plain
terms,
once
you
become
part
of
the
0.01%
that
controls
the
jobs
market
and

political
process,
you
never
leave
(unless
you
end
up
like
Bernie
Madoff
with
an

outright
conviction
for
illegal
activity).


Conclusion:
What
to
Draw
From
All
of
This?


So
what
can
we
draw
from
all
of
this?


1) The
central
ethos
of
the
US
(Democracy,
equality
for
all,
a
patchwork
quilt)

can
reasonably
be
interpreted
as
a
myth
that
overlooks
key
elements
of
the

US
legal
framework
that
benefit
those
at
the
top
of
the
corporate
food
chain.


2) The
Media
in
the
US
appears
to
emphasize
Shadow
Issues
while
overlooking

how
large
Corporate
Interests
(including
the
Media
companies
themselves)

“pull
the
strings”
in
our
political
system
via
a
“donations
for
kickbacks”

scheme.


3) The
current
Political/
Economic
structure
in
the
US
cane
be
likened
to
an

Oligarchy
rather
than
a
Democracy:
those
at
the
top
make
decisions
solely
to

benefit
those
at
the
top,
courtesy
of
a
political
system
in
which
candidates

draw
their
funding
and
influence
from
the
corporate
sector
(Oligarch
class).


4) Due
to
their
influence,
those
at
the
top
of
the
Oligarchy
are
generally
held
to

different
standards,
legal
responsibilities,
and
ethics.
Moreover,
the

Oligarchy’s
decisions:


a. Drive
US
business
and
corporate
culture,
resulting
in
policies
that

widen
the
wealth
gap
and
place
more
assets
in
the
hands
of
the

Oligarchs
(see
the
capital
income
graph).

b. Are
primarily
focused
on
increasing
the
centralization
of
power
(M&A

activity,
consolidation,
etc)
though
their
clout
is
not
limited
to
one

country,
region,
or
market.

c. Are
devoted
to
maintaining
the
status
quo.
They
will
even
back

“change”
oriented
politicians
in
order
to
create
the
illusion
that
the

system
can
be
altered
or
that
those
in
power
have
a
vested
interest
in

the
common
man
(Obama,
while
not
from
US
royalty
like
Bush,
came

up
in
the
same
corporate/
big
business
culture).


I
realize
that
the
above
statements
run
quite
contrary
to
the
common
consensus
or

views
expressed
by
the
mainstream
media.
However,
I
strongly
believe
that
all
of

my
assertions
and
claims
in
this
piece
are
well
documented
and
backed‐up
by

concrete,
fact‐based
evidence.


If
you
have
enjoyed
this
“alternate
take”
on
things,
I
highly
suggest
you
subscribe
to

The
Phoenix
World
Views
Digest.
I
will
be
presenting
similar
“alternate”
takes
on

many
subjects,
including
but
not
limited
to
the
food
industry,
energy
industry,
and

more.


I’ll
also
be
presenting
this
kind
of
“alternate”
take
on
other
countries,
both
as

economic
stories
and
as
potential
places
of
interest
from
an
investment/
lifestyle

perspective.
The
same
goes
for
alternate
investing
ideas
such
as
wine,
art,
and
the

like.


A
subscription
to
The
Phoenix
World
Views
Digest
costs
$99.
It
gets
you
12
monthly

issues
of
The
Phoenix
World
Views
Digest
delivered
to
your
inbox
on
the
fourth

Friday
of
every
month.


To
sign
up,
or
learn
more
about
The
Phoenix
World
Views
Digest
go
to:


www.phoenixworldviewsdigest.com


This
inaugural
issue
has
proved
longer
than
I
expected,
which
is
why
I
made
it
a

“double‐header.”
Going
forward,
most
issues
will
be
12‐14
pages
long.
But
the
ideas

presented
in
this
issue
(corporate
interests,
political
influence,
concentration
of

wealth,
etc)
are
critical
to
understanding
how
the
political/
economic
landscape
is

shaped
in
the
US
today.


How
we
choose
to
engage
with
this
landscape
is
up
to
us
as
individuals.
Some
are

choosing
to
“get
off
the
grid”
by
starting
home
gardens
or
even
utilizing
alternate

energy
sources
(solar
or
geo‐thermal)
for
their
energy
needs.
Others
are
choosing
to

pull
their
capital
from
the
financial
markets
and
invest
in
alternate
investment

classes
like
fine
art
or
wine.
Others
are
simply
choosing
to
watch
less
TV
and
read

more.


I
suggest
looking
into
any
or
all
of
the
above.
Personally
I’ve
made
it
a
goal
to
read

two
to
three
books
a
month.
I’m
also
starting
a
small
garden
with
my
wife

(vegetables)
and
stockpiling
a
few
months
worth
of
food
and
water.
I’ll
be
covering

some
of
this
in
greater
detail
in
my
next
issue
of
The
Phoenix
World
Views
Digest

which
will
be
devoted
to
the
food
industry.



You
won’t
want
to
miss
it!.


Best
Regards,


Graham
Summers
















Suggested
Reading/
Further
Research:


 Manufacturing
Consent,
Noam
Chomsky
(interesting
take
on
media

control
and
propaganda)

 The
Great
Derangement,
Matt
Taibbi
(particularly
Chapters
Two
and
Six:

Congressional
Interludes
I
&
II)

 The
Shock
Doctrine:
The
Birth
of
Disaster
Capitalism,
Naomi
Klein
(an

unusual
and
insightful
take
on
how
on
the
Oligarchy
might
operate).

 Empire
of
Debt,
Bill
Bonner
and
Addison
Wiggin
(a
great
expose
on
how

the
US
went
from
minding
its
own
business
to
an
Empire
of
Debt)

 Political
Donations/
Lobbying
Data:
http://www.opensecrets.org/

 Bad
CEOs
Who
Walked
Away
Rich:

http://articles.moneycentral.msn.com/Investing/Forbes/BadCEOsWho
WalkedAwayRich.aspx
(Oligarchs
and
their
paydays
for
failure)

 US
Senators’
Stock
Picks
Outperform
the
Pros’:

http://online.wsj.com/article/SB109874916042455390.html
(it
pays

both
ways
to
be
at
the
top)

 The
Great
American
Bubble
Machine
Matt
Taibbi:

http://bigpicture.posterous.com/goldman‐sachs‐the‐great‐american‐
bubble‐machi
(a
historical
look
at
how
Goldman
Sachs
and
other

Investment
Banks
have
manufactured
every
bubble
in
the
last
100
years:

remember
how
Oligarchs
benefit
most
from
asset
bubbles)


Action
Plan/
Implementing
What
We
Learned:


1. While
watching
TV
compare
the
time
spent
on
what
I
call
“Shadow
Issues”
to

the
time
spent
on
corporate
interests
or
class
issues.

2. When
new
Government
legislation
is
introduced,
find
out
which
political

leaders
are
promoting
it.
Check
their
donations
at
www.opensecrets.org.
See

if
you
can
“connect
the
dots”
between
the
Corporate
Interests
and
Politicians.


3. Pick
an
Oligarch
at
random
(any
high
level
executive
at
most
mega‐
corporations).
Spend
an
hour
tracking
his/
her
professional
history.
See
if

you
can
find
the
blow‐ups/
failures
that
should
have
crippled
his/her
career

but
didn’t.

4. Look
up
the
stock
ownership
of
key
Members
of
Congress
(Energy

Commission,
Banking
Commission,
etc)
at
www.opensecrets.org.
See
if
you

can
predict
the
next
piece
of
legislation/
bailout
based
on
stock
ownership.