No matter which way you look at money and interest rates, any investor who lends money to a company or firm is looking for a free ride. Because he or she has excess money, too much money the investor is expecting to get more free money without working, without creating any value. In effect investors are "Value Destroyers" rather than "Value Creators" (Most people who work can be called "Value Creators").
Indeed in the UK and other countries in the western world the media and popular press are often heard to condemn the social welfare system for paying people who do not want to work. Well, yes the system needs to be modified to encourage people to study or retrain. That is agreed. However, what is the difference between the investor and the "dole" recipient? Nothing, they both get paid without working !
Although a complete review and rebuild of the banking system is required, while there is investment and money without pay, the investor must be prepared to loose all of the invested money in event of a default and not try and modify his potential loss with derivative products. The real risk is the full value of the investment, any derivative sold by a financial engineer or banker that costs less than the investment to protect is a confidence trick and merely passing on the risk to another or other parties at parity with the original investment or even leveraged so that there is more risk than in the original investment.
Looking at the collapse of US mortgage quasi government agencies FannieMae and FreddyMac. The US government should have had the conviction to do the following.
1. Let them fail and close
2. Anyone with a mortgage or a guarantee from those agencies have their complete loan forgiven by the US government with rules.
The rules would be something like this
* The owner may not sell the house in the open market for 20 years.
* If the owner wants or needs to sell before they must have a valuation by an arbitration team who will set the sale price at a fair price compared with the value of the house to sell, value of the house to buy (if there is one) and the amount of the loan forgiven.This would have been a cheaper option than putting trillions of dollars into institutions that needed and still need to fail.
Again... An investor who wants to earn something for nothing without working to build value, must risk the full value of the investment or the investment only works for the benefit of the investor, not the borrower.
There are some rich people in the world who earn yes "Earn" high salaries sometimes because they are adjusted for short careers. I am thinking movie and television stars and personalities and sports athletes, lawyers and professionals. However they all work and they all create "value". No objections.
Society needs to recognize the difference. Most people create wealth "Value Creators". A few are "Value Destroyers" who just cream off free value from the "Value Creators".
The label "value creator" should be defined. Whom or what is the befeficiary of the perceived value? One may argue that indentured labourers in India are creating value but it certainly is not for themselves. Equally the denim created in various developing countries and purchased at say 8 cents per unit (and at a profit) and sold in the West at $30 upwards is creating value, but that is highly unlikley to benefit the original garment worker. There are more slaves now in the world (27 million in 2009, 60 years after the U.N. banned the practice) than there were at any time in human history. The value being accrued, is to corporations and not to the workers, who are retained only at the lowest possible cost. In actuality most people are exploited to create wealth for the owners of the means of production. In the west there is little point in retraining people for jobs that don't exist, and likewise studying for the sake of study is of limited use.
ReplyDeleteThe value destroyer, i would postulate, is the asset stripper, or vulture fund, or corporate raider that buys to destroy seeing "value" in the assets at a higher level than the business itself. The real value was always the output of the business.
Let us also look at sporting personalities. One might argue that because their careers are short they should be paid an extraordinary amount of money in lieue of that fact. Why?? If i wanted a short career in an electronics assembly plant could someone pay me 30 yeasr wages in 5? I think not. However the obscenely rewarded soccer player now has millions of dollars at his disposal at age 30 for example with which to head off into non value creating retirement. All that has happened is the media companies have leveraged their monopolies of broadcasting rights and allowed a small percentage the money extorted from subscription based events to move into the salary streams of athletes. Under your definition do these people playing sport create value at any point?
ReplyDeleteGood points Chris. All noted.
ReplyDeleteActually, Chris, your example of workers in the developing world producing goods for the western consumer. These people are still"Value Creators" of course we all know they are being paid only a fraction of their true worth. because the "Value Destroyers" at the other end of the chain are taking every last brass farthing. I still the the definition of creator and destroyer is valid in the example, but certainly clarification and comments most welcome.
ReplyDeleteOn the sportsman note. Personally I think that sportsmen if anything create negative or "anti-value" The reason is the appeal of sports milks the intelligence of the average human being and programs the average man to think of winners and losers. As I mentioned in another post the world does not need a winner or a few winners. We all need to be winners!
ReplyDeleteIn the post however I was grouping sportsmen with famous media personalities and artists who definitely do entertain us and therefore they do have value. Given that a certain majority of us (not myself) think that sport is also a form of entertainment I was merely trying to appeal to a greater audience. It is the only area that I would possibly consider sports athletes as value creators.
Chris , although you have a point that there is no point in retraining people for jobs that don't exist. However, I believe that bit by bit people can learn new skills whether it be how to paint or write or play a musical instrument. Perhaps pick up on a favoourite subject at school such as biology or a foreign language. Re-training should not just have the aim of filling jobs. It is for the betterment and pleasure of the individual to make his life more enjoyable.
ReplyDeleteIndeed I think that courses for adults should be free or easily affordable to the people who wish to take them. Knowledge is to be shared.