The following is an excellent excerpt from the book “MAKERS AND TAKERS: The Rise of Finance and The Fall of American Business” by Rana Foroohar from the Introduction on page 23 and I quote: “Fixing the System – And so, the divide between the markets and the real economy, between Wall Street and Main Street, grows. All of these distortions have given a scary boost to the risks inherent in our financial system. With so much money and power concentrated in the hands of so few, ours is a top without a bottom. Rising inequality, falling productivity, and distorted incentives have created a world in which virtual enterprises prosper while real ones, with real workers, struggle. Innovation is falling to cash management, long-term plans to short-term tricks. Risk in the financial system continues to rise, even as risk capital to real business declines. These trends are choking off our growth as a nation. There is a long and fascinating history to the rise of financialization in America, which I will outline in many of the chapters to follow. But the deepest concern of this book lies not with the past, but with the present and the future.
We have an opportunity right now: a rare second chance to do the work of reregulating and right-sizing the financial sector that should have been done in the years immediately following the 2008 crisis. Ann there are bright spots on the horizon. Despite the lobbying power of banks and the vested interests in both Washington and on Wall Street, there’s a growing popular push to put the financial system back in its rightful place as a servant of business, rather than a master. Surveys show that the majority of Americans would like to see our tax system reformed, our government taking more direct action on poverty reduction, and inequality addressed in a meaningful way. Indeed, two of the most pernicious effects of financialization–the decline of the middle class and wage stagnation–have been front and center as issues in the 2016 presidential campaign.
We have the tools to fix our system, and thankfully there is a dedicated group of public officials, academics, and regulators who want to move us far beyond the current watered-down Dodd-Frank financial regulation. They include Senator Elizabeth Warren, Nobel Prize-winning economist Joseph Stiglitz, FDIC vice chairman Thomas Hoenig, and many others. But the key to reforming our current system is making the American public understand just how deeply and profoundly things aren’t working for the majority of people in this country, why they aren’t working. Re-mooring finance in the real economy isn’t as simple as splitting up the biggest banks, although that would be a good start. It’s about dismantling the hold of financial-oriented thinking on every corner of corporate America. It’s about reforming business education, which is still filled with academics who resist challenges to the false gospel of efficient markets in the same way that medieval clergy dismissed scientific evidence that challenged the existence of God. It’s about changing a tax system that treats one-year investment gains the same as longer-term ones and induces financial institutions to push overconsumption and speculation, rather than healthy lending to small businesses and job creators. It’s about rethinking a money culture filled with lobbyists who violate the essential principles of democracy.
This book is about connecting those dots and the complex phenomenon that connects them: financialization. It’s a topic that has traditionally been the sole domain of “experts”–those academics, financiers, and policy makers who often have a self-interest perspective to promote, and who do so with complicated language that keeps outsiders from the debate. But when it comes to finance, as in so many things, complexity is the enemy. The right question here is in fact the simplest one: Are financial institutions doing things that provide a clear, measurable benefit to the real economy? Sadly, the answer is mostly no.
Explaining how the rise of finance has caused the fall of American business, and how that’s jeopardizing the American Dream, is the primary purpose of this book, because to fix things we need to first tell ourselves the correct story about how we got here. Financialization is easily the least studied and least explored reason behind our inability to create shared prosperity–despite our being the richest and most successful nation in history. And the fact that the phenomenon itself is so poorly understood is in many ways the problem. While I’ve interviewed many a rapacious capitalist in my two-plus decades in journalism, the truth is that the vast majority of bankers, businesspeople, and economic policy makers aren’t venal–far from it. They are simply part of a very large, complex, and (for them) lucrative system, one that has unfortunately become so dysfunctional that it actively prevents us from making the best and fairest use of our nation’s resources. Fixing that dysfunction is the challenge at hand. Change begins with understanding, and I wrote this book to provide some.
In an effort to engage the lay reader and avoid the soporific tone of many academic and business volumes that have tackled elements of this problem over the years, I have structured Makers and Takers as a series of stories about the companies and the people at the heart of financialization over the past hundred years. They are by no means the only representatives of the tectonic shift that’s been going on, but they are among the best and most colorful. My hope is that by focusing on the real people and companies whose lives have been touched by financialization–usually for the worse–I can bring our thinking about this phenomenon down to earth in a way that will forward a healthier debate.
Chapter 1 will explain the rise of finance itself. How did an industry that represents only 4 percent of jobs come to account for a quarter of all corporate profits?
Chapter 2 will examine how financial thinking came to dominate American corporate life by telling the story of General Motors and of former secretary of defense Robert McNamara and the Whiz Kids, whose obsession with numbers decisively contributed to the loss of the Vietnam War, the decline of the American auto industry, and the ultimate spread of financialized thinking into every corner of American business today.
Chapter 3 will delve deeply into the history of US business education and examine how and why it came to focus on balance sheet manipulation to the exclusion of real managerial skills.
Chapter 4 will deconstruct our conventional wisdom around shareholder value by looking at how activist investors like Carl Icahn now call the shots at the country’s largest and most successful firms–such as Apple–at the expense of innovation and job creation.
Chapter 5 will show how much of corporate America has come to emulate banking–how we’re all glorified bankers now–by tracking the history of General Electric, which is one of the great American innovators, but which became the country’s fifth-largest bank before trying to reclaim its roots in industry.
Chapter 6 will focus on one of the most dangerous areas of the financial sector, derivatives, and show via the tale of Goldman Sachs and its manipulation of the commodities market how banks have come to control the natural resources that companies and consumers depend on–and what that means for the prices of goods the average American consumes every day.
Chapter 7 will tell the story of how one of the richest and most opaque areas of finance, private equity, has come to dominate the most important sector of our economy, housing–making the American Dream of owning a home an elusive fantasy for so many middle-class American families.
Chapter 8 will look at how privatizing our retirement system enabled asset management–the fastest-growing sector of finance–to grow rich on unnecessary fees, and how the mutual fund business is essentially gambling away our nest eggs.
Chapter 9 will lay out how and why we came to have a tax system that privileges corporations over individuals, encourages debt over equity, and allows firms like Pfizer to engage in financial engineering as a business strategy.
Chapter 10 will analyze how the money culture and the revolving door between Wall Street and Washington have made it so hard to turn back the tide of financialization, and why so many of the reforms promised after the 2008 meltdown have yet to come to pass.
But while turning back the tide of financialization may be hard, it is far from impossible. Chapter 11 will lay out policy solutions–informed by interviews with people at the highest rungs of industry, academia, and government–about how the finance might be put back into the service of the real economy.
And throughout this book I’ll sketch stories not only of takers but also of makers, as well as the lessons the rest of us can take from companies and leaders who are getting things right. Through these stories we’ll see that we can create for ourselves a new New Normal–one that loosens the crushing grip of finance on American business and leads to a more prosperous, sustainable future for American workers, families, and the economy at large. My hope is that this book will help show how.”
(THE FOLLOWING ARE QUOTES FROM JOSEPH STIGLITZ AND JOHN C. BOGLE AND I QUOTE:
“Foroohar demystifies the decline in America’s economic prominence, showing that the competitive threats came not from the outside–migration or China–but from within our borders. She explains how finance has permeated every aspect of our economic and political life, and how those who caused the financial crisis wound up benefiting from it.” –JOSEPH E. STIGLITZ, Nobel laureate in economics and former head of the Council of Economic Advisers
“A fast-paced, exciting, and well-researched tale that brings alive the shady dealings that have been part of the recent rise of finance. Wall Street has prospered beyond measure by consuming far too much of the value created by the real economy. Readers will be shocked by the shenanigans that are revealed, and then eager to help fix what has been so badly broken. It’s up to us–all of us.” –JOHN C. BOGLE, founder and former CEO, Vanguard
MY COMMENTS: I’M FINDING THIS BOOK AN INTERESTING DEBATE OF WHAT’S CAUSING OUR FAILURE OF THE 99 PERCENT TO FALL FURTHER BEHIND EVERY YEAR FOR AT LEAST THIRTY YEARS. WHAT’S WHAT I’VE EXPERIENCED MYSELF, IS THE SAME THING THAT SEN BERNIE SANDERS MADE AN ISSUE OUT OF WHEN HE RAN FOR PRESIDENT–HOW THE FIVE BIGGEST INVESTMENT BANKS ARE TRYING TO CONTROL OUR ECONOMIC SYSTEM, AS WELL AS THE WORLD, WHICH MAKES THE INEQUALITY WORSE BETWEEN THE RICH AND THE POOR. SO, I IMAGINE I’M GOING TO BE FOCUSING MOSTLY ON CHAPTER 6.
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran