Socialism Will Save Capitalism

If you want to see a man's blood boil, just park me in front of a television.

I can't believe the things I'm seeing these days. Citigroup (NYSE: C  ) is defending millions in office upgrades. AIG (NYSE: AIG  ) is being grilled over millions in retention bonuses.

Someone get my greened-up Lou Ferrigno body double on the set. I'm going postal!

However, I'm not getting worked up the way most people are apparently reacting to these outrages. I'm simply steamed that the lynch mobs are getting away with it.

Don't hate me, just yet
I'm no apologist for corporate greed. I find it ethically abhorrent that the words "bonus" and "bailout" -- or "makeover" and "bailout" -- are nestled in the same sentence.

However, I think it's important to break down the reasons for the outbreaks of contagious rage. The public isn't incensed because these things are happening. No one cared about Citigroup ordering a corporate jet in 2005, or Merrill Lynch's John Thain spending nearly $90,000 on an area rug for his office last year. It was only after billions in bailouts were doled out to Citigroup and Merrill Lynch parent Bank of America (NYSE: BAC  ) that taxpayers were overcome with buyer's remorse.

Excesses that were once simply molehills as shareholder problems became mountains after they morphed into taxpayer problems.

Accountability is a good thing, but let's break down this week's triggers of rage. Citigroup is spending at least $3.2 million to consolidate two floors of top executives into a single floor. The hobbled banking giant expects the makeover to save $20 million in the long run. Even if the move ultimately costs closer to $10 million, as some are suggesting, it would still appear to be a good investment. However, instead of a bloodthirsty mob relishing the move of Citi's top brass into smaller offices, the public is incensed.

It gets trickier to defend the AIG payouts, but let's parallel the move to the earmarks-saddled stimulus package that was signed into action recently. President Obama condemned the earmarks, but played along because they were put into the spending bill last year and made up just 2% of the total. Now we have AIG with retention bonuses that were promised last year, making up less than 1% of the $170 billion, and the same lawmakers are incensed.

"How do they justify this outrage to the taxpayers who are keeping the company afloat," Obama argued.

Substitute "company" with "country" and show me the difference? Where is the backlash to strip districts with earmarks of 90% of the proceeds? Instead, we've got hypocritical lawmakers grandstanding this week with clever one-liners.

There is a happy ending, I promise. 

Hooray! We're incompetent!
When you give the public a battering ram, you're never quite sure what they will destroy. Conservatives fear the worst. Nationalization fears have been realized, to the extent that the country now owns 80% -- and counting -- of AIG, 36% of Citi, and chunky slivers of so many other companies that could previously dish out retention bonuses or order parchment wastebaskets without recourse.

Isn't it obvious that this will be capitalism's crowning achievement? Any bellyaching that the country's economic collapse has turned us into a socialistic empire isn't looking out far enough.

If every company that swallows the bailout tablet is suddenly run by the whims of the angry masses, won't this create a greater performance disparity between the bailouts and the bailout-nots?

Citi is going to be blasted for every Aeron chair it orders and every performance incentive it introduces. TARP-free financial companies like Hudson City Bancorp (Nasdaq: HCBK  ) and Charles Schwab (Nasdaq: SCHW  ) will be free to recruit the industry's sharpest minds, promoting the freedom to take bar-raising chances and be rewarded accordingly.

I mean, just ask yourself who the heck would want to apply to work for AIG right now. Forget retention bonuses. I'm talking about attraction barriers. There are too many cooks in the kitchen, and the only recipe they've perfected is status quo consomme. 

I used to pity companies like Ford (NYSE: F  ) that haven't been as eager as Chrysler and General Motors (NYSE: GM  ) to panhandle. Aren't bailouts leveling the playing field? However, seeing how already weak companies are growing even weaker under the heat lamp of ferocious public scrutiny, I've changed my tune. Today's economic malaise isn't a drama. It's a sit-com waiting for a laugh track.

The government-subsidized companies -- even those deemed "too big too fail" -- will likely collapse. They weren't the sharpest tools in the shed to begin with, and now their workshops have turned into 24/7 reality shows.

It won't be pretty. The country will be ripping up trillions in losing race tickets. There is going to be a heck of a lot of sweeping to do at that point. You'll be fine, once you limit your portfolio to companies that deserve your faith as an investor. We'll get over it. We'll simply shred those race tickets even more, using them as confetti for capitalism's victory parade.

See you there.

More on, as Jon Stewart puts it, The Notorious AIG:

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Longtime Fool contributor Rick Munarriz isn't making a political statement, only a logical one. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (23) | Recommend This Article (16)

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  • Report this Comment On March 20, 2009, at 3:48 PM, GigMaster wrote:

    Rick,

    What a brilliant piece of writing! Very well said.

    I fear that our entire government has become one large heap of corrupt and/or incompentent individuals that have become an arrogant ruling class. They need to be swept from power - all of them! Can't wait for the next election.

    Thanks

    Dan

  • Report this Comment On March 20, 2009, at 4:40 PM, optomist1 wrote:

    Rick,

    Great article.....though in some respects I disagree. Whether 10%, 1% or .1%, bonus and bailout should never be dependent. As surreal as it sounds, I read recently that Chrysler is "considering" handing out bonuses....hmmmmmm, great idea. regarding the remodel of Citi's executive offices, I would like to see the pay back calculation...if it’s structured anything like their CDO or other esoteric new financial instruments who would believe it. In total, this debacle is an excellent example of unmitigated greed, gone unchecked. Below is a quote from +30 yrs ago.....scarily current.

    "You Americans are so gullible. No, you won't accept Communism outright; but we'll keep feeding you small doses of Socialism until you will finally wake up and find that you already have Communism. We won't have to fight you; we'll so weaken your economy, until you fall like overripe fruit into our hands." Nikita Sergeyevich Khrushchev (April 17, 1894 – September 11, 1971)

  • Report this Comment On March 20, 2009, at 5:56 PM, clingo wrote:

    What I am not seeing in any of this mess is the outrage that should be directed at Senators and Congressmen.

    They created the laws that brought it about. They prevented these laws from being corrected to prevent the problem.

    They blame it on everyone except those who caused the problem, themselves.

    The cost to them should be a complete loss of their retirement funds and any future retirement provisions for those in any elected position in the government.

    Perhaps by returning these positions to "Public Service" with nominal salaries and NO retirement and health care from Medicare only, unless they bring their own, we could restore honesty to the Federal Government.

  • Report this Comment On March 20, 2009, at 6:12 PM, fbohle wrote:

    You have completely missed the point of the outrage. The outrage is because the incompetence of those who are being rewarded led to the need for bailouts in the first place. Rewarding incompetence like this is maddening. No one would complain if AIG had earned billions in profits and gave those responsible big bonuses. The problem is AIG management led the company to insolvency and headed it for bankruptcy. Giving them bonuses from public money is what is causing the anger.

  • Report this Comment On March 20, 2009, at 6:14 PM, fbohle wrote:

    Clingo raises an interesting point in his comment. How did we get here as a nation? Banking laws were put in place in the 1930's to prevent this kind of disaster. One by one, they have been repealed. Those laws, and probably more, need to be reenacted. Like, depositary banks cannot be mixed with investment banks. That law went away, and investment banking activity has brought down depositary banks.

  • Report this Comment On March 20, 2009, at 6:28 PM, Strnj1 wrote:

    It's like the bumper sticker I saw, today.

    "Socialism" It's a great idea till you run out of other people's money.

  • Report this Comment On March 20, 2009, at 6:31 PM, jbromet wrote:

    Actually, Socialism ruined Capitalism by insisting that every person, whether able to afford it or not, should own a home of their own. The Communist creed: "From each according to his ability, to each according to his need." This was the pressure put on the banks and lending instituions by the Socilaist-leaning legislators who now want Socialism to save us. What makes one think that the same false and ruinous ideals that created this mess can now magically save us fom what they've created. Now, instead of everyman owning a home of his own, every man has lost what home he had. So, I guess we're all now equal in our poverty. When Socialism has sucked every last penny from the productive citizens, it will finally be shown to be a sham, but not before bankruptng every last one of us.

  • Report this Comment On March 20, 2009, at 6:57 PM, vanbet wrote:

    you are all latecomersto the charade. a few people have been fighting the excess compensation system for years now through the annual meetings and stock holders proxy.people decry the excessive athletic salaries, but they are chicken feed compared to the money dished out by the collective interlocking boardrooms.i once held stock in either the citigroup or chase manhattan at a time when they awarded 50 k to ronald reagan annually on the basis that he was an honorary board member.

    I PROPOSE THAT ALL BONUSES BE BASED ON THE STOCK PRICE APPRECIATION.THAT WOULD BE THE ONLY EQUITABLE BASIS THAT THE STOCKHOLDER COULD ELIMINATE THE OUTRAGEOUS LAWYER BROKERED CONTRACTS SITUATION WE NOW FIND OUR

    SELVES IN TODAY.

  • Report this Comment On March 20, 2009, at 7:19 PM, ReillyDiefenbach wrote:

    "just ask yourself who the heck would want to apply to work for AIG right now"

    Oh, just about anyone who's out of work on Wall Street, considering the insane amount of money the taxpayers are handing out.

  • Report this Comment On March 20, 2009, at 7:35 PM, ReillyDiefenbach wrote:

    "When Socialism has sucked every last penny, blah blah blah. "

    I get so sick of this morally bankrupt Rush Limbaugh horsepucky.

    Do you dittoheads even know what democratic socialism is? Are you even dimly aware that Phil Gramm and Alan Greenspan with their idiotic Randian pipedreams caused this mess? Do you know what Glass Steagall was?

    Have you checked the standard of living in France or Denmark lately? Want to live three years longer? (a statistical fact, you remember those.) Move to Canada!

    On second thought, stay where you are, you'll only bring the same dismal brand of ruination with you wherever you go.

  • Report this Comment On March 20, 2009, at 7:53 PM, mlaursen wrote:

    re: "The outrage is because the incompetence of those who are being rewarded led to the need for bailouts in the first place."

    In the good old days, when we allowed corporations to go bankrupt, nobody not directly involved in those companies got mad at them for failing. We might feel bad for them, or cheer for their demise, but it wasn't considered a mortal sin to be an executive or employee of a company that failed.

    These companies' failures did not automatically lead to their being bailed out. That was a decision made in Washington.

  • Report this Comment On March 21, 2009, at 7:51 AM, Celtics17 wrote:

    ReillyDiefenbach,

    You're right, removing Glass-Steagall was a bad idea. I can't help but notice, though, that you failed to mention the president who signed off on removing Glass-Steagall: Bill Clinton.

    Let me guess - you probably watched Michael Moore's "Sicko" and concluded that universal health care is a good idea? :)

  • Report this Comment On March 21, 2009, at 8:49 AM, wtfdidyousay wrote:

    socialism ruined capitalism??huh? do you people know what socialism is?

    socialism - Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.

    what is going on now is NOT socialism, people!!

    remember - unregulated FREE MARKET CAPITALISM is what got us into this mess in the first place.

    stop being brainwashed and start thinking for yourselves. this mob psychology has got to stop.....

  • Report this Comment On March 21, 2009, at 12:58 PM, djkumquat wrote:

    thanks for the fresh look at checks and balances!

  • Report this Comment On March 21, 2009, at 2:27 PM, burrowsx wrote:

    Like so many of the idiots who cry "socialism" at a government which is investing money at arm's length, and which continues desperately not to exercise its ownership leverage as state control, your article misrepresents state intervention for state ownership and control. The programs in place are not designed to make the banking industry subject to a board composed entirely of state functionaries (classic socialism), or even to the coercive pressures of Mussolini's Corporazione (fascism). They are a temporary intervention in a gambler's paradise gone awry.

    The public outrage is that government is not exercising discretion, in rewarding munificently, and at public expense, the very people responsible for a world-wide financial collapse. Indeed, the enablers of credit abuse -- Clinton, Schumer, Dodd, McConnell, McCain, Gingrich, who now decry the consequences of their "credit reform" idol-worship -- should realize what they have scuttling by denying the insights of Lincoln, both Roosevelts, and Eisenhower, in the original Adam Smith vision of society as competing smaller shop-keepers, and not as a promoter of military-industrial zaibatsus.

  • Report this Comment On March 22, 2009, at 1:25 AM, xetn wrote:

    To the idiot that thinks unregulated free market capitalism is the cause of this mess, I just have to ask: "What planet are you from?" Just to clarify what you just said and put in words that you maybe can understand, the definition of capitalism is:

    Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual's rights against the initiation of physical force.

    With over 175000 pages of government regulation (according to the federal register) does this really sound like laissez-faire capitalism? No, I didn't think so. We have not had anything like a free market capitalistic system since maybe 1913, when the Fed and the income tax system was instituted. And since 1933 when your great saviour FDR confiscated gold from its citizens and broke the contract that the dollar was convertible to gold. Read, understand and get a life. You do not know what you are talking about.

  • Report this Comment On March 22, 2009, at 1:44 AM, texjammer wrote:

    If the liberal left REALLY wanted to find the root cause of the current crisis, they would only have to look back to Jimmy Carter and the Community Reinvestment Act. Then came Bill Clinton, who signed the repeal of the Glass-Steagall Act and reinforced and strengthened the CRA, Freddie and Fannie. Then came the last 2 years under George Bush, in which the DEMOCRATIC Congress refused to take action to stop the sub-prime loans being bought up by Freddie and Fannie. In fact, in 2006, it was Barney Frank and Mary Waters who pontificated on the wonderful virtues of the GSE's. The culprits of this mess are the same Government officials that caused it in the first place!

    Government has no place in private business and lawyers have no place running the largest business in the world, the US Government. VOTE OUT EVERY PROFESSIONAL POLITICIAN STARTING IN 2010, REGARDLESS OF PARTY! Make term limits a major issue and cut off the Congressional Golden Parachute. After a combined 12 years in the House and/or Senate, send them packing home with no more government benefits! It's time for Americans to slap the politicians and remind them that THEY WORK FOR US!

    http://www.912project.com/

  • Report this Comment On March 22, 2009, at 1:51 AM, texjammer wrote:

    Sorry, it's late and I didn't proof read!

    "The culprits of this mess are the same Government officials that caused it in the first place!"

    That should have read:

    The government officials trying to clean up this mess are the same culprits that caused it in the first place.

    Now the Federal Reserve has printed up more than $1 TRILLION to buy Treasury Bonds. After the great job they have done with the bailouts, aren't you glad they know how to take money from the left pocket to put into the right pocket! Isn't that what ENRON did just before they collapsed??

    I'm glad the Founding Fathers had the foresight to add the Second Ammendment to the Constitution (or what's left of it). Has anybody tried to buy ammo lately???

  • Report this Comment On March 22, 2009, at 10:26 AM, Alex1963 wrote:

    Rick,

    I agree with those above who write that you have missed the point. And that we are not on the raod to unavoidable socialism. This is a necessary corrective period in reaction to ethical & structural failure of big business and the finance world in particular. I personally expect my gov't to take steps. No one will be convincing me that letting the market self correct is the route to go. They are on probation as far as I'm concerned. Further that though you may have a point that people may be reluctant to take a job at the places they key concept is do they have a choice. In this market I suspect people will work where there is work. Even if it might just a stepping stone to a better job elsewhere-when there are some.

    texjammer,

    Their is nothing inherently wrong with the CRA. It was necessary, in part, to prevent redlining which is the parctice of restricting loans to certain areas regardless of an individual borrowers loan credentials.i.e drawing a "red line"around a neighborhood and refusing to lend within it. Even if it is within your service area i.e you take in deposits from that area. There is massive & aggressive conservative misinformation currently rampant in the right wing echo chamber that CRA was created to lend to people who couldn't afford it. It was actually the exact opposite.

    Clinton did sign the repeal of the Glass Steagall because it had a majority and could not be vetoed. It was the Republican controlled congress which forced this. Check your facts. He did not want to sign this into law. Check Milpos blog here on Caps for a comprehensive & non partisan history with documentation.

    Also Frank (& Dodd), Waters etc are not the architects of the the current FNMA & FNMC. Bush pressured them to expand their lending in order to stimulate lending and the economy. Also, Frank has been lobbying for greater rental incentives for years. He is not the demon Republicans would have everyone believe. He tried for years to bring greater oversight to FNMA etc and was repeatedly blocked by the Republican Congress who are far more in the pockets of the financial industry than the Dems. Once Dems took control Reps threatened filibuster and Bush threatened veto of any attempt to expand FNMA,FNMC oversight.

    You might want to check out news from sources other then Right wing misinformation. This is all a matter of public record. If you watch Fox or listen to am radio, you are being lied to routinely

    Respectfully

    Alex

  • Report this Comment On March 22, 2009, at 7:05 PM, A6EIntruder wrote:

    "Socialism will save Capitalism" is what Ralph Nader's father used to tell him. This is also not far in spirit from Dark Helmet in Spaceballs saying that evil will always triumph over good because "good is....dumb".

  • Report this Comment On March 22, 2009, at 9:19 PM, shmuesn wrote:

    It seems that the most volatile comments have to do with removing greedy officeholders and replacing them with---guess who--- different greedy officeholders. Could it be that the PRICE that one pays for freedom is to allow many hands to take a little from the till (pork), rather than one man taking it all?

  • Report this Comment On March 23, 2009, at 12:29 PM, kirkydu wrote:

    While this post captures some of what is wrong with the bailouts and angry masses, it, like many other pieces sidesteps the issue at the heart of this mess: executive greed and mismanagement.

    Ultimately, the pols (some of them) and public are just trying to figure out how to regulate a system that crushed not only itself but many semi-innocent bystanders. I say semi-innocent because the general public let the bloodsuckers in both corporate as well as elected office get away with egregious behaviour as long as they could ignore it to concentrate on their own little bubbles. So while a lot has been said and done about what is wrong in the fixes, the fixes are happening because the execs broke the system while the govt looked the other way.

    Here's another question to ponder while we're at it.

    Why is Congress angry now at AIG when it could have pre-empted this all when it doled out the first bailout? They ought to be castigating themselves, not violating the constitution with backwards tax strikes. Fix what can be fixed today and take the blame about what they screwed up six months ago. In other words, be grown-ups.

  • Report this Comment On January 06, 2012, at 12:55 PM, DJDynamicNC wrote:

    I just want to go back and point out that all that socialism did, in fact, have appreciable impact on saving capitalism.

    Money quote: "The government-subsidized companies -- even those deemed "too big too fail" -- will likely collapse."

    Point for Keynes.

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