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Private Sector to the Rescue

|Includes:Alphabet Inc. (GOOG), GS

At a time when most of the pub­lic believes lead­er­ship of all sorts, espe­cially polit­i­cal, to be weak, we should not focus on find­ing scape­goats but rather on assum­ing account­abil­ity to help fix problems.

As detailed in his book, Bad Money: Reck­less Finance, Failed Pol­i­tics, and the Global Cri­sis of Amer­i­can Cap­i­tal­ism and in the Harper’s Mag­a­zine arti­cle, “Num­bers racket: Why the econ­omy is worse than we know”, Ken Phillips doc­u­ments how since the 1960’s Wash­ing­ton has been play­ing with the offi­cial sta­tis­tics by which the health of our econ­omy and soci­ety are mea­sured in order to avoid the per­cep­tion of their legacy as hav­ing done a poor job. I bor­row from the Harper Mag­a­zine article:

The cor­rup­tion has tainted the very mea­sures that most shape pub­lic per­cep­tion of the economy—the monthly Con­sumer Price Index (CPI), which serves as the chief bell­wether of infla­tion; the quar­terly Gross Domes­tic Prod­uct (GDP), which tracks the U.S. economy’s over­all growth; and the monthly unem­ploy­ment fig­ure, which for the gen­eral pub­lic is per­haps the most vivid indi­ca­tor of eco­nomic health or infirmity.”

The point is that: as getting-elected has become the pri­mary busi­ness of politi­cians, less and less have we been able to trust any­one in polit­i­cal lead­er­ship to make the dif­fi­cult but cor­rect deci­sions. Evi­dence of this trend is all around us in the state of our econ­omy and soci­ety. No one in office wants to take respon­si­bil­ity for exces­sive and prof­li­gate bor­row­ing and spend­ing for fear of being vil­i­fied as anti-growth, anti-jobs, anti-happiness or anti-anything that their polit­i­cal com­peti­tors believe pleases peo­ple in the cur­rent moment.

In the afore-mentioned con­text, I am pleased to learn of Google’s inten­tions to cre­ate its own Price Index and find it reas­sur­ing that we are not paving the Road To Serf­dom. I believe the found­ing fathers would cheer this endeavor as a shin­ing exam­ple of suc­cess of the inno­v­a­tive spirit empow­ered by free enter­prise. Indeed, their orig­i­nal vision for the United States is to cre­ate a soci­ety that rewards cit­i­zens com­men­su­rate with the value they cre­ate. That, in my opin­ion, is the Amer­i­can Dream.

The longer we allow cer­tain fac­tions of soci­ety to exploit oth­ers or reap rewards greater than the value they cre­ate, the more our lib­eral demo­c­ra­tic sys­tem declines. Our civ­i­liza­tion depends on cit­i­zens trust­ing that their oppor­tu­nity for achieve­ment and suc­cess is equal to their peers and that no injus­tice will under­mine their efforts to cre­ate value for them­selves, their fam­ily and their soci­ety. Fran­cis Fukuyama artic­u­lates this idea with ter­rific lucid­ity in his book, Trust: The Social Virtues and the Cre­ation of Pros­per­ity.

Given that our abil­ity to trust polit­i­cal lead­ers is low, we must rely more than ever on pri­vate enter­prise to lead our soci­ety. Keep in mind that the pri­vate enter­prise is not to blame for Wall Street’s excesses and inor­di­nate com­pen­sa­tion. Blame the politi­cians, begin­ning with Greenpsan, who paved the way for Wall Street to loot the cap­i­tal mar­kets. In his inter­view with ABC, Larry Sum­mers points out the fact that the finan­cial ser­vices sec­tor (part Wall Street and part cor­po­ra­tions) spends, annu­ally, about $1mm per con­gress­man while employ­ing 4 lob­by­ists per con­gress­man. That is why Wall Street and Cor­po­rate Amer­ica con­tinue to get what they want and are not held account­able for what amounts, in many cases, to rob­bing the invest­ing pub­lic. That’s right – politi­cians and polit­i­cal influ­ence can be bought.

All the more rea­son for pri­vate enter­prise to step into the lead­er­ship void and help steer Amer­ica back on track.

Google is not the only exam­ple of excel­lent lead­er­ship by pri­vate enter­prise. There are many. A fairly recent arrival on this front is Bet­ter Mar­kets, Inc. – a non-profit ven­ture founded my Michael Mas­ters of Mas­ters Cap­i­tal Man­age­ment, LLC and run by Den­nis Kelle­her, a senior staff offi­cial from the Demo­c­ra­tic Pol­icy orga­ni­za­tion in the Sen­ate. Bet­ter Mar­kets aims to enhance the ratio­nal allo­ca­tion of cap­i­tal pri­mar­ily within the deriv­a­tives mar­kets. Mr. Mas­ters has served soci­ety admirably over the past sev­eral years via his tes­ti­mony to Con­gress and his numer­ous papers on the flaws in the cur­rent deriv­a­tives mar­ket. I highly rec­om­mend read­ing the inter­view by Welling@Weeden with Mr. Mas­ters and Mr. David Frenk, Direc­tor of Research a Bet­ter Mar­kets, in the attached arti­cle to gain a fuller under­stand­ing of the Bet­ter Mar­kets under­tak­ing. I also rec­om­mend read­ing the excel­lent paper by Mr. Frenk that refutes an objec­tion­ably poor study by Irwin and Sanders on the impact of spec­u­la­tors on com­mod­ity prices and markets.

I can­not fail to men­tion my own firm, New Con­structs. Per our Mis­sion state­ment, we are ded­i­cated to improv­ing the integrity of the cap­i­tal mar­kets because we believe that is in the best inter­est of the long-term pros­per­ity of our soci­ety. Though not nearly as impact­ful as Mr. Mas­ters, I also spent time in Wash­ing­ton meet­ing with Sen­a­tor Corker, the SEC, the Sen­ate Bank­ing Com­mit­tee, FDIC, Con­gres­sional Over­sight Panel and oth­ers. My pre­sen­ta­tion focused how to improve the integrity of the cap­i­tal mar­kets most effi­ciently. As detailed in my let­ters (#1 and #2) to Sen­a­tor Corker, my pur­pose was to pro­vide our polit­i­cal decision-makers with a pow­er­ful tool to com­bat stock mar­ket manip­u­la­tion – that tool is New Con­structs research, which decodes Wall Street pro­pa­ganda and deliv­ers the whole truth about prof­itabil­ity and val­u­a­tion. I sub­mit­ted a list of over 20 Cor­po­rate Finan­cial Dis­clo­sure Trans­gres­sions to the Sen­ate Bank­ing Com­mit­tee. I pointed out that not only were com­pa­nies able to manip­u­late the account­ing sys­tem, but also that vio­la­tion of account­ing was ram­pant and unde­tected. For exam­ple, as detailed in our Cor­po­rate Finan­cial Dis­clo­sure Trans­gres­sions, over the last 5 years we found 10 com­pa­nies whose income state­ments do not add up cor­rectly and 20 com­pa­nies in the last 11 years whose bal­ance sheets do not bal­ance. I’d say that is proof that when the cat is away the mice will play.

New Con­structs can solve all of these issues and many more. Hav­ing worked on Wall Street for sev­eral years, I know how the “sausage is made”. I explained to every­one I met in Wash­ing­ton that New Con­structs can imme­di­ately pro­vide the pub­lic with addi­tional infor­ma­tion on the true prof­itabil­ity and val­u­a­tion of com­pa­nies that would empower investors to make more informed deci­sions. I do not believe that most investors make bad invest­ment deci­sions because they are stu­pid. They make them because they are mis­led about the true prof­itabil­ity and val­u­a­tion of companies.

The New Con­structs approach to deter­min­ing cor­po­rate prof­itabil­ity is straight-forward, sim­ple and, most impor­tant, com­plete. Yes, build­ing a com­plete finan­cial pic­ture of a com­pany is crit­i­cal to under­stand­ing its true prof­itabil­ity. Our patented Research Plat­form for revers­ing account­ing dis­tor­tions and dis­counted cash flow analy­sis lever­ages data from the Finan­cial Foot­notes to deliver research of unri­valed qual­ity and accuracy.

Disclosure: No Positions
Stocks: GOOG, GS