Tradecraft by Jonathan Hoenig
Citi’s Plane Isn’t the Problem
Yet another uproar broke this week after it was revealed Citigroup (C: 3.55, -0.35, -8.97%) was set to take delivery of a $50 million private jet, even as the company was burning through $45 billion in taxpayer-funded TARP funds.
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Under intense public pressure and direct intervention from the Obama administration, the company later canceled the purchase. As usual, pundits decried the excesses and greed on Wall Street.
I’m of the mind that a large multinational bank like Citigroup needs a private jet. They should have a private jet. But taxpayers shouldn’t be paying for it — for any of it.
And that’s the problem here. A company must be run by its shareholders, not public opinion. Yet now that the government has become the unlikely majority shareholder in a host of large Wall Street institutions, it is wielding considerable power as to how those firms are run. Just Wednesday the company disclosed a new regulatory agreement, crafted by the Treasury Department, which will further govern how the company is managed.
In essence, we’ve witnessed a coup: Large corporations are now being micromanaged by political bureaucrats who, unlike shareholders, do not have an ownership interest on the line. The same scenario played out back in October when AIG (AIG: 1.28, -0.01, -0.77%) held its now infamous spa retreat.
Whether it’s CEO pay, a private plane or Super Bowl ad, companies in which the government holds an ownership stake will forever be hounded about every dollar they spend or move they make. Note that this doesn’t happen in private companies, only “publicly owned” ones. We’re now involuntary investors in property in which we can neither use nor dispose of.
The textbook definition of capitalism is an economic system by which the means of producing wealth is privately owned. The only way to fix this is to reverse the trend of further government ownership of the economy. A “free market” owned and controlled by Uncle Sam simply won’t work.
The way to fix this is for the companies to liquidate and pay the tax payers back their money. Hope they start Monday, then we will see what the former, ceo's say about planes and bonuses.
Regarding the corporatist economics of Mussolini's fascist regime:
"In actual fact, it is the State, i.e. the taxpayer, who has become responsible to private enterprise. In Fascist Italy the State pays for the blunders of private enterprise. As long as business was good, profit remained to private initiative. When the depression came, the Government added the loss to the tax-payer's burden. Profit is private and individual. Loss is public and social."Salvemini goes on to discuss the bailouts, which were targeted to large corporations but not small businesses. All of this sounds familiar to everyone, I'm sure...--Under the Axe of Fascism, by Gaetano Salvemini, p. 416 (1936).
"In December 1932 a Fascist financial expert, Signor Mazuchelli, estimated that more than 8.5 billion lire had been paid out by the Government from 1923 to 1932 in order to help depressed industries (Rivista Bancaria, December 15th, 1932, p.1,007). From December 1932 to 1935 the outlay must have doubled."--Under the Axe of Fascism, by Gaetano Salvemini (1936).
Isn't that what Marxist dictators do, seize control of private property?
AIG was and is different thing however. That was a repayable short term loan, not a forgivable bailout, so the gov. did not become the controlling shareholder.