The Real Threat to Capitalism

The biggest threat Capitalism faces is not Socialism. The biggest threat capitalism faces are scummy sales people who lie to inflate the value of assets. It is scandals like Enron, people like Bernie Madoff, and scoundrels like Joe Nacchio who pose the greatest threat to capitalism. They give Socialists all the ammo they need to attack freedom and Capitalism.

Why? Because they put profits before people. They lack a moral compass which tells them they should only be compensated for creating real value. They want the upside of capitalism, but don't want to be held accountable when things don't go their way.

I love capitalism because it creates value, improves living standards, requires innovation, and is the best support of freedom I know. I love the market because it is like gravity, you can't fight it, or you can, but eventually, it will win. The market is what it is. Nothing more, nothing less. If you make stupid mistakes, put profits before integrity, try to screw people over by pretending like you are adding value when you really are not, it will punish you. If you create true value it will reward you. I know, sometimes it takes a while for the market to right itself - but it always does, eventually.

This is why I am vehemently opposed to the suspension of mark-to-market accounting rules. In any game, you need rules. If players don't follow the rules, no one will play with them any more. Eventually, they will be revealed as untrustworthy, and they will be kicked out of the game. When Enron exploded it was because they were inflating the values of their assets on their books. The same was true for Qwest, when they were run by Nacchio. They LIED about the value of their assets. This made all their enormous debt look palatable to what was at the time US West. Nacchio is in prison now - that is where he should be.

Mark-to-market accounting requires firms to tell the truth about the value of the assets on their balance sheets. It prevents fraud. It establishes the rules of the game so everyone can play.

The suspension of mark-to-market accounting for the banks that are in trouble is a terrible idea. The theory is that it is unfair for them to have to write down the value of the loans they hold on their books. The logic goes this way: if we just give it some time, the value of the bad loans on their books will increase. Then, they will be able to sell them, the economy will recover, and everything will be hunky dory!

NOT! Please, let's not give capitalism a bad name by legalizing fraud! Lying about the value of your assets to artificially increase your share price is nothing short of criminal - it is fraud. Do we want Wall Street run by people of integrity or greedy, unscrupulous people like Gordon Gecko? COME ON PEOPLE!

I am very irked with Karen Finerman (CNBC's Fast Money). I really used to like her. I am completely disturbed by her call for an end to mark-to-market accounting by the banks. I know in general she is a very smart lady. However, she was stupid enough to buy CITI shares, and recommend that viewers do the same about 6 months ago! If you listened to her you lost your shirt. My guess is that she lost tons of $ too, and is desperate to maintain her standing on the Street. Therefore, she has decided that we should suspend mark-to-market rules so she personally can regain some of her fortune. Don't listen to her. She is in this for herself.


http://www.cnbc.com/id/29549920

Citi is bankrupt - it will be nationalized. Stay out. If you were unlucky enough buy on her recommendation six months ago sell the bounce when they unfairly change the accounting rules.

The emperor has no clothes!