What a profound short little paragraph that says it all!!!
"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."
~~~~~ Dr. Adrian Rogers, 1931
Thanks,
Steve
Tuesday, March 31, 2009
Capitalism
Dear Agents of Change,
Many of you probably think I have way too much time on my hands, and you’re probably right. My passion for this cause is becoming somewhat of an obsession—did I see a collective head nod? Maybe you should just consider this a long tweet, or tweeter, or twitter, or hell, maybe just tolerate it because I’m a twit.
This message will be riddled with opinion so take it with a bushel of salt.
While our primary grass roots group mission is to curb executive pay excess, we are also trying to preserve capitalism, which is being attacked from many different directions, not the least of which is by groups wanting to socialize our system as a cure to the unfair relative pay issues we are targeting.
Lest we forget, the time proven denominator driving the American economy over the last 300 years has been our unique brand of capitalism. Individuals work hard, many taking great personal risk, investing their hard earned assets, with the hope of being personally rewarded in exchange for improving society’s quality of life. Socialism, on the other hand, is a failed brand of governance, designed to dilute personal reward in favor of the group, while lavishing riches on a tiny fraction of royalty at the very top. [Tom Kleuser sent a great email on the risks of socialism as played out in the classroom. Tom please send it to all, as it is ripe with wisdom].
So, on this crisp Sunday morning, forgive my unsolicited sermon linking capitalism and life’s design. Some of this rambling is redundant, very opinionated, and it was covered in previous emails and letters. Sunday seems appropriate for this essay because, as we were taught at Nolan, it’s God’s day. Undeniably, the concept of evolution is highly controversial and I will be the first to acknowledge I DON’T KNOW THE TRUTH [in fact, maybe I CAN’T HANDLE THE TRUTH!]. Like, our esteemed classmate Michael Matetich reminded me, regarding a different topic, ‘Only God knows for sure and he ain’t tellin’. But, as I think Mike would agree, he often leaves fascinating clues.
What I do know, or I think I know, is that we all are blessed with some common sense [hopefully], and have the God given ability to favor, probabilistically, certain propositions over others. Further, by way of background, often in my darker hours, I have read the New Testament word for word [paying particularly close attention to those words uttered by Christ himself] about 5 times [yea, that means I’ve been in the deep emotional shitter at least 5 times]. In that reading, filled with analogies and parables, I’ll be darned if I can find anything that rules out evolution.
Let’s Play School
At the risk of being struck down before I can complete this sentence, let’s PRETEND that our universe is a classroom project in some never-never land. We are the teachers [sweet revenge], and we have given our students—only two students—a class project with the following mandate…..‘Create a physical system, with units of life, designed to be self-sustaining, with the perpetuity of an infinitely repeating process.’ (What a mouthful!). After our two students display the requisite look of disbelief and disdain at a project sooooo time consuming, they resign themselves to the work. Of course, our job as teachers is to award grades, depending on the quality of that work [even sweeter revenge].
The first student, let’s call him Zeus, is brilliant but a bit lazy. He comes up with a system where on the first day he creates the stage for life and calls it the heavens and the earth. Then he becomes a bit fatigued, bored, and decides to take a break, do a little partying with friends [it was at this party he developed a lightning fetish]. Upon returning to his homework, he decides to create a little more each day, until on the sixth day he waves his substantial magic wand (where does he get those wonderful toys?…the Joker) and creates people, who stay the same through the history of the universe. Exhausted, he rests the 7th day. Wow! Quite spectacular, given current human prospective, but we must remember, in our little example, we are the GRAND teachers and must stay cool and not be so easily impressed. It looks so….well, common. Plus, we still have another student project to be evaluated before we issue Zeus a grade, and we like to grade on a curve… (Nightmare memories).
Our second student, let’s call him God, is much more thoughtful and ambitious in his design (woops! political reprimand….please mentally substitute His/Her wherever, I type His). His system is considerably more complex, and uses the language of mathematics to tie it all together (always his best subject in heaven). The complexity of his design is simple [oxymoron alert]. In God’s plan, if some life form is not working properly, no problem, it gets eliminated thru a lack of competitiveness; simple. But, if a complex species is successful, and in fact improving, often as a result of the random mutation brought on by recurring genetic dice rolls, the evolving result is truly magical. [God’s clever enough to fully understand that randomness on a massive scale is not random at all…..There he goes using that Math again].
God’s system begins with the simplicity of two miraculous elements, hydrogen and helium. These mysterious little buggers make up 98% of everything he needs for his project to succeed—he does spice it with a tiny fraction of other stuff. He then invents what has turned out to be the most mysterious, difficult to figure force in the universe, GRAVITY. Though Newton labeled it a force (because he suffered an apple headache), science, even today, can’t figure how or why it does what it does. But our brilliant student, God, knows. So after he creates hydrogen and helium he merely puts them in close proximity and then aided by the magical force of gravity, the materials start collapsing in upon themselves with a near infinite, runaway force*. As the mass became smaller the gravity becomes stronger and stronger until all the hydrogen, helium and stuff is condensed into a tiny seed with near infinite mass. (Boy, did you see the look on Zeus’s face when God revealed that little gem). Anyway, once this pin point of material reaches sufficient density, like a coiled spring it becomes unstable and explodes with a big bang (hmmm, where have I heard that?). This massive detonation sends his two elements hurling through a void, call it space, carrying the entire payload necessary to create the magnificent universe that contains all life. Thru bumps, chemical and nuclear reactions, and perturbations of all sorts, the material arranges itself in so many billions of configurations that some of those configurations become a friendly environment for life to prosper. (Drop the hubris and please notice the plural intent for life. As Jody Foster said in the movie Contact… ’if there aren’t other life forms out there it would be a terrible waste of space’. God is not wasteful.)
Eventually, given a nice environment, little, iddie-biddie single cells of life form. Bacteria are born. And, in the fullness of time these little guys become increasingly complex. (I hope our scientific classmate, Mike Boteler, cuts me a little slack with my reckless use of the facts). As complexity accelerates, God’s natural selection genius provides for weakness to be eliminated and strength to succeed and prosper. (Sound a little like capitalism?) If a life form cannot withstand the rigors of existence, no problem, it fades away and is replaced by life forms more resilient and capable of greater hang time. This progresses through time, ad infinitum, OR until certain life forms become so intelligent and powerful they are capable of “killing” the whole system [think super nuclear war]. But God even has a plan to deal with our destructive tendencies, by creating an expanding universe that eventually reverses course and collapses in upon itself he gets a do over every 100 billion years. [Hey, I’m not trying to flaunt my one and only course in astrophysics, but that is what I’m hearing at the physics water cooler]. As the system collapses, gravity, at the core increases to unimaginable intensity, feeding upon itself until it creates a series of mega black holes that unite, becoming one monstrous bully. A vacuum so colossal and a gravitational force so great, that all the matter in the universe is condensed into a space smaller than a pinpoint. As soon as this total collapse of matter and energy is completed, it again takes on the characteristic of an unstable coiled spring and explodes with a big bang, starting the process all over again; a perpetual system. God did it. He completed the parameters of our assignment.
As for Zeus, well, I guess he kind of did it to, I’m just not quite sure about the perpetuity part and I’m having a bit of problem with his magic wand deal.
You must give a grade.
Ok who do we give the best grade to? Whose system proves itself to be the most brilliant, all knowing, all powerful, etc. etc.? Even though, I am frightened by the Zeus talent with the thunderbolt thing, and afraid of being struck silly, I am going to award God an A+++ and proclaim his system superior. (Of course I will be wearing my rubber sole shoes when I do it).
Now, God knows we can’t understand the complexity of what he has done, so he uses a book filled with stories and parables to drive his points home. (Zeus copied God’s book and told everyone to take it literally).
Many of the forces unleashed by the explosion of hydrogen and helium are beyond our understanding, not the least of which is our spiritual life. God put that in there because he knew our ever increasing complexity needed a connection to a power source outside our physical world in order to be successful. (Also he wants someone to chat with thru eternity that appreciates his work). You can’t see this force of spirit, but then you can’t see gravity either. And just as sure as gravity sucks, universal law affords us the opportunity (thru prayer) to connect with his supernatural power and peace.
Finally, it is important we keep our spiritual house in order till the very end in order to gain all the fruits of eternity. His agent told us so. When we die our soul/spirit continues through eternity in the same state of peace (or lack thereof) it achieved in life. So I hope I don’t get caught napping, with the spirit out of kilter in the end, because the spiritual law like the law of gravity is automatic. It’s just natural law. Or is it super natural law? Whatever, it’s God’s law.
I want to stop now (and I know those of you stubborn enough to make it this far are praying I do), but now I’m supposed to tie this to capitalism. Begging your forgiveness I will save that for later (the sigh of relief is palpable).
Steve Hartnett
Member of grass roots movement
to preserve capitalism and reign in exec pay
*When a given piece of matter is condensed to half its original size it’s gravitational force is increased exponentially causing collapse, which in turn creates more force and further collapse. This process can continue until things get really, really small.
Post Script: Even though I don’t think any of us are atheist I am prone to argue with those that are. One story I like to use is …..If we went by spacecraft to a never visited, distant planet and found a functioning computer in a cave, would it be more likely that the computer was assembled by an intelligent force or by some unintelligent randomness. Aren’t life and the laws of the universe infinitely more complex than a computer? (Also, Einstein believed in God calling him an intelligent designer...and he was no naïve dummy)
Draft Notes:
God knows we can’t understand the complexity of what he has done so he uses the same people that Zeus used and the same book that Zeus used. The only difference is, in Zeus’s project the book is literal but in God’s it’s parabolic.
Both Zeus and God were thoughtful enough to give intelligent life forms what they called souls and they both split off a little chunk of themselves to create an agent named Jesus Christ to make sure we understood all the rules. Well, at least the Golden Rule. Now they both would have intelligent units [souls] to enjoy sharing eternity, and a cold one, with.
Ok let’s award the grades. Again at the risk of being struck silly I must go with God’s project as the best, and deserving of A+. Zeus did a fine job and I award him a B. I know this blasphemy flies in the face of how many interpret creation but it’s just my opinion.
With Zeus’s love of lightning we must be careful of how we break the news to him or we risk becoming toast
Now, one of our brainiac life forms—a Benjamin Franklin, or Brother Ed type—call him John Doe, in a moment of clarity, creates the system of economic capitalism that closely mimics God’s plan [he figured there wasn’t much chance of improving it]. This system grants personal gain to all those who contribute things deemed valuable by the group. The more valuable to the group the greater the personal gain. Just like in the grand scheme of creation, strength is rewarded and weakness is discouraged. [God gave us a sufficient dose of compassion that we cannot help but have a safety net to prevent total failure, although it may be our undoing].
Although I have never been quite sure why many Christians are threatened by the Creators use of evolution as a brilliant tool, I am sure I will be attacked by many creationalists among us. This is a good thing because I admit I DON’T KNOW THE TRUTH. I am merely stating an opinion that makes the most sense to me. Other little hints have been dropped supporting evolution in that we all have a tailbone that only makes sense if our ancestors had tails or the appendix is only provides a benefit to life on all fours.
Many of you probably think I have way too much time on my hands, and you’re probably right. My passion for this cause is becoming somewhat of an obsession—did I see a collective head nod? Maybe you should just consider this a long tweet, or tweeter, or twitter, or hell, maybe just tolerate it because I’m a twit.
This message will be riddled with opinion so take it with a bushel of salt.
While our primary grass roots group mission is to curb executive pay excess, we are also trying to preserve capitalism, which is being attacked from many different directions, not the least of which is by groups wanting to socialize our system as a cure to the unfair relative pay issues we are targeting.
Lest we forget, the time proven denominator driving the American economy over the last 300 years has been our unique brand of capitalism. Individuals work hard, many taking great personal risk, investing their hard earned assets, with the hope of being personally rewarded in exchange for improving society’s quality of life. Socialism, on the other hand, is a failed brand of governance, designed to dilute personal reward in favor of the group, while lavishing riches on a tiny fraction of royalty at the very top. [Tom Kleuser sent a great email on the risks of socialism as played out in the classroom. Tom please send it to all, as it is ripe with wisdom].
So, on this crisp Sunday morning, forgive my unsolicited sermon linking capitalism and life’s design. Some of this rambling is redundant, very opinionated, and it was covered in previous emails and letters. Sunday seems appropriate for this essay because, as we were taught at Nolan, it’s God’s day. Undeniably, the concept of evolution is highly controversial and I will be the first to acknowledge I DON’T KNOW THE TRUTH [in fact, maybe I CAN’T HANDLE THE TRUTH!]. Like, our esteemed classmate Michael Matetich reminded me, regarding a different topic, ‘Only God knows for sure and he ain’t tellin’. But, as I think Mike would agree, he often leaves fascinating clues.
What I do know, or I think I know, is that we all are blessed with some common sense [hopefully], and have the God given ability to favor, probabilistically, certain propositions over others. Further, by way of background, often in my darker hours, I have read the New Testament word for word [paying particularly close attention to those words uttered by Christ himself] about 5 times [yea, that means I’ve been in the deep emotional shitter at least 5 times]. In that reading, filled with analogies and parables, I’ll be darned if I can find anything that rules out evolution.
Let’s Play School
At the risk of being struck down before I can complete this sentence, let’s PRETEND that our universe is a classroom project in some never-never land. We are the teachers [sweet revenge], and we have given our students—only two students—a class project with the following mandate…..‘Create a physical system, with units of life, designed to be self-sustaining, with the perpetuity of an infinitely repeating process.’ (What a mouthful!). After our two students display the requisite look of disbelief and disdain at a project sooooo time consuming, they resign themselves to the work. Of course, our job as teachers is to award grades, depending on the quality of that work [even sweeter revenge].
The first student, let’s call him Zeus, is brilliant but a bit lazy. He comes up with a system where on the first day he creates the stage for life and calls it the heavens and the earth. Then he becomes a bit fatigued, bored, and decides to take a break, do a little partying with friends [it was at this party he developed a lightning fetish]. Upon returning to his homework, he decides to create a little more each day, until on the sixth day he waves his substantial magic wand (where does he get those wonderful toys?…the Joker) and creates people, who stay the same through the history of the universe. Exhausted, he rests the 7th day. Wow! Quite spectacular, given current human prospective, but we must remember, in our little example, we are the GRAND teachers and must stay cool and not be so easily impressed. It looks so….well, common. Plus, we still have another student project to be evaluated before we issue Zeus a grade, and we like to grade on a curve… (Nightmare memories).
Our second student, let’s call him God, is much more thoughtful and ambitious in his design (woops! political reprimand….please mentally substitute His/Her wherever, I type His). His system is considerably more complex, and uses the language of mathematics to tie it all together (always his best subject in heaven). The complexity of his design is simple [oxymoron alert]. In God’s plan, if some life form is not working properly, no problem, it gets eliminated thru a lack of competitiveness; simple. But, if a complex species is successful, and in fact improving, often as a result of the random mutation brought on by recurring genetic dice rolls, the evolving result is truly magical. [God’s clever enough to fully understand that randomness on a massive scale is not random at all…..There he goes using that Math again].
God’s system begins with the simplicity of two miraculous elements, hydrogen and helium. These mysterious little buggers make up 98% of everything he needs for his project to succeed—he does spice it with a tiny fraction of other stuff. He then invents what has turned out to be the most mysterious, difficult to figure force in the universe, GRAVITY. Though Newton labeled it a force (because he suffered an apple headache), science, even today, can’t figure how or why it does what it does. But our brilliant student, God, knows. So after he creates hydrogen and helium he merely puts them in close proximity and then aided by the magical force of gravity, the materials start collapsing in upon themselves with a near infinite, runaway force*. As the mass became smaller the gravity becomes stronger and stronger until all the hydrogen, helium and stuff is condensed into a tiny seed with near infinite mass. (Boy, did you see the look on Zeus’s face when God revealed that little gem). Anyway, once this pin point of material reaches sufficient density, like a coiled spring it becomes unstable and explodes with a big bang (hmmm, where have I heard that?). This massive detonation sends his two elements hurling through a void, call it space, carrying the entire payload necessary to create the magnificent universe that contains all life. Thru bumps, chemical and nuclear reactions, and perturbations of all sorts, the material arranges itself in so many billions of configurations that some of those configurations become a friendly environment for life to prosper. (Drop the hubris and please notice the plural intent for life. As Jody Foster said in the movie Contact… ’if there aren’t other life forms out there it would be a terrible waste of space’. God is not wasteful.)
Eventually, given a nice environment, little, iddie-biddie single cells of life form. Bacteria are born. And, in the fullness of time these little guys become increasingly complex. (I hope our scientific classmate, Mike Boteler, cuts me a little slack with my reckless use of the facts). As complexity accelerates, God’s natural selection genius provides for weakness to be eliminated and strength to succeed and prosper. (Sound a little like capitalism?) If a life form cannot withstand the rigors of existence, no problem, it fades away and is replaced by life forms more resilient and capable of greater hang time. This progresses through time, ad infinitum, OR until certain life forms become so intelligent and powerful they are capable of “killing” the whole system [think super nuclear war]. But God even has a plan to deal with our destructive tendencies, by creating an expanding universe that eventually reverses course and collapses in upon itself he gets a do over every 100 billion years. [Hey, I’m not trying to flaunt my one and only course in astrophysics, but that is what I’m hearing at the physics water cooler]. As the system collapses, gravity, at the core increases to unimaginable intensity, feeding upon itself until it creates a series of mega black holes that unite, becoming one monstrous bully. A vacuum so colossal and a gravitational force so great, that all the matter in the universe is condensed into a space smaller than a pinpoint. As soon as this total collapse of matter and energy is completed, it again takes on the characteristic of an unstable coiled spring and explodes with a big bang, starting the process all over again; a perpetual system. God did it. He completed the parameters of our assignment.
As for Zeus, well, I guess he kind of did it to, I’m just not quite sure about the perpetuity part and I’m having a bit of problem with his magic wand deal.
You must give a grade.
Ok who do we give the best grade to? Whose system proves itself to be the most brilliant, all knowing, all powerful, etc. etc.? Even though, I am frightened by the Zeus talent with the thunderbolt thing, and afraid of being struck silly, I am going to award God an A+++ and proclaim his system superior. (Of course I will be wearing my rubber sole shoes when I do it).
Now, God knows we can’t understand the complexity of what he has done, so he uses a book filled with stories and parables to drive his points home. (Zeus copied God’s book and told everyone to take it literally).
Many of the forces unleashed by the explosion of hydrogen and helium are beyond our understanding, not the least of which is our spiritual life. God put that in there because he knew our ever increasing complexity needed a connection to a power source outside our physical world in order to be successful. (Also he wants someone to chat with thru eternity that appreciates his work). You can’t see this force of spirit, but then you can’t see gravity either. And just as sure as gravity sucks, universal law affords us the opportunity (thru prayer) to connect with his supernatural power and peace.
Finally, it is important we keep our spiritual house in order till the very end in order to gain all the fruits of eternity. His agent told us so. When we die our soul/spirit continues through eternity in the same state of peace (or lack thereof) it achieved in life. So I hope I don’t get caught napping, with the spirit out of kilter in the end, because the spiritual law like the law of gravity is automatic. It’s just natural law. Or is it super natural law? Whatever, it’s God’s law.
I want to stop now (and I know those of you stubborn enough to make it this far are praying I do), but now I’m supposed to tie this to capitalism. Begging your forgiveness I will save that for later (the sigh of relief is palpable).
Steve Hartnett
Member of grass roots movement
to preserve capitalism and reign in exec pay
*When a given piece of matter is condensed to half its original size it’s gravitational force is increased exponentially causing collapse, which in turn creates more force and further collapse. This process can continue until things get really, really small.
Post Script: Even though I don’t think any of us are atheist I am prone to argue with those that are. One story I like to use is …..If we went by spacecraft to a never visited, distant planet and found a functioning computer in a cave, would it be more likely that the computer was assembled by an intelligent force or by some unintelligent randomness. Aren’t life and the laws of the universe infinitely more complex than a computer? (Also, Einstein believed in God calling him an intelligent designer...and he was no naïve dummy)
Draft Notes:
God knows we can’t understand the complexity of what he has done so he uses the same people that Zeus used and the same book that Zeus used. The only difference is, in Zeus’s project the book is literal but in God’s it’s parabolic.
Both Zeus and God were thoughtful enough to give intelligent life forms what they called souls and they both split off a little chunk of themselves to create an agent named Jesus Christ to make sure we understood all the rules. Well, at least the Golden Rule. Now they both would have intelligent units [souls] to enjoy sharing eternity, and a cold one, with.
Ok let’s award the grades. Again at the risk of being struck silly I must go with God’s project as the best, and deserving of A+. Zeus did a fine job and I award him a B. I know this blasphemy flies in the face of how many interpret creation but it’s just my opinion.
With Zeus’s love of lightning we must be careful of how we break the news to him or we risk becoming toast
Now, one of our brainiac life forms—a Benjamin Franklin, or Brother Ed type—call him John Doe, in a moment of clarity, creates the system of economic capitalism that closely mimics God’s plan [he figured there wasn’t much chance of improving it]. This system grants personal gain to all those who contribute things deemed valuable by the group. The more valuable to the group the greater the personal gain. Just like in the grand scheme of creation, strength is rewarded and weakness is discouraged. [God gave us a sufficient dose of compassion that we cannot help but have a safety net to prevent total failure, although it may be our undoing].
Although I have never been quite sure why many Christians are threatened by the Creators use of evolution as a brilliant tool, I am sure I will be attacked by many creationalists among us. This is a good thing because I admit I DON’T KNOW THE TRUTH. I am merely stating an opinion that makes the most sense to me. Other little hints have been dropped supporting evolution in that we all have a tailbone that only makes sense if our ancestors had tails or the appendix is only provides a benefit to life on all fours.
Thursday, March 26, 2009
March 6, 2009
To whom it may concern,
As a late stage cancer patient my motivation for writing this letter is selfishly simple; gain favor with our capitalistic maker through a humble effort to help “thy neighbor.” Our capitalistic system mimics the creator’s brilliant, “tough love,” self improving system of natural selection; reward strength and success and discourage weakness and failure (anyone want to take a shot at improving His plan?).
Parasite Found
Our divinely endorsed free market capitalistic system is under attack from within. The assault was initiated by executive betrayal of duty regarding their compensation. This was followed by a misdirected and counter-productive government response; tax success. As a result, we find ourselves in what might be called, The Great Repression.
Today in corporate board rooms there are parasites, cloaked in Armani suits, gorging themselves on the muscle of wealth creation; they are killing both the working class and risk taking investors. While costly middlemen – gluttonous carried interests and overpriced investment managers – are extracting the icing off an otherwise mediocre cake, an even more sinister misappropriation is playing out in corporate board rooms where corporate insiders cut themselves bigger pieces of a finite wage cake. Our great country was built when fortunes of “old money” were created by investors taking great personal risk to grow the economy. Much of today’s “new money” feeds on the risk and labor of others; they act as leeches, extracting vital economic energy from the system. In desultory response, searching for equalizing justice, an angered and confused government raises taxes on the most successful, impeding the natural selection process that is economic growth.
I am a 60 year old investor, academically trained in finance and entrusted with funds from 150 family members and friends. This duty I take very seriously. Also, I am the founder of a restaurant company that was taken public in 1994. As chairman of our fledgling company I had a front row seat (and was a reluctant beneficiary) to the sleazy, self-fueling dynamics of insider compensation.
Thou Shall Not Tempt
We are all guilty, we are all suckers. We deserve punishment when we negligently provide insiders the “attractive nuisance” of writing their own checks. The resulting value drainage from savings and retirement accounts is relentless and will eventually be forced on the tax payers. The trillion dollar problem is hiding in plain sight.
It is no big surprise that the genesis of our current meltdown is rooted firmly in the overreaching behavior of corporate decision makers. Why did they do it? (Subtle hint: their compensation package encouraged recklessness). Two inequities are prominent with executive pay. Firstly, the outrageous, ever expanding size of these compensation packages and secondly, their stealth, hard to value structure. We all want to hire the best and brightest to steward the companies we invest in, but our total disregard for cost when attracting talent is akin to a drunk tearing up the room looking for a bottle.
While scrutiny is currently being applied to executives in the banking system, the problem goes well beyond banking. Common sense whispers…“something is rotten in Denmark” regarding the compensation programs in all industries across the nation. Consider that the compensation of the average CEO has grown from about 25 times the average employee to upwards of 250 times today (not counting personal perks like private jets and sinful golden parachutes). Executives are not 10 times more valuable today than they were in the past but they have found 10 times more ways to game the system.
The Endless Loop
Scientists understand the runaway greenhouse effect on Venus is caused by an ever increasing carbon dioxide canopy which traps heat; this releases more carbon dioxide which further thickens the canopy. As the canopy thickens less heat can escape, causing surface temperatures of 700+ degrees (only a convenient analogy and not meant as a position on climate change). Corporate insider compensation is trapped in this same sort of self increasing loop.
As chairman at board meetings, I quickly found an uncomfortable dynamic at work. We were in charge of our own compensation (smell that?). This created an obscene conflict of interest because we represented both the shareholders and ourselves! Guess who was the favorite in that conflict?
When we discussed compensation for executives — which was the same time we would discuss board compensation — they would roll out reams of facts and statistics supporting how well upper management was being paid at other companies of similar size (we must keep up with the ever increasing wealth of the corporate Jones’s). Companies of below average compensation were conveniently omitted from the data base – after all, we were better than average. The CEO, or possibly a board member who was a golfing buddy of the CEO, would present data supporting a large pay increase for our amazingly talented executive. After a wink and nod, the shamefully biased voting board, in quid pro quo collusion with the incestuous compensation committee (hired and fired by the board), would approve these increases, hiding behind “comparables” from other companies. Just like Venus, the ever expanding salary loop reinforces itself with no end in sight.
With everyone in the room looking for ways to break new “justifiable” ground for higher pay the problem starts working its way down the high end of the corporate ladder. After all, it is hard to justify an astronomical CEO package without giving a huge package to other executives. Soon, the entire upper management team’s compensation becomes bloated (in 2006 CEO’s of America gave themselves a 38% raise at the expense of those doing the heavy lifting!). How do you like them apples?
Weapons of Wealth Destruction
Ever wonder why executive ‘group think’ loves risky leverage? THINK OPTIONS. Here is why options are the number one problem with compensation packages and inappropriate for executives (don’t forget to hold your nose):
(1) A general lack of understanding of options encourages doling them out like candy, when they are truly “weapons of wealth destruction.”
(2) Options create risk management vertigo by encouraging executives to take unreasonable business risk. THE PRINCIPLE DRIVER OF OPTION VALUE IS VOLATILITY.
(3) Options destroy fiduciary impartiality regarding dividend policy. Dividend payout always has a negative impact on option value, so executives have an incentive to limit dividends.
(4) Academics have continually proven that most of a company’s change in value is driven by GDP and industry prospects. Options often pay off for a general rise in GDP, not for exceptional CEO performance.
(5) In bull markets, options pay off like winning lottery tickets. In bad times, a dark and deadly comedy plays; featuring the threat of abandoning ship by the very executives who set the course. They scream out the need to re-price their options blaming the economy for the falling share price (but never giving GDP credit during the expansion phase). RE-PRICING IS THE ULTIMATE RIP-OFF and we are about to see a wave of option re-pricing the likes of which will defy imagination.
A Possible Solution
As a trader of financial futures, I was stunned to learn that financial institutions levered 50:1 were unwilling to take defensive action when the market started falling. Their leverage ratio only allowed a 2% fall in value before going underwater; unforgiveable. Worse still, the instruments to hedge this over exposure were liquid and readily available.
In 2006, as a small investor I learned that insurance against mortgage default was available and I purchased a large chunk to protect my overall portfolio against economic collapse; it was repaid 5 to 1. Questions: Why didn’t the CEO’s of over exposed entities do the same? Where was the board? Short answer: Watching their compensation packages.
Although I am not a fan of big government, I recognize the good and the necessity of intervention on certain issues. Just like the government must limit highway speed to protect the innocent, so to they must limit runaway executive compensation. Below is a four part solution:
(1) The first, though simple, is the most critical… outlaw stock options as compensation. Substitute restricted stock, eliminating risk management vertigo.
(2) Roll back CEO pay, and require shareholder approval beyond a “reasonable” number. If insiders want to make a democratic run at shareholder generosity, fine, but shareholder approval must be requested on a separate instrument from the dense legal information sent out by companies. It should be requested in bold print with emphasis on the importance of insider conflicts, golden parachutes, and include warnings about runaway compensation.
(3) Incorporate this new legislation all at once to prevent brain drain between industries.
(4) Appoint the venerable John C. Bogle and Warren Buffet - who are proven risk takers and guardians of shareholder value - to review these suggestions and edit/add their own.
In conclusion, executive pay is inequitable and destructive due to both size and structure. Executives will continue to take excessive risk in a quest to justify excessive pay. Eventually the outrage will be remediated but the hour glass of capitalism is low on sand. There is no democracy in our current methodology. It is a hidden dictatorship riddled with quid pro quo. The quiet majority does not like it one bit, but we only have ourselves to blame. We allow the foxes to guard the shareholder hen house.
Most sincerely,
Steve Hartnett
United States citizen
To whom it may concern,
As a late stage cancer patient my motivation for writing this letter is selfishly simple; gain favor with our capitalistic maker through a humble effort to help “thy neighbor.” Our capitalistic system mimics the creator’s brilliant, “tough love,” self improving system of natural selection; reward strength and success and discourage weakness and failure (anyone want to take a shot at improving His plan?).
Parasite Found
Our divinely endorsed free market capitalistic system is under attack from within. The assault was initiated by executive betrayal of duty regarding their compensation. This was followed by a misdirected and counter-productive government response; tax success. As a result, we find ourselves in what might be called, The Great Repression.
Today in corporate board rooms there are parasites, cloaked in Armani suits, gorging themselves on the muscle of wealth creation; they are killing both the working class and risk taking investors. While costly middlemen – gluttonous carried interests and overpriced investment managers – are extracting the icing off an otherwise mediocre cake, an even more sinister misappropriation is playing out in corporate board rooms where corporate insiders cut themselves bigger pieces of a finite wage cake. Our great country was built when fortunes of “old money” were created by investors taking great personal risk to grow the economy. Much of today’s “new money” feeds on the risk and labor of others; they act as leeches, extracting vital economic energy from the system. In desultory response, searching for equalizing justice, an angered and confused government raises taxes on the most successful, impeding the natural selection process that is economic growth.
I am a 60 year old investor, academically trained in finance and entrusted with funds from 150 family members and friends. This duty I take very seriously. Also, I am the founder of a restaurant company that was taken public in 1994. As chairman of our fledgling company I had a front row seat (and was a reluctant beneficiary) to the sleazy, self-fueling dynamics of insider compensation.
Thou Shall Not Tempt
We are all guilty, we are all suckers. We deserve punishment when we negligently provide insiders the “attractive nuisance” of writing their own checks. The resulting value drainage from savings and retirement accounts is relentless and will eventually be forced on the tax payers. The trillion dollar problem is hiding in plain sight.
It is no big surprise that the genesis of our current meltdown is rooted firmly in the overreaching behavior of corporate decision makers. Why did they do it? (Subtle hint: their compensation package encouraged recklessness). Two inequities are prominent with executive pay. Firstly, the outrageous, ever expanding size of these compensation packages and secondly, their stealth, hard to value structure. We all want to hire the best and brightest to steward the companies we invest in, but our total disregard for cost when attracting talent is akin to a drunk tearing up the room looking for a bottle.
While scrutiny is currently being applied to executives in the banking system, the problem goes well beyond banking. Common sense whispers…“something is rotten in Denmark” regarding the compensation programs in all industries across the nation. Consider that the compensation of the average CEO has grown from about 25 times the average employee to upwards of 250 times today (not counting personal perks like private jets and sinful golden parachutes). Executives are not 10 times more valuable today than they were in the past but they have found 10 times more ways to game the system.
The Endless Loop
Scientists understand the runaway greenhouse effect on Venus is caused by an ever increasing carbon dioxide canopy which traps heat; this releases more carbon dioxide which further thickens the canopy. As the canopy thickens less heat can escape, causing surface temperatures of 700+ degrees (only a convenient analogy and not meant as a position on climate change). Corporate insider compensation is trapped in this same sort of self increasing loop.
As chairman at board meetings, I quickly found an uncomfortable dynamic at work. We were in charge of our own compensation (smell that?). This created an obscene conflict of interest because we represented both the shareholders and ourselves! Guess who was the favorite in that conflict?
When we discussed compensation for executives — which was the same time we would discuss board compensation — they would roll out reams of facts and statistics supporting how well upper management was being paid at other companies of similar size (we must keep up with the ever increasing wealth of the corporate Jones’s). Companies of below average compensation were conveniently omitted from the data base – after all, we were better than average. The CEO, or possibly a board member who was a golfing buddy of the CEO, would present data supporting a large pay increase for our amazingly talented executive. After a wink and nod, the shamefully biased voting board, in quid pro quo collusion with the incestuous compensation committee (hired and fired by the board), would approve these increases, hiding behind “comparables” from other companies. Just like Venus, the ever expanding salary loop reinforces itself with no end in sight.
With everyone in the room looking for ways to break new “justifiable” ground for higher pay the problem starts working its way down the high end of the corporate ladder. After all, it is hard to justify an astronomical CEO package without giving a huge package to other executives. Soon, the entire upper management team’s compensation becomes bloated (in 2006 CEO’s of America gave themselves a 38% raise at the expense of those doing the heavy lifting!). How do you like them apples?
Weapons of Wealth Destruction
Ever wonder why executive ‘group think’ loves risky leverage? THINK OPTIONS. Here is why options are the number one problem with compensation packages and inappropriate for executives (don’t forget to hold your nose):
(1) A general lack of understanding of options encourages doling them out like candy, when they are truly “weapons of wealth destruction.”
(2) Options create risk management vertigo by encouraging executives to take unreasonable business risk. THE PRINCIPLE DRIVER OF OPTION VALUE IS VOLATILITY.
(3) Options destroy fiduciary impartiality regarding dividend policy. Dividend payout always has a negative impact on option value, so executives have an incentive to limit dividends.
(4) Academics have continually proven that most of a company’s change in value is driven by GDP and industry prospects. Options often pay off for a general rise in GDP, not for exceptional CEO performance.
(5) In bull markets, options pay off like winning lottery tickets. In bad times, a dark and deadly comedy plays; featuring the threat of abandoning ship by the very executives who set the course. They scream out the need to re-price their options blaming the economy for the falling share price (but never giving GDP credit during the expansion phase). RE-PRICING IS THE ULTIMATE RIP-OFF and we are about to see a wave of option re-pricing the likes of which will defy imagination.
A Possible Solution
As a trader of financial futures, I was stunned to learn that financial institutions levered 50:1 were unwilling to take defensive action when the market started falling. Their leverage ratio only allowed a 2% fall in value before going underwater; unforgiveable. Worse still, the instruments to hedge this over exposure were liquid and readily available.
In 2006, as a small investor I learned that insurance against mortgage default was available and I purchased a large chunk to protect my overall portfolio against economic collapse; it was repaid 5 to 1. Questions: Why didn’t the CEO’s of over exposed entities do the same? Where was the board? Short answer: Watching their compensation packages.
Although I am not a fan of big government, I recognize the good and the necessity of intervention on certain issues. Just like the government must limit highway speed to protect the innocent, so to they must limit runaway executive compensation. Below is a four part solution:
(1) The first, though simple, is the most critical… outlaw stock options as compensation. Substitute restricted stock, eliminating risk management vertigo.
(2) Roll back CEO pay, and require shareholder approval beyond a “reasonable” number. If insiders want to make a democratic run at shareholder generosity, fine, but shareholder approval must be requested on a separate instrument from the dense legal information sent out by companies. It should be requested in bold print with emphasis on the importance of insider conflicts, golden parachutes, and include warnings about runaway compensation.
(3) Incorporate this new legislation all at once to prevent brain drain between industries.
(4) Appoint the venerable John C. Bogle and Warren Buffet - who are proven risk takers and guardians of shareholder value - to review these suggestions and edit/add their own.
In conclusion, executive pay is inequitable and destructive due to both size and structure. Executives will continue to take excessive risk in a quest to justify excessive pay. Eventually the outrage will be remediated but the hour glass of capitalism is low on sand. There is no democracy in our current methodology. It is a hidden dictatorship riddled with quid pro quo. The quiet majority does not like it one bit, but we only have ourselves to blame. We allow the foxes to guard the shareholder hen house.
Most sincerely,
Steve Hartnett
United States citizen
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