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Cartoon of the day. For more cartoons from this week’s issue: http://nyr.kr/HdIkdW
(Source: newyorker.com)
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Ezra Klein on
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Magic Mountain: What Happens at Davos?
People like to project onto Davos their fears and fantasies about the way the world works. Right-wingers see insidious, delusional liberalism, in its stakeholder ethos and its pretense of world improvement. They picture a bunch of Keynesians, Continentals, and self-dealing do-gooders participating in some kind of off-the-books top-down command-control charade. Left-wingers conjure a plutocratic cabal, a Star Chamber of master puppeteers, the one per cent—or .01 per cent, really—deciding the world’s fate behind a curtain of heavy security and utopian doublespeak. The uninvited, the refuseniks, and even many of the participants see a colossal discharge of hot air, a peacock strut. They all deploy, with a sneer, the term Davos Man, coined by the late political scientist Samuel Huntington, who decried a post-national wealthy globe-trotting élite. Davos Man can be either a capitalist oppressor or a Commie conspirator. Either way, he is a windbag, a pedant, and a hypocrite. Businesspeople who have never been to Davos find many ways to be dismissive of it: “I can’t do business there.” “It’s too political.” “It’s not what it used to be.” The translation may be that that person has not been invited. Non-businesspeople assume the same. “Solipsistic wankers,” one person wrote me. “Kill the bastards,” wrote another.
Davos is, fundamentally, an exercise in corporate speed-dating. “Everyone comes because everyone else comes,” Larry Summers told me. A hedge-fund manager or a C.E.O. can pack into a few days the dozens of meetings—with other executives, with heads of state or their deputies, with non-governmental organizations whose phone calls might otherwise have been ignored—that it would normally take months to arrange and tens of thousands of Gulfstream miles to attend. They conduct these compressed and occasionally fruitful couplings, the so-called bilateral meetings, either in private rooms that the W.E.F. has set aside for this purpose or in hotel rooms, restaurants, and hallways. All that’s missing is the hourly rate.
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The real reason that we should be concerned about private equity’s expanding power lies in the way these firms have become increasingly adept at using financial gimmicks to line their pockets, deriving enormous wealth not from management or investing skills but, rather, from the way the U.S. tax system works. Indeed, for an industry that’s often held up as an exemplar of free-market capitalism, private equity is surprisingly dependent on government subsidies for its profits. Financial engineering has always been central to leveraged buyouts. In a typical deal, a private-equity firm buys a company, using some of its own money and some borrowed money. It then tries to improve the performance of the acquired company, with an eye toward cashing out by selling it or taking it public. The key to this strategy is debt: the model encourages firms to borrow as much as possible, since, just as with a mortgage, the less money you put down, the bigger your potential return on investment. The rewards can be extraordinary: when Romney was at Bain, it supposedly earned eighty-eight per cent a year for its investors. But piles of debt also increase the risk that companies will go bust.
- In this week’s issue, James Surowiecki writes about how private equity firms like Bain Capital earn profits: http://nyr.kr/ArHyoL
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In a piece this week on Barack Obama’s shift from idealism to pragmatism, Ryan Lizza describes an important fifty-seven-page document from Lawrence Summers to President-elect Barack Obama dated December 15, 2008:
Marked “Sensitive and Confidential,” the document, which has never been made public, presents Obama with the scale of the crisis. “The economic outlook is grim and deteriorating rapidly,” it said. The U.S. economy had lost two million jobs that year; without a government response, it would lose four million more in the next year. Unemployment would rise above nine per cent unless a significant stimulus plan was passed. The estimates were getting worse by the day.
- Above, the first page of the document. The full document is available on our website: http://nyr.kr/xtOEQl
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Delayed Gratification: Christmas shopping, credit cards, and layaway
Americans have been big spenders for decades now, but as Sheldon Garon observes in his new history of consumption, “Beyond Our Means,” that’s in large part because our economic system is set up to encourage overspending. And what the revival of layaway makes clear is that, while many shoppers are prone to spend what they don’t have on what they shouldn’t buy, they can also be sophisticated about their weakness, and savvy about finding ways to control it. They know that sometimes you have to have your hands tied in order to grab what you want.
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Last week the show “More American Photographs” opened at the CCA Wattis Institute in San Francisco. Inspired by the Depression-era Farm Security Administration’s photography program, which commissioned photographers to document the rural poor of America in the late thirties and early forties, the curators Jens Hoffmann and Jana Blankenship commissioned twelve contemporary artists to travel the U.S. for a year and document the impact of today’s “great recession.”
Above, a selection of images documenting today’s “great recession.” Click through to see the full slide shows from the
(Source: newyorker.com)
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“Economic justice isn’t the most popular theme in pop music. It’s a distant third behind girls and cars. Oh, wait. We made an accounting error: it’s behind girls, cars, surfing, drinking, food, technology, space travel, dogs, boys, and other topics. But there is a persistent strain of pop songs about haves, have-nots, and the distance between them.”
What do the Coup, Randy Newman, and Maureen Tucker have in common? Each is featured on Ben Greenman’s soundtrack for Occupy Wall Street.
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Over the past week, we’ve been dropping by the Occupy Wall Street camp in Zuccotti Park and taking photographs. (We’ve also been writing about the protests: read our coverage.) Click here for a closer look at what we’ve seen.
