The following is the eighth in our set of Ten Unscholarly Articles. It is a fictional and highly speculative account of contemporary corporate America. The editorship does not believe it is representative of real institutions or their culture. It is however, that old fashioned thing, a thought experiment – to sketch out “entitlement”, whence it arises and how it behaves.
Edward Gifford-Lynch was the smartest kid in his class. The old man made sure of it (And boy, did he have to!) and even then it took a few favours calling in to get him through Egremont. But getting the kid’s GPA up was only half the battle. His education, naturally, was broader. Ensuring he mixed with the right kind of people. Teachers remember a boy that was popular but aloof, regularly taken out of school and generally, well, how can you say it, smelling of money.
He made mistakes during these formative years. For instance one summer skiing in Aspen he met a girl he swore was the living embodiment. His parents made a few enquiries and forbade it. He was ready to defy them, even after being belted black and blue, but it was when they cut off his allowance that love withered on the vine. Even late in life it was a memory that made him colour with shame and anger. But he had been young, it was an object lesson.
It was at Egremont Business School that Teddy found his true religion. And it was capitalism. It was not that he worshipped money (Only a fool does not!), what appealed to him was how it bore the essential human truth. Money begets money. Power begets power. The weak are vanquished; the strong flourish. It was Charles Darwin meets the dead presidents. He could not at all understand why people talked of curing capitalism of its ills. It was perfect just the way it was. But that was not to say that success was assured. It had to be driven forward by men of affairs with courage and conviction.
Inducted into the Epicurean in the first semester of his sophomore year, it seems he had been on some kind of list. He would go on to meet many people in life that were both useful to him and in whose company he spent a great many hours, but of the few true friends he had in life, all were from the riots and excursions of this golden twelvemonth. In lectures he learned that the most important thing is the free flow of capital and with the Epicures he learned that only wealth understands wealth. Only his peers could know him, were entitled to judge him. Before his peers he was a man of absolute integrity. Sure, they did a lot of things that were not by the book, but these were men of a different breed. What the Epicures got up to was their own business and the main business was keeping the riff raff out – the gays and communists that Egremont was full of and worst of all the social climbers.
Leaving Egremont, newly capped and gowned, Teddy had a heart to heart with the old man. What did he want to do with his life? Join the family firm or a few phone calls could set him up in stocks, consultancy, whatever he sought, a suitable position for a scion of capital. It was quite a decision. A position on the board was a generous offer, there was no doubting it, but he was cautious about accepting. He mulled it over. The one thing he was sure of was he did not share the lust other people had for travel or ‘finding himself’. Why go to Europe to see a pile of old ruins when it was in America that the future was being plotted. After spending the summer entertaining or being entertained by friends who were in a similar position, he decided he would take on an internship as a lobbyist for Baird Laboratories, the pharmaceuticals giant. He wanted to see for himself how things ticked in D.C.
Political lobbying he soon discovered took place over lunch and dinner. The big issue that year was commodity prices. The firm had circulated a hit list of thirty different raw materials that were being affected by inflation in commodity prices. Most of this was due to the activities of speculators and was harming profit. Teddy was there to lobby for Congress to pass a limited tax on the profits speculators made, either to see it happen, or at least make the threat credible enough to move the attentions of the speculators elsewhere. As a new recruit, he was not expected to be much use, but he was there to make contacts and turn on the charm. Mid-term elections were not far away and campaigning was an expensive business. He was to impress on the right people that a pro-business ticket would have his employer’s backing.
To the young idealist, speculation was the first wrinkle Teddy discerned on the face of capitalism. In his heart he hated the idea of market interference, yet in his head he began to see that markets were not always perfect. Capitalism needed to be grounded. Profit should arise by dint of sheer hard work. The family name was worth a heap because of the thousand hands they gave employment to, year in, year out, to create something people needed. How could it be that an hour on the trading floor could yield the same profit out of thin air?
By way of recompense, an unexpected sideline of life in the nation’s capital was the opportunity it afforded him to see at close quarters for the first time in his life how the other half live. Raised in upstate New York, Teddy had not seen the whites of poverty’s eyes before he moved to the city. True his penthouse flat was in the fashionable quarter. But getting a taxi to the city’s many exclusive eateries usually involved travelling a few blocks through some of the less salubrious parts of town. At first he felt a little threatened whenever they stopped at the lights in one of what appeared to be the city’s shanty towns. African-American kids playing barefoot in the street, you could see some of the older ones staring through the smoked glass, until he realised from their thousand yard stares that they could not actually see inside. Once he hit upon this revelation, he began to see it for what it was: a peep-show amusement. After that, on nights when the city was too hot to rush around, he paid the driver a decent tip to circumnavigate a little.
It brought home to Teddy the vivid reality of what he had hazily understood since his teenage years. That money is like oxygen, not enough and you starve for the lack of it. It controls you, makes you do things you would not otherwise do, turning over a corner store for a few dimes, or pushing drugs on a street corner. He gazed at the prostitutes he would see, looking like they wanted to get off the street and into a ride as fast as they could, carrying a brown paper bag that concealed a bottle, he could see how they were slowly drifting out of life and into the haze of oblivion.
And then there were the homicides. Even at night it was rare you would see anything, yet the evidence was in the roadblocks and the police tape. It did not behove anyone to see it, yet there was always a goodly crowd. State-sponsored violence he could understand, it had a rationale, just as empires had been built on money, technology and violence, the aphorism that ‘might is right’ was as true today as it would ever be. Even organised crime, he could understand. Ugly as it may be, it had a purpose. But violent crime of the kind that existed under the surface of many American cities seemed self-defeating.
He recognised that real-life, of the kind that existed out there, was a struggle. Yet had not America grown into what it was by decent ordinary folk doing what they could to pay for the suffusion of goods and services that capitalism could provide? Social breakdown was a blight on the nation yet it was inevitable that in any social hierarchy, those at the bottom would have to scrape around. The American dream was there for talent to rise up, by determination and hard work, and gain the rewards it earned, not what it thought it was owed. You could only help people so much. The moralists, the educators, the social organisers, he had little faith in any of them. Well-meaning folk, trying to solve a problem they did not understand. Human nature had two faces. If you had to provide assistance then provide it by your own means, instead of expecting the taxpayer to step in. The taxpayer had enough to worry about keeping the jails full. Spend more money! That was the liberals answer to everything. Spend more money? Funny how easy they found it to spend when it was always other peoples.
Politicians by contrast were cut from a different cloth. These were men who yearned after money but also after the power they thought they could harness in its quest. But business had the power. Business owned politics. Republican or Democrat, it did not matter. Both were factions of the Business Party of America. There was a view that America was a democracy, but democracy counted for nothing unless you had the support of the plutocrats. There was not a politician in America who counted for anything that could not be bought. The dreamers that thought otherwise were on a ticket to nowhere.
The one jarring moment of his time with Baird came at table with a staff assistant of a particular senator. The amuse-bouche had only just arrived when the young staff assistant received a call and taking pains to conceal his embarrassment cut the engagement short. Unsure of the etiquette, Teddy did not want to sit dining alone so called a friend who happened to be staying nearby. This young man, quite by chance, happened to let slip that he had seen the same staff assistant together with the senator at a different restaurant alongside a young man of little effect but great notoriety, a wayfarer from the new technologies, with nothing to sell but advertising space! Between them they finished five courses and a good quantity of Moët yet Teddy could not quite rid himself of the bitter taste in his mouth.
When his internship expired, Teddy had made enough of an impression to be asked to join the company in their sales division. It meant moving to the Pacific Coast, but it was a chance to build his experience in a company with a top line of nearly $20bn and a foothold in every continent. The company felt the market for palliative medicine was becoming saturated. By contrast, there was buoyant demand for consumer medicine: drugs to help you bulk up or drugs to help you slim down, something to help you concentrate or something to help you relax. Yet this demand was almost exclusively in the home market. The company felt there was untapped potential to grow sales overseas and Teddy took on the commission for Asia and the Pacific Rim.
It was while he was on business that Teddy met his wife, working for a Malaysian client. She was not on his level, yet he recognised immediately that he was everything now he had not been ten years earlier. They were married as the clock stuck twelve to welcome in the new millennium, overlooking the fireworks in Kuala Lumpur. He got his people to arrange her green card. His concerns it would be a sticking point were unfounded and it was all arranged in a few short weeks. He felt as proud as he had ever felt in his life taking her home with him, a new citizen of the land of opportunity.
Married life got off to a happy start yet it was at this time a storm brewed that he thought it better to avoid. Work he had not been involved with, but in which he might be implicated, aimed at restructuring pricing policy had been leaked to a hack. The word “racketeering” had been used. It was blown out of all proportion, it was not even collusion, simply enquiries into what competitors were doing, yet it was enough to make him consider his position. Baird had been good to him but he was restless and in any case the seed of an idea had been forming in his mind for some time.
It struck Teddy that manufacturing, retail, consumer goods, these were all rather dated forms of business. By nature they were unwieldy, susceptible to earthquakes in any part of the supply chain and liable to suffer the same on the demand side, where unanticipated events in new or developing markets could throw a significant investment off kilter. These businesses were always looking at re-engineering their processes, rationalising, outsourcing, the more they integrated vertically and horizontally, the more they seemed to over-reach. It all amounted to doing more with less and being sucked into doing less with more. It was a game that could not escape the fundamental predicament that there were easier ways to make money.
He remembered the ‘multiplier effect’ from his economics classes. This was the mechanism by which lending gave rise to profit. Money tied to goods and services all the same, but this was the key, the risk was outsourced. A bank was required to keep a set amount of its capital in notes and coins, should there ever be a run on the bank, but the lower this amount, ten percent, five, one percent, the more the profit grew exponentially from lending. The bank was not actually lending money, but offering security against default which could be offset by sheer weight of numbers. He remembered the song from kindergarten:
It’s just like a magic penny,
Hold it tight and you won’t have any.
Lend it, spend it, and you’ll have so many
They’ll roll all over the floor.
Yet the beauty of it was it was not just the banks that made a profit. Every industry he could think of was held back by the demand side. Take pharmaceuticals. It did not matter whether people paid for their own health care, or their employer did, the problem was that without someone to pick up the tab, there was no incentive for companies to invest in the research and development to bring new products to market. If it were possible to increase demand, it would unleash a wave of prosperity the like of which the nation had never seen. With credit, so long as repayments were met, debt could grow ad infinitum. The theory was already supported by America’s government debt. It was not the size of the debt that mattered, but the ability to service it. Growth in effect paid for itself. It was a bold project and he could not wait to start.
Based on a recommendation he was able to garner from the father of an old friend from the Epicurean he found a position working for a government corporation that bought mortgages on the secondary market, pooled them, and sold them as a mortgage-backed security to investors on the open market.
Presenting his strategy to key stakeholders to aggressively grow its portfolio, he was able to secure a role reporting directly to the Chief Financial Officer. In just three short years, with Teddy at the vanguard, FKMN was able to build its collateral by ten thousand basis points. With such demand in the secondary market, primary lenders could not mortgage fast enough. It was a licence to print money. It led to a boom in construction that enabled tens of thousands of Americans who previously could never have imagined it, smiling proudly as the shutter clicked, holding up the keys, proud owners of the dream.
Teddy thought back to his time in D.C. He had demonstrated that it is not politicians, or public minded liberals that make life better for people but the men who control money, who, like the great heavenly spheres, control the tides on which society turns.
Yet working for a public sector organisation, Teddy’s remuneration, though handsome, was a fraction of his market value. His stock as one of the rising men of finance was at an all time high. His name was already being put forward as a partner in a number of investment banks. It was the moment to capitalise. Accepting a position as partner in Farquhar Maddick, a medium-sized investment bank with a good profile. Big enough to have the clout he had had at Frankie Mann, yet small enough to serve his own ambition to make it to the top. It was also a significant personal milestone. One of the myths that circulated around the Epicurean was that if you had not made your first million by forty years of age, they would give it to you. It was typically wide of the mark yet it hardly mattered, the old man could have given him that. But joining Farquhar Maddick took his annual salary beyond the $1 million per year mark. His accountant estimated, that all things considered, his personal fortune was now $2.7m and if things worked out at Farquhar it was not unreasonable to expect it to double each year for the next five years. He was just shy of thirty-one.
It was an otherwise beautiful day in downtown Manhattan when a cold wind blew through global finance. Teddy was killing time in his office when the numbers on the television screen in front of him started to do that thing numbers do when they want your attention: go one way or the other. Fast. A French bank had suspended three of its hedge funds claiming it was unable to calculate their value due to “bad debt” in the US mortgage sector. It was the start of a spiral that would see every financial institution with an interest in what they were now calling “toxic debt” teeter on the precipice or overbalance and collapse.
Through ’07 and long into ’08 and ’09, Teddy became one of those gallant fire-fighters the American public never got to hear about. He could have done what many others were doing, taken a long holiday and worked to get his golf handicap down. Yet he had never shirked his responsibilities. Never had and never would. The crisis in the mortgages had revealed the fundamental interconnectedness of things. Everyone was trading in the same assets. We were all linked in a chain, all responsible for each other. From the CEO to the janitor, the economy was fundamental to everyone’s well-being. He saw now how the wealth was common, it was part of the air that we all breathed. If it was toxic it was like one of those environmental catastrophes where everything gets polluted or covered in oil. While others fought it on the beaches, trying to salvage good debt from the detritus that was infecting it, Teddy became a lobbyist again. The government was all for bail-out, from the banking sector, to the motor industry. They wanted to inject liquidity back into the economy. Teddy knew his responsibility, you might say he was born for it. It was high time to break the links. Let the weak go under, let the strong survive. You want to save the economy, you get the hell out and cut back on spending. Capitalism was a force of nature and it would recover of its own accord.
No-one made anyone take out a mortgage they could not afford, or buy a bigger home or put their money into a savings account. All investment was inherently risky. Foreclosure was restorative. It was the forest fire that fertilised the soil with ash. Make the public immune and you create the opposite: dependency, expectation, a hand extended and never filled. The government wanted to throw good money after bad. It was not enough they should throw taxpayers’ hard earned money at it, they were all for easing monetary controls and inviting inflation when the money had nowhere else to go. They would see then they could not burn it fast enough. He could see the pressure they were under to come up with a game changing solution, but they had to be bold and face down opposition. All people ever wanted were scapegoats, someone to blame for their own decisions and now they thought they had it. It was blame-the-rich socialism from across the pond. Was it for this that America had fought for its independence, to let the egalitarians into her shores, in their rowing boats by stealth of night?
He had never worked harder. Twenty-four hours around the clock trying to allay the climate of fear that was engulfing policy-makers. To soothe, cajole, persuade the politicians to stay the heck out. You wanted someone to blame, it was not mortgages that had failed, or banking, or business or the market. It was the number-crunchers who were four-square responsible. The actuaries who were asked to do just one thing: get their sums right. The back-room boffins who knew as much about strategy as a new-born babe, who had screwed up their spreadsheets. The calls for better corporate governance were wide of the mark. The danger was not to the world economy but to international competitiveness if the crisis was made the excuse for greater regulation.
The bail-outs, the stimulus packages, the multi-trillion dollar spending, what had it achieved? The economy choked and spluttered like an engine with the wrong fuel. Yet the appetite for socialism was infecting America in a way it had not seen since McCarthy. The new target was tax. Only two things in life were unavoidable: death and taxes. And of the two, the latter was, well, avoidable. Wealth creators were already providing the greater part of tax receipts into federal coffers, in the employment they created. All the paychecks fluttering across America like a great migration of butterflies. To stifle the creative component of the economy, to raise corporation tax or ask that income tax was reformed, was tantamount to killing the goose that lays the golden egg.
In September 2011, Teddy gave birth to his first son, whom he named Gaius Julius. Back in Manhattan for the first time in five years he watched, from sixty storeys high, the protestors of the Occupy Wall Street movement. He looked down on the scores of young Americans, who could be looking for a job instead of trying to stop other people doing theirs. Looking down at them, watching as they were manhandled by law enforcement, like limpets being prised off a ship’s hull, for the first time in his life he felt a sense of deep visceral satisfaction. Whether it was fatherhood that changed him, he could not say, yet he felt frozen in the moment as if a page were turning, right here, as he watched it. It was just like all the failed socialist movements from history books. Men like him, who worked on a higher plane, who controlled the world, could not be pulled down into the mire by the anarchists and economic terrorists.
He identified himself with the one percent who created history and would shape the destiny of peoples forever. Building on the inheritance from one generation to the next, while the ne’er-do-wells, the apologists, the rabble-rousers, the trade unionists, the tax reformers, the lazy, work-shy proletarians, all those who had a vested interest in dragging capitalism into the gutter were as powerless as they were penniless. Helpless, peripheral creatures, clutching at the brown paper bags that concealed their social reforms, their eyes full of apprehension, slipping out of life and into the haze of oblivion.
In the ninth and penultimate article we will consider bread and circuses. The phrase, taken from Satire X by the Roman satirist and poet Juvenal, has come to mean superficial appeasement. We all have to live, and where the next meal is coming from or what we do to let our hair down are naturally at the forefront of our minds. Yet how do we stop these things from sating the appetite and depriving us of the curiosity we are all born with about the world around us or caring about issues in society that affect us all.
[Sanjoy Banerjee is co-founder of Column F. He studied history at the University of Southampton and now lives in Birkenhead on the Wirral, where he works as an aspiring freelance writer and I.T. Analyst.]