New Orleans         The on-line headline on the op-ed page called the current dominant financial practices led by private equity and the rest of the banking world as a “grift.”  Dictionaries define a grift as usually a small-time swindle.  When people refer to Trump as a grifter, they are thinking of bigger scandals. The op-ed was also talking about big money rip-offs. The actual headline in the print version of the New York Times was “How the Capitalists Broke Capitalism.” Unfortunately, they broke it, but they aren’t fixing it.

This was a featured essay by Oren Cass, who they described as the chief economist at “America Compass, a conservative economic think tank.”  I was familiar with Cass, who is without doubt conservative, but also somewhat of a contrarian who has occasionally almost seemed to advocate for the working class, rather than elites, which made him stand out.  Years ago, I read a book he wrote called, The Once and Future Worker. 

Either way, this was must be reading for me.

At heart of his argument is that banks of one sort or another no longer build anything.  Financialization has attracted huge investments and piles of money, but the grift lies in the fact that much of it simply a circular route between parties, sometimes even among themselves and their subsidiaries where they collect fees at every place along the way.  Institutions and others give them their money for such short-term gains.  The principals of these firms become billionaires and except for their piles of wealth, the overall economy and all of us have nothing to show for all the monetary movement that might be defined as progress.

As he says,

Goldman Sachs rarely invests in anything at all. Fostering economic progress appears to be beside the point.  Less than 10 percent of Goldman’s work in 2024, measured by revenue, was helping businesses raise capital. Loans of Goldman’s own funds to operating businesses accounted for less than 2 percent of its assets. At JPMorgan Chase the figures were 4 and 5 percent; at Morgan Stanley, 7 and 2 percent. Even the efforts at helping to raise capital are misleading, because less than a tenth of it goes toward building anything new. The rest funds debt refinancing, balance sheet restructuring and mergers and acquisitions.  These are symptoms of financialization. That’s the term for making financial markets and transactions ends unto themselves, disconnected from — and often at the expense of — the societal benefits that support human flourishing and are capitalism’s proper purpose. Chief among those benefits are good jobs that support families, and products and services that improve people’s lives.

As you can tell, this is a radical indictment from inside the enemy’s camp.  The banking emperors are wearing no clothes in this piece.

ACORN has campaigned against the financialization of housing all over the world.  Cass doesn’t stop here:

• “The ‘best use of capital’ …means only the highest financial return.
• “Mergers and acquisitions tend to destroy value…typically 70 percent to 90 percent of acquisitions are abysmal failures.”
• Private equity is “underperforming” compared to the market. “Hedge funds …consistently underperformed a simple blend of stocks and bonds….”
• “Financialization… has concentrated economic development in narrower geographic corridors for the benefit of a narrower set of people. It has shifted risk from people who have capital, and can easily diversify their portfolios, to workers, who have only one job to lose.”

The list seems endless.  Cass seems to argue this is little more than a risky house of cards, where the merry-go-round of financialization’s business model is threatening and impoverishing us all.

What does Cass, the contrarian, suggest we need to do?  He says we need to regulate all of this.  Fat chance these days.  He says workers need to be ahead of lenders when this stuff goes belly up.  He says we should make stock buybacks illegal like they were until the 1980s.  He summarizes all of this saying,

Financialization is a grift, a rarefied form of bookmaking, of no net value to workers and consumers, the economy, or society as a whole. Let’s treat it accordingly. Economists and the news media can stop using the word “invest” in contexts where no investing occurs. “Speculate” or “bet” will do just fine.

This is all heresy.  Will anyone in power listen?  I doubt it.  Too many at the top are enjoying this ride, devil take the hindmost.  Nonetheless, sometime the voices in the wilderness make a difference, so fingers crossed.