Greed Is Good

The crisis we are experiencing today is the result of problems that started in the 1980's.  It is a crisis of capitalism and the 'miracle of compound interest'.  Compound interest requires that there be continual, ever-increasing growth.  

In the 1980's the largest corporations in certain industries exceeded the capacity of the U.S. markets - markets for their products were saturated and the economy couldn't expand fast enough to keep profits up.  Since Wall Street has no patience for slow growth, the financial wizards stepped in to 'fix' things.  This period is well defined by the movie 'Greed is Good' in which Michael Douglas plays the greedy Gordon Gekko and the attempt is made to show that greed is beneficial.  

I'm not sure if the Gordon Gekko character was modeled after Michael Milkin or not, but Milkin certainly was at the forefront of the 'Greed is Good' cult.  He invented the junk bonds that helped finance the destruction of manufacturing and the funding of the technology industries.   

Junk bonds were high yield, high risk bonds.  The slow growth in manufacturing due to the saturation of markets caused the stock prices to drop.  The junk bond money was used to buy up the stock and take control of the corporations that were experiencing slow growth.  Knowing what we know now about how the Wall Street analysts manipulated the market during the 1990's, it's safe to say that the declines in the slow growing corporations in the 80's were assisted in their decline by the collusion between the investment bankers and the stock analysts. 

Not all of what Milkin did was bad, he broke the log jam of capital making money available to risky start up businesses in the developing information economy.  The problem was that the old businesses that were bought up to be broken up were the manufacturing businesses - the backbone of our economy.  

In order to survive the cannibalization that was occurring by the Wall Street sharks, manufacturers began in earnest to move their production offshore to produce products for import back into the U.S. market.  This kept their profit margins up and the wolves at bay.  This was accompanied by deregulation of corporations in response to economic losses due to offshoring.  

The working people who were losing their jobs could be retrained for the Information Economy because it was booming as manufacturing was declining.  There was a revolution in semiconductor technology and information systems made business more and more efficient as automation of previously manual processes proceeded.  The economy was doing so well, we scarcely noticed the loss of manufacturing.