Friday, December 14, 2007

The very essence of corporate democracy

John Mauldin's "Outside the Box" letter this week presents, from George Friedman of Stratfor, a very provocative, if subtly presented, "explanation" (one of how many alternatives?) to the "conundrum":
If credit conditions are so tight and the price of oil so high, what's keeping the stock markets so easily (and counter-intuitively) afloat?
They present the issue thusly:
What we are seeing is the convergence of two massive forces. Oil prices, along with primary commodity prices in general, have soared. Also, one of the periodic financial bubbles -- the subprime mortgage market -- has burst. Either of these alone should have created global havoc. Neither has.

The stock market has not plummeted. The Standard & Poor's 500 fell from a high of about 1,565 in mid-October to a low of 1,400 on Oct. 19. Since then, it has rebounded as high as 1,550. Given the media rhetoric and the heads rolling in the financial sector, we would expect to see devastating numbers. And yet, we are not.

So what is going on?

Every time the news on the subprime situation sounds so horrendous that it seems the U.S. markets will crash, the opposite occurs. In fact, markets in the United States rose through the early days, then sold off and now have rallied again.

Where is the money coming from?
Their explanation:
We would argue that the money is coming from the dollar bloc and its huge free cash flow from China, and at the moment, the Arabian Peninsula in particular. This influx usually happens anonymously through ordinary market actions, though occasionally it becomes apparent through large, single transactions that are quite open. Last week, for example, Dubai invested $7 billion in Citigroup, helping to clean up the company's balance sheet and, not incidentally, letting it be known that dollars being accumulated in the Persian Gulf will be used to stabilize U.S. markets.

This is not an act of charity.
But charitable or not, Stratfor just can't see any fundamental shift in global power resulting from this economic Gordian knot in which the US as well as the Chinese and Arabs (and Australians and Brits and Russians and Indians and ...) are locked in. At least, not at the moment:
The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don't. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.
IF that is the case, that Arab and Chinese money (and we're talking serious Sovereign money here) is buoying and buying American (and London and Sydney and Tokyo and ...) stocks, you have to wonder what there might be that we can't see at the moment.

What ultimate price will be paid for that stock market stability that we are experiencing in this unstable condition? After all, stocks represent ownership of all US public businesses, and majority ownership represents control as well as the power to bring down (as we've witnessed in many corporate collapses). Blackmail doesn't happen until after the event occurs that creates the blackmailable condition. Subservience doesn't happen until after subjugation. The US didn't "see" either Pearl Harbor or 9-11 coming, though many signs were observed after the fact.

Apart from the big buy-ins so publicly announced by Sovereign Wealth Funds, buying a little here and there all the time over time in routine-looking stock market dealings results in what is called, in M&A parlance, a "creeping takeover". Never a shot fired in anger; you just wake up some day with a new owner's flag flying.

It's the very essence of corporate democracy.


Now Guambat is not intending to sound xenophobic here. Nor does Guambat suggest that we discard the very general notion of "free markets", which Guambat reckons has served pretty darn handily. Indeed, Guambat in his little heart feels that intertwining commercial and national interests across national borders has very real potential to keep a lid on very nasty, world-consuming wars.

Guambat just wants to point out that there are stakeholders whose interests are not represented in the corporate paradigm, including national, employee, community and other interests, and that there ought to be limits to the powers of corporate democracy, for the wider good.

There is no point that Guambat can defend that justifies markets so free that we, as citizens and consumers, become slaves of them. Just like all other freedoms, there have to be limits. If we have to be virtually strip-searched and fingerprinted and profiled and data-logged just to get on an airplane, perhaps we shouldn't be too precious about vetting who is buying what and identifying what money is coming from where and where is it going. Maybe even break into those secret heavens of funny-money off-shore tax and bank havens.

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