Financial Resource

Capitalism has been the economic system used in the United States for generations. The United States economy and lifestyle, is based on these capitalistic principles. A company that pursues a risky and dangerous business model, and is not profitable will likely close, file for bankruptcy (Chapter 7 or Chapter 11) or forced to secure new investors to inject new capital, to stay afloat.  Publicly-owned companies, trade their stock on the New York Stock Exchange (NYSE), and the Securities and Exchange Commission (SEC), overseas their operations. Publicly traded companies are required by law under Sarbanes Oxley Law of 2002, to submit financial reports to the SEC annually. These statements which fall under the Corporate Responsibility clause, section 302, must be signed by an independent auditor or firm, and by the CEO of the company. This is an attestation that there are no material untrue statements, or material omission, or can they be considered as misleading, in other words it is a confirmation by both parties, that the financial statements are correct.

A fully functional SEC’s role is to spot questionable information in financial statements, and if necessary, exercise its power to launch an investigation into the operations of the company, if red flags exist. The commission is in place to protect shareholders from companies such as Enron and World Com, which falsified their balance sheets, and fooled employees, the SEC, and shareholders, while they pretended to be viable entities. They are also responsible to oversee firms such as the one headed by Bernie Madoff, and if the commission had done its job, and acted properly with the tips it received from whistle-blowers, the damage and financial impact on shareholders,  employees and the economy as a whole, would have been much reduced.

The system is already in place, and so recent moves by the new administration to add several new rules has created a “nanny state” where the government is watching over and dictating the rules to private companies. A government’s role is to select good leadership at the Securities Exchange Commission, and who would in turn select vigilante employees, who will perform the jobs they are being paid to do.

It is not the job of a government to select winners and losers. There role is to provide incentives, a stable economic environment through its policies, such as taxation, political stability, and a stable social environment, encourage a free market economy, and allow market forces and supervision by the SEC to dictate the winners and losers. Business owners who pursue an unsound business model such as payment of salaries, bonuses and benefits not tied to profitability will eventually cease to exist. Prudent business owners pursue a business model that is steady, innovative, good customer service being a key component, conservation of resources, and energy, and tying income, bonuses, benefits, and pensions to profitability, will achieve a successful business. Golden parachutes if this is offered to senior executives must be based on the profitability of the company at the time of their departure. This can be based on the last fiscal statements and cash flow projections, or last quarter earnings. In recent years many CEO’s who have “run companies into the ground” still walk away with millions of dollars, even though they are responsible for the financial collapse of the company. If the company made a loss no bonus should be paid. If there is no profit, and the company has not tied it to profitability, where will this money come from? It would have to come from lines of credit, or TARP in the case of AIG. If businesses are making a loss banks are not likely to allow the company to use its credit line for that purpose.

In the case of stock options, companies should place a limit on the quantity, and time, when the option to sell can be exercised. Far too often we have witnessed company executives dump large volumes of stocks, because they know the company is in financial problems, and the stock price is about to take a “major hit”. This occurred in the case of Enron, World Com and many of the other companies that collapsed in early 2000. In the case of Enron, the executives dumped millions in stock, while assuring employees that the company was sound. They even instituted a “block out period” so employees could not sell their stock, after they had already disposed of their shares. If quantity and time is incorporated into disposition of shares, then executives would be forced to abide by the same rules they impose on lower level employees. In the case of Enron, when the company collapsed, 20000 employees lost their jobs, and lost almost all their 401K benefits. These are deceptive, and criminal practices and many of these executives such as Bernard Ebbers from World Com have been sentenced to 25 years, or have already served time such as Andrew Fastow for 6 years and his wife Lea Fastow for one year.  They have all been given the opportunity to learn the meaning of the word “greed” It must have been an “eye opener” What happened at Enron, Bernie Madoff’s firm, World Com, and others was a colossal failure on the part of the SEC, which is even more ridiculous given that they were alerted by a whistle blower.

The SEC officials who fail to perform their duties, and causes shareholders to lose their investments are guilty of dereliction of duty, and the SEC officials should be subject to civil fines, if they are found guilty by their peers, in a court of law. Unless this is done, they will never take their jobs seriously. In the case of Bernie Madoff, they were being warned since 2002 by Harry Markopolos, who tried to warn the agency that “something does not add up” and despite several investigations that the SEC claimed it conducted it found nothing. Markopolos said he fought for nine years to convince the SEC but that did not work. It was the current financial crisis late last year that finally caused the company to collapse

The Sarbanes-Oxley Act 2002 as not been as effective as it can be, because the SEC employees will not do their jobs. It is reactive rather than proactive. Bernie Madoff conducted an interview from prison with two of his victim’s attorneys, and admitted that he was shocked that for the many times the SEC investigated, they never saw the signs.

The policies being pursued by this administration is pro union and anti-business. Business owners are being vilified, and are being viewed as the enemies, rather that a necessary vehicle to strengthen our economy and create jobs. The government is also pursuing a wealth redistribution strategy

On Nov 3rd 2008, one day before the elections, Obama told supporters that the US was just hours away from what would be fundamental changes in the country. These changes are occurring as we speak. The Car Check Bill which narrowly passed in Congress will be another blow to a capitalist system if the senate also passes this bill. It is anti- business and anti- worker, because it applies pressure to companies to unionize, and force employees to vote with an open ballot, and will cause massive tax increases.

Government has adopted new measures that discourage business owners. They are now dictating salaries, bonuses, for company employees, even for those who have not accepted funds from the Toxic Assets Recovery Program (TARP), and this measure has caused resentment and distrust by business owners, towards the government. For those who accepted TARP funds, they are doing everything in their powers to pay it back, but this will not help, because the government is now including all businesses.

Binding agreements and laws are being changed mid stream, which not only affect businesses but also individual investors. The General Motors and Chrysler pre-packaged bankruptcies threaten the very laws that we hold dear. The law of the land guarantees that in case of a bankruptcy, the bondholders are first in line to be paid. The ordinary shareholders are at the end of the line and either receive whatever is left, after everyone else have been paid, or gets nothing. In these two cases the government trampled the rights of the bondholder, and placed the rights of the shareholders who in these cases were union members (UAW), and the bondholders were forced to take what was left. The bondholders were threatened, with retribution if they stood in the way, and some caved under the pressure. The others appealed to the bankruptcy judge, and when that failed, appeal to the US Supreme court, but that also failed.

Businesses with subsidiaries in other countries are being charged double taxation by both the host country, and now the Obama administration is forcing these companies to take back their earnings back into the country to be taxed. Russia came out recently defending our business owners against this policy of double taxation, citing that it will hurt businesses, and prevent them from being competitive. Just this week  an out of court settlement was reached with USB, a Swiss Bank who cited client/bank privileges, against pressure from the US government to disclose 52000 thousand names of companies and individuals who have secret bank accounts to avoid paying taxes, on money they earned overseas, or from subsidiaries.

These are just some of the policies that challenge the very core of the capitalist system. Regulations are being put in place to stifle the business owner’s existence. The relationship between business owners and the government is at an all time low. If healthcare reform is passed that will be “the straw that breaks the camel’s back” Businesses are terrified for their very existence, and the recent attack on the insurance companies is just one of the most recent evidence of the friction that exists between businesses, on one hand, and

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