Billionaire investor Wilbur Ross has been lined up for the job of commerce secretary for Donald Trump. In the interests of seeing just how crony capitalism works, let’s take a look at how Wilbur Ross made his fortune.
“Behind every great fortune is a crime,” said French novelist Honoré de Balzac. Even our own modest little pile owes much to a crime, though not our own. We got onto the ragged edge of that high ground by accident when we began working with Mark Hulbert in 1980 to find out which investment advisers really outperformed the market.
That first wobbly step into the financial world set our course for the next 36 years. It also put us in debt to criminals. It was not our own genius or perspicacity that made a rising percentage of the public crave our investment advice; it was the feds’ counterfeit money. This new post-1971 phoney money began the process known as “financialisation”. What used to be Main Street business, providing goods and services, satisfying customers and building real wealth, became something different – tradeable assets. Businesses “went public” so their owners could realise “liquidity events”… and their managers could earn big bonuses by “maximising shareholder value”. Then, the wheeler-dealers – using the fake money and fake savings, made available to them at fake interest rates – could go to work. Soon, they were slicing and dicing, derivatising, privatising… and mostly leveraging up.
Mom and pop wanted to get in on the game, too. They were told they should treat their own home as an “investment” and that they should “take out equity” and “put it to work” in the stockmarket. Before the 1970s and 1980s, few ordinary Americans felt qualified to invest in stocks. Encouraged by the feds, soon everyone was at it – providing us with a market for financial advice.
Financing was cheap and easy – almost unlimited. The action in the casino was hot. And if the feds rigged the game in your favour, you were almost guaranteed to make money. That was what Ross must have been thinking when he began buying steel companies in the early 2000s. The industry had been flattened by America’s fake money system. Foreign steelmakers already had cheap labour. The fake money system gave them the two things they lacked: huge demand coming from credit-rich US consumers and a huge supply of capital, from the same source.
That – along with the pensions, union contracts, and regulations – brought US steelmakers to their knees. Ross bought some of America’s greatest steel companies at bargain prices. He thought the feds were likely to slap a tariff on imported steel – and they did, just weeks later. Bingo! He made his fortune three years later when he sold to a foreign operator, ArcelorMittal, for $4.5bn. Another part of the public/private partnership that Ross put together included offloading his employee obligations onto the taxpayer. Between this deal and another later, he is said to have dumped $17bn-worth of pension and healthcare costs from his steel operations.
We have no more complaints against Ross than we have against ourselves. He didn’t make the crony rules any more than we did… but it would be nice to at least hear him criticise them.