The “Do Nothing” Elite

Don’t believe the balderdash about how hard the super-rich work!


Mitt Romney, by his own admission, had nothing to do with his company, Bain Capital, from 1999-2002. During that time he was organizing the Olympics in Salt Lake City. However, according to a report in the Boston Globe, Mitt Romney remained the sole shareholder, the chairman of the board, CEO and president during that time. Wow! Talk about a hardworking man! Here’s a guy who retired and yet still continued held his titles and ownership and organized the Olympics at the same time. Pretty impressive.

Not really. It is just another indicator about how hard the super-rich really don’t work. Despite some sneering on the left, it is entirely possible that Romney held all of those titles, making gobs of money, and had absolutely nothing to do with the actual functioning of Bain Capital. It’s even possible that keeping his name on the SEC paperwork was, as he himself stated, a business thing that helped Bain Capital maintain the perception of value. In this case, it was the Romney name that had value, not any real extrinsic value that was added by the labors of Mitt Romney the person.

As Gordon Gekko explained to Gus, his young protégé in the movie Wall Street, “I create nothing. I own.” Ownership requires no special effort on the part of the owner quite on a par with those who really do create things of value. In Romney’s case, it’s very likely that the actual work involved in all of his fancy titles was delegated to others, who further delegated to people who actually did work. Romney, himself, was inconsequential (remember, I’m not insulting Romney. He has stated publicly that he had nothing to do with the decision making at Bain Capital. He did no work) and yet was paid $100,000 a year.

When you take a look at what Bain Capital, and other private equity firms, actually do, you see very little actual work at the top. In essence, private equity firms purchase businesses, arguably the hard work of someone else, attract investors to put their possibly hard earned money into resurrecting that business…perhaps. They then improve the value of that company by cutting costs, which means laying off workers and cancelling pension plans, the costs of which are then taken up by taxpayers. Then, through financial sleight of hand that is the product of a government corrupted by corporate influence, they use the business as collateral for a loan, which they largely use to pay off the original investors while deducting the interest as a business expense, making the company look more profitable than it really is. Then they sell the business, taking twenty percent off the top. This income is considered capital gains, taxable at only fifteen percent. Sometimes, this process results in a legitimately resurrected business. Other times, the business collapses. Regardless of outcome, the private equity firm still grabs up its twenty percent.

The actual work is done by clerks and cubicle dwellers shuffling papers in formulaic ways and transferring funds between accounts. These workers, those who actually do the work of the private equity firm, are paid wages and salaries for which they are taxed significantly more than fifteen percent.

Gordon Gekko explained that “The richest one percent of this country owns half our country’s wealth…one third of that comes from hard work.” That was in 1987, when the finance sector was on its way to accounting for six percent of America’s GDP. Today, the finance sector accounts for over eight percent of GDP and thirty percent of all corporate profits. This is the major vector by which the rich become super-rich. Finance, Insurance and Real Estate (FIRE) accounts for over a third of the Fortune 400 list of America’s top companies and is the fastest growing sector of this august list.

We are expected to believe that this growth is the consequence of hard work and risk taking. In fact, it is the result of people who buy and sell America’s greatest commodity—debt.

As American wages stagnated for thirty years, the demand for a higher standard of living like that enjoyed by previous generations of Americans remained unchanged. However, previous generations experienced increases in their pay which fueled their standard of living. The last generation had no such advantage. So the demand for credit increased. This demand was fueled by the financial sector extending debt for the sake of acquiring the American dream through easier mortgages and credit cards. One might think that extending credit in such a way is bad business, but when debt itself becomes a commodity, the same rules apply as with any other commodity.

As the willingness of banks to extend credit fell, securities companies came along to buy up that debt. Banks, with more money on hand from the securities companies extended more credit. The securities companies then repackaged the debt into derivatives, the most risky becoming the most profitable, thus increasing the demand for more debt. The onus of this debt was in mortgages. As available credit increased the demand for houses, the value of home increased, convincing homeowners to reinvest in their homes with second mortgages, which increased the demand for debt.

Soon, however, the market is saturated as anyone with an inkling of financial responsibility held as much debt as they dared hold. What then? Well, the so called hard working men (largely men) at the top had a solution. Extend more credit to people who were slightly less responsible. After all, we need that debt to purchase, repackage and sell. Eventually we were looking at sub-prime mortgages aimed at less informed prospective home-buyers who were sold a bill of goods, so to speak by brokers who convinced them that they could refinance at lower interest as their home gained value. Brokers were actually given higher commissions to sign people up for sub-prime mortgages. After all, such mortgages could be repackaged into higher yield derivatives for which the hard working financiers were willing to pay top dollar. Ultimately, this largesse included the infamous NINJA (No Income, No Job) loans. We needed more debt to keep this house of cards standing long after any responsible or hardworking businessman would have said, “enough!”

As dealing in debt became more risking, companies like AIG offered Credit Default Options (CDOs) as insurance against the possibility of default on debt that was now repackaged, cut up, resorted and spread out among the financial giants. Riskier debt deals became grist to offer more CDOs, which also encouraged companies dealing in such instruments to over-leverage. After all, what was the likelihood of all of that debt collapsing? As the possibility increased, companies played a corporate financial version of hot potato, bundling their debt packages and passing them on, hoping against hope to maximize their gains before the whole system, which they knew to be unstable, collapsed.

This was not particularly hard work. It involved honeycombs of cubicle dwellers to push buttons and shift paperwork from one place to another while those who oversaw the process reaped the rewards. Indeed, overseeing such a process could be done while lounging on a beach in Fiji, sipping an umbrella drink, and tapping on a lap-top computer similar to the one I’m using now. The work of the CEO involved more nuanced schemes for repackaging debt and making the company appear to be profitable against the certainty of calamity. They did this not by working hard to set their company finance aright, but by transferring debt to subsidiaries and taking out loans and floating them for the sake of doctoring the books for the sake of the company’s investors. In the meantime, many invested in hedges against the success of their own business.

Nor was this work particularly risky. At the very top, there never was any fear that the certain collapse of the system would result in real losses. The one percent knew that the public would ultimately pay the costs of elite profligacy. We had a forty year record of doing just that. And we did.

Yet the corporate elite would like us to believe that they are where they are because of hard work and their willingness to take risks. It had nothing to do with perpetuating destructive financial schemes that required nothing more than paying someone to input data into a keyboard and paying others to lobby for less oversight on said keyboard tappers. These practices resulted in true hard working Americans losing their jobs, wages, benefits and businesses in the face of financial rape.

The Romneys of the world don’t work hard. Not compared to people like small businessmen, carpenters, mechanics, nurses, teachers, social workers, factory workers, small farmers, pickers, etc. The latter group can make the claim that what they have is the result of hard work (and yes, public investment), but not the Romneys. What the Romneys have is the consequence of utilizing status to scheme ever more lucrative means of distributing the wealth of the nation into their own bank accounts—accounts often hidden in Switzerland or the Caymans. People who “create nothing” but “own” everything, know nothing about hard work.


NOTE: The link for the graph in Figure 1 is Here


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  2. Something told me this piece was going to be Freshly Pressed… Congrats!! Now if we can just get you on Survivor, your life will be extra-hot!! Enjoy your last 5 years of this decade; 50 brings on an even much better feeling. I can’t describe it, but it’s AWESOME… I guess I would have to say it’s liberating in new way! Happy Birthday to you, congrats on being laundered, once again, and “Hey Survivor… choose Renee…. pleeeeaaassseeeee!”


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