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IT TAKES MONEY TO MAKE MONEY AND OTHER OUTMODED ADAGES

September 24, 2013

IT TAKES MONEY TO MAKE MONEY AND OTHER OUTMODED ADAGES

Like many other old adages that have not withstood the tests of time and experience, the old adage of “It takes money to make money” has fallen by the wayside. It does not take money to make money. It only takes access to money to make money.

This new adage in waiting raises the further question of who may have access to money. The answer is those who already have it and not those who do not.  Lenders typically demand collateral, and collateral may take many forms, including money itself, a mortgage on real property, stock pledges etc. Those who have no money have no means to access the lenders’ coffers because they have little or no collateral to offer to induce a lender to make them substantial loans. They are instead relegated to the loan shark or other fly-by-night neighborhood payday lender for loans, loans made at astronomical rates of interest complete with late payment penalties and other near-Mafia threats of broken kneecaps etc.

The difference between easy access to money by those who have abundant collateral and those who don’t is summed up by another old adage (and one still in effect): “Them what’s got, gets.” There are corollary adages applicable to this situation: “The Golden Rule is that the guy who’s got the gold makes the rules” and “The poor will always be with us.”

My essay today will expand on these two latter and still effective adages. The Golden Rule as currently practiced on Wall Street could scarcely be more distant from the scriptural mandates to “love your neighbor” and “treat your neighbor as yourself.” The neighborhood idea has long since been lost to that venue in its 25 hour-per-day excursions into profit-making, and with the huge pool of capital controlled by those on the Street, it was inevitable that they control politicians as well as markets. Examples of the Golden Rule (as presently manipulated) abound. I will discuss one that is particularly galling to me.

It is “carried interest,” the income derived from “commissions and fees” to vulture corporations like Bain Capital (of Mitt Romney fame). It is bad enough that such income is extracted from the sale or other manipulation of the assets of the corporate prey outfits such as Bain Capital take over, but often it is done with borrowed (leveraged) funds, which means that Bain Capital has no skin in the game.

What is worse is the way Wall Street (including Bain and others) has manipulated the internal revenue code (via campaign money to money-hungry politicians) to maximize their net returns. How? Here’s how. Bain and others take the interest they paid on loans to do their business as a deduction – but it was not their money at risk! To compound the felony, overall profits made (after other credits and deductions) are taxed as “carried interest,” whatever that is. “Carried interest” tops out at 15%. Thus those who are the beneficiaries of the “carried interest” fiction cannot pay more than 15% of their net  income in taxes (which explains how Mitt Romney paid only 13.7% taxes on 21.7 million in income in one of the few tax years he divulged to the public. His gardener or janitor (depending upon exemptions etc.) probably paid at a higher rate than Romney did for the tax year in question, and I daresay such servants did not make 21.7 million in income. This is wrong, unfair, obscene, and a show of corporate (and individual) welfare at its best. You and I have to make up what they did not but should have paid. So will the poor always be with us? Yes. We must keep these welfare recipients in style from our meager pay (if any). Closing thought – why aren’t shoe salesmen’s commissions “carried interest?”  GERALD  E

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One Comment
  1. Opportunity and access to it is key. There is some rich guy, Cousins I think is his last name, who made it his goal to rebuild an inner city, high crime part of town (its where the PGA just played this last week) with a new state of the art school and housing area. It has seen tremendous results the last 15 years where children have thrived in conditions that promote healthy outlooks and personal support. One child recently graduate our of Georgia Tech is is now a second grade teacher back in that same neighborhood! Access to opportunity. Key. Being poor walls off most if not all ability to break out of systemic conditions of poverty and the social scars that accompany it. Think what the GI Bill did after WW 2. Imagine a national program that invested in access to good education? There are countries who do this (norther European usually). I always wonder how many scientist, artist, etc, we as a society miss and will never know and benefit from merely because those children of possibility never see the door of access and opportunity. Seems the almighty dollar (with God We Trust on it) is the proverbial iron wall that keeps poor children in the chains of poverty with no future.

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