The Moment of Truth — November 18, 2006
Hey, Dead Milton Friedman: Hertz, Don’t It?
Welcome to the Moment of Truth: the singing mammogram.
Did you hear? Milton Friedman, the Nobel Prize-winning University of Chicago economist, just died. 94 years old. It’s true, only the good die young. Milton Friedman never had a moment of self-doubt in his life. And people without self-doubt always go straight to the burning torments of Hades.
The debauched wedding reception after the marriage between Leo Strauss’s heroic lebensraum patriotism, in the form of the Project for a New American Century, and Milton Friedman’s uber-free-market monetarism, embodied by the “Washington Consensus,” has left the world with a neo-conservative hangover. Since the collapse of the economy of Argentina, whose government had followed the Consensus’s prescriptions to the letter, Latin America has rebelled by electing every leftist in sight, while in Iraq the hubris of a new US imperialism has failed to conquer a country we ourselves helped weaken with a decade and a half of sanctions and airspace control, instead stoking radical Islamic anti-westernism from California through Europe to Indonesia.
The University of Chicago has developed some great thinkers, and two major intellectual embarrassments. How Strauss and Friedman became the Romulus and Remus of a misbegotten neo-Roman Empire is a question for an expert on the mass psychology of fascism. But at least Strauss has had the good manners to be dead for the last thirty-three years. Noting the enviable status of his doppelganger in the Philosophy Department, Milton Friedman has finally come to his senses.
I don’t believe in Hades. But I do believe Milton Friedman is being tortured there by demons that resemble what Penn Gillette might look like naked, or even worse. Good lord, I’m sorry about that image. Anyhow, Friedman’s lack of self-doubt is infectious enough that, even in death, he makes me certain he’s being tortured in a Hades I don’t even believe in. Now, that’s one evil economist.
If you don’t know what he looks like, picture former Federal Reserve chief Alan Greenspan with a sunny disposition, a slight jowl tuck, and a light sprinkling of Retin A. Then picture Penn Gillette naked again. Which one made you sicker?
I think it’s pure coincidence that, the same day Milton Friedman croaks, the car rental company Hertz went on the market in an Initial Public Offering. And I don’t even believe in coincidences, let alone pure ones. There goes Milton again, with his infectious certainty, I mean confidence, I mean megalomania, making me think things I don’t believe.
The Hertz Rent-a-Car IPO is a remarkable thing, even for those, like me, who haven’t cared about financial markets since our 401Ks collapsed after the tech boom. So here’s what I’ve figured out: The Carlyle Group and some like-minded friends bought Hertz from Ford last year in a leveraged buy-out. A leveraged buy-out is where a company borrows a lot of money to buy another company. What usually happens then is that the buying company takes a few years to fix up the company it bought, making it better or at least more profitable, and then sells that company on the stock exchange at a profit in an IPO. What was weird about this Carlyle/Hertz transaction is that it went like this: Carlyle et al bought Hertz and, within a year, increased Hertz’s ten-billion-dollar debt by another couple billion or so, presided over a 77% drop in Hertz’s net income, and then made this crazy IPO.
So, imagine buying a building, and instead of spending six months or so fixing it up to sell it again at a higher price, you spend a couple weeks breaking the windows, piling garbage in the corners, and banging holes in the walls with a hammer. And THEN you try to sell it.
Well, that’s pretty much what Carlyle and friends did with Hertz. But, see, they also paid themselves for their trouble. Like about a billion-and-a-half in “dividends.” Dividends are those things you used to have to pay taxes on until George W. Bush had this great idea to make us all rich—and by us, I mean folks like Carlyle and friends, which is not us at all, but which is THEM, the Bush family included, along with Osama bin Ladin’s family, estranged though they may be.
On top of that, the financial firms that helped set up the deals—both the buying and the selling—got paid both times. And Carlyle and crew still hang onto three quarters of the stock. How the hell do you make money that way? It must be magic, the evil eye.
Who’s paying back the money Carlyle and lovers borrowed to buy Hertz? And who’s going to pay the extra debt they dump onto Hertz? In other words, who are the idiots who are buying Hertz stock at this IPO?
Apparently, even the idiots are reluctant, because Carlyle and posse had to slash the price of shares from $18 to $15. That’s a bargain! To own a share in something like fourteen billion dollars of debt? Usually only very rich people get that far into debt. You’d be living the lifestyle of the rich and famous. You can’t afford NOT to! Or maybe that’s Milton Friedman talking again.
But some people did buy. The stock went up about seventy cents on the day of the IPO. Wow. So maybe the investors won’t be paying that debt after all. Maybe you and I will when we go to rent a car from Hertz and have to all line up at the one window out of eight that’s open because Hertz laid off its workers, and then find out they’re out of cars because they had to sell them all. Or maybe somebody will shift the debt in some other imaginative way, like by selling ozone depletion futures and Somali warlord bonds. It’s not really money, is it? It’s not even paper. It’s just signals in the electronic aether.
Still, why would you willingly buy shares in Hertz? What’s the attraction? Why not buy something that hasn’t been so perversely and arrogantly battered? A Brazilian child prostitute, for example.
When Ford bought Hertz, they paid a hefty $35.50 for each publicly-owned common stock share. Today, the financial community is mocking them for not being as smart as Carlyle. Why didn’t they just pay themselves a billion and a half in dividends, like Carlyle did? Because Ford is a company that manufactures and sells things. All they could do was tack on the sale price of Hertz to their revenue sheet in order to placate their pissed-off shareholders. Carlyle, on the other hand, is a company that borrows to buy other companies and then sells them. They’re like Enron without the energy. Which means they contribute absolutely nothing to society, except perhaps by Milton Friedman’s standards. And then companies like Goldman-Sachs and Merrill-Lynch, which I think are now both owned by KFC-Pfizer-Target-Honda-Google, which itself is owned by Vladimir Putin Enterprises, which is in turn owned by Carlyle, collect money each time one of these deals goes through.
So that’s where the money is: moving companies and their debt around, and helping others do it. Definitely not in making and selling products. What kind of rube manufactures or does stuff? Even the companies that do that don’t do that, if they’re clever. Kellogg, Brown and Root also had an IPO the very same day, and a much more well-received one. What do they do? They sell goods and services to Operation Iraqi Bloody Death Rip-off and then don’t deliver them. Then, when Dick Cheney is finally spat out of the public sector like a rancid peanut, they’ll put him back on the board of directors so he can teleconference his dispeptic gripes from the comfort of his swimming pool full of human blood. I bet he lives to be at least 94.
The big money is in the investing and buying and selling of ethereal debts and assets, never paying the debts, never delivering the fruit of the assets, paying yourself handsomely, and to top it off, not paying taxes, since most of the tax cuts you white Christian gay-bashing underclass patriots in your red states were so happy about have benefited no one—no one but the big money.
But it’s not your fault.
It’s Milton Friedman’s fault. How? How is it Milton Friedman’s fault, Jeff? Is he magically forcing the financial world to suck the resources out of the real world with its funnel cloud of insanity? From the dead he’s doing this, yet?
Yes. Yes he is.
Milton Friedman dignified a simplistic vision of economics, a vision so simplistic it could not but appeal to the likes of Ronald Reagan and Margaret Thatcher. Thus began the popularization of the terms of extreme capitalism and the private ownership fetish. Thus in the early 1980s William F. Buckley could host a farcical debate on, “Resolved, Government Is The Problem, Not The Solution,” at the start of which he declared, “We are not anarchists. We simply believe that the government more often stands in the way of progress than aids it.” Or words to that effect. He and what would become the neo-conservatives wanted just enough government to protect corporations from the rabble, and none to protect the rabble from the corporations. And again, Milton Friedman and his “Chicago School” surrealists gave an intellectual imprimatur to these semantic antics.
Government—whether of, by, for, or against the people—has always favored the very wealthy and their endeavors, adventures and investments. But since Milton harnessed Reagan and Thatcher, and vice versa, the very wealthy have faced dwindling popular resistance. They and their media lackeys in the hate industry proudly display their resentment of any control over the economy that doesn’t originate with or profit them. Allowing high financial interests to dictate how clean the air should be, who should own the water, how much a corporation should compensate someone it injures, how much assistance a government should offer its poor, how much it should spend on teachers and doctors, whether workers can organize into unions, what kind of science can be done—putting all these decisions into the hands of the people with the most money is now second-nature to the voting public of the USA. And, yes, it’s Milton Friedman’s fault. I’m glad he’s dead. Not as glad as I was when Nixon died. Nixon knew what he did was evil. Friedman didn’t know and didn’t care what part of his work was right and what part wrong.
I have no idea how Carlyle and friends made a profit by making Hertz a worse company over the course of a year. All I know is, it served no one’s purposes but those of Carlyle and friends. Now, if you ask me, there ought to be a law against making a profit by ruining something, unless you run a demolitions company. And when I say there ought to be a law, I’d settle for a natural law, or even a law of the free market. Because you would think the free market wouldn’t reward people for ruining their own company. Of course, if you ask Milton Friedman, he’ll say… well, he won’t say anything. He’s dead. But somewhere he’s pleading with a naked Penn Gillette to take that pitchfork out of his ass.
This has been the Moment of Truth. Good day!