The media world is in an uproar following a leak that revealed that billionaire Peter Thiel backed former professional wrestler Hulk Hogan’s lawsuit against Gawker. The uproar has nothing to do with free speech. The media is closing ranks around one of their odious kin because the privilege of destroying people and institutions with impunity is supposed to be only theirs.
In the battle, Peter Thiel and Hulk Hogan created a high-low tag team to take out a middle. Is this a stand-alone event? Could other billionaires be employed against flabby institutions that prey on citizens? If wealth inequality breeds a larger class of billionaires and multimillionaires, the future political battlefield might see a greater employment of them as weapons outside of political donations.
Like the media, the American banking industry is seen as all powerful and in charge in Washington. Nothing can be done to get rid of the too big to fail risk or their power over economic policy. There might be a way. It might involve recruiting some highs to take out what would become a middle for the benefit also of the sea of lows. There is always the problem of coordination.
Everyone needs an incentive, and the banks themselves may offer the doorway by simply being public. It might be possible to align shareholders with citizens against what John Kenneth Galbraith called the technostructure of the banks. Much of America’s bubble economic policies since Robert Rubin’s gang bought the Democrats in the 1990s has gone to capital over labor but the labor within the banks and their clientele have made off well, compared to the average American worker.
One such operation might already be in play. Carl Icahn is in the middle of an old Uncle Carl special of buying low and trying to pressure some firm into making changes to boost the stock price to give him a capital gain or break up entirely, unlocking supposed value. Icahn is pressuring AIG to break into three firms, which would be great for limiting systemic risk within the system. AIG is not a bank but is deemed a “significantly important financial institution” subject to special regulations. Recall that AIG is an insurance firm and a complex financial institution that ran into liquidity problems on its credit default swaps and securities lending that triggered financial authorities to deem it worthy of a bailout.
Icahn wants it broken up, and at a minimum, slimmer than it is now. AIG traders and the junkies mock that it is project status checkers being laid off, but AIG has laid off what they claim are nearly one-quarter of their vice presidents. Insiders and industry observers consider the AIG strategy one that looks pretty, pays out billions to shareholders, and bides time until Icahn is bored. In the process, that means AIG is going to flatten their corporate structure even more than they were doing prior to Icahn’s investment and ‘skinny up’ operations.
This sounds normal when under Icahn’s gaze, but it is not temporary. The tells are in their moves. When a company flattens its structure, if it empowers and frees up their line workers, they can be nimble and make decisions better. If they do not do this, decision-making becomes more centralized and power now rests on even fewer higher-ups. This second strategy is what AIG is doing, which also clues into their plans. If AIG is slimming down operations and as an insurer, examining claims loss ratios to show as much profit as possible, what AIG is really doing is setting up blocs of business for sale.
These sales will either pay off Carl Icahn and slim the firm down, or sales will accelerate until the split into three becomes a natural progression. AIG operating this way could anger shareholders and end Icahn’s plans, but AIG trades below book value. Shareholders are aligned with Icahn. If Americans cannot get their corrupt politicians, who are much easier to buy than a man worth $17 billion, to break up the too big to fail banks that placed our financial system into crisis in 2008, then maybe selfish billionaires can be weaponized to achieve those ends.
This may not happen in 2016 or at all, but if it does, it may be a blueprint for breaking up the too big to fail banks without litigation. It can be applied to others because there are other financial institutions in the same situation. Citigroup was the weathervane. Citigroup was so sick in the 2008 crisis that it received three bailouts, with the last being a special tax deal worth billions right before Christmas 2009. Whether Citigroup was broken up or not by the end of Obama’s first year was a clue to outsiders if real reform would occur. The Rubin clique was in charge of Obama’s economic policy, so they took care of their own.
Citigroup rode the wave of deregulation and also pushed for it, in order to become a behemoth. They used size to their advantage to take on more risk but to also ensure that the government would have to bail them out due to systemic concerns. The problem is that Citigroup’s earnings are meh, and similar to AIG, there is potentially far more value just waiting to be unlocked. This is openly stated by professionals, which means the institutional shareholders see it. Not just Citi, but Bank of America is mentioned in the same breath for this potential value in devolution.
The idea of breaking up the too big to fail banks might seem far fetched. The earnings look sour for them though, who knows who has what loans to the U.S. shale oil patch, and the bull market is long in the tooth. Not every billionaire is an Icahn with the reputation or energy to bend institutions to work in his manner. The Hartford fought off the efforts of billionaire John Paulson to break up, but they did shrink.
To remove such an entrenched interest might be impossible within the system and with normal means. The technostructure within these companies have played a tremendous game of donating money to both political parties to create a wonderful conveyor belt of money bags between NYC and DC. The key is to find a solution outside of that process that is unbeholden to either. This might sound impossible. A year ago, one billionaire political rookie (outspent by an order of magnitude) mouthing the hopes of a sea of little people would have seemed an impossible way to destroy the GOP’s political presidential nomination process. It happened, and shareholders are far less fickle than primary voters.