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[In]Securities Guest Blog: Small Worlds by Aegis Frumento Esq
April 16, 2020
[In]Securities
a Guest Blog by
Aegis J. Frumento, Partner, Stern Tannenbaum & Bell
Aegis J. Frumento, Partner, Stern Tannenbaum & Bell
Small Worlds
Late 20th-century humorist Irma Bombeck titled one of her books The Grass Is Always Greener Over the Septic Tank, but I've never found it so. This morning, I took a look at what the recent rains have done to my lawn and noticed that this year, as every year, the spot over the septic tank sprouts nothing but weeds. And as any gardener will tell you, most of the hard labor in personal agriculture has to do with regularly pulling weeds out of the ground. Weeds seem to be everywhere you don't want to see them.
But weeds are everywhere, whether you see them or not. In a mature lawn, meadow or forest they are kept in check by native flora. All you see is the occasional dandelion or crabgrass, and they are not unsightly. But they are still there. It's only when you try to "improve" on mother-nature -- by planting a garden or a septic tank -- that weeds take over. Once you disturb the balance of things, you create a space for weeds to proliferate until a new equilibrium is reached with the rest of the ecosystem.
This is also true of animals. Every animal preys upon other living things, and other living things prey on it. In the mid-1970s University of Chicago historian William H McNeil had the insight that this ecological principle applied to human culture as well. In his classic work Plagues and Peoples, McNeil explained that, like all animals, humans faced two kinds of predators: Microparasites that eat us from the inside (bacteria, fungi and viruses) and macroparasites that eat us from the outside (lions, tigers and bears). However, unlike other animals, humans can generally protect themselves from all macroparasites save one -- other humans, the most dangerous macroparasite of all. Human macroparasites are that minority of the human race that seeks to dominate the larger population -- like warlords, governments, and in our age, large corporations and those who run them.
A stable human population is in balance with both its microparasites and its macroparasites. Disease causing microorganisms and their human hosts eventually adapt to each other. Likewise, macroparasitic humans learn restraint. Throughout time, people have enjoyed peace and stability only when both their microparasites and macroparasites achieve a symbiotic relationship with the populations they feed on. Those tend to be dull times, and we hardly know of them despite that in our eons of existence there must have been many such times. The interesting times -- those the old Chinese curse refers to -- are when human populations and their micro- and macroparasites fall out of balance. We call such times "history." We are now living in one of them, when things are very much out of whack.
We all know about the microparasite that now particularly preys on us. One of its effects is to shut down some parts of the economy, putting people out of work. The current number of unemployed is gaining on 20 million. This will cause its own health issues to complement the coronavirus. As Pres. Trump's trade czar, Peter Navarro, pointed out, this could "increase mortality rates associated with suicide, drug overdoses, alcohol poisoning, liver disease, lung cancer, poor diet and cigarettes, while destroying families through higher rates of single-parent households, child poverty, and divorce and lower rates of fertility and marriage." All this argues in favor of "opening the economy" because the deaths caused by unemployment could be more than those caused by Covid-19. https://www.nytimes.com/2020/04/13/us/
politics/peter-navarro-coronavirus.html.
politics/peter-navarro-coronavirus.html.
I get all that. But all those ill consequences are due to folks not having enough money to live on, and it begs the question why that should even be.
Let's take The Walt Disney Company as just an example. Most of the unemployed that this shutdown has so far created are in the hospitality businesses, like Disney. Of course, if people can't leave their houses, they can't go to Disney World. And because they can't go to Disney World, Disney chose to furlough 43,000 employees. That's 43,000 humans, who earn roughly $16.50/hr. on average. https://www.nytimes.com/2020/04/12/
business/disney-furloughs-coronavirus.html.
business/disney-furloughs-coronavirus.html.
Now, I don't mean to pick on Disney as a particularly brazen macroparasite. Besides, others already have and I can't improve on them.
But let's understand something. To keep Disney's 43,000 employees on the payroll for 90 days would cost $340 million. Before you say, "that's a lot of money," let me ask you, "compared to what?" Disney had over $20 billion in revenues and $4 billion in operating income (that is, profits) in the last quarter of 2019. https://thewaltdisneycompany.com/app/
uploads/2020/02/q1-fy20-earnings.pdf. Forget what it earned the rest of the year. And forget what it earned every single year for the past 10 years. Forget that its CEO, Bob Iger made $408.4 million in the past decade, and that if he had been paid the same 30-times-the-average-employee that CEOs were paid in the 1970s, he would have made $398 million less. Forget also that for much of that time, Disney was buying back its own stock at a cost of $4 to $5 billion per year. I hope you are starting to get my drift.
uploads/2020/02/q1-fy20-earnings.pdf. Forget what it earned the rest of the year. And forget what it earned every single year for the past 10 years. Forget that its CEO, Bob Iger made $408.4 million in the past decade, and that if he had been paid the same 30-times-the-average-employee that CEOs were paid in the 1970s, he would have made $398 million less. Forget also that for much of that time, Disney was buying back its own stock at a cost of $4 to $5 billion per year. I hope you are starting to get my drift.
No matter how you slice it, Disney can well afford to pay $340 million to keep its employees on the payroll while Covid-19 passes over. That it won't shows Disney to be a corporate macroparasite piling on to the misery caused by the microparasite. To which what can I say but . . . sad.
As I say, this is not to pick on Disney. Disney is not unique in any way. It's just an apt example.
Here's another. The federal aid packages passed so far on account of the pandemic total about $2 trillion. Someone soon, I don't doubt, will say, "that's too much government spending," meaning, we shouldn't be taxing the rich to give away $2 trillion to people who can't keep their jobs in a pandemic. Again, compared to what? In the past decade, the 108 million American households that comprise the lower 90% of income brackets effectively gave on average $110,500 each, or a total of $12 trillion, to those in the top 1%. That's the overall economic consequence of all the post-1980 tax breaks, runaway executive compensation, outsourcing of jobs, and failure to share the benefits of digital productivity with workers that caused earnings to stagnate for most while the super-rich got super-richer. https://www.nytimes.com/interactive/2020/04
/10/opinion/coronavirus-us-economy-inequality.html?searchResultPosition=2. After having given the haves $12 trillion, is it really too much to ask for some of it back to help the have-nots when they need it? I'm just waiting for someone to dare say it.
/10/opinion/coronavirus-us-economy-inequality.html?searchResultPosition=2. After having given the haves $12 trillion, is it really too much to ask for some of it back to help the have-nots when they need it? I'm just waiting for someone to dare say it.
As McNeill points out, pandemics throughout history have tended to put societal imbalances in high relief, spurring people to demand social restructuring. Today, our principal social imbalance is inequality. We have bred a new class of downtrodden, living paycheck-to-paycheck, overburdened with credit card and student debt, unable to get and keep a decent job, unlikely ever to do as well as their parents, chronically insecure in the heath and livelihood. We have an epidemic of "deaths of despair" -- what Navarro is really talking about -- that puts Covid-19 to shame. These felt inequities have spawned such pathologies as nativism, fundamentalism, hypernationalism, isolationism, racism, anti-intellectualism -- in short, Trumpism.
But inequality of income and wealth is the least of it. The real problem is inequality of opportunity, of relevance. The powerful, like the poor, will always be with us, and they should be, but since 1980 the system has fallen badly out of balance. If the pandemic makes us finally face the oligarchic tendencies we've sprouted, and compels us to start weeding, then some good will come of it. And in facing the issue of gross inequality, let's forget what's "fair" or "equitable" or "just." Those arguments go nowhere. Likewise, no torches and pitchforks, no sending of the 1% to the guillotine. We need our parasites, both the mircro- and the macro. They make us who we are. But we must keep our macroparasites in check to avoid a plague of plutocracy. It takes all kinds to make a world, to be sure; but it's a small world after all.
ABOUT THE AUTHOR
Aegis Frumento is a partner of Stern Tannenbaum & Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations); SEC and FINRA regulated firms and persons on regulatory compliance issues and in SEC and FINRA enforcement investigations and proceedings; and senior executives of public corporations personal securities law and corporate governance matters. Mr. Frumento also represents clients in forming and registering broker-dealers and registered investment advisers, in developing compliance policies, procedures and controls, and in adopting proper disclosure documents. Those now include industry professionals looking to adapt blockchain technologies to finance and financial market enterprises.
Prior to joining the firm, Mr. Frumento was a managing director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.
He graduated from Harvard College in 1976 and New York University School of Law in 1979. Mr. Frumento is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.
NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog.