a citizen’s journal by Thomas Nephew

And run like a thief

Posted by Thomas Nephew on October 18th, 2005

This is just a “bookmark” post, one that mainly serves to save a link to a particularly good insight, rather than adding much of anything of my own.

Mark Schmitt (“The Decembrist”) has a way of taking a story you think you “get” and showing you how much more there is to it — and how you “got” that, too, without realizing it. In a post from a couple of weeks ago, “Pump and Dump Politics,” it’s about Frist’s “blind trust” stock dump. Schmitt points out that Frist was aware of the decaying financial situation of his father’s company; uninsured hospital vists were rising faster than insured ones — a fact with a certain political background::

But when the uninsured ratio goes up, and Frist actually knows that this will affect his own portfolio, paradoxically his reaction isn’t what the normal conflict-of-interest analysis would assume. Rather than use his official power to reduce the number of uninsured, he takes a private action, and just dumps the stock. And not just any stock, this is his patrimony he’s selling out. It’s the stock of his own family’s company. But he washes his hands of it. Leaves it to some bigger sucker.

Schmitt defines “pump and dump” as “the practice of talking up a stock or making earnings appear high, then selling just before the inherent weaknesses in the company become apparent,” and continues:

Investors as well as executives don’t look at a company as something to build for the long term; they need to beat their numbers in the current quarter. And for the most part they assume that by the time things get tough, they’ll be out. The insiders will bail out before the suckers; the CEO will move on to some other company. Or, if worst comes to worst, he’ll retire with a nice package guaranteeing health care, use of the company plane for life, and a nice package of stock to sell when someone else turns the company around. […]

And what is our political culture except another version of pump and dump? Everything from war to tax policy to energy policy to the Medicare bill is a short-term effort to boost the president’s political stock, with the long-term costs left to some bigger sucker.

Emphasis added.

One Response to “And run like a thief”

  1. WestEnder Says:

    I think the fact that the same people who steer the business world also steer the political world has something to do with the short-term mentality.

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