Ruslan Streltsov. Goodbye America...

Goodbye America...
History

Ruslan Streltsov

Publication date: November 11, 2002

There is a big war in the air. And oil. And this smell cannot be drowned out by the “anti-terrorist” rhetoric of the American “defenders of civilization,” no matter how hard they try to convince the world of the nobility of their goals.

This war has been brewing for many years. Its backstory goes back at least a quarter of a century. Then a generation of strong leaders of the decrepit system managed to eliminate the renegades Kennedy and Nixon, who doubted, albeit from opposite sides, the viability of the American model, and set a course for resolving the problems accumulating within the country through external sources, mobilized and used by methods very far from market ones.

The essence of these methods was military-political expansion and the energetic rhetoric covering it, called the “strategy of containing communism.” This strategy was aimed at cracking the Iron Curtain and reaching the storehouses of the Eastern Bloc, which was not covered by the world market. But to understand the critical importance of these policies for the survival of the American system, it is necessary to look inside the United States itself during the era when Reagan's "first crusade" unfolded.

Here I would like to talk about the most striking and deeply symptomatic phenomenon of the Reagan era - the “junk stock market” and the associated boom in corporate takeovers.

Junk stocks are high-yield securities (usually preferred stocks and bonds) with low safety, issued by companies that are unable to issue securities of a decent investment grade. They have always existed, but being unreliable by nature, they could not become a significant form of capital without the use of special methods that would ensure their reliability. Or the appearance of reliability that suits investors under certain conditions.

The necessary methods appeared in the late 70s thanks to the liberalization of legislation regulating the stock market and the financial genius of Michael Milken, a graduate of the University of California and the Wharton School of Business, who by that time headed the Drexell Burnham Lambert corporation.

Of course, absolutely nothing happened to the shares that could increase their reliability. But something happened to the market - Milken began to guarantee junk stocks. For a certain commission or share in the profits from the shares placed, his corporation assumed the obligation to repay the invested funds in the event of insolvency of the company issuing risky securities.

This created financing opportunities for small and unreliable companies while concentrating billions of dollars of subscribers in the hands of Milken, lured by the prospect of high profits with low risk.

Clearly, Drexell took on enormous financial and business risks because, as noted earlier, junk stocks are still junk stocks. What allowed Milken and Drexell to create a market for junk stocks without disappearing in a wave of bankruptcies of issuing companies that issued unreliable high-interest securities?

Milken's activities were based on a fairly simple statistical pattern: a sufficiently diversified portfolio of junk stocks was no longer unduly risky, and the profits from the success of some of the issuing companies more than covered the losses from the ruin of the other part. By acquiring a share of the profits, Milken turned Drexell into a holding company for a broadly diversified portfolio of junk stocks. Drexell's guarantee on junk stock made it a seemingly reliable financial instrument for customers.

Drexell's job, of course, was to keep this market sound by reducing the number of failed companies. To do this, Drexell has developed another scheme: the so-called “refinancing” technique.

This technique consisted in the fact that in the event of problems with one of the issuing companies, that is, the threat of its insolvency, the company's management and shareholders sat down at the negotiating table, the mediator of which was, of course, Drexell. As a result of these negotiations, the company's financial obligations were typically relaxed in exchange for some concessions to shareholders. This type of transaction is called an “exchange offer.” Due to this, Drexell was able to artificially maintain at a low level the percentage of shares of corporations that could not cope with their financial obligations. This, of course, increased confidence in the junk stock market and contributed to its stability. Drexell received a fee for these transactions.

Although the main mechanism for the functioning of such a market, which, in contradiction to the classical theory of investment and common sense, combined high profitability with high reliability, was, of course, the notorious pyramid. The pyramid, by the way, collapsed on “Black Monday” in October 1987, when most of the capital of the “junk stock” market was blown away.

But until that moment, hundreds of billions of dollars were burning the hands of Milken and his associates, who during this period unleashed a gigantic wave of corporate reorganizations that ultimately led Milken to a 10-year prison sentence and the Drexell Corporation to bankruptcy.

The essence of these reorganizations was that, with the help of funds raised from Drexell, control was seized over corporations that were “undervalued” by the market, including very large ones that formed the basis of American business. Further, the corporations in the form in which they were bought were not exploited. As a rule, some kind of surgical operation was carried out on them - they were quickly and effectively cut into fragments and the property was profitably sold, destroying a more or less efficiently working organism. Schemes of outright racketeering (in the American sense of the word) were also used, when not controlling, but only blocking stakes were acquired, which were sold at an inflated price to the company itself, blackmailing its management by blocking the adoption of one or another important decision.

This type of business created many enemies for Drexell and Milken. These include top managers of corporations that were attacked, who lost a lot or even everything. And such giants as Disney, Gulf Oil, Nabisco, Trans World Airlines and many others also came under attack from pirates. These include the largest investment banks, such as Merill Lynch, Solomon Brothers and First Boston, who were left behind in profitable business and are ready to do anything to regain the inviolability of their positions.

The time for open competition was irretrievably lost, and there was no other way out except to attract the state to our side. This was not easy to do, however. The Reagan administration was in power, which pursued a policy of non-interference in the internal processes of the market. To do this, the affected corporations used all their connections, and all the media began to talk about the destruction of honest companies by fraudsters and the decline in the competitiveness of the United States itself.

The public and media were outraged, and Drexell's competitors brought their government connections to bear, and the Reagan administration faltered. Many businessmen and corporate pirates were put on trial. The Securities and Exchange Commission, threatening more serious charges, forced Drexell management to admit to several violations and accept a number of conditions from the Commission. Among them was the appointment to one of the top management positions of former Commission chief John Shead, who closely monitored all Drexell operations. The main thing is that the company's management agreed to testify against the man thanks to whom Drexell achieved stunning success.

The result of all the described processes was a ten-year prison sentence for Milken on charges of illegal use of insider information and the imminent bankruptcy of the Drexell company itself. After Milken left the company, customer trust, which was based on personal trust in him, was undermined, and the corporation's profits dwindled before our eyes. Moreover, the entire junk stock market collapsed like a house of cards.

Thus closed another chapter in the history of corporate America, this time repelling, albeit at the throat of its own song, the attack of the most aggressive businessmen who, like poachers, were ready to kill living and working economic organisms in order to take possession of their property.

It would seem that justice has triumphed, and America once again showed the world the miracle of the inexhaustibility of its vitality... However, soon after this collapse, America began to inflate a bubble in high-tech shares, companies in the field of information technology, using the same scheme. A bubble that is now deflating right before our eyes and threatens to undermine the entire economy of the United States.

The main point in the unwinding of Milken’s 200-billion-dollar scam (like the current one, but ten times larger, “high-tech”) was the objective economic process that began in America at that time, namely, the influx of “hot money.” The emergence of “junk money” led to the emergence of a market for “junk shares”, as well as later the market for “financial derivatives” and high-tech companies. And this money is obviously even cheaper than what the Federal Reserve (the American printing press) prints and distributes around the world. And if the money given to Wall Street banks is simply free of charge (at zero interest), then in this case we can say that the construction of American financial pyramids is carried out at the expense of, metaphorically speaking, money with a negative price (interest), in other words, money whose owners are willing to take a big risk with it, initially expecting significant losses. In this situation, Drexell's "word of honor" turned out to be a kind of beautiful wrapper in which essentially fraudulent transactions were wrapped. The company simply fell into line.

Let us now think about the source of this “negative money”.

This is the global American dollar pyramid that has begun its slow but steady melting. Already at the end of the 70s, the world economy began to become saturated with dollars and there was a reversal of this flow. Wall Street financiers probably felt the “breath of spring” and, even under Carter (!) in 1978, they pushed through the liberalization of the stock market mentioned at the very beginning, apparently to utilize the dollar supply that had begun to gradually return.

Of course, they understood that any pyramid would not last long, so they saw the fundamental solution to the problem as a further round of financial expansion into the vast expanses of socialist countries that had not yet been colonized by the dollar. It is here that one should look for the roots of the “containment of communism” and the almost religious hatred of the Soviet Union by President Reagan, whose predecessors at one time approved the results of the Moscow trials and handed over the Cossacks to Stalin, knowing full well what exactly awaited them upon their return.

If the Eastern Bloc and, mainly, the USSR with its gigantic natural and other resources had not collapsed in due time, Great America would inevitably have collapsed under the burden of its parasitism.

Then they were carried away. At the expense of the Russians. What now?

The whole world is already full to capacity with dollars. The euro appeared on the horizon, accelerating the process of sobering up from the dollar dope. It is becoming more and more difficult to take anything in exchange for a green piece of paper. The return of the entire mass of banknotes that have lost confidence threatens hyperinflation, the disappearance of the savings of the population armed with Colts and the melting of the capital of economic leaders.

The only way out of this stalemate is to take Arab oil for free. This will support the American pyramids for some time and delay the collapse of the financial system. But this will not change the essence of the system.

The ending follows...