You know capitalism is rotten when the best thing that people can think of investing in is SPACs. These are defined by Investopedia as:
A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as "blank check companies," SPACs have been around for decades. In recent years, they've become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019. In 2020, as of the beginning of August, more than 50 SPACs have been formed in the U.S. which have raised some $21.5 billion.
The definition seems fair. I will use it.
There are at least three obvious problems with this. The first comes from writing blank cheques, which is what is going on here. As far as I know throwing money at anything has never been much of an investment policy. So this either says some people have too much money (which is true). Or it says that they have literally no idea what to do with their money (they don't). And it suggests that markets are so clueless as to what to do with available money that they would rather pay roulette instead (they would). To put it another way, this system capitalism is almost out of ideas.
The second issue relates to the first. I said ‘almost out of ideas' deliberately. That is because there is one idea still left in use, and that is rentierism, asset stripping, or turning a fast buck, whichever you wish to call it. The idea behind a SPAC is that a new owner in a quoted entity can both buy a private company and strip value out of it before then selling it on. Much of the gain will simply come from being quoted. The rest will be old style asset stripping. Sales and leasebacks will be in vogue. Leverage will be increased to fund dividend stripping of retained reserves, whilst accounting tricks will be used to push profit upwards. Hollowed out firm creation, I call it. The result is quick bucks from financial engineering with no net gain to society.
Third, the question is why markets needs any tax incentives when they are so obviously awash with cash that they can waste it in such deeply unproductive activity as this? Why then has Rishi Sunak felt it necessary to give tax incentives for investment for the next two years when there is so obviously no idea what to use money for? And why hasn't corporation tax already gone up when markets clearly have excess cash? Tax policy is very obviously wrong.
SPACs are clear indication of three things. They are a wealthy elite with too much cash, a form of capitalism that has clearly run out of ideas and a government not willing or able to tax appropriately to correct these market failures. Together these should indicate the end of an economic era. But will they?
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“Why then has Rishi Sunak felt it necessary to give tax incentives for investment for the next two years”
That’s pretty obvious actually. Every competent tax expert I know spotted that the increased capital allowance deduction now is to encourage investment now rather than have companies defer the investment until the corporation tax rate goes up later.
Meanwhile I notice that there was a widespread boycott of social media such as twitter over the weekend to show solidarity for anti-racism and anti-sexism in social media. It’s disappointing that you didn’t think this was action worth supporting.
a) The tax relief now is to lock in the rate so it continues when the tax rate goes up
and
b) The boycott related to football. It is a pretty peripheral part of what I do
c) I suggest you stop trolling.
When Warren Buffet and Charlie Munger are so aggrieved they feel they need to ‘call it out’; a warning is being sounded among the priesthood of capitalism against the modern, secular Tetzels; short-termism and counter-growth rentierism is taking a stranglehold on neoliberal capitalist practitioners (using the devices created by their over-paid professional foot soldiers).
I’m sure you’re well ahead of me on this, but it’s mainly because central banks have been creating, and permitting the creation of, far too much money that is being channelled to those who can make the least productive use of it. At least it appears the Biden administration wants to tax some of this money back to restore some balance between the returns to capital and labour and to maintain economic stabilisation while it spends on productive public investment.
Unfortunately, we’re miles away from that here or in the EU.
Would you rather the economy had collapsed?
How would you have managed the fallout of that?
I agree that tax increases on wealth and corporations are essential though
You may be partly misunderstanding my point. I was and am totally in favour of the fiscal activism deployed to support the economy and workers during the pandemic. It should have deployed sooner with more comprehensive lockdown. But the government and officials are treating it as an aberration driven by the pandemic and are planning to return to the fiscal and monetary policy mix of the status quo ante. The difference in the US is that the Biden administration is genuinely pivoting away from the dogma of this misnamed neoloberalism because it knows it is the right thing to do.
OK!
I believe the American term is “crapification” which, while less descriptive, has a bit more punch.
Well said Richard.
‘Couldn’t agree more.