Thursday, February 9, 2017

HowTrump's Business Council Chairman Became A Billionaire

This article was written by the CEO of a Silicon Valley venture capital firm who got rich by investing other people's money in high tech start up companies.  Some of those companies were successful and they hired a lot of highly paid workers.  The investors also got a good return on their investments by taking a risk with their money.  The Chairman of Donald Trump's business council Steven Schwarzman also got rich by investing other people's money.  He is a multi-billionaire who earned $799 million in 2015.  This article explains how Schwarzman got rich and why his method of getting rich is very bad for the kind of people that Trump sold himself to during his election campaign. The focus of Trump's group will be to make themselves richer and to keep their tax rates lower than the tax rates that most of us pay on our wage income.

Some may remember the movie Wall Street.  Steven Schwarzman's business is much like Gordon Geeko's business in the movie.  He purchases struggling firms, with borrowed money, and he attempts to make them more efficient so that he can sell them at profit.  His primary method for reducing costs is to reduce the size of the labor force.  He does not create new jobs.  He even makes out well if the companies that he purchases end up in bankruptcy.  He borrows money against the assets of the acquired firms and uses the borrowed funds to pay dividends to his firm.  That gives him a return on his investment no matter what happens to the acquired firm.  Since he loads them up with debt it also makes it less likely that they will survive and hire more workers. 

Now that we have a Republican in the White House,  Trump will get a  chance to stimulate the economy by investing in infrastructure.  Republican's don't worry about running deficits when it helps Republicans win elections.  He hopes hat his economic team will help him to develop a plan that will provide tax credits to private firms that encourage them to develop private assets from which they can collect fees.  He has picked a good team for that purpose.  They might be able to move us in the direction of the Republican Party's wet dream.  That is the "ownership society" in which private investors own all of our assets and pay little in taxes to fund the shrinking government.

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