Manipulating the system [was Re: New Government?]

Robert J. Bradbury (
Tue, 24 Aug 1999 18:16:04 -0700 (PDT)

On Tue, 24 Aug 1999, Lee March wrote:

> O'Regan, Emlyn wrote:
> > Or you can manipulate the loopholes in the system (provided you have enough
> > buy in) to get wealthy by doing nothing for other people, or even by
> > disadvantaging other people.
> You sound like everyone else with no net worth and not a clue of how
> people better themselves financially in a free market.
> Step up to the plate and make a few bucks for yourself and then comment
> on how the system works, or be clever enough to find and manipulate the
> "loop holes" you talk about.


I have to step in here (since I at least can claim to have been up-to-bat a number of times in a variety of circumstances).

A good starting example of what is being discussed is most of the SPAM running around that is primarily variants on the "Get Rich Quick" schemes. (The Buy-In is creating a sales-pitch convincing enough that people swallow the hook and the "loophole" is that we value freedom-of-speech more than we value stupid people not being ripped off).

At the higher level an example of a "so-called" loop holes were the government set-asides so that a fixed fraction of all contacts went to minority businesses. It didn't take long for some contractors to figure out how to setup shell companies that met the "set-aside" requirements, even though the profit ended up flowing into the same pockets as before the set-asides existed.

Still higher is a statement, that was attributed to Sen. Bob Packard a few years ago. Apparently the Agriculture Comm. had worked out and had passed a program of agricultural "subsidies" that would cost the government **no more** than $10B. Yet a few years latter, the farmers has figured out how to reallocate their farmland so the program was costing $30B. Q: Who is smarter -- 100 senators at designing a loop-hole-less system or a few million farmers with a big incentive to find the loop-holes?

If you look at the history of the industry and/or large corporation executive compensation over the last ~20 years, the executives have figured out how to make themselves quite wealthy through both salaries & stock options. This is "justified" by the argument that they are enriching the stock-holders. In fact it is managed by setting up the corporate boards with individuals who represent the executives more than the stockholders. As an example of this, I can point out that 3 of the 5 members the board of Aeiveos Sciences Group were appointed by myself. If I had made the company go, I could have easily manipulated the system to my advantage [*if* I were that kind of guy :-)] The loophole as far as I can tell is the difficulty of a small shareholder in getting an agenda item into the annual meeting and convincing the rest of the shareholders (many of whom are large mutual funds) to go along with their perspective of "throw the bum(s) out". The large shareholders know that if the stock suffers a lack of confidence due to a change of management that is going to cost them a lot more than the executive compensation package does.

Finally, I have to cite the big kahoona of people in power ripping off the system which is the recent example of Russia. Before, under communism the "leaders" had to maintain the illusion they were little better off than a majority of the population. Under "democracy" and "capitalism" however, they simply setup systems where the jewels of the empire were transfered into private hands with the management of the jewels getting the controlling shares and the politicians getting kickbacks on the whole process. Theft of public resources *or* simply very shrewd people working in their own self-interest on a scale that makes us America's corporate executives look like rank amateurs -- you be the judge.

Little know fact -- members of the Russian parliment (the Duma) are *immune* from prosecution under the constitution. Think about the consequences of that!

My observation, in the many places I have worked is that people act in their own self-interest and that if people can find a way to make the "system" work to their advantage they will do so. I think we are probably lucky that we work under a system that was setup quickly, largely as a reaction to abuses of another system. That meant the people doing it didn't spend too much time thinking about how to rig the system so they could make it work more for the people who would come into power than it did for the average citizen.