Chapter 1

The Hoax Of Equal Opportunity
And Equitable Prosperity

The Hidden Social Order

(Part 1) The Society We Can See

In the 50's, the United States appeared to hold the formula for prosperity. Her love affair with the automobile soon caused homes to sprout two and three car garages, while her industrial automation produced such a profusion of affordable consumer goods that the growing prosperity enjoyed by the predominantly one income families of America could best be described as an era of rampant consumerism.

Television series like Father Knows Best and Leave It To Beaver, among others, slowly but surely etched apple pie concepts of America into the nation's psyche. Individually and collectively, Americans began to expect and demand world recognition as the flagship of prosperity and democratic freedom. National pride became the country's chief export.

To put it mildly, times have changed.

Escalating real estate prices and high rents have forced most families to require two incomes just to get by, and the concept of home ownership has been transformed from an expectation to little more than a pipe dream for this generation's youth, who have very little money left over after paying their rent.

With the advent of two working parents, the quality and nature of home life progressively deteriorated to the extent that few children now enjoy the luxury of growing up with only one set of parents. Broken homes and single parents on welfare have become part of the norm.

In the workplace, computers, improved communications, and automated manufacturing techniques have dramatically increased efficiency and productivity; but unless you count yourself among the richest 10%, your economic group has been relatively losing ground steadily since the 50's despite all the technological breakthroughs. More recently, across the board cuts in social programs have significantly decreased the standard of living for the employed and unemployed alike. Moreover, the widespread proliferation of street beggars, soup kitchens, grocery handout centers, and flop houses for the homeless bears witness to the fact that an American reality is shaping up that can no longer be ignored.
Educational opportunities are not being equitably shared.
Health resources are not being equitably shared.
Access to justice is not being equitably shared
National resources are not being equitably shared.
In fact, the inequities increase with each passing decade.

The hallowed buildings of the nation's capitol, that once echoed with the visions of the original Founding Fathers, now bear witness to a continuous parade of high level government officials forced to resign for various abuses of public trust. The Founding Fathers would no doubt be horrified to learn the extent to which drugs, violence and organized crime have come to be an integral aspect of the American way of life. So much so, that the deterioration of life in America is epitomized by Washington DC itself. Not only has the nation's capital had to resort to imposing a night-time curfew on all Washingtonians under 18, its mayor is currently facing drug charges, and the city has also become the murder capital of America!! {B1}

Legislative and constitutional changes favoring the most wealthy are rapidly running the country into bankruptcy. In 1988 alone, 200 American banks, and 226 Savings and Loan thrift institutions (S&Ls) failed, and hundreds more are about to fail. The banking industry is on the verge of collapse. Losses involving the S&L thrift institutions alone could eventually cost the taxpayer up to 500 billion dollars. In addition, the major U.S. banks are being secretly bailed out from their defaulting 3rd World loans.

Continuing cuts in the standard of living for America's unborn loom ominously. As a result, Americans are now beginning to reluctantly acknowledge that the expectations of prosperity fueled by the American Dream are no longer probable. The optimism of the 50's has been replaced by widespread uncertainty concerning future economic well-being, and rightly so.

Clearly, America of the 80's is radically different from America of the 50's, yet most Americans still cling to concepts of wealth distribution, democracy, and freedom of the press that echo the ideals the American Dream of the 50's even though many of the concepts can no longer be substantiated by present-day social realities. Socio-economic changes occurring behind the scenes have drastically altered the nation's destiny. A covert social order is in place and there is a 90% chance that you are one of the chosen losers. Those who remain ignorant of what is happening behind the scenes, will have to take it lying down. If you know what is going on, you can fight back. Knowledge is power. Let's begin by examining the hidden social order within America. The facts will probably shock you.

(Part 2) The Hidden Wealth of the Richest 1%

Including or excluding the so called "couch potatoes", Americans take in more information than they ever have. Newscasters such as Ted Koppel, Dan Rather, Tom Brokaw, Robert McNeil, and Jim Lehrer are as well known to this generation as Walter Cronkite was to previous generations. Not only do people watch their favorite newscasters regularly, they read mountains of newspapers and magazines as well.

Because the American media claims to be the freest in the world, few have reason to suspect that their mass media information is being very carefully controlled and colored. The shocking truth is that the American public is being purposely kept in the dark about many vital realities. For example are you aware that:

THE RICHEST 1 (ONE) PERCENT OF AMERICANS possess more wealth than

Despite how incorrect that statistic may first appear, there is definitely no error or misprint involved. Not only that, the full significance of the above statement is rather difficult to instantly appreciate, so we'll take a moment more to consider its implications.

Because the richest 1% prefer to associate almost exclusively with members of their own social and economic standing, few members of the bottom 90% of Americans have ever even met a millionaire let alone a billionaire.

Consequently if you belong to the bottom 90%, you can think of the wealth of the richest 1% as :
more wealth than the combined assets of every American you have ever met, plus all the assets of every American you would be likely to meet on a trip that took you through every single city and town in the nation!!

If you haven't been thinking of the rich and their wealth in quite that light, I suggest you begin to, because that information is only the tip of the iceberg of information being actively suppressed by the so-called freest media on the planet. Many references will be made throughout the book to the bottom 90%, so it is appropriate that we try to define the group a little more precisely.

Since the average person in the West considers himself or herself a member of the middle class, logic as well as popular opinion would suggest that half or more of the population fits into it. Initially then, let's arbitrarily consider that American society is comprised of 60% middle class, 20% lower class, and 20% upper class. Because the combined middle and lower economic classes only account for 80% of the population, the bottom 90% of society must also include half of the so-called upper class as well!
This means that the bottom 90% is comprised of:

1) Every member of the middle class
2) Every member of the lower class
3) Half the members of the wealthy upper class

So now our original statistics can be interpreted to mean that:

THE RICHEST 1 (ONE) PERCENT of Americans own more wealth than:

1) ALL of the wealth of ALL of the MIDDLE class
2) ALL of the wealth of ALL of the LOWER class
3) ALL of the wealth of the bottom HALF of the UPPER class

If you are surprised or shocked, don't feel bad. The elite have gone out of their way to ensure that you didn't know it. Nevertheless, my initial choice of (20%, 60%, and 20%) to represent the upper, middle, and lower class population percentages was arbitrary, so if you think the arbitrary percentage breakdown of society was at fault, I welcome you to run your own idea of the class percentages through the preceding model. No matter what figures you choose, the bottom 90% of society would still have to include ALL of the lower class, plus ALL of the so called middle class, plus a portion of the upper class. The staggering significance of the wealth of the richest 1% will not alter. Go ahead and try it.

(Part 3) The Hidden Wealth of the Next Richest 9%

Up to this point, we have referred only to the richest 1% and the bottom 90%. However, sandwiched in between those two groups is another wealthy minority, "the next richest 9%". Let's now find out how that group fares economically. You may be stunned to learn that:


As unbelievable as it sounds, there are two minority groups, not just one, that own more assets than the bottom 90%. These two statistics alone should leave little doubt that the bulk of the wealth in America is owned by a very small minority of super rich individuals. This reality contrasts so drastically with the "equal opportunity", "equal prosperity" concepts fed to the bottom 90% and the world at large, that statistics such as these have had to be suppressed. Again, there is no misprint. The only deceit involved is that the bottom 90% have been purposely kept in the dark about wealth distribution realities.

(Part 4) Hidden Permanent Prosperity For The Rich

If you were unaware of the severity of wealth distribution inequities, then you are probably in for an even bigger surprise to learn that the rate, at which the economic elite are getting richer, is simply astounding.
Statistics published in Forbes magazine's annual survey of America's billionaires expose this little known but shocking reality.
In 1982 there were 13 billionaires; in 1983....15; in 1984....12; in 1985....13; in 1986....26; in 1987....49. Note carefully that prior to 1986 the number of American billionaires had averaged around 13. Then the Reagan administration drastically altered the wealth distribution patterns by introducing new tax legislation favoring the top 1%. In 1986 the number of billionaires DOUBLED, and by 1987 the number of billionaires had virtually QUADRUPLED to 49!! By 1988, there were 68 individuals or families that each had net wealth in excess of $1,000,000,000. By 1989, the number had risen precipitously to 82. And by 1990, the Forbes survey reported the staggering total of 99!! {B3} With favorable tax laws in place, the super rich can enjoy bonanza years even during recessions!! The tax laws that allowed this to happen are still in place, and will remain in place till enough people get sufficiently concerned to insist that they be changed. What should cause the American people to sit up and take notice, once and for all, is the fact that this explosion of wealth took place during a period when:
It should not take an Einstein to observe that equal opportunity, and equitable prosperity is an outright hoax for all but a small minority. Unlike Britain, France, and Germany which can point to their Feudal pasts to explain their existing wealth distribution inequities, America can point to no such excuse! The American economic elite have established Feudal wealth distribution inequities equal to, and even surpassing their European counterparts (the monarchs and the landed aristocracy), in just 200 years!!
We have been brainwashed into believing that the super rich are so few in number that they and their wealth can be safely ignored. In reality, they directly and significantly affect everyone else's standard of living, and will continue to do so as long as their power and influence remain unrecognized, and unchallenged. This explosion of wealth for America's super rich has immense significance not only for society as a whole, but especially for the bottom 90%.
Many of those in the bottom 90% who accepted pay cuts and decreases to their employment benefits, did so because they had been led to believe that everyone else was also feeling the pinch. Nothing could be further from the truth.
What is being successfully hidden from public awareness is the fact that the widening gap between the haves and the have-nots is an ongoing process, and one which is running even now at full throttle. The extent to which the bottom 90% are being successfully deceived can be made more obvious by noting just how the current economic bad times are affecting American billionaires.
A good example, but not necessarily a typical one, is Sam Walton and family, who increased their wealth by $2,300,000,000 (from $6.7 billion to approximately $9 billion), in a twelve month period, from the time Fortune magazine took their 1988 survey, to the time they took their 1989 survey. For those who believe that the rich pay high taxes, Sam's pre-tax profits had to have been considerably higher than $2.3 billion. Even a 25% tax rate would put his pre-tax profits in excess of $3,000,000,000 for a 12 month period!!!
If you think that movie theater prices are exorbitant, or feel that "pay TV" prices are unreasonable, then perhaps you ought to have a word with Mr. Sumner Murray Redstone whose fortune increased by $1,480,000,000 (from $1.4 billion to a hair under $3 billion) in the same twelve month period. His name surfaces attached to entities like Twentieth Century Fox, Columbia Pictures, MGM/United Artists, or "pay TV" entities such as Showtime, The Movie Channel, and MTV. Fortune magazine's own comment was: "That's a compound annual rate of return of about 132%".
Or perhaps you would liked to have purchased a cellular telephone, but found them too expensive? Try talking Mr. John Werner Kluge into taking less profit. After all, his wealth increased by a cool $2,000,000,000 ($2 Billion) just last year.{B4}
For those unused to thinking in terms of hundreds of millions, not to speak of billions, let's take a moment to digest the significance of this magnitude of wealth.
To begin with, a simple 10 percent interest on just one billion dollars amounts to $100,000,000 (one hundred million dollars) in interest alone per year. From a working person's perspective, it would take 100 lifetimes, (of 40 working years each), for a person earning $25,000 per year to earn the amount of income each of our billionaires can earn in interest, per billion, per year. (without lifting a finger) Who pays for these previously mentioned profits? You of course, through an unnecessarily high cost of living (high cost of goods and services, high bank interest rates and inflated real estate prices, etc.).
It is worth keeping in mind that before families like the Carnegies, Rockefellers, Morgans, Vanderbilts, and others of similar ilk used PR campaigns and some supposedly philanthropic donations to help convince Americans of their social nobility, they were commonly known as "robber barons". Consequently, it should come as no surprise that in recognition of the widespread use of tax-deductible methods of purchasing civic respectability, Ralph Waldo Emerson defined a philanthropist as a man who gives away what he should be giving back.
In short, fantastic wealth is being generated virtually all the time, but the bulk of it is being skimmed off by the wealthy while the working class are kept on a relatively minimum standard of living to help fuel the illusion of ongoing hard-times.
To avoid showing the rest of the nation the amount of money they have managed to amass, and to further avoid paying taxes, some of their corporations are registered in out of the way playboy tax havens like the Bahamas. In addition, they keep much of their money in specially numbered secret bank accounts (no questions asked, no information given), in countries such as the Bahamas, Switzerland, or Liechtenstein, whose banking communities have grown fat by obligingly taking on the role of laundering and safely storing secret treasures for some of the world's wealthiest thieves and criminals. In fact, the August 21 1989 issue of Insight magazine fully exposed just how cheaply and easily a money laundering network can be set up.{B5} People who work from nine to five everyday don't have the time to waste thinking about the activities of these jet setters and playboys. Because of economic segregation, most nine to fivers have never even met such a person. Quite often the elite have their own jets, and seek obscurity behind tinted limousine windows. For the most part, the elite who rule America from behind the scenes, purposely go out of their way to maintain extremely low profiles. Why? Because neither their fortunes nor their business transactions would stand up well to public scrutiny.
Media owners, who belong to the richest echelons of our society, cooperate with their peers to ensure that their profiles remain as low as they wish. Laws that were supposedly enacted to protect the privacy of individuals, have certainly served the purpose of keeping the general public largely ignorant of the shocking realities of wealth distribution inequities. In effect, the economic elite are effectively making fools of 90% of society's so-called equals. Not surprisingly, their lobbying power has ensured that inheritance laws allow fortunes to remain virtually intact from generation to generation.

(Part 5) Subsistence for the Working Class

The old Feudal system based on economic and social class discrimination, which was supposedly left behind centuries ago, has in fact not gone away. It has only been made to appear as if it had. For example, from poor humble beginnings in servile poverty, the feudal serf rose phoenix-like to a minimum wage which now allows him to afford a standard of living just under the poverty level. American society has plenty of them, and their numbers are growing all the time. The Census Bureau acknowledges not only that 32.5 million Americans are living below the poverty level, but that less than a third receive welfare assistance! {B6} Perhaps the most tragic aspect of all is that in 1986, two million adults who lived below the poverty level held full-time jobs!! {B7} Can any ethical government expect its citizens to spend 40 hours a week working to earn a living BELOW the poverty level? Surely, this is an insult to human dignity. Back in 1981, a full 36% of workers paid on an hourly basis received the minimum wage, or within a dollar of the minimum wage!! {B8} The hardest hit are America's youth. Since 1973, the poverty rate for the under-30 group has nearly doubled to 22%. {B9}

Those working in a restaurant for minimum wage sometimes get to take home some of the leftovers, but if they make beds and empty urinals in a hospital, they probably couldn't afford to catch anything from the people they work around. Why? Because they would have to work for at least three weeks to pay for a single day's hospitalization. Medicare costs have risen an average of 8.5% per year since 1984. {B10} By 1987, more than 11 million children had no health insurance. {B11} What makes the situation even more shameful is that of the 37 million Americans who entered the 1990's with no medical coverage, the majority were employed! {B12} The fact that health care is becoming an unaffordable luxury in America is made more evident when one becomes aware that America ranks 20th in infant mortality behind Spain and Singapore. The shocking truth is that almost 40,000 of the 3.8 million children born in America in 1986 died before their first birthday!! {B13} Moreover, on any given night in America, there are approximately 100,000 homeless children. {B14} This figure may be seriously understated because a group of San Francisco lawyers known as "Public Advocates" estimate that in the San Francisco area alone there are 48,000 homeless and that more than 10,000 of that number are children. Why so many homeless? Simply because Capitalism practically demands homelessness. The self-regulating market forces of supply and demand, that America so proudly markets to the world, dictate that builders have little or no incentive to build housing for people with little or no money, but plenty of incentive to build more office space for wealthy corporations despite the fact that 100,000 homeless American children are growing up socially and economically deprived in a country which has had a nationwide office space vacancy rate of 18% for the last five years!!! In Manhattan for example, 8.9 million additional square feet of newly completed office space came on-line last year, but only 2.5 million square feet of it was rented. {B15} Another cause of the homelessness can be traced back to unemployment.

Unemployment (Exported Jobs, Imported Cheap Labor)

The root causes are extremely important, and to appreciate them let's think back to the 50's once more. Back then prosperity seemed within everyone's reach. Homes were beginning to sprout two car garages, and practically everyone's standard of living was on the rise. Here's what changed all that.

The prosperity of the 50's that generated and fueled the American Dream, occurred because American corporations were employing American workers. Now, they hire the 3rd World.

Because the American economy was booming at that time, and much money was being made, organized labor began to demand a fairer share of the prosperity. American corporations reacted by shutting down their American plants, and building their non-military related factories and manufacturing installations in Second and Third World countries. Tax legislation allowed the elite to write off the costs of building their factories abroad. In effect, taxpayers have paid for virtually all the American owned factories abroad! By doing so, the corporations were not only robbing North America of much needed employment opportunities, but were simultaneously exploiting the cheap labor and natural resources of poorer nations in the latest version of colonial exploitation. American corporations still help white South Africans to exploit and repress the blacks.

Moreover, the success of the anti-apartheid movement, since the 50's, displeased many of the corporate elite because they knew that eventually even the blacks would belong to organized labor groups, and that the days of cheap black labor were obviously numbered. This development greatly accelerated the practice of shutting down factories and industries in America and rebuilding them in Third World countries to take advantage of the remaining pools of cheap unorganized labor. The industrial exodus caused such a shortage of jobs for unskilled and semi-skilled men, that more and more women were obliged to enter the work force to enable families to cope economically. On average, women have been paid from 65%-70% of what men earn for the same job. {B16} Today, employers are still trying to discriminate against women, with regard to salary equality and career opportunities, in an effort to keep women as a cheaper source of labor than men.

Newsweek pointed out in its March 13 1989 issue, there are now about 140 million Americans between the ages of 20 to 64, and a staggering 30 million of these individuals are unemployed! {B17} But, just as the government hides much of its deficit "off budget", so it has ways of excluding many of the unemployed from its official figures. Those who have quite literally given up looking for work don't even get included in the government's seasonally adjusted unemployment figures, so the true picture of reality remains hidden. For political expediency, unemployment figures can be deceivingly and artificially reduced when required, at taxpayer expense again, through "make work" programs. Nevertheless, jobs are being constantly exported. According to Department of Labor statistics, the blue-collar factory work force decreased by 11% in the last decade alone. {B18}

General Motors provides an excellent example of a corporation which deserted the American work force for cheap labor abroad. The current movie "Roger and Me", which deals with the after effects of General Motors laying off over 32,000 employees in Flint Michigan, should help to draw attention to the problem. {B19}

The American textile industry is currently in the process of relocating to places like South Korea where the cost of skilled garment industry workers is about $2.50 per hour, which is less than the American minimum wage.

General Electric too is preparing a deal to buy 50% (plus one share) of Tungsram, an Hungarian manufacturer of light bulbs. With Hungary's average wage at 81 cents per hour, G.E.'s loyalty to the American work force will pan out to be just another of the illusions that Americans must shed. Chicago-based Schwinn Bicycle Co., and Guardian Industries, a Michigan-based glassmaker have already taken the plunge.

With the widespread demand in Eastern European countries like Poland, Hungary, and Czechoslovakia for a taste of capitalism, it won't be long before we begin importing name brand bicycles, fridges, etc., instead of employing Americans to make them. The rush to do so will most likely intensify before the unification of Western Europe takes place in 1992. In Poland, the cost of labor is even cheaper, a mere $40 per month. {B20} However, Americans should keep in mind that where wages are low, cost of living is usually correspondingly lower. In other words, Poles don't have to fork out $300-$500 per month in rent.

In 1988 alone, spending by overseas subsidiaries of American firms increased by 23% to $42.3 billion. {B21}

Not only were the taxpayers footing the bill, lower labor rates gave them higher profits. On top of that, the elite were often able to negotiate tax advantages with the foreign countries, so all in all, it has been a case of "to hell with the American work force".

The economic elite have such a strong control over public opinion and government in the West, that they knew they could virtually abandon their own populations, and allow the standard of living to deteriorate because the desirability of Communism and even Socialism has already been virtually purged out of the psyche of the Western mind. However, the elite know they will have to put up with a growing amount of grumbling. But because they control the government and the media, they will safely be able to allow the standard of living in America to gradually drop to the point that it approaches the rising standard of living among the developing nations.

Another method the elite have been using to maintain a downward pressure on American wages has been to make sure that almost all immigrants coming to America come from the cheap labor countries. Even though practically all the immigrants now coming to America fit this description, there is a push on to accelerate this process.

Despite the existence of 30 million eligible unemployed Americans, the Deputy Editor in chief of Forbes magazine, M.S. Forbes Jr., editorialized in the Jan 8 1990 edition that the nation was actually suffering from a "People shortage". He went on to add that, "There are not enough young people entering the labor force. We badly need to revamp our immigration laws so that many more hardworking foreigners from Europe and elsewhere can come here."{B22} Not surprisingly, an article also appeared in the Jan 29 1990 issue of Fortune magazine entitled "Let's change the immigration law - now". The article started out by saying "Millions of Eastern Europeans and Soviets - educated and talented for the most part - are likely to try to start fresh lives in the West..." The latter article also clearly pointed out that in the last decade, the greatest number of immigrants to America have been ...Mexicans, then Asians, and then immigrants from Central and South America. These people enter the country desperate for jobs and willing to take minimum wage payment for ever increasing levels of skilled work. Of course they are not to be blamed for driving down the cost of labor nation-wide, it is the elite who are purposely pushing to change the existing laws to be able to flood the American labor market with even cheaper labor from Romania, Hungary, etc. (who by the way have received better education on average than their equivalents in America). {B23}

Where do all the homeless come from? At least part of the 30 million unemployed and disillusioned Americans between the ages of 20 and 64 would probably sooner be unemployed than work for a humiliating and disgraceful minimum wage, while the white collared elite drive the streets in their Rolls Royces having milked the economy of hundred of millions and even billions in a single year!!!

Despite this, on June 13 1989, George Bush hastily vetoed Congress's bill to raise the minimum wage from $3.35 to $4.55 over a three year period. {B24} Mrs. Dole, Bush's labor secretary, argued on behalf of the elite that doing so would result in 650,000 fewer jobs. This obviously implies that spoiled employers would sooner fire 650,000 employees than pay them a minimum wage of $4.55 per hour. To compensate for this, she is also trying to introduce a compulsory six-month "training period" during which the "new hire" would receive sub-minimum wage!! However, this would only provide incentive for employers to dismiss their minimum wage workers and use wherever possible the sub-minimum wage "new hires in training". Some employers would retire long before they kept a candidate longer than six months. {B25}

In future, semi-skilled and skilled factory work will be done increasingly by robots, by cheaper labor abroad, or by importing cheap labor from abroad. As long as corporate America continues it's industrial expansion abroad while reducing it's industrial base at home, unemployment will only get worse. With a shortage of jobs, and an over-abundance of labor, employers will continue to hire unorganized labor who are willing to work for substandard wages. Should anyone wonder why so many youths have given up on the system and turned to pushing drugs to survive?
No doubt the elite would wish to have all the new immigrants enrolled immediately in sub-minimum wage training programs. Notch one up for the "Feudalists in pinstripes".

Incentive for corporate America to purchase American labor will probably only resume again when the price of American labor drops to the point that it competes favorably with the cost of the cheapest foreign or imported labor.

American Slavery in the 1990's

The exploitation of blacks in America is still evident from the fact that there was a higher ratio of blacks to whites in military service in Vietnam, than the normal ratio of blacks to whites in the population. In many states the infant mortality rate for non-whites is often double the rate for white infants. {B26}

In a similar way, the black to white ratios involved with unemployment figures reveal as much about the truth concerning our whitewashed reality. Only 44 of the 752 Federal judges are black. The number would be abysmally lower if Jimmy Carter had not nominated 37 of them himself. {B27} More importantly, blacks account for 11% of America's voters, but only one and a half percent of its elected officials are black. {B28}

Meanwhile, David Duke, the former Imperial Wizard of the Ku Klux Klan, who also dabbles in neo-Nazi white supremacy movements, not only ran in February 1989 as a Republican candidate in New Orleans, Louisiana; he won!! His goal now is to become a Louisiana senator. {B29}

But hey, it's not all doom and gloom. American blacks have definitely made progress over their counterparts in South Africa, whose lot seems to have remained on a par with that of English feudal serfs. Mind you, they are still confined to the servants' quarters, which are now called "homelands".

"Homelands", per se, don't exist in America, but many who live in the black ghettoes found in most American cities, would probably wish to hotly debate that issue. In any case, since the 50's, much of the discrimination practiced against the blacks has disappeared. Nevertheless, feudal slave tactics still persist within the United States, but are largely overlooked because the American psyche has been conditioned to acknowledge slavery only when it comes in black.

Industries in Texas and Southern California have been paying slave wages for decades to Mexicans who had entered the country illegally. The garment industry in Southern California was still thriving in the 1980's by running sweat shops which used this labor pool. These Mexicans have been completely at the mercy of their modern Feudal lords who could totally abuse them, fire them, or have them deported if they dared to protest about their wages or working conditions.

Everyone knew about the sweat shops but little was done about them, because all the right palms had been greased. Everyone was turning a blind eye until the 60 Minutes TV show brought their plight to the nation's awareness. The government was no longer able to turn a blind eye, so it provided the next best concession for the sweat shop owners, it offered conditional amnesty to the Mexicans who were already living in the States, so that the affected industries would not be put out of business by the sudden loss of its sizable work force.

Of course this meant that sweat shop owners would have to pay the newly legalized Mexicans the minimum wage, and it certainly defused the issue nationally, but it probably won't prevent them from hiring future illegal Mexicans at the old rates. In fact a few days after George Bush had returned the Republicans to office, legislation was passed to allow garment industry workers in the South West to work at home. This practice, which will throw open the slavery floodgates once more, had been outlawed for the last 40 years.

Ever since the serf gained the right to be called a free man, the wealthiest 1 percent have been using the time to regain ground initially lost. They seem more determined than ever to maintain the old order. One way of doing this is to purposely maintain a poorly educated work force.

Maintaining a Poorly Educated Work Force

It has been argued that if all the wealth of our billionaires were equally redistributed among the poorer classes, ...within a short time, the wealth would again be concentrated within the hands of the few. I would even tend to agree with that hypothesis. However, if the money were used to provide free education for all students, to the limits of their mental abilities, I would be reluctant to jump to the same conclusion. The scenario parallels the futility of providing only food to the starving 3rd world peoples, as opposed to providing them with the education and means to provide their own food.


The minority of white South Africans, who dominate, not only prevent the blacks from forming effective opposition groups, they keep them poorly educated and deny them the right to vote. As a result, South African unskilled labor has historically remained cheap. Capitalists in other countries have also gone out of their way to maintain an ignorant working class. For example, there was an understood, unwritten agreement among early American feudal lords, not to teach their black servants, (slaves) to read or write; in South Africa there have even been laws to enforce the policy. Nowadays, survey after survey exposes that American schools are graduating functional illiterates. Because the level of education is rising in many less developed countries, corporate America is finding that it can relocate even more sophisticated levels of non-military related industrialization into Second and Third World countries to take advantage of the world's remaining slave labor pools. Consequently the elite have less need of educating the American work force, and have stepped up their lobbying pressure to divert tax dollars away from education, and into other areas that benefit themselves more, namely Star Wars military spending, and corporate welfare. Unlike the defense budget, federal spending on education has been reduced from 9% in 1980, to 6% now. Mr. Bush intends to spend some $200 million less on education than did Mr. Reagan. {B30} After all, educated people expect a better standard of living, and will be vocal if denied their due. In short, they are not as easy to manage or to hoodwink.

Is it an accident that the American education system is graduating functional illiterates, and that much needed money for education is being diverted to benefit the super-rich? I think not.

Before the nation is forced to declare evening curfews (for youths 18 and under) in cities other than Washington DC, two facts should be widely acknowledged. First that two-thirds of U.S. prison inmates are high school dropouts, and secondly, that it costs $5000 per year to send a child through public school, and $14,000 a year to keep a prisoner in jail. {B31}

The Reality Underlying the Myth of Equality

The previously mentioned socially regressive behavior involving physical and economic slavery in its various forms only persists because there are some among us who cannot accept the concept of equality and brotherhood. Instead they choose to take as much of the nation's wealth as they can possibly get away with, even though other peoples' basic needs are not being met.

Even though most of us are richer than serfs of some other countries, we are still serfs within our own society.

The bottom 90% have been sold, and continue to be sold a severely distorted image of America through the media. The image of themselves as a huge middle class simply does not concur with reality.
To assist in the illusion, the bottom 90% have been encouraged to believe that doctors, dentists, engineers, etc., comprise the "upper class". Not surprisingly, working professionals have also been encouraged to think of themselves as the upper class. The fact of the matter is that these working professionals statistically fall into the bottom 90% of society. They may be, relatively speaking, upper class compared to the non-professionals, but in the overall wealth distribution picture, they are still "working class" when compared to the "real upper economic class". The average person who belongs to the bottom 90%, professional and non-professional alike, needn't blame himself or herself for missing the boat, because the economic elite of former generations used their power and influence to set up a complex system whereby just enough wealth is doled out using tax laws and tax shelters to produce just enough YUPPIES and comfortably off people (like many of our "so-called upper class" doctors, engineers, etc.,), to keep alive the totally erroneous notion that these individuals constitute the upper economic class.
The secret, completely understood by the elite, is that by providing a fairly comfortable living for the educated professional, they could completely remove the threat of widespread dissension, by appeasing the class of citizens most able to spearhead a movement to upset Feudal conditions. ...Throw the family dog a steak, and you can rob the house in peace.

Recognizing the Feudal Aspects of Capitalism

For the most part, the non-professional's income just meets the cost of a basic standard of living. Taxes, interest rates, wages, and the cost of living are all monitored and juggled very carefully so that government can tax away the bulk of income which exceeds the cost of living. Non-professionals who form the bulk of the bottom 90% are kept in check by the illusion that the upper class is in view, but just out of reach.
The shocking truth is that American society is based on a FEUDAL wealth distribution system, wherein the richest one percent are equivalent to the Feudal monarchs, the next nine percent are equivalent to the land owning aristocracy of Feudal times, and the bottom 90% are still being exploited as serfs to supply cheap labor so that the wealthy can exploit the nation's resources for their own personal benefit. What's worse is that the bottom 90% have been successfully and cunningly kept ignorant of that situation.
Anyone making less than $40,000 is relatively speaking one of the SYSTEM'S WORK HORSES.
Anyone on minimum wage is a SLAVE WITHOUT CHAINS.
Any family bread winner not purposely unemployed is a VICTIM.
So many aspects of modern Western society trace directly back to Feudal society, that an appreciation of our problems would be incomplete with briefly reviewing how and why Feudalism arose.

The Origins and Nature of Feudalism

From the dawn of time, the strongest animal or animals within an animal group have spearheaded the group's defense. Normally this service is acknowledged by the rest of the group's members, and rightly so.
But, while we can acknowledge indebtedness to our ancestors whose success at "dominating" made possible our survival as a species into the 21st century, it is important to keep in mind the distinction between "domination" and "leadership". By domination, I refer to the case where those in power abuse their power to exploit those with less power than themselves.
Even back in our cave dwelling days, the need to cooperate for survival sake probably kept domination within a group to a minimum. Cave dwelling leaders almost certainly acted to protect their family groups, and heads of family groups no doubt bonded together to defend whole communities. However, as the danger posed by other species gradually tapered off, the survival of the fittest quality of "domination" should have tapered off as well. Unfortunately, the trait persisted in the absence of predators.
Feudal monarchs provide an excellent example of this type of domination. They certainly assumed absolute authority for the defense of their empires. But as Lord Acton pointed out, power corrupts, and absolute power corrupts absolutely.
Somewhere along the way, the power and responsibilities of the role were abused to the extent that society's defenders took it on themselves to extend their dominance to include ownership of all communal assets.
From defenders, they became rulers who personally claimed all the communal property except that which they chose to give away to buy loyalty. In effect they dominated their subjects in much the same way as dictators do today. In order to maintain their position of dominance, the monarchs divided their kingdoms into feudal states and gave away large tracts of land within each of these areas to relatives and trusted friends to gain their loyalty and military support when needed.
To defend their new domains, these wealthy landowners assembled armies, and built fortified castles, over which they ruled like MINOR KINGS in their own right. Needless to say, the monarchs only gave away as much land and delegated authority to the degree they thought was necessary to ensure their own dominance.
In a similar way but to a lesser extent, the landed aristocracy had to do the same within their own castles to also ensure their continued domination over the subjects under their control. Throughout the country, the social order was based rigidly on class differences. Within the landowners' castle walls lived the landowners, their relatives, and their most valuable subjects. (the law enforcers, the merchants and the craftsmen) However, the landless peasants were forced to live outside the walls where they served as watchdogs in case of sneak attacks by the landlords' enemies.

Authority from the king allowed the aristocracy to exploit the serfs by putting them all to work and then taxing away the fruit of their labor. By making the landless peasants conform to a rigid pattern of subservience, the aristocracy could use them to perform any and every function that might enhance their own well-being, while only minimally meeting the serfs' basic needs. In other words, they used them in much the same way as their other beasts of burden. After taxes, many subjects like the peasant farmers, were left with only a minimum of food and provisions to carry on their lives of servitude. The horses and cows usually ended up with a greater share of the harvest than these poor clods. Dust unto dust seemed to more accurately describe their fate. So, if you belonged to the top 5 percent of feudal society, chances are you had gold pouring out of your ears. If you didn't, it was the equivalent of being dropped on your head at birth.
As the landed aristocracy grew stronger, the power of the monarchs diminished, but both the monarchs and the aristocracy continued to act as social parasites by taxing the serfs to the brink of poverty, thus keeping peasants basically powerless and subservient.

Eventually though, to avoid a revolt such as the French monarchs experienced, the ruling class had to introduce laws that appeared to recognize some rights of the peasants. But despite the introduction of democracy, the monarchs and aristocracy exerted their power and influence in parliament to have legislation passed that ensured their fortunes remained intact, which in turn kept most of their power intact.
Interestingly enough, there still seem to be quite a few class conscious, and very wealthy Kings and Queens hanging on, who are actually the direct descendants of the monarchs of feudal days, and who seem to have kept their fortunes relatively intact. Queens still reign in Britain, Denmark, and Holland, while Kings still reign in Belgium, Spain, Norway, and Sweden. Although most look on modern day monarchs as figureheads, their wealth and influence must not be underestimated. Queen Elizabeth is still the richest woman in the world. The South Africans and the Irish are both actively trying to cast off the burden of Feudal overlords.

From English Feudalism to American Feudalism

America on the other hand chose not a monarch but a President who can veto the will of a popularly elected Congress. Ironically or not, George Bush is nevertheless the 13th cousin (twice removed) of Queen Elizabeth.
In Western society today, billionaire power wielders determine both the domestic and foreign policies, but they do so from behind the scenes, and of course like the kings before them, they feel justified in claiming as much of the communal wealth as they wish. As far as the economic elite are concerned, national wealth is not treated as communal wealth.
Many are the descendants of the great landowners of old, and of the super wealthy merchant class. The distinction between these two groups has largely disappeared, and we seem to be left with a hybrid group which embraces international commerce, while holding vast fortunes in real estate.

For the most part they are comprised of the majority shareholders who serve on the board of directors of large corporations. The mega-rich can serve as board members on numerous corporate boards simultaneously, thereby creating interlocking relationships and interests among the corporations. This low profile elitist community maintains a highly efficient, interconnected, local and international network of communications and control that, for all intents and purposes, completely avoids public scrutiny. Corporate America meets behind closed doors to cut secret deals and formulate powerful chess-like strategies that affect the daily lives of everyone in society.

Moreover, they have seen to it that a range of special privileges exists, not only for their own benefit, but as a means of winning political support from all those who envy their lop-sided share of the nation's wealth. Such privileges, (memberships in exclusive country clubs, unlimited travel, vehicles, planes, business subsidies and loans, tariff protection, price guarantees, etc. etc.) are all made accessible in addition to tax avoidance methods, and tax shelters, that the bottom 90% don't even make enough money to use.


If a country's wealth is divided amongst its citizens along Feudal wealth distribution lines, then that country functions as a Feudal domain, whether or not it attempts to conceal the fact with a democratic veneer, or any other veneer for that matter.

Colonialism is really only Feudalism practiced abroad.

In response to a wave of independence movements which swept the globe in the late 40's, the great colonial powers were forced to withdraw many of their political representatives as well as their military occupation forces. Because this occurred, historians and the media were quick to announce that the colonial era had ended.

However, the more determined colonialists simply installed puppet governments in the 3rd World countries which gladly signed defense treaties which allowed the colonialists to re-install their military occupation forces. Despite the superficial changes, both Feudalism and Colonialism are very much alive and well today.

However, colonial exploitation did, at least for a time, decline. This decline triggered off a decline in the standard of living in the West for a couple of reasons. First of all, as the level of colonial exploitation was reduced globally, the spillover benefits of colonialism were reduced for all Western citizens. Even more importantly, the colonialists (i.e. the Feudalists) increasingly redirected the focus of their exploitation toward their own populations in an effort to make up for lost colonial revenue! Not only is exploitation in the 3rd World now worse than in the 40's, it's worse in the 1st World too!!

Since the 50s, the planet has in effect, been enduring an era of social regression caused by the widespread proliferation of the new and more subtle forms of both Feudalism and Colonialism.

It is also extremely important to keep in mind that the conditions referred to throughout the book pertain not just to America, but to virtually all the capitalist democracies, ...England, Canada, Israel, Scotland, West Germany, South Africa, Ireland, India, Australia, New Zealand, Japan, etc., as well as to all the other countries ruled by economically elite minorities. They are all functioning like separate Feudal empires.

A Look At 10 Western Nations

To show how widespread feudal wealth distribution conditions are, we will compare the wealth distribution statistics for ten (10) Western nations. The data was extracted from data submitted to the Royal Commission on the Distribution of Income and Wealth prepared in 1979 for the British Monarchy.{B32}

The distribution patterns of the 60's and 70's have been chosen to provide a valuable yardstick with which to begin an evaluation of our present condition. The statistics will show how things were in the 60's and 70's, and then by knowing what has happened in the last decade, it will be perfectly clear not only where America is headed, but why immediate action is so necessary.

When the comparative study was carried out in 1979, the information gathered was the latest available from each country. The studies have traditionally been carried out infrequently probably to avoid any unnecessary risk of the information becoming part of the public awareness, and hence a topic of popular concern.

During the 60's and 70's, the richest 1% owned an average of 25% of the total national wealth; the richest 5% about 45% of the wealth; and the richest 10% about 60% of the wealth; virtually each of the Western nations.

Although statistics were not available for larger percentages of the population for each country in the study, another even more startling picture emerged from the data that was available. That data is shown below.

The shocking truth is that the poorest 50% of the citizens of Western societies share little more than the elite's table scraps, with the evidence pointing to often even less than 5% of the total wealth.

The New York Times reported that a recent study found the top 1% have increased their share to about 35%, whereas the share of wealth COLLECTIVELY belonging to the bottom 90 % had dropped to about 34%!! However, a similar study carried out by the University of Michigan estimated the richest 1% now own 50%, and the bottom 90% get to share only a meager 16% of the nation's total wealth!! This latter study translates into the fact that the top 1% may now own three times as much as the bottom 90% own collectively!!
To make things worse, the rate at which the rich are getting richer and the poor get poorer, accelerating.

To help the reader appreciate that the economic problems discussed are by no means unique to America, we will briefly refer to Canada instead of America to continue the study. Canada provides a dramatic example of profit disappearing into the woodwork, or more accurately into the bank accounts of the richest one percent.

Canada (Another Typical Feudal Economy)

Being the largest country in the world, Canada has an enormous amount of natural resources. Her vast reserves of forests have been logged repeatedly. Her uranium resources have been tapped for nearly half a century. Much of her mineral resources have been extracted already, not to mention the Alberta oil wealth and the prairie wheat, and of course the untold fortunes of fish hauled off her East and West coasts. The country has an abundance of hydroelectric power, and exports nuclear technology. She has a thriving industrial base, and her resource of fresh water should soon become an unexpected gold mine. Incidentally, Canada has plenty of excellent gold mines, and untold amounts of nickel have been extracted as well. I could go on but it should be clear by now that Canada's vast resources have already been well exploited. A person from any 2nd or 3rd world country would expect our streets to be paved with gold, because Canada's population is only 25 million!

Instead, the prospect of owning a home is growing steadily more remote for many young people. You'd wonder why, because there exists such an abundance of forests. The truth of the matter is that Canadians have to pay world prices for the timber products. Not only that, the best timber is exported (to enrich the wealthy few), so the wood used inside Canadian homes is more often than not the dregs of the industry. Some young families with two incomes are even battling to afford an apartment. Many don't even own their own cars, and some have serious debts. Like gas stations, the local Macdonald's fast food outlets are never very far away. But very few Canadians are even aware that with 1100 charity food banks nationwide, Canada has twice as many food banks as Macdonalds fast food outlets!!

Plenty of people line up each week at special grocery handout centers that are often conveniently located off the main streets, where the long lineups won't interfere with pedestrians or traffic, and where this shameful show of wealth distribution won't be too readily observed. In the large cities there are plenty of people who sleep in doorways and parks, and can be seen pushing around their life's possessions in supermarket buggies. How is this possible? What has happened to the past profits generated in our Western countries?

Fortune magazine's 1988 list of the world's top 10 billionaires indicates that three of the 10 richest families in the world are Canadians. Furthermore, it indicates that Toronto's Reichmann family alone increased their wealth in the preceding year from 5 billion to 6.3 billion dollars, a staggering increase of 1.3 billion, which represents a 26 percent increase in assets during that one year period. {B33}

When the Queen of England, the world's richest female billionaire who has also derived wealth from Canada, is taken into consideration, then the number of the world's top ten billionaires who have directly exploited Canada's resources for their personal benefit increases to 4 out of 10.

And last but not least, we ought to give mention as well to another billionaire Sir James Goldsmith, of London England, who owns 2.5 million acres of North American timberland, which is just a half million acres less than the 3 million acres owned by the Canadian billionaire Kenneth Colin Irving. {B34} {B35}

Globally, the speed at which wealth and power is being concentrated in the hands of a very small minority of economic elite has intensified at an alarming rate. Does anyone need to hire a financial analyst to see a correlation between the wealth accumulated by billionaires, and the grocery handout centers and soup kitchens?

Keep in mind that the same story is being played out in all the other countries dominated by an economic elite. The bottom 90 percent are being systematically milked, and the cream is being skimmed off by the folks at the top. We need to take steps to homogenize the economic classes.

The inequities in wealth distribution that originally prompted the formation of trade unions are now being overlooked in the rush to say unions today have gotten too powerful and are demanding too much. Don't forget, it would still have taken 433,000 so called "greedy unionists" to have been able to save $3,000 each in 1987, to have collectively benefited as much as the Reichmann family.

Feudalism ...A Progress Report

In case there are any readers left who doubt that the rich are getting richer while the poor are getting poorer, information from the US Census Bureau should remove any doubt whatsoever. The following statistics bear mute witness to the feudal realities that have taken place during the 80's.

SINCE 1979, Reagan's pro-elite administration increased the inequities dramatically. The top 20% of the population increased their income by approximately 10%, while the bottom 20 % of the population saw their income decline by approximately 22%!!

The reality suggested by these statistics is so alarming, that it may for some even appear untrue. Because of this, some previously mentioned facts deserve being retold.

But despite all this, Mrs. Dole, Bush's Labor Secretary, is trying to introduce a compulsory six-month "training period" during which a "new hire" would receive a sub-minimum wage!! {B41}

How The Elite Exploit The Nation

Techniques such as exporting America's manufacturing base, and importing labor willing to work for the minimum wage or less, are but the tip of the iceberg of methods used by the elite to make themselves richer while at the same time actively keeping America's bottom 90% unorganized, subservient, and basically poor. Let's begin by discussing by far the most important method used ...that of controlling the laws affecting taxation.

Tax Laws - The Key to Wealth and Power

To the degree one would wish to help improve the quality of life within Western society, one must acknowledge the role played by the existing laws, and in particular the tax laws.

Tax laws, more than any other factor, determine the socioeconomic nature of a society. They determine the economic hierarchy of wealth and power just as surely as chess rules govern what occurs in a game of chess. A king always wins in a game of chess, and in Western society, the top 1% always own more assets than the bottom 90%. Tax laws ensure that Western society remains securely locked into a social structure based on wealth distribution inequities that have changed little since the Middle Ages. Presidents now avoid the nation's scorn by raising payroll taxes instead of income taxes. By 1990, payroll taxes will have risen by 30% since 1978, and the majority of the country will be paying more in payroll taxes than they do in income taxes. Of course, the bottom 90% as usual are hit the hardest, but they are generally not yet wise to the switch that has taken place, so the deceit continues at full bore. {B42}

Robbing The Poor by Not Taxing The Rich

In Feudal society, the most successful of the feudal merchants went outside of their lord's territory to secretly hide a portion of their profits in foreign lands, mainly to avoid taxation. They were clever enough, however, to leave store front businesses running at home to keep up appearances. Our present day corporation owners do exactly the same thing. It takes little imagination to realize that the same methods to avoid taxation have gone on without interruption from Feudal times.

With regard to the previously mentioned exodus of industry from America to 2nd and 3rd World countries, the fact that American corporations choose to carry on modern day colonial exploitation is not even the issue. The real issue is that corporate America built, and continues to build its foreign factories with the help of corporate tax deduction laws, the American taxpayers expense, and to the detriment of the taxpayer's standard of living.

To add insult to injury, the head offices of many business entities are located in playboy tax havens such as the Bahamas to avoid taxation, thereby depriving the American taxpayer of getting any benefit from having initially paid for the foreign factories. The fact that so many oil tankers owned by the elite are registered in Liberia and not in America (to avoid taxation) should be a topic of concern to those who are being forced to take pay cuts and tighten their belts, ...but it isn't. Americans have been desensitized to this issue and countless others like it.

However, to get an idea of the quantity and nature of tax avoidance loopholes that exist in America today, one has only to read a few issues of Forbes, a magazine which caters to the needs and interests of the nation's economic elite.

Incidentally, every year Forbes magazine compiles a list of the world's richest people, as well as a list of the 400 richest Americans. In its July 24th 1989 issue, the magazine clarified some of the methods it used in determining the wealth of those who qualified to be included in its listings. Part of the explanation it provided is worth quoting:

"Since wealth abroad is sometimes held in complicated ways designed to retain control or bypass various taxing authorities, we count property owned if it is involved in obvious devices for ownership, like family holding companies, or cross-ownership, and sometimes less obvious ones, like certain foundations designed merely for tax avoidance." {B43}

In practically every issue, Forbes "exposes", or at any rate acquaints the reader with, one or more additional schemes devised by clever tax accountants or investment managers to avoid taxation. No doubt each issue must send the super rich scurrying off to call their accountants to ensure that they are not missing out on the very latest loopholes.

One would expect that reading about tax avoidance loopholes for the privileged class could very well upset or anger the average American who for the most part doesn't make enough money to take advantage of the loopholes discussed. But there is little danger of that. Editors in charge of mass media information sources like newspapers and TV news shows very rarely devote any attention at all to this type of material. In contrast, Forbes editors obviously feel free to flaunt it because the magazine is read almost exclusively by the economic elite, and those who aspire to join their ranks. It is alleged that the average worth of Forbes readers is 1.4 million dollars, and that at least 250,000 of its 750,000 subscribers are millionaires. {B44}

It is beyond the scope and intent of this book to launch into a detailed discussion of the tax loopholes currently available, but as was mentioned above, even a subscription to Forbes magazine would serve as an introductory primer. One need only read the article "The bad news about estate taxes", on page 238 of the June 26 1989, or the article "Tax strategy" on page 186 of the Sept 4 1989 issue to see why the magazine is so popular among America's economic elite. {B45} {B46} Due to the extremely complicated nature of tax laws, tax avoidance will remain the exclusive and somewhat secret domain of those who earn enough money to hire the services of a tax specialist. This book will attempt, however, to make the reader acutely aware that tax avoidance privileges enjoyed by the rich, are the root cause of the nation's economic inequities.

A perfect example of class oriented tax legislation, that exacerbated the wealth distribution inequities, occurred during the Reagan administration. With inspiration lifted straight from Sherwood forest, REAGAN HOOD (the well known American folk bandit who can't normally see the forest for the trees) took it on himself to take from the poor and give to the rich. In 1981, he instituted new taxation legislation which dramatically decreased corporate taxes and transferred the burden to the bottom 90 percent. (salary and wage earners)

It is not as important to discuss what the tax changes were, so much as pointing out that the changes were part of a continuing policy to free the rich from corporate taxation.

Statistics taken from the Historical Tables of the Budget of the United States Government, Fiscal Year 1986, table 2.1 indicate that the proportion of Federal Income tax derived from Corporate income tax declined steadily from 32% in 1952; to 23% in 1960; to 17% in 1970; to a low of 9% in 1985.{B47}

It should come as no great surprise then that George Bush has openly voiced his intention to continue adding to corporate welfare legislation by reducing the capital gains tax by more than 50%. The Joint Committee on Taxation said that the capital gains tax proposal passed by the House on Sept 28 1989 would cost $35 billion dollars in lost revenue over the next 10 years. This largesse would go almost exclusively to the richest 10%. {B48}

Both the graph and the previous statement ought to give you a chilling appreciation for the continuing success of the super rich, in their drive toward total immunity from taxation.

On General Motors' 1987 Income Statement, a footnote indicated that the federal tax for 1987 was minus $1.3 billion, thus intimating that the automobile giant may have received a tax rebate for that amount. Citizens for Tax Justice had figured that GM would end up getting a tax rebate for $742 million. In any case, it should be a little clearer just where the money comes from that enables car manufacturers to offer such huge cash rebate incentives for new car buyers. {B49}

Citizens for Tax Justice (a group backed by Ralph Nader, which monitors tax abuses and lobbies the government for fairer taxation) pointed out that the average reader paid more tax last year than AT&T, Du Pont, Boeing, Merrill Lynch, Dow Chemical, and Walt Disney paid collectively from 1982 through 1985!!

Do yourself a favor and reread the above paragraph.

In fact, of the 250 companies that they were monitoring, 108 of them had an average tax rate of 1.6%. {B50}

Neither government nor economic smooth talkers are now able to mask the social effects of taxation changes favoring the richest 1% introduced during the Reagan administration. As a result of fiscal policy initiated by Paul Volcker and James Baker, the number of billionaires began skyrocketing. From a relatively stable 13, their numbers all of a sudden doubled in 1986, quadrupled by 1987, and have (since 1987) increased an additional 50 to their present level of 99. This unethical shift of wealth from the poorest to the richest 1% simultaneously caused shelters for the homeless and grocery handout centers to spring up in practically every city in the nation. The more the reader appreciates the tremendous scale of corporate welfare, the less apt he or she will be to blame the deficit on the increasing numbers who are forced to collect unemployment or welfare. The crime and drug abuse epidemics are additional visible manifestations of the anger and desperation felt by the policy's victims.

In case you had noticed that the Reagan administration seemed virtually unconcerned with the huge national debt. Here's why:

The ballooning deficit, which can only be paid back through taxation, will continue to translate into a declining standard of living for "those who pay the taxes", and most for those who are hit hardest by taxation.

Contrary to their continued displays of concern over the increasing deficit, the elite and their functionaries in congress will in reality become less and less concerned about the growing deficit because their share of the tax burden diminishes with every new tax reform!! In future, billionaires and multimillionaires will accumulate ownership of the national wealth at an even faster rate than at present.
For those who pay little or no taxes, the growing national debt is scarcely a concern!
The elite are not at all affected by cuts to social welfare programs. The only social welfare that affects them is corporate welfare and it has been increasing non-stop since the 50's. However, for the so-called working middle class and their children, the ballooning deficit will translate into a significant loss of social benefits, poorer education and health facilities, etc., in short, a continuing drop in standard of living.

If the corporations and wealthy elite don't pay their share of taxes, why should the working class?

The three trillion dollar Star Wars military expansion program is being funded directly out of the taxpayer's pocket. There is simply no rationale for the so-called middle class taxpayer to pay the bulk of the defense bill, when the majority of the wealth and property being defended belongs to the economic elite, who take every opportunity to excuse themselves from sharing the tax burden.

In case you have wondered why the deficit is ballooning so rapidly, here's at least one atrocious reason.

Undermining America with Leveraged Buyouts

One of the most scandalous causes of lost tax revenue (from corporations) is currently sweeping the nation, and is referred to as the leveraged buyout, also known in the industry as an LBO. During the 80's, LBOs have been the focus of Wall Street activity. To understand how they work, let us begin by considering a recent LBO.

The RJR Nabisco corporation was purchased for a sum of about 25 billion dollars. Prior to its takeover, Nabisco made an annual profit of about $2.5 billion dollars, on which they pay about $700 million in taxes. {B51} As a result of the buyout, the new owners will most likely pay NO TAXES. Not only that, they will probably claim billions of dollars back (from the government, i.e. the taxpayers) in tax rebates! Surely this is not possible, you might be saying to yourself. As unbelievable as this sounds, it is true. START GETTING CONCERNED. The new owners will still produce their shredded wheat and cigarettes, etc., at the same prices and with the same manufacturing costs. Right? ...Right! So their profits should be expected to remain around 2 and a half billion dollars. Right? ...Wrong! The new owners are now eligible for tax deductions that the former owners did not have. The new owners borrowed most of the $25 billion dollars to purchase Nabisco. Why? ...because the interest (that they pay on the money they borrowed to buy the giant) qualifies as a tax deduction! (Thanks to Section 163 of the Internal Revenue Code)

Tax avoidance rears it's ugly head. The cost of borrowing the $25 billion could quite conceivably be around $3 billion dollars per year, but the operating profits, as before, would be only 2 and a half billion.

Are you sitting down?

As a result of a leveraged buyout, a firm like Nabisco can be transformed from a profitable company making 2.5 billion dollars profit, and contributing $700 million annually to Federal and state tax revenues, a firm which could draw billions out of the Federal tax pot because it would be "technically" operating with an annual loss of a half billion dollars due to the tax write-off for money borrowed to purchase the giant.

With no taxable income, the new owners would pay no taxes!!!

There's $700 million a year that won't get used to repair the roadways they buckle when delivering their goods. There's also $700 million per year that won't help to clean up the rivers and lakes corporate America has polluted, and continues to pollute.

Taxpayers must come to appreciate that their standard of living will progressively worsen as unemployment rises, and corporations contribute less tax in future than they have in the past. Even though the taxpayer has been secretly robbed (thanks to the gagging of the press), the corporate raider has just begun his assault.

As unbelievable as it may be (that elected congressmen would allow corporations to stop contributing taxes), they even allow the taxation avoidance to be retroactive! Here's how.

Tax losses can be carried back 3 years, and forward 15 years. In other words, corporate raiders who make their new companies run in the red are able to claim back as a tax refund the legitimate taxes previously paid in the previous three years by the former owners. In a case like Nabisco's, this could amount to billions. The LBO tax avoidance loophole must be the single most significant cause of reduced Federal and State tax revenue from corporations for at least the last decade.

Because it is so important for the average person to fully understand LBOs and their destructive social consequences, and because many readers may be unfamiliar with the world of stock trading and Wall Street jargon, a more in-depth explanation is in order.

First of all, a leveraged buyout refers to the transaction that takes place when an individual or group of investors (outside a corporation) manages to take over the decision making function of a corporation by buying up enough shares of the company to assume controlling interest. The term "leveraged" refers to the fact that most of money used to purchase the corporation is borrowed or on credit. In all LBOs, the purchasers borrow as much as they can from banks, by using as collateral the equity of the corporation to be purchased. The remainder of the money required is normally raised through the sale of "junk bonds", which are issued by the purchasers (the corporate raiders), and promoted and sold (underwritten) by certain brokerage houses or investment banks which specialize in corporate takeovers. Junk bonds can attract investors because they normally offer a significantly higher rate of interest than other bonds and normal bank interest. Usually the part of the operating profits that formerly went to pay taxes, are now freed up to pay the interest on these junk bonds, so the junk bond holders can feel relatively safe.

For example, in a case like RJR Nabisco's, the $700 million that normally would have gone to pay taxes is now capable of paying the interest on about $5 billion dollars worth of borrowed money. The real significance is that the taxpayer is effectively footing the bill for $5 billion of the purchase price!

Combine that initial subsidy of $5 billion with the $2 billion they can receive in tax rebates, and the loss of tax revenue could effectively amount to about $7 billion on that single takeover.

In case you think this is not typical of what is happening, consider Safeway which went from paying $122 million in taxes, to being a tax rebate recipient of over $10 million. Macy's collected a $32 million rebate instead of paying a normal tax bill of over $200 million. Before its leveraged buyout, Unocal paid over $500 million in taxes. After the leveraged buyout its tax bill dropped to $68 million. But the above is unfortunately only half of the picture. {B52}

So far we have only discussed how LBOs have caused a drastic reduction in taxes paid by corporations. Next we will look at how and why the corporate raiders use LBOs to skim hundreds of millions of dollars out of the national economy without contributing one iota to the nation's productivity.

Why do LBOs occur in the first place?
To explain this, I will resort to an analogy. A car wrecker will often buy a fully functional (but old) vehicle, and simply junk it, because to the wrecker, the vehicle is worth more as spare parts than it is as a fully functional car. This is precisely the way corporate raiders look at a corporation! (as a conglomerate of companies than can be broken apart and sold separately as independent companies)
Incidentally, those who take over another corporation forcibly are known as "corporate raiders". When the takeover results from the acceptance of a buyout offer, the purchase is simply referred to as a leveraged buyout. Raiders buy corporations for the purpose of selling off the component companies separately for more money than what they paid for the fully functioning corporation. In other words, the raider attacks corporations whose spare part value is greater than their stock market share value.
To illustrate the point, let's say that a corporation has 100 million shares that are trading on the stock exchange for $1 each. Theoretically, the market place puts a value on the corporation of $100 million dollars. However, if a corporate raider determined that he could sell the various companies comprising the corporation separately for $150 million, he could theoretically make a quick unearned $50 million by buying the stock market shares for $100 million, and then individually selling off the components of the corporation for $150 million.

In other words, the takeover operators secretly have reason to believe that the one million shares are therefore in reality worth $1.50 a share, so they will approach the corporation and offer to buy enough shares to get controlling interest. Acquiring controlling interest is necessary to be able to initiate the "sell off" of corporate assets. In order to be able to buy enough shares to gain controlling interests, the takeover purchasers might try to lure the shareholders into selling their shares by offering a premium of say 10 cents per share over the going share market price. So in our example, the raiders could offer to pay $1.10 per share, instead of the going rate of $1.00 per share. If enough shareholders agree to sell their shares at this premium, the raiders could assume controlling interest in the corporation. The corporation would effectively be bought out. The new owners would then proceed to sell off whatever of the corporation's companies they wished. Often, just enough companies are sold off to cover the cost of the purchase, while the remainder, which represent the profit of the deal, are kept. Usually the better companies, known as the "cash cows", are kept as sources of positive cash flow to fund further takeovers.

If, as another alternative, they choose to sell off all the companies (i.e. even the cash cows), and succeeded in doing so for $150 million, they could make a relatively instant $40 million profit, involving no productivity whatsoever.

When corporate managers try to prevent corporate raiders from buying up enough stock to hold a controlling interest of their corporations, directors are usually forced to borrow heavily, or to sell off some of their companies' assets, in a desperate move to get cash to purchase their own common stock at the abnormally inflated stock prices offered to their shareholders by the takeover operators.

The other alternative is for the existing directors to virtually pay the corporate raiders what amounts to a ransom to leave the corporation alone. This ransom, which usually involves a "buy back" of whatever shares the raiders have managed to buy up, is known in the industry as "greenmail", a euphemistic term for the technically legal blackmail that takes place, and which the justice system blatantly ignores.

If the corporation gets bought out, or, if it is forced to pay greenmail, the end result is similar; the equity of the corporation gets replaced by debt, which lowers it's tax liability, reduces its cash flow, and makes it increasingly vulnerable to financial problems.

Basically, raiders act as "corporation wreckers", functioning much the same as "car wreckers". If, as a result of selling off the component companies, the corporation's primary product stops getting produced, well tough luck! Raiders are interested only in quick profits.

Stripped bare, corporate takeovers are, in essence, non-productive, economically debilitating real estate flips.

Those wishing to have a clearer appreciation of the debilitating effects suffered by companies which try to fight off takeover bids are encouraged to read the article entitled "Invasion of the company snatchers" in the Dec 12 1988 issue of Forbes. {B53} On the other hand, the article on page 102 of the Sept 4 1989 issue entitled "Don't blame me", details some of the debilitating problems suffered by businesses that have been taken over and reorganized according to the whims of new owner/speculators. {B54} Similarly, the article "One man's poison" on page 38 of the Oct 16 1989 issue leaves little doubt that businesses burdened with LBO debt are, from a competitor's point of view, often less able to compete.

In addition, "tax loss credits" that are generated by LBOs later encourage MERGERS with other profitable companies who use the tax loss credits to avoid paying taxes on their own profits. A brief discussion of this additional tax avoidance rip-off will follow later under the topic: Mergers (Monopolies and Tax Avoidance).

Can those taking part in a corporate raid get rich milking the economy like this?
To partially answer that question, let me quote from the July 11 1989 edition of Financial World which had an article on Wall Street's one hundred highest paid earners.

"In general, most of the top 100 earners have two things in common ...they are principles in their firms, and they are deeply involved in takeovers." {B55}

The answer, therefore, is that you most certainly can, and in two distinct ways. The most profitable way is to be the corporate raider.
Example: According to Forbes magazine, which does a yearly assessment of the wealth of the richest 400 Americans, Ronald Owen Perelman, (a leveraged buyout specialist) increased his personal wealth by $750,000,000 (Seven hundred and fifty million dollars) in the period between their 1988 survey, and their 1989 survey. Start getting concerned!! He was not alone. {B56}

The second most profitable way is to help provide the funding for the corporate raider. For this service, the banks and the junk bond salesmen earn handsome commissions.

How much can a junk bond commissioned salesman make, who assists the corporate raiders?
Example: Michael Robert Milken. Forbes indicates that Mr. Milken increased his own personal wealth from 800 million in the 1988 survey, to one billion, two hundred and seventy million in the 1989 survey. His 470 million increase in one year, like Ronald Perelman's seven hundred and fifty million dollar increase didn't materialize out of nowhere.

One way or another the cost of his commissions will be passed along to the consumer. {B57} The article "Who's really picking up the tab?" in the Oct 30 1989 issue of Forbes provides enough facts and figures to make anybody steam under the collar. {B58}

LBOs continue at great cost to society, and with far ranging social and economic repercussions, despite the economic elite's rhetoric to the contrary. The numerous social side effects of LBOs are even more ethically scandalous than the flip profits or the drastic reduction to taxes paid. The various component companies which formerly worked together smoothly may now be convulsing under new inexperienced managers. In fact, many managers who spend a lifetime working their way up through the ranks are often let go, suddenly depriving them of well earned pensions, and forcing them quite abruptly into competition with much younger men for a diminishing number of managerial jobs. Management, however, are not usually the only ones who face unemployment hardships as a result of "mergers and acquisitions" (M&As), as they are jointly referred to.

Companies or divisions of companies which manufacture items that can be manufactured more cheaply using 3rd World slave labor, are often shut down and relocated overseas. A recent survey of several thousand American takeovers which took place between 1977 and 1982 has shown that firms which had been taken over employed about 12% fewer staff in 1982 than they had in 1977, while firms which had not been taken over had, on average, increased their staff by about 4%. Overall, wages and benefits fell by about 12% for the staff of firms taken over. {B59} Often a drop in product output, and/or a drop in product quality follows on the heels of cost cutting measures introduced by new profit conscious owners. Effectively, Americans are being fleeced, cheated, and unemployed simultaneously.

Meanwhile, the bulls continue to run as the stock market continues to climb from LBO buying pressure, and consequently the share prices are once again unrealistically high. The LBO frenzy has also driven up the cost of corporate real estate, and in the process, residential real estate as well, to the point that buying a home seems beyond the reach of many hard working productive Americans.

Market speculators will begin 1990 once again nervously poised to dump their stock portfolios at the very first sign of a market sell-out, and that is precisely what the October 1989 crash was all about. The stability of the economy as a whole has already been seriously undermined.

A recession, or worse yet, a depression, could easily cause these leveraged to the hilt corporations to go bankrupt due to a loss of cash flow which could occur during a normal recession. {B60} They could begin defaulting on their enormous bank loans and usher in a catastrophic collapse of the banking system!

So don't let politicians convince you that a corporation based on debt (with no reserves left to survive even minor disruptions to its cash flow), is now better equipped to compete internationally. Remember instead the old maxim that the bigger they are, the harder they fall. Besides, politicians are usually the first to defend legislative gifts to the rich because they too can take advantage of the loopholes. In the case of LBOs, William E. Simon, a former Treasury Secretary was one of the very first to jump on the LBO gravy train. In 1981 he took over Gibson Greetings Inc. for $330,000 and within two years made $70 million. {B61}

And just how shaky, artificial, and ridiculous have leveraged buyouts gotten?
Well, Forbes magazine pointed out that "...Duff and Phelps, the Chicago-based bond-rating service, underwent a management buyout early this year and issued its own junk bonds. When the deal closed, long-term debt ballooned to $112 million from $34 million. Net worth fell to minus $10.8 million from positive $3.6 million. Fees and expenses in connection with the buyout ran almost $13 million, which was more than the equity contribution of the management investors." {B62}

Who stands to lose money if these "leveraged to the hilt" corporations collapse in a recession, or a depression brought on by another stock market crash?
Two entities will bear the brunt of banks going bankrupt if and when the cash poor leveraged corporations default on their payments to the banks. If the banks get bailed out by the government, taxpayers as a whole will end up paying for the economic elite's gambling spree. If the impending economic collapse is severe enough to make widespread bank bailouts impractical or impossible, YOU and the little old lady who put her life savings on deposit will lose your shirts. That's who! So when you hear that a huge corporation is running at a loss, don't be too eager to get out your hankie unless you are crying over the havoc caused by corporation wreckers who have, in the process of milking the nation, driven it to the brink of bankruptcy.

Lest we forget:
The proportion of Federal Income tax (derived from Corporate income tax) has already declined from 32% in 1952; to 23% in 1960; to 17% in 1970; to a low of 9% in 1985.
To make things even worse, the bulk of the leveraged buyouts which ushered in a horrendous wave of tax avoidance, have occurred since 1985. In 1988 there were 3,500 public deals worth some $300 billion. {B63} The four firms previously mentioned on 1-36, alone represent a potential annual legal tax avoidance in excess of $2.2 billion.

Furthermore, Mr. Bush has been fighting for some time to have the capital gains tax reduced even further, this time by half. However, in the face of some congressional opposition, he has suggested and will probably succeed in passing a supposed compromise to his original demands. His compromise involves a significant reduction of the capital gains tax for a two year period only. This compromise would nevertheless effectively give all the profit takers a golden opportunity to remove from the system whatever windfall profits they have been sheltering from the tax department over recent years. Few concessions to the rich have been as blatant as this impending tax scam.

The excuse has always been given that "Reducing corporate taxation stimulates the economy." It does no such thing. On the contrary, the proposed corporate tax reductions will free up enormous amounts of capital for investment abroad!

In banking circles, this whole process of exchanging debt for equity is known as the "monetization" of private wealth. It is estimated that 40% of the $311 billion value of deals carried out in 1988 alone went into private hands. {B64} In other words, the elite have been exchanging their industrial equity for cash which can now be used to buy up cheap industries overseas in order to take advantage of the remaining pools of cheap unorganized labor.

As a result of the exodus of American industry previously described, America's capital stock (industrial machinery, etc.) fell from 70% of GDP in the mid-1970's, to 56% in the mid-80's. {B65} And of course less industry means more unemployment which in turn tempts more employers to cut wages back as close as possible to the minimum wage.

In addition, much industrial machinery is old and outdated due to the reluctance of corporations to consider anything beyond the next quarter's earnings. Consequently, the elite have begun to pressure employees into buying outdated plants and machinery (through employee stock ownership plans) with threats of plant closures.

Employee Stock-Ownership Plans (Watch Out!)

Now that the elite have removed equity from the economy and replaced it with debt leaving a large proportion of corporations utterly vulnerable to bankruptcy in the event of a serious recession; and after they have left American industries uncompetitive from decades of removing profits while allowing manufacturing machinery to become old and obsolete; the economic elite are eagerly saying its time for the employees to share in the ownership of the nation.

Obviously, if corporations are eager to get on the ESOP bandwagon, and they most certainly are, logic if nothing else should suggest that despite the lies being fed to employees all around the country, employee stock-ownership plans benefit employers more than they benefit the employees. And they do. Here's how.

As the ESOPs are phased in, a company's existing pension plan gets phased out. For an increasing number of people, their retirement income will then be tied to the fluctuating price of the company's stock. This means that in a recession, or worse yet a depression, neither their stocks nor the dividends from the stocks will be worth a damn. For companies that go bankrupt, in good times or in bad times, the pensions for all current and retired workers will simply cease to exist!!

Because post-retirement medical coverage gets phased out as well, employees will have the option of withdrawing equity from their stock accounts to pay for their own medical coverage. If medical costs skyrocket in later years, and they will, employees and particularly the retired ones will feel the pinch of reduced pension income. If stock dividends plummet in a recession, which they most certainly would, pension income would be reduced accordingly. Not so with the cost of medical care. With little or no income during a recession, sickness may cause many to borrow against whatever equity is left in their homes.

In recessions and depressions, workers who have not retired yet will be faced with the option of allowing their company to go bankrupt, and in the process losing both their jobs and their pensions, or they could keep the company going, at any and all costs, by working for wages that would at last compete with 3rd World labor costs!!

In bad times many workers would be forced to sell off their company stock for additional income. However in bad times, dividends from the stocks would most likely cease as well. If many people are forced to desperately dump their shares on the market for survival income, the stock market could once again easily collapse.

The prospect of getting rid of existing pension liability is so lucrative to the elite that the current administration is providing no end of tax incentives to corporations to get them to participate in ESOPs. Even the banks and Insurance companies are being given irresistible tax incentives to provide corporations with loans to set up their ESOPs. They only have to pay tax on 50% of the interest revenue from ESOPs!! Next, the corporations can write off not only the interest they pay on these loans, but also the principal! In addition they can write off the dividend payments on the stock. The tax incentives alone are so lucrative that last year over $18 billion was borrowed by corporations to set up ESOPs. In short ESOPs are simply another vehicle designed for the economic elite to reduce worker benefits, and withdraw their money completely by selling the country's debt laden industrial carcass to gullible workers. On the other hand, the mega-rich minority would be fewer and richer than ever. Many have already taken their wealth out of America and invested it in 3rd World countries. During recessions and depressions, their wealth will, relatively speaking, escape the losses suffered by capital invested in the 1st and 2nd World countries. {B66}

What makes the whole ESOP scheme transparent and laughable is that, almost without exception, when companies are 100% owned by the employees, the employees have little or no representation on the company's board, and subsequently little or no influence over supposedly their own company's policy.

Studies carried out by Michael Conte at the University of Baltimore, by Jan Svejnar of the University of Pittsburgh, and by the General Accounting Office (GOA) itself, have all reached the same conclusion. ESOPs do not improve either profits or productivity. They have however reduced Federal tax revenues by billions, and suckered many workers into jeopardizing not only their present well-being, but their retirement security as well. {B67}

Mergers (Monopolies and Tax Avoidance)

Another flurry of Wall Street activity has involved mergers. Why? ...because each LBO can spawn a further proliferation of tax avoidance involving mergers. To explain how, let's use RJR Nabisco again as our model.

Let's assume that Nabisco operates with an operating loss of $500 million per year. Theoretically, this operating loss can be prorated out to each of the companies forming the corporation, all of which can begin accumulating tax loss credits. This means that an outside company which is running with a profit of $100 million per year could approach Nabisco and arrange a deal to buy up a portion of Nabisco's companies that account for a loss of $100 million per year.

After the merger, the new hybrid company would now theoretically pay no taxes either, because their previous $100 million profits would be offset by the $100 million tax loss of the newly acquired companies from Nabisco. And so another $100 million dollars in taxes would not get paid in taxes. In this way, unsold companies that run in the red can accumulate their tax losses for 15 years, thus becoming even more lucrative to the diminishing number of companies that have not yet jumped onto the tax avoidance bandwagon.

Congress goes through the motions of "preventing the trafficking of tax loss credits", however, loopholes are left to effectively get around the weak legislation. I could elaborate on the loopholes, but enough has been said about the topic of tax avoidance already. Those wishing to know how, can read "Guess which shell has the loss" on page 215 of the Nov 14 1988 issue of Forbes.; "It's the right thing to do", on page 104 of the April 17 1989 issue.; or "ESOP fable" on page 98 of the June 26 1989 issue.

In general, Congress defends its "hands off" policy with regard to mergers and acquisitions on the grounds that bigger corporations are necessary to compete internationally. This would have been an acceptable argument back in the old days when mergers used to occur between companies which produced components of a finished product. However, it is precisely these massive corporations that are being bought up by the takeover raiders and broken up to be sold off in bits and chunks to the highest bidders!

In any event, the fact that some genuine mergers are producing virtual monopolies is being casually overlooked amidst the circus of ongoing business abuses currently taking place. Reagan began taking the heat off of big business monopolies by cutting the government's anti-trust staff by about 60%.

An additional generous loophole was provided in 1984 with the introduction of the National Co-operative Research Act which provided exemptions from anti-trust lawsuits for companies engaged in joint R&D projects. Those most concerned with antitrust suits are now involved in joint R&D projects at least in a token way! {B68}

Society's Parasites (The Speculators)

If prostitution is the oldest profession, gambling is certainly one of the runners-up. The practice of increasing one's wealth without having to expend one's energy, or be productive in any way, has attracted followers from the dawn of time. In the West, individuals who do so as a career, have percolated to the top of the economic and social ladders because their predecessors have successfully lobbied for the legislation that makes it all possible.

Regrettably, the message being broadcast by the yuppies and the super rich is that putting in an honest day's work for an honest day's pay is reserved for suckers and those afraid to take risks. Accordingly, the fever to get rich quick, without really working, is causing countless lower class entrepreneurs to choose drug trafficking as an elevator to their financial success, just as stock market and real estate speculation is chosen by the upper class entrepreneurs. To put it mildly, Wall Street scandals are becoming commonplace, and stock markets seem more and more to be the playing field for inside traders and stock price manipulators. Legitimate balance sheet acrobatics makes it increasingly unwise for all but seasoned market professionals to invest in America's potential. The article on page 46 in the Jan 9 1989 issue of Forbes, entitled "Never, but never, give a sucker an even break", exposes just how easily the unwary can be parted from their money.

Although the stock market has always had a casino-like atmosphere attached to it, the contagious "get rich quick" fever, now seems to have pervaded virtually every aspect of legitimate business. Corporations are spending more time and effort on making profits through balance sheet maneuvers than through anything even remotely related to efficiency or productivity.

The investment departments of corporations have usually preferred to gamble on the stock market, and banks on real estate. But in reality they each gamble in both speculation games simultaneously, converting assets back and forth from real estate to stocks whenever they think one or the other of the speculation games is ready to crumble.

The October 1987 stock market crash was to the stock market speculation game, the equivalent of a national run on the banks in the real estate market speculation game. Stocks across the board had been traded back and forth until they were hopelessly overvalued, at which time the gamblers who did not get out in time, took their losses, and passed them on to their customers in the guise of price inflation. Of course there were the usual bailouts, but some of the brokerage houses still went bankrupt.

The key, to understanding why the public at large should be concerned about market and bank failures, centers around the fact that speculators rarely gamble with their own money. They normally borrow the money from someone else. To appreciate the magnitude of this problem, let's examine why so many banks and savings and loan thrift institutions have gone bankrupt.

Why Banks and S&Ls Go Bankrupt

The banking world, which has up to now enjoyed a reputation as a trustworthy, stable cornerstone of society, no longer merits either the respect or the trust which most citizens, in ignorance, continue to ascribe to it. One of the oldest jokes in the banking industry wryly acknowledges that "The easiest way to rob a bank, is to own one."

And in a nutshell, this is precisely why hundreds of banks and S&L thrift institutions have recently declared bankruptcy.

A knowledge of the root causes of S&L failures is so fundamental to an overall appreciation of society today, that a synoptic description of the scam behind the failures will now be outlined.

Most important is the fact that banks and S&Ls were, and still are today, vehicles for acquiring money to gamble with. Most depositors who deposit their money in a savings account, or on fixed term deposit, tend to think of banks as giant vaults in which their money can safely reside free from the ravages of fire, theft, and accidental loss. Even the massive amounts of money that flow into banks from pension funds are put on deposit basically for safekeeping. Decades ago, when interest rates, and property values were relatively stable and comparatively fixed, the image of banks as vaults was not that far off the mark. Most institutions made their money from the spread in interest rates between what they paid to their depositors, and what they received from those who borrowed from the bank. Times have changed.

With speculation profits as the lure, S&L thrift owners have been using depositors' money as their personal gambling stakes to engage in real estate speculation. They bought up plenty of actual properties, and also issued mortgages on others. Some of these mortgages were assigned, at preferred interest rates, to friends, relatives, and business partners, etc. In this way, a network of chosen insiders could also use depositors' money to engage in real estate speculation!!

As prices continued to rise, the speculators were free to sell their properties for profits. The mortgages could be paid out or passed on to the new real estate buyers, in which case, new properties could be purchased and new mortgages taken out. The profits for many were enormous. Prior to the real estate slump, prices had skyrocketed. Although much of the speculation involved commercial real estate, the price of residential real estate was also inflated in the process. Meanwhile, the innocent bank depositors were still only being paid their measly fixed low interest. The profit difference, which for some has been instant millions or hundreds of millions, was pure profit involving absolutely no productivity whatsoever, and for that matter, little or no risk either. Why little or no risk?

Well, when the real estate market inevitably collapsed, the banking and corporate gamblers start dumping their real estate holdings on the declining market. Almost instantly, there were no buyers in sight. The gambling bankers were left with overvalued properties, and overvalued mortgages whose holders predictably chose to default on. Hundreds of bank and thrift owners knew the party was over, and that they were on the road to bankruptcy.

Were the speculators now going to lose all the profits they had made on the way up? Not a chance. They were all capable of walking away from their institutions relatively unscathed, and here's how.

Between the time the gamblers know they have lost, and before a bank or thrift actually declares bankruptcy, the insiders purposely maintain appearances and keep the institution afloat as long as possible to buy time to carry out some or all of the following remaining steps of this much used scenario.

The present and future taxpayers, whose standard of living will be reduced in the process of paying back the two to three hundred billion dollars in S&L bailout money, are simply paying for all the profits taken out by the speculators who now pose as the nation's most successful entrepreneurs, and respected community leaders!!

It should be noted that the same sort of scam can be carried out in a period when the real estate market is relatively stable. Properties can be purposely sold back and forth between corporations or individuals in an effort to leave a plausible but totally artificial inflationary sales track record for the property. For example, Individual # 1 can sell a piece of real estate with a current market value of $10 million to Individual # 2 for $20 million. Individual # 2 then sells the same piece of property to Individual # 3 for $30 million.

Then after the value of the property has been sufficiently pumped up through artificial sales, the S&L owner or bank manager, who is also in on the scam, either buys the property or issues a mortgage on the property as if the property were worth $30 million. So now the bank depositors in effect own the unrealistically overvalued property! After all, it is the mortgage payments that are used as money to pay the depositors' interest, and it is the sale of the overvalued properties that is used to pay back the depositors' principal. Needless to say, the true market value is still only $10 million! The $20 million difference is then split amongst the S&L owner and his associates. When the S&L has been milked sufficiently using this or other scams involving leveraged buyouts and junk bonds, it is cast aside for the taxpayers to bailout the exploited depositors.

Don't be fooled into thinking your money is automatically safe, just because it is in the bank. The phrase "safe as a bank" is an anachronism.

In 1937 a record number of banks went bankrupt, and that record number lasted as an unbroken record for almost a half century until 1984! The number of bank failures since then is as follows: 79 in 1984, 120 in 1985, 138 in 1986, 184 in 1987 and finally 200 in 1988!!! Furthermore, the Federal Deposit Insurance Corporation disclosed that in 1986 there were 1484 banks around the country which it officially listed as "problem banks". In 1988 this number had declined by 69 to 1415. Normally this news would be good news providing one doesn't take into account the number of banks that failed in the same period. {B69}

And don't forget, these figures are for banks only! The figures for "problem" and "failed" Savings and Loan thrift institutions are even much worse.

You also ought to be aware that, thanks to Emergency Banking Regulations, your bank deposits can be frozen and dribbled back to you on a fixed limit per month if your bank's doors get locked some day for a liquidation party. Don't assume you will automatically have access to your safety deposit box, because you probably won't, not unless you are wealthy enough to pull the right strings.

The reason that owners of banks and thrifts can afford to gamble in this way and risk having their own bank go bankrupt, is that they only have to cover the depositors money by 4%, and 3% respectively of their own capital; and that money itself could no doubt have been borrowed for the investment, and this can be debt equity.

So what did the thrift owners lose? Practically nothing. As paltry as the 4% and 3% amounts may seem for the privilege of gambling with depositors' money, much owner equity was in the form of business "goodwill"!! The balance sheet intangible called "Goodwill" is being used increasingly as just another tax avoidance loophole. Because goodwill has to be amortized over thirty years, earnings, (i.e. profits) can be artificially reduced to zero with a sufficiently large "goodwill". When Philip Morris bought out Kraft foods, $11.6 billion, or 90% of the purchase price of $12.9 billion was "goodwill". In the process, Kraft passed on the valuable profit-reducing "goodwill" to Philip Morris. Although theoretically its profits and therefore its taxes will be reduced substantially, (it may even run at a loss) its dividends paid to stockholders may not be affected at all. The mania for mergers and acquisitions is fueled by tax avoidance opportunities. In other words, some bank and thrift owners risked practically none of their own money. {B70} The abuse of depositor's savings could virtually be eliminated if banks could only take in deposits equal to say twice the value of their own shareholders' participatory equity, not just a ridiculous 4 percent. The safety and value of all bank depositors' money has been seriously undermined.

Not only have the life savings of many unsuspecting bank depositors provided gamblers with their gambling capital, to add insult to injury, in the process the real estate values for the whole community have been artificially pumped up to the extent that, for an increasingly large number of modern day workers, the prospect of owning a home is becoming only a pipe dream. Many young couples now have difficulty even saving the 10 percent down payment necessary to qualify for a lifetime of mortgage payments.

But the consolidation of real estate ownership is not a new phenomenon, it has been going on relentlessly since the 50's. Mr. Joseph Minarik of the Urban Institute shed plenty of light on the issue. He pointed out that a typical 30 year-old purchasing the median-price home under typical mortgage terms would have incurred carrying costs equal to 14% of his pretax income in 1949, 15% in 1959, 21% in 1973, and 44% in 1983. {B71} Needless to say, this trend has worsened significantly since the start of the 80's. In fact, the Joint Center for Housing Studies at Harvard University have disclosed that between 1980 and 1987, there has been close to an 8% decrease in home ownership for the 25-34 age group. {B72}

Whitewashing and Hiding the Rip-offs

In the headlong rush for quick profits, owners of banks and S&L thrifts that won, won big ...(millions and hundreds of millions). Those that lost, simply walked away and made the taxpayer pick up their gambling debts. At present, the government's official estimate (from the General Accounting Office) is that the thrift bailout will cost $285 billion over 30 years (no doubt a gross underestimation).

While the effects of the S&L bailout will certainly be felt by the bottom 90%, neither the President nor the Congress is keen on the topic being too visible to Americans or the rest of the world for that matter, so the initial 50 billion of bailout money will not even be part of the government's budget. Instead, the Gramm-Rudman deficit cutting law will be purposely avoided by taking $20 billion from this year's already budgeted and allocated money, and by having the remaining $30 billion borrowed not "on budget" by the Treasury, but "off-budget" by a newly formed government agency called Refcorp which will sell bonds which pay higher rates of interest than normal treasury bonds. Because the revenue from the sale of Refcorp bonds are treated as budgetary receipts, the S&L bail-out will appear to actually generate revenue this year!

As Charles Bowsher, the Comptroller-General of the United States put it,

"By conventional wisdom, the U.S. federal budget deficit in 1990 will meet the Gramm-Rudman-Hollings target of $100 billion. Why, then, will the federal debt rise during the same year by about $280 billion? Because the federal government has cooked the books. The American public is being led to believe that the deficit is falling when it is actually rising"

Mr. Bowsher also pointed out that Bush's S&L plan will cost the taxpayer tens of billions in extra, unnecessary interest, just to hide the S&L losses "off budget". {B73} This practice of hiding deficits "off budget" is done strictly for political public relations, and therefore is blatantly meant to deceive and manipulate the public.

Just as the bailout of the Federal Savings & Loan Insurance Corp. (FSLIC) will cost the taxpayer nearly $300 billion, so the following organizations are potential bombs that have the autonomy to borrow money without government approval, but whose debt does not get added into the Federal Budget deficit, and whose debt is not therefore subject to Gramm-Rudman constraints: The Farm Credit System; The Federal Home Loan Mortgage Corp.; the Federal National Mortgage Assn.; and the Student Loan Marketing Assn. {B74}

While the government's formally recognized debt amounts to $2.6 trillion dollars, the "off budget" hidden deficits such as government credit, insurance and loan-guarantee commitments have grown in the last 20 years from $400 billion to more than $5 trillion - nearly twice the national debt, and five times the annual level of federal spending! {B75} The general public has been successfully kept in the dark regarding the future hardships that these off-budget deficits will cause. {B76}

Congress is responsible for going along with this type of deceit. Says Lee Hamilton (D-Ind.), Chairman of the Joint Economic Committee, "We have developed considerable skill and sophistication in meeting deficit-reducing targets ...without reducing the deficit.

Corporations and Insurance Companies

For the purposes of insight and perspective, it is relevant to point out the similarities that exist between corporations and banks. In many respects, corporations can act as banks. Effectively, their "depositors", so to speak, are their shareholders and those people who buy their corporate bonds. Their investment departments can get involved in many of the same type of real estate speculation as banks. In fact, the convoluted transactions that can occur between parent and subsidiary companies within a corporation make "following a bank's audit trail" appear like a kindergarten exercise compared to their own.

Don't be fooled into thinking that when a corporation fails, some big player has lost a fortune. In the corporate version of the S&L scam previously described, corporations, which more often than not are holding companies, can purposely set up a separate subsidiary investment company to go bankrupt if the gamble fails.

Insurance companies too have speculated in real estate with their policy holders' funds, in the same way that S&L thrift owners and the investment departments of corporations have speculated.

Similarly, many insurance companies have suffered massive losses through real estate speculation and through extensive investment in junk bonds. However, accounting conventions in the insurance industry have allowed the losses to go largely unnoticed and unreported. Consequently the significance of losses incurred by this industry have not received the media attention that they so justly deserve. No doubt the insurance industry lobbyists have assisted in preventing the information from being publicized too widely mainly because (unlike the S&L thrift industry) the insurance industry is not backed up by government guarantees!! In addition, clever accountants in this industry too have found methods of bypassing legislation put in place to ensure there is always enough capital surplus to pay out claims as they come due. {B77} The industry's deteriorating capital base is being disguised in part through reinsuring part of their liabilities with offshore insurers in places like the Bahamas which do not require the same level of controls or safeguards. {B78} Since eight out of ten Americans own life insurance, a recession causing junk bond defaults or widespread business and bank bankruptcies would almost certainly cause a related general collapse of insurance corporations on a scale that is perhaps under present circumstances difficult to imagine. {B79}

Bank Losses From 3rd World Loans

While the savings and loan thrifts were going broke as a result of making too many millionaires wealthier, the big major banks were even more seriously going broke due to defaulting foreign loans. It's no secret that the major U.S. banks have loaned vast sums of money to 2nd and 3rd World countries. Most of the underprivileged debtor countries holding "floating interest rate" loans were virtually bankrupted by the developed nations when the major Western banks pushed their interest rates into the 15-20% range. Debtor nations faced the situation where their interest payments to the developed nations exceeded their national revenues.

Not surprisingly they were left with little alternative but to default on their loan repayments unless they received additional loans to be able to repay even the interest portion of the debt. Just be aware that the 3rd World debt is now over $1,200,000,000 and the repayments have almost stopped. {B80}

The country has yet to suffer a national run on the banks like what happened in 1929, but the writing is on the wall. Many have gone bankrupt already and the government has arranged for hundreds of billions of taxpayer dollars in bailout money. But that's only the tip of the iceberg; there are hundreds of banks waiting in the wings. In 1986, the FDIC listed over 1,500 U.S. banks on its problem list, up from a little over 600 three years earlier. Their losses are very conservatively estimated to be well above $200 billion dollars. Those closest to the facts put the figure over $300 billion.

To put it mildly, debtor nations can barely repay the interest, much less their loan principal. Logically, these facts should spell big trouble to the shareholders of the major banks (many of whom belong to the economic elite). That might ordinarily be the case if they were not the ones who pull government strings, ...but they are.

Getting the Taxpayer to Buy the 3rd World Debt

Initially, David Rockefeller, using the power of the Trilateral Commission lobbied for taxpayer money to be given to the International Monetary Fund and the World Bank so that potential defaulters could be loaned at least enough money to make interest payments on the money they owed. This prevented a coordinated revolt of international loan defaulters. Subsequent to that, the BIG BANKS successfully lobbied for and obtained various other ways of transferring their losses directly back to the taxpayer.

Taken together, the various methods provided what amounted to free banking insurance for the bankers.

To begin with, a piece of legislation was passed through Congress in 1980 that the public didn't even really get to hear about. It was called the Depository Institution Deregulation And Monetary Control Act and it gave the Federal Reserve the right to purchase any bad debt. The sentence doesn't sound all that menacing, until you realize how that power can be used to perpetrate one of the great superscams.

The government has already indicated that there are certain major banks that it would not allow to go bankrupt, in the national interest. How might the Fed prevent the bankruptcy of major banks who have literally hundreds of billions of dollars of foreign bad debt that they would otherwise be forced to write off? ...simply by buying or "guaranteeing" the foreign bad debts from the banks.

What is currently happening?
America's Treasury Secretary, Nicholas Brady, is encouraging the major banks to give new loans to the debtor nations in order to keep the interest payments flowing. How could the banks possibly be enticed to supposedly throw more good money after bad? Well, when the original loans come up for renewal, the government is offering to "federally guarantee" the new loans (with your hard earned tax dollars), provided they are channeled through the International Monetary Fund. The government's excuse is that it can afford to risk taxpayer money because of the stipulations and provisions (imposed by the International Monetary Fund) that a debtor nation must agree to, as a requirement for getting the new money. Interest on these bonds is now guaranteed by the US Treasury, and the principal is covered by zero-coupon Treasury bonds. {B81}

The reality of the matter is that one by one, the shaky defaulting loans, which the banks are liable for, are slowly being replaced by new loans in the form of bonds which the taxpayer is now indirectly liable for. Increasingly, YOU own "the pieces of paper" from the 3rd world country that says that it owes you 100 million dollars.

In other words, taxpayers are being covertly and periodically fleeced of billions of dollars instantly, and without a consultation!! The banks and their shareholders who incurred the original debt will end up with crisp new bills to start off another exciting and lucrative round of real estate inflation, just for a change of pace. Although there is now slightly more chance of the principal being repaid, the likelihood of this happening is still remote.

On the other hand, the economic elite are, through the IMF and World Bank, able to maintain and exercise political and economic influence, if not domination, over the 2nd and 3rd world debtor nations by making the loans conditional to their agreeing to all sorts of fiscal policies such as "privatization of national resources" which consolidates political and economic power into the hands of a wealthy few who are eager to make future deals with the Western elite to increase their wealth and power. By accepting these conditions, the 3rd World economies are kept vulnerable to exploitation by the Western superpowers. (i.e. ...political and economic slavery, as opposed to physical slavery)

For example, in exchange for a recent $500 million loan, the World Bank bargained with Brazil to allow American banks like Citicorp to engage in buying Brazilian real estate. Just as America's manufacturing base left America for cheaper labor abroad, American banks are eyeing the virgin lands of the 2nd and 3rd World as the next real estate speculation arenas!! Brazil got the loan all right, but has so far reneged on the new banking arrangements. Lucky Brazil! The vultures are circling. {B82}

So far, the government has "guaranteed" more than $30 billion of the World Bank's 3rd World debt, but IMF board members have begun lobbying to have the IMF funds increased by 80%. Chances are they will be successful. Additional debt for America's unborn. {B83}

But that's not all.

Besides the new loan "guarantees", there are the additional billions written off by the banks as bad debts. These "write-downs" are business expenses which reduce their profits and hence their taxable income. In 1988, Latin debt was written down by about $17 billion.

The above-mentioned measures, and others, were used to insure that the interest payments kept flowing. This after all is primarily what the bankers are interested in. Interest payments are the source of their profits. Most bankers couldn't give a damn about the security of the money in their banks. Mind you, even though only 3% or 4% of the banks' assets belong to the bankers themselves, they are still not eager to see a national run on the banks because bankrupting the banks would ultimately cut off the source of their income. Consequently bankers have lobbied to have the bottom 90% encouraged to save, and thus get workers to inject some equity into the banks to help keep some of them from going bankrupt due to their gambling losses.

Not surprisingly, the Bush administration is about to launch an extensive campaign to get the working class to start placing more of their money into banks. Why? Like the corporations who are trying to sell corporate debt through ESOPs, bankers want to bail out the banks by selling their 3rd World debt to unsuspecting depositors. In addition, the banks want a fresh injection of money to gamble with. Don't forget that bankers had little or no qualms about using depositors' hard earned cash, in addition to workers' pension fund money to finance leveraged buyouts. To them, the money is there to gamble and invest with.

Note well that much of the corporate debt owed by the "leveraged to the hilt" corporations is currently held by banks, and it is the bank depositors who will stand to lose their money if the corporations collapse en masse in a depression.

Fleecing the Social Security and Pension Funds

The only difference between squirrels who rely on the nuts they have stored away to see them through the winter, and workers who rely on their pension funds and Social Security to see them through their retirement years, is that the nuts will be there, but the Social Security money and Pension Funds may not be. They are being heartlessly milked by an elite who are consumed with selfishness and greed. Do you think that sounds a bit harsh? Well, you be the judge.

Although both the stock market and real estate speculation games are basically gambling, which involves and risks someone else's capital, fleecing the Social Security and Pension Funds is barely distinguishable from outright theft.

Over time, pension funds have a way of increasing in value substantially, and many private companies hold vast sums of worker's pension fund money which they invest, and collect interest on. One reason that pension funds have increased in value so quickly is due to the fact that their investment income is non-taxable.

However, when one company buys up or takes over another company, the resultant merger allows the management of the purchasing company to form a new hybrid company and restructure or reorganize many aspects of both of the original companies to form the new hybrid firm. The problem is that the owners of the hybrid firms are allowed to create a "new" pension fund and in the process, strip off all surplus value that had accumulated over the years. This siphoning off of surpluses is known in the industry as "pension reversions". It's probably a moot point whether the "reversion" refers to the wealth of the pension plan, or to social progress itself. In any event, money that theoretically belonged to the workers, has easily been skimmed off to create instant billions for the hybrid firms' owners. This type of merger leaves in it's wake, a trail of brand new "virtually poor" pension funds.

Even under normal circumstances, when an insured employee dies, a corporation is free to pocket the surplus that has accumulated tax free over the life of the policy. {B84} Here again, value that should have been paid to the policy holder in compensation for the loss of value through inflation gets swiftly pocketed by the corporations.

In the last decade alone, huge corporations like Exxon Corp., United Air Lines, TWA, Union Carbide, and close to 1900 other companies have stripped off about $20 billion in pension fund surpluses. Exxon siphoned off $1.6 billion from its employees' $5.6 billion pension fund. {B85} Currently there is a backlog of over 600 companies waiting for government approval to do exactly the same thing. {B86}

Under current legislation, if a pension plan is closed down prematurely, the new owners are only obliged to pay workers what they have accrued up to that point in time. The normal pension arrangement of "retiring with a percentage of your salary at retirement time" has been robbed from countless workers who had served decades of loyal service.
According to a Federal body called the Pension Benefit Guarantee Corporation which currently underwrites America's pension commitments, over half of the reversions that have taken place have been replaced with either vastly inferior pensions, or else the pension plan has been discontinued entirely!! In 1988 alone, one third of the 230 pension plans which were closed down, were not replaced! {B87}

These pension plan closures always leave their victims stunned because few workers can predict who will be next. The majority of workers do not even anticipate the possibility because the tragedy is seldom if ever given any attention in the media. This media silence is of course not accidental.

Most workers expect to retire with pensions, but very few are aware that no more than 1 in 6 end up collecting them. Too often workers have retired and submitted a claim for pension benefits only to discover that for one reason or another, they have been disqualified from receiving pension benefits by some minor technicality. Many have become victims to commonly occurring events such as changing union locals; temporary interruptions to service caused by an industrial accidents or work shortage layoffs; company bankruptcies; and pension plan terminations.

In fact, the pension problem is so ludicrous that a government official once put it in these words, "In all too many cases the pension promises shrink to this:

"If you remain in good health and stay with the same company until you are sixty-five, and if the company is still in business, and if your department has not been abolished, and if you haven't been laid off for too long a period, and if there's enough money in the fund, and if that money has been prudently managed, you will get a pension!"

What protection does the Federal government provide for workers' private corporate pension funds?
For starters, the government is by its actions encouraging corporations to eliminate private pensions plans! The $1.6 trillion dollars of pension funds still theoretically insured by the Federal government's Pension Benefit Guarantee Corporation, is being reduced at an alarming rate by pension plan terminations. Incidentally, the term "theoretically insured" was used because the PBGC is already carrying on in the red, with a deficit of $1.5 billion! {B88}

Mr Charles Bowsher, the comptroller-general at the government's General Accounting Office (GAO) estimates (probably quite conservatively) that losses in the private pension fund area alone may amount to from $100 billion - $150 billion! {B89} Even if PBGC were not running in the red, it would not help those folks whose companies closed down their pension plans and paid out their employees with annuities. First of all, annuities are not by nature indexed to inflation, but worst of all, the PBGC does not provide insurance for annuities. If an insurance firm responsible for the management of the annuities goes bankrupt, and there are plenty of likely candidates, pensioners would be left completely out in the cold!

Perhaps you are confident that the Federal government's Social Security system will come to your rescue?
Well, there is ominous news even there. As with private pension schemes, tax-free interest generated from the invested pension payroll deductions generates substantial surpluses each year. The surplus for 1989, which should be used to index the social security to inflation, amounted to about $56 billion dollars. Although this trust fund is theoretically "off-budget", the Treasury not only counts the "surplus" as "on budget" for the purposes of Gramm-Rudman jiggery-pokery, but spends the surplus and hands back to the social security trust fund some Treasury securities (i.e.IOUs) which don't increase the nation's acknowledged budget deficit, even though when it comes time to pay the money out to pensioners there will be IOUs and not money. {B90} As recently as May 1989, the House Rules Committee rejected a resolution submitted by Marty Russo (D-Ill) to correct this very deceit. {B91}

Will there be pension money left for the retiring baby boomers 10-15 years from now?
Probably not, if the bottom 90% continue to allow the economic elite to milk the economy dry. Pension funds will have been literally skimmed off or terminated to make countless millions for existing multimillionaires (and of course billionaires). Keep in mind too, that much of the pension fund money held by corporations on behalf of their employees is invested with banks. Also be aware that this pension money is precisely the money that was extracted by the elite through their "debt for equity" swaps.

Have we been fleeced in any other major way?
Sure. The travesties to economic justice previously discussed have merely been the ones which seemed most relevant. There are many others. We will however look at one more. Monetary devaluation.

Monetary Devaluation

I hope the following explanation will shed some light on this seldom discussed but extremely important topic. To do this we must start with a discussion of how and why bits of paper used as currency have come to be valued for more than their intrinsic paper value.

Let's start out by saying that everything has a trading value. Since ancient times, people have traded their labor and possessions for other people's labor and possessions. Cars, ball-point pens, even old shoes, you name it, practically any object can be taken anywhere else on the planet and exchanged for something that the other trader considers to be of equivalent value. Most things have an obvious value due to their usefulness, like tools, furniture, real estate, watches, or tractors. Other objects, like paintings can be valued almost entirely for their beauty. Gold bars on the other hand are neither functional nor beautiful in the strictest sense of the terms.

But because gold has always been looked upon as a precious commodity by practically every social community on the planet, it has been used as a trading medium for millennia. In fact the longest lived form of tradable and transportable wealth has been gold in the form of coins. Unlike livestock and other perishable goods, gold has an intrinsic value because it does not decay or corrode, and because it has always been a somewhat scarce commodity. Over time, gold became a symbol for permanent value. Gold coins "became money" simply because the gold that formed the coins was valued practically everywhere. Not surprisingly, gold became popular as a means of transferring large sums of wealth from one country to another.

In fact, until relatively recently, the value of all coins was based on the intrinsic value of the precious metals from which they were made. In other words, coppers had the value of the copper from which they were made, nickels were worth the value of the nickel they were made of, and dimes, quarters, and dollars for the silver. Theoretically the quarter should have weighed two and a half times as much as the dime, and a silver dollar should have weighed four times as much as a silver quarter. Because pure gold is a relatively soft metal, people used to bite their gold coins to see that they were not counterfeits. Slowly but surely, people came to trust coins as a form of tradable wealth because the governments guaranteed that coins had a real value based on the value of the precious metal they were made of.

Now, what about paper money?
Paper money supposedly had value because the governments (those in power, the elite) gave their guarantee that at any time the paper could be converted into real wealth. Citizens could exchange a dollar bill into coins which supposedly contained real wealth in the form of actual silver, nickel, and copper. It was solely this guarantee that supposedly prevented the elite from running the paper money presses in the middle of the night to print as much money as they needed to pay for wars or imported goods. On some American money you will read the words "In God we trust", but it is not God in whom we trust to maintain the value of the money, it is the elite who are in charge of printing the bills and minting the coins.

On July 1 1944, as part of what became known as the Bretton Woods Agreement, the American government gave its word to the American people and to the world that in exchange for $35 US paper dollars, the American government would hand over an ounce of real gold. That was the promise that gave the American paper dollar its value!! In fact, the vast warehouse of gold stored at Fort Knox came to be acknowledged and accepted as the tangible proof of that promise. The American people have had to trust ever since, that the government would not print any more paper money than there was real wealth to redeem the bills. That is the understanding and the promise upon which the value of American paper money has been based. {B92}

However, neither the government (the elite), nor the media (the elite) saw fit to make it clear to the American people that the real wealth and value (upon which the American paper money was based), was systematically being removed!

Here's how.

As long as a gold coin is made of gold, it can theoretically be taken to any other country in the world and melted down for the value of the gold it contains. However, while the US government has exercised exclusive control over the minting of coins, they have slowly devalued the currency by minting coins which looked somewhat the same, but which contained less of the precious metal than they were supposed to contain. Now the majority of coins in America have scrap metal value only. The dimes, for example, are no longer made of silver, the quarters are now made of sandwiched alloys. In other words, over time, the real value of coins has been stolen!! In case you are wondering, the gold and silver that used to be in the coins has not disappeared or corroded, it's weighing down the Swiss vaults like never before.

During the Vietnam war, there were over 500,000 military personnel that had to be fed, housed, paid, hospitalized and entertained while they weren't busy dropping expensive bombs, and chemicals on a barefoot peasant population. This was indeed a very costly war. But the American elite simply spent, and spent and spent. Of course the elite knew that the American people would have cut off funds for the war if they had been given an opportunity to do so. Instead, the elite used the treasury's printing presses to pay for the Vietnam War. The American government secretly printed as much paper money as it wanted or needed to carry on the War. Eventually, foreign bankers, who suspected this might have been going on (i.e. that paper money was being printed without actually creating the real wealth to redeem it), called America's bluff by demanding to redeem their American paper dollars for actual gold.

Finally, on August 15 1971, Richard Nixon refused to redeem 35 American paper dollars for an ounce of real gold!! The deceit had at last been exposed.

Immediately, the price of gold skyrocketed. Most Americans went to bed that night knowing that the price of gold had skyrocketed but few knew why. In reality, it was not the value of gold that rose that fateful day, it was the value of the American dollar that had taken a nose dive to adjust to what the world considered the paper dollar was really worth in relation to an ounce of gold.

The fact that the American government had prevented its citizens from buying and holding stocks of gold had been no accident, it had wished to prevent its citizens from ultimately demanding to exchange their own paper dollars for the gold in Fort Knox. Americans have been purposely kept in the dark about the systematic devaluation of their money.

The move quickly ushered in a decrease to the American standard of living second only to that caused by the great market crash of 1929. And yet few still appreciate what actually happened that day.

It did not take long for the cost of living in America to begin escalating because Americans had an insatiable appetite for imported goods, the prices of which had been raised (like the price of gold) to compensate for the now publicly acknowledged devalued dollar.

Incidentally, insiders who knew that the government was going to abandon the gold standard (i.e. refuse to sell its gold for $35 dollars an ounce) made instant fortunes by secretly buying gold abroad before it happened, and then buying back American dollars once the dollar had been devalued. And this could very well have been what finally tipped off the foreign banks to start redeeming their U.S. paper dollars for the real wealth of gold. The prohibition on buying gold in America prevented a run on American gold by forcing the insiders (who wished to capitalize on the inevitable devaluation) to purchase their gold from foreign countries. In fact, the America elite had for some time been effectively cheating 2nd and 3rd world nations, by knowingly buying their raw materials and foreign products with devaluing money.

Americans were already feeling the pinch of expensive European imports by the time the OPEC nations raised the price of oil. Ironically, this came as a welcome relief to the American elite, not only because it made oil in America, both above and below ground, worth billions more for the oil barons, but because the elite now had a scapegoat on which to focus blame for the dropping standard of living. Even the higher cost of goods from abroad could now be totally blamed on the increased cost of Arab oil.

Moreover, because the American people remain virtually blind to this style of thievery, it has continued unchecked. In the last two years, the American dollar has been devalued more than 40% against the Japanese yen and most other foreign currencies!!!

Just remember at all times that the majority of politicians are actively cooperating to deceive the American people on this and countless other issues. It is no wonder that the rich don't wish to hold their wealth in banks where the dollars can be devalued, Instead, they buy real estate, and real gold, that can't be devalued in this way. Or else they have their money salted abroad where economies are growing and where devaluations are most unlikely.

Should anyone be surprised that Mr Bush is about to encourage the bottom 90% with tax advantages (that only come collectible when withdrawn upon retirement), to invest their money in banks via Investment Retirement Accounts (IRAs), and other similar savings instruments such as the "Family Savings Account" that will lock their money in for the next devaluation theft. {B93}

Before leaving the topic of economic travesties altogether, the reader should realize that with the exception of monetary devaluation, the techniques mentioned in the book have all involved taxation avoidance perks and incentives. Although the book has described their disastrous effects within America, the reader should be at least be partially aware that some of the effects are also felt around the globe, and especially by the poor in the 3rd World nations.

Repercussions in the Third World

Perhaps the worst aspect of the 3rd World Debt crisis has been what is referred to in the banking circles as "flight capital", which refers to the net outflow of money from a country. First of all, it is commonly acknowledged that despite the obvious moral implications, money flows North. In other words, more money flows from the poor 3rd World nations mainly located in the Southern hemisphere, to the rich 1st World nations primarily located in the Northern hemisphere, than vice versa. The drain of capital from the poorest nations to the richest nations is caused by two main factors. The first reason is the net outflow of interest payments to 1st World banks. The crux of the problem for these countries lies in the fact that the amount owed in interest payments quite regularly exceeds a country's total revenue from exports. (i.e. the country's profits) By not being able to use their profits to stimulate economic growth in their own economies, most 3rd World countries are kept on the brink of bankruptcy. Since 1982, this net outflow of capital from the poor to the rich has amounted to over $160 billion dollars. But that is only half the tragedy!

More importantly, because the economic elite running the 3rd World nations realize they cannot milk too much more wealth out of their bankrupt economies, and because they fear for the safety of the wealth they have already accumulated, vast quantities of cash have been sent out of these nations for safe keeping in Swiss and American banks. Astoundingly, the $300 billion flight capital from Latin America has already exceeded the total Latin American debt of $257 billion!

Without too much imagination required, one can speculate that much of the money loaned to the elite went straight into the hands and bank accounts of the very people who have shipped money out of the country for safe keeping. While the rich ride out the economic turbulence on their yachts, much of Latin America has been thrown violently into poverty and hunger. Argentina's inflation rate, for example, is over 1000%. No wonder the frustrated workers in 3rd World countries are so quick to loot from the wealthy when opportunities arise. {B94} In fact, looting occurs in America with increasing regularity, and probably because poor Americans too watch helplessly with frustration and anger as the rich get richer and the poor get poorer.

Just as the American elite are causing hunger and poverty in the 3rd World nations, the selfish behavior of the economic elite in some 3rd World nations affects Americans in no less a fashion, and not surprisingly, due to their taxation avoidance laws.

The destruction of the Brazilian rain forest is a very important case in point. Tax laws favoring the Brazilian economic elite are affecting the air the planet breathes, and here's how simply it is happening. The Brazilian government has for all intents and purposes exempted agriculture from taxation. This has led businessmen who have little or no interest in farming to buy as much farm land as they could from farmers, in order to be able to falsely declare their non-farm income as farm income to avoid taxation. Needless to say much of the best agricultural land, that was formerly used to grow food for Brazil, is now lying fallow. The displaced farmers then had to compete with businessmen for a share of the remaining rain forest land, which incidentally, is practically unusable for growing crops. However, because there is a tax on unimproved land (i.e. land with forest on it), the trees are being chopped down to avoid taxation. Additional tax credit schemes favoring the cattle ranchers are further speeding up the process. A handful get rich while the planet's air supply is jeopardized. {B95}

Yet another planetary rip-off for the feudalists in pinstripes!

A Quick Recap

Arranging The Getaway

Because the elite have milked the corporations almost dry, run up horrendous bad debts in the banking system, and siphoned of both the Social Security and private corporation Pension Funds, it should surprise no one that they now wish to bail out with the profits.

With all the capital gains recently made from the current wave of "debt for equity swaps", an immediate need has arisen for the elite to be able to temporarily bypass taxation on capital gains.

As the ultimate insult, George Bush and his friends are trying to pass legislation that would drastically reduce the Capital Gains Tax for a brief two year period. If they succeed, it will allow the super-rich to take their quick and dirty profits out of the system, and ultimately out of the country and into the 3rd World to inflict the same exploitive tricks and measures on less sophisticated victims. Economically rape a country, and then head off for virgin territory to do it all over again.

Do the elite care who follows in their wake to buy up the bankrupt banks and corporations?
Not really, their allegiance is not to any country, but to profits. And at this stage of the game, they can make more profit abroad, especially because the American taxpayer has already paid for their existing foreign factories.

On September 14 1989, the House Ways and Means committee voted to approve a temporary cut in the capital gains tax. {B96} The potential cost to taxpayers in lost tax revenues will be horrendous. In the wake of a decade of leveraged buyouts, George Bush's intention of drastically reducing the capital gains tax for a two year period is somewhat equivalent to his saying "...let's show some goodwill to society's thieves by leaving the prison gates half open for about five minutes". {B97}

The bottom 90% have been fleeced and will continue to be fleeced in any and every way the elite feel they can get away with, without provoking an out and out popular revolt.

Sooner or later, wage earners must learn to equate the dollars they pay into the tax kitty, with dollars that the banks and corporations don't pay into the same kitty. A dollar is a dollar! Every billion dollars not paid in taxes by the corporations or banks will have to be made up by the wage earners, ...or else additional health benefits, education benefits, or retirement benefits will get axed!!

And that's the bottom line!!!!

What can be done? Plenty. The following ideas are provided as a springboard for discussions or reforms.

Possible Corrective Action

From Feudal times, the taxation system has been at the very heart of economic inequities. By using their influence to shape taxation policies, the economic elite have not only maintained, but are currently dramatically increasing their concentration of wealth.

Radical Tax Reforms are Required

We are faced with the situation today, whereby tax avoidance opportunists have reduced the government's revenue mechanism, based on "taxable income", to a shameful display of contempt for social equality and fair play.

Just 4 of the 300 companies involved in leverage buyouts and takeovers (Safeway, Macy's, Unocal, and RJR/Nabisco), represent a potential annual loss of Federal and State tax revenues amounting to roughly $2.2 billion dollars. Additionally, they represent billions more in scandalous tax rebates.

The possible tax avoidance from these 4 companies alone is equivalent to 400,000 taxpayers, each with $25,000 in "after deductions" taxable income, ceasing to pay their taxes. Can you imagine the media storm and congressional outrage that would ensue if 400,000 taxpayers refused to pay their taxes!!

We must no longer allow the government to simply go through the motions of trying to keep one step ahead of the corporate tax lawyers and economic opportunists. Only RADICAL TAX REFORMS will now put an end to economic bondage.

Safeway, Unocal, Macy's, RJR Nabisco, and hundreds of other corporations, and innumerable wealthy individuals as well, have displayed all too clearly the absurdity of basing tax revenues on taxable income.

Tax Wealth ! ...Not Income

(Achieving this reform should be Priority # 1)
The simplest, fairest, and most logical approach to taxation would be to assess taxes proportionally based on the degree of one's ownership of assets. If the justification for doing so is not already intuitively obvious, consider the issue with regard to the cost of defense.

Logically, all citizens share an equal interest in defending life and limb. However, for the economic elite, defense spending is an insurance premium spent to safeguard their physical property. This includes all the nation's factories and manufacturing plants, all the nation's towering office blocks, and of course the majority of the nation's residential real estate which is owned as much or more by wealthy landowners and banks, as by those who actually occupy the mortgaged dwellings. The cost of the insurance should logically be paid proportionately by those who own the equity of the property. Why should an individual, who owns little or no property or wealth, be forced to risk his or her life on the battlefield, or even to pay the insurance premium (i.e. the defense bill) to protect assets belonging to an economic elite who are otherwise indifferent to his or her well-being or suffering. This is especially relevant in light of the fact that, like Vice-president Quayle, the elite rarely risk their own lives on the front lines. They're the ones who end up in the hidden fortified strategy bunkers, if they choose to participate at all.

Defense is, however, just one of the nation's costs that should logically be prorated based on wealth distribution. If the top 1 percent own 50% of the nation's wealth (as a study by the University of Michigan has shown), then let them pay 50% of the 3 trillion dollar defense bill. Perhaps they may not be so hawkish if they had to pay their proper share of the defense bill. In short, if you own little or nothing of the nation's wealth, you pay little or nothing of the nation's tax bill. Simple, fair, and effective. Taxing the nation's wealth would yield another benefit that would, by itself, justify the policy:

Deficits would be a phenomenon of the past!

The government would simply figure out, as per normal, how much money it required to operate for the next fiscal year. The treasury would then take the amount required, and figure out how much prorated tax would be owed "for each $100,000 of equity owned", in order to collect the "exact" amount required. The principal is not new, many municipal governments assess school taxes based on property value assessments.

One's "Taxable Assets" would be based on one's total assets, especially including those assets "invested abroad" to take advantage of the remaining slave labor pools, or currently held abroad in tax havens. Very heavy fines and penalties could be devised to adequately discourage those hiding wealth at home or abroad. (undeclared wealth) Americans could at last begin to benefit from all the industries they paid to have built abroad.

There would be no more advantage to giving your company or yacht to your dog Spot, or to your one day old child, because whomever or whatever legal entity owned the equity would be taxed.