WHAT IS AN ACCEPTABLE PROFIT?

WHAT IS AN ACCEPTABLE PROFIT?

I am frustrated, as is the rest of America, at the continuous fee additions and rate hikes to my bank and credit card accounts. However, I believe that President Obama is out of line by stating that “banks do not have an “inherent right” to a certain amount of profits.”

Profits are a necessity.

If you are a fan of Michael Moore, you probably disagree with that statement – but let me point something out. This country, like all the other economic powerhouses, was built on profits. Innovative people that put their personal wealth, time with their families, and personal health on hold to bring mankind such items as; the Phonograph, affordable automobiles, and the personal computer, deserve to reap as much profit from their contributions as the market will provide.

Profit is the motivator of action.

Personal satisfaction from gifting the world is a greater reward than the wealth gained from it. Just ask anyone who doesn’t need the money. However, few are able or willing to risk their family’s future just to feel good. Profit is the engine that drives risk.

Sadly, profit also motivates greed. As Gordon Gekko put it, “Greed is Good.” I disagree. Greed drives deception and deception soils society’s view of profit because there is no contribution to society birthed of it.

However most of the time the public views the dollar earned as too much when it is reported as a dollar amount. This is naiveté in its purest form.  No one would look poorly at an auto repair shop that earned its owner $77,400 on its $2,000,000 in sales but when Wal-Mart reports that it earned $15,690,000,000, people say it’s too much. What they fail to see is that in both cases the profits are only 3.87%. That is low by comparison to some other businesses.  We cheer the success of Apple who profited 30.8% – 508% higher than Wal-Mart for a net earnings of $23,605,296,000.

We like Apple.

Yesterday, Mr Jobs passed. In the stories of his life some compared him to Sam Walton. Both were icons of retail. The Apple stores that Steve Jobs created are the most profitable stores per square foot in the retail industry. Near double the runner up, Tiffany Co.

We don’t ask Apple to limit profits because Apple brings us things we want. Wal-Mart makes convenient to us the things we want, but banks just hold and loan us something we want.

What is most interesting is that if Apple were to fail we would be sad, but the government would likely not intervene. If Wal-Mart failed, communities would rejoice. If Bank of America failed we would have a world crisis. So why is President Obama telling a business that the government forced to absorb other failing institutions-a business that would cost the government trillions if it were to fail- that it does not have an “inherent right” to a certain amount of profits?

The real issue is executive pay. It is way out of whack in relation to the average pay of its work force. Yes- executives do deserve more pay. Their job is far more difficult and there are very few that can actually do that job well. What I don’t agree with is an executive putting together an acquisition deal that nets him hundreds of millions of dollars.

I remember reading the Forbes 400 back in the ‘80’s. There were very few billionaires (most were Japanese) and as I recall the average executive salary was around $350,000 a year. The earliest I can verify salaries is 1990. In 1990 the median executive salary was $2.918 million or 107 times the average worker pay. By the year 2000, just 10 years later, it was $14.857 million or 525 times the average worker pay. The only reason for this was supply and demand for top executive. The result was executives delivering $350,000 a year in leadership were receiving $14 million in compensation.

In my opinion, greed of these overpaid executives is what led to led to the Enron’s, WorldCom’s and Health South’s.

All of this could have been avoided if the SEC was not denied the ability to grow its force of auditors at the same rate of growth of new public companies. But that is a whole different argument.

Mr. President, give the SEC the people to do its job and report what is going on so that the shareholders can vote on what’s best for their companies. And for God’s sake- let a company’s profits be determined by the marketplace.

Profit is what allows a business to provide service, guarantees, and expansion. And expansion is what creates jobs.

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