It occurred to me this morning as I scanned the headlines that three of the big stories in the paper this morning all had the same root cause. The flood of child migrants on our Southern border, the flood of inversion deals as companies seek to lower their tax bill and Rupert Murdoch’s quixotic attempt to takeover Time Warner all start with what I call the “Agent Problem”. An agent is an intermediary who makes his profit from a transaction without regard to the larger consequences. Let’s start with the Inversion issue. The Treasury Secretary says the Obama administration may have to act to stop the flood of deals being proposed by Investment Banks (agents).
The action comes in the face of a recent increase in United States companies reaching deals to reorganize overseas, creating an explosive political issue that Mr. Obama has called a lack of “economic patriotism.” Investment banks have been counseling companies to pursue such transactions because of the potential tax benefits.
The wizards at Goldman Sachs don’t care about eroding the tax base of America, they just want another fee. The same mentality went into the idea some genius proposed to Rupert Murdoch to acquire Time Warner. The deal had nothing to do about innovation or creativity–supposedly the root mission of a media company–it was just financial engineering. size for the sake of Rupert’s ego. Of course there would have been millions in fees to investment bankers, but the businesses would have suffered through the turmoil and ultimately would have destroyed value, like most of the other media mergers that preceded it.
By now you are wondering how does migrant children fit into all of this? In this case the agents are “Coyotes” trolling the slums of Guatemala, Honduras and San Salvador. Armed with misleading marketing materials which led poor parents to believe that if their kids could make it over the border they could qualify for U.S. citizenship, they signed up 50,000 kids in four months to come with them over the border. None of this would have happened without the agents.As Interpol points out, people smuggling is a huge business for organized crime networks.
The flow of migrants across borders is controlled increasingly by criminal networks. Due to more restrictive immigration policies in destination countries and improved technology to monitor border crossings, willing illegal migrants rely increasingly on the help of organized people smugglers.
I don’t know how we deal with the agent problem. They are always moving on to the next deal, and never get blamed for the disasters they leave behind. Any thoughts?