Capitalistic Renaissance 7: The generic public corp. versus the hybrid bank corp.
A distinction must be made between the generic public corporation and the hybrid bank public corporation. They both create equity from raw materials. They both use raw materials to make products or services that bring in revenue. Their profits after all expenses drive their share prices, thus creating equity. But there is an important difference in how they create equity.
We can use the generic manufacturing process to make tangible things that are sold for cash. The excess cash earnings from the sale of tangible things are the dividends that drive share prices. This is how the generic public corporation creates equity.
For “hybrid banks” we can use their euphemistic services for a fee, normally paid in installments over a period of time. For instance, we accept and use free credit from bank corporations in return for a stream of small payments over time. Our payments are revenue to the banks. As in the generic example, this revenue eventually drives the share prices of the banks, thus creating equity for bank shareholders.
- The generic public corporations acquire limited “physical” raw materials to make things that are purchased by consumers.
- The hybrid bank public corporations use unlimited free “credit” as raw material to produce “debt” whenever consumers purchase things.
People generally know where the physical raw materials come from. These tangible materials can be seen or touched. Most people appreciate the limits of physical raw materials. But there is a different perception of credit. Consumers and banks believe there is a never-ending supply of free credit as money. Free credit feels like free money, until it’s time to start paying it back or until personal earnings are impacted by a crisis.
When consumers are given free credit by hybrid bank public corporations to buy things, the consumers are actually purchasing debt. This state of affairs is a type of dis-ease or imbalance.
Currently there is no balance between the generic public corporation constrained by physical raw materials in producing things to create equity, and the hybrid bank corporation with unconstrained credit-creation that produces debt.