Sums it all up

[NV 375]

MH here, not that MH, then again who knows...

Professor, Micheal Hudson, sums up what is going on these days pertainng to wall street and corporate america.

 

Having worked in telecom on both the wireline and wireless sides, I must say I now understand the mergers, acquisitions and selling of assets that never made sense for various reasons.

 

I now understand the perpetual reorgs every 9-12 months, first,creating a new layer of management...then getting lean and mean cutting that layer...perpetually repeating that process

 

I now understand the stupid decisions to save a nickel in the short run, that would eventually lead to 3-5 times a project's normal costs in the long term

 

I now understand why employee's were suddenly cajoled to feel like "owner's of the company" with a dirt speck worth of stock options while being bombarded to participate in the Emplyee Stock Purchase Plan

 

UMKC Fightin' Kangaroo's

 

Some excerpt's

 

--My basic point is that the 1990s were not so much a decade of technological innovation as financial innovation, including the political deregulation of companies being financialized. This financial innovation has not spurred technology and industry but has worked to strip capital formation, research and development. "Economic research" consists largely of looking over balance sheets to engineer corporate takeovers rather than improve production techniques. The so-called rationalization of labor and production has consisted mainly of working labor harder and burning it out earlier, while stripping away the responsibility for employers to pay medical and retirement insurance by out-sourcing labor and moving it off the balance sheet. The result has intensified the drudgery of labor rather than freeing labor.

 

--Industry also has become debt-ridden. This is especially the case for the largest firms, for these have been where most merger and acquisition activity (a euphemism for corporate raiding) has been concentrated. The sharpest declines in private-sector employment have occurred in the "high-tech" industries whose balance sheets have become so debt-ridden that they have been obliged to cut back their investment in order to use what revenues they have to pay their bankers and bondholders.

 

The most serious bankruptcies, bond defaults and layoffs have occurred in companies that have borrowed to acquire other companies or to buy up the public domain that is being privatized. Investment bankers found "wealth addicts," ambitious CEOs who could be persuaded to pay enormous consulting fees to the bankers and accounting firms to arrange for them to borrow money to buy other companies or public rent-yielding assets being auctioned off.

 

The problem was that these mergers and takeovers did not create new wealth, that is, new capital formation. They merely upped the price of existing companies and their property claims on income--their ability to charge for access to the domain they controlled. That was the essence of the telecom and dot.com bubble. What Mr. Greenspan and the media taking his statements at face value called "wealth creation" was a process of loading the high-technology sectors down with debt, while issuing shares at enormous commissions and instant capital gains that were made possible by convincing the population that "peoples' finance capitalism" had arrived and everyone had a chance to become a millionaire in the new Wall Street casino.

 

As in most casinos and lotteries, the clients end up losing. That is why casinos have become such good business for their proprietors. Their technology is ancient, by the way, not new.

 

--The problem is that savings are turned over to financial institutions, which lend them out at interest, which leads debts to double and redouble. As this debt service grows, consumers have less net ready money to spend, because they are obliged to pay more interest and amortization on the loans they have been obliged to take out just in order to break even, to pay for their education, to achieve the American dream of home-ownership, to pay for their children's education, and simply to retain their social and economic status by keeping up with their neighbors

 

--This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions.

 

--The problem of inadequate consumer demand to fuel an economic recovery does not lie with the cost of labor so much as with the fact that it is now normal for families to pay a quarter or even a third of their income for debt service.

 

--First of all, you need to look at just who the economists saying this are, and who they are working for. Graduate economics courses have become classes in rhetoric. The idea is to make plausible and logical arguments based on assumptions that need not be realistic at all. The task of economists is to come up with a set of assumptions that will lead to the conclusions promoted by their employers.

 

--From the 1950s onward, more and more women have been forced to go to work to help their families make ends meet. This was welcomed as opening the full range of intellectual and economic opportunities for women. And indeed this was the most positive result. But the basic impetus of economic need became apparent as men and women, mothers and fathers, both had to work longer and longer hours to break even, and even had to hold two jobs--a full-time job and part-time job moonlighting.

 

--1960s also saw workers receive profit-sharing and pension plans, as well as medical insurance. Today, mergers and acquisitions are being "engineered" to wipe out many of these benefits, emptying out the pension funds to pay the financial institutions that have put up the money for the corporate raiders. All this merger and takeover activity has been ruled legal rather than prosecuted as racketeering, as it was widely perceived to be as recently as the early1980s, when some companies tried to use RICO laws against Drexel Burnham during the Michael Milken years.

 

So the corporate merger movement has aggravated the problem, and it is being managed by the large financial investment bankers. The motive for these mergers is not technological, and in fact most mergers do not even increase earnings, but result in simple asset stripping. The labor force is also stripped of its most experienced and loyal members.

 

--However, today's productivity is taking a different form. It is associated with laying off employees and working the remaining workers harder. There is little technology at work here, but rather the kind of drudgery from which technology was supposed to free employees. Work has become more unpleasant and stressful as companies let their work force shrink by attrition. When workers leave, their work is distributed among the remaining employees. The effect is a rapid burnout. Workers are being used up and discarded.