Summary: Al Qaeda (Bin Laden’s organization, if it still exists in meaningful form) is a threat to America. A greater threat are our CEO’s, some of whom who have discovered discovered a formula to vast personal wealth: leverage the company up (borrow), use those funds to buy back stock (boosting earnings per share), cut capital expenditures (capex) to boost short-term profits, pay most of the profits in dividends — all of which disguises massive payouts to senior managers (via salary, benefits, pensions, golden parachutes, grants of stock and stock options, etc). They’re strip-mining away America’s future. Slowly people begin to fit these pieces together. Today we help you to do so.
- An example of how it’s done
- Cutting capex: short-selling the future
- For More Information
(1) An example of how it’s done
List most stories about corporate finance, it’s complex. These articles clearly explain the game using IBM as an example (just one of many), but have to be read. The excepts are just teasers.
(a) “Stockholders Got Plundered In IBM’s Hocus-Pocus Machine“, Wolf Richter, Testosterone Pit, 17 October 2013 — Opening:
I’m not picking on IBM. I’m almost sure they have some decent products. So they had a crummy quarter – the sixth quarter in a row of sales declines. And their hardware sales in China have collapsed since Snowden’s revelations about the NSA and its collaboration with American tech companies. But in one area, IBM excels: its hocus-pocus machine.
IBM isn’t alone in its excellence and isn’t even at the top of the heap in that respect. There are many corporations like IBM, mastodons that successfully pull a bag over investors’ heads, aided and abetted by Wall Street with its “analysts,” and by the Fed, to hide the stockholder plunder taking place behind a billowing smokescreen of verbiage.
(b) “Big Blue: Stock Buyback Machine On Steroids“, David Stockman, at his website Contra Corner, 17 April 2014 — Opening:
The Fed’s financial repression policies destroy price discovery and honest capital markets. In the process these deformations turn financial markets into casinos and corporate executives into prevaricating gamblers. To be specific, most CEOs of the Fortune 500 are no longer running commercial businesses; they are in the stock-rigging game, harvesting a mother lode of stock option winnings as the go along.
Those munificently rising stock prices and options cash-outs owe much to the Fed’s campaign to suppress interest rates and fuel stock market based ”wealth effects”, but the CEOs are doing their part, too. They have become full-time financial engineers who use the Fed’s flood of liquidity, cheap debt and soaring stock prices to perform a giant strip-mining operation on their own companies. That is, through endless stock buybacks and M&A maneuvers they create the appearance of “growth” while actually liquidating the balance sheet equity and future asset base on which legitimate earnings growth depends.