Wednesday, November 30, 2011

America's Economic Self-Destruction

I'm leaning more and more towards at least understanding why massive protests nationwide are being maintained, that indeed 99% of America is being made fools of and abused by the 1%. I see little effort or will by those in power in government or business to change the current stream of greed and madness.

The twisted gyrations in corporate business today defy descriptions and explanations - record profits and continued layoffs are going hand in hand, stalling economic growth in favor of short term benefits at a disgusting and disturbing pace. Yet explaining or understanding this maze of deception is masked by acronyms unknown or seldom defined and is all handled by nebulous executive decisions. It's as if quantum physics has become an economic theory which few can comprehend.


"When Pfizer cut its research budget this year and laid off 1,100 employees, it was not because the company needed to save money.

"In fact, the drug maker had so much cash left over, it decided to buy back an additional $5 billion worth of stock on top of the $4 billion already earmarked for repurchases in 2011 and beyond.

"The moves, announced on the same day, might seem at odds with each other, but they represent an increasingly common pattern among American corporations, which are sitting on record amounts of cash but insist that growth opportunities are hard to find.

"The result is that at a time when the nation is looking for ways to battle unemployment, big companies are creating fewer jobs, and critics say they are neglecting to lay the foundation for future growth by expanding into new businesses or building new plants.

"But spending on capital investments like new plants and infrastructure has stagnated more broadly in corporate America, confounding efforts by the Obama administration to spur economic growth. Capital expenditures by companies on the Standard & Poor’s 500-stock index are expected to total $546 billion in 2011, down from $560 billion in 2008, according to data compiled by Thomson Reuters Eikon.

"Earlier this month, Pfizer increased its estimate for stock repurchases this year to between $7 billion and $9 billion — essentially spending in one year nearly all of the money it set aside in February for multiyear buybacks. There has been a steady drumbeat of other companies laying off workers even as they have disclosed plans to buy back more stock. On June 23, Campbell Soup said it would buy back $1 billion in stock; five days later it announced plans to eliminate 770 jobs. Hewlett-Packard announced a $10 billion stock repurchase in July, and jettisoned 500 jobs in September after it discontinued its TouchPad and smartphone product lines.

"Powered by huge stock buybacks — [Zimmer]  bought $500 million worth of its own shares last year, more than twice what it spent on research and development — Zimmer posted earnings growth of 10 percent a share, even though operating income and revenue grew by less than 5 percent in 2010."


"A federal judge in New York refused on Monday to endorse a $285 million consent agreement with the SEC that would have allowed Citigroup Global Markets, Inc., to avoid any admission of wrongdoing in a deceptive securities transaction that earned Citigroup$160 million in profits while investors lost $700 million."

"At issue in the case was a 2007 effort by Citigroup to create and market a billion-dollar fund of problematic mortgage-backed securities just as the nation’s housing bubble was about to burst. The arrangement allowed Citigroup to dump assets of questionable quality on misinformed investors.

"Citigroup told prospective investors that the fund’s assets had been hand-picked by an independent investment adviser, when, in fact, Citigroup used the fund to jettison $500 million in risky assets.

"In addition, unknown to the investors, Citigroup had also taken a short position on those same assets, counting on the securities losing their value. When they did, Citigroup realized net profits of $160 million in addition to $34 million in fees it charged to set up the investment. In contrast, the investors lost everything – more than $700 million.

"The judge added: “The court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.”

2 comments:

Jen Pippin said...

I knew things were bad and that we were being lied to, but thank you for spelling it out with examples. I wonder if it's stoppable now? If even a Joe Kennedy type could clean up the monolopies that have re-formed?

Anonymous said...

Let's face it. A lot of people are getting very rich because of the dysfunctional system that exists. As long as people will be consumed with the age old soundbites of abortion, gay marriage, guns, religion, etc, etc, there will never be any intellectual discussion of the financial system and how best it should be regulated.

After listening to the right's fear mongering of Obama for the last 3 years and how he was going to bring an end to the "American Way of Life" you would think that republicans could come up with a pretty good plan on how to win the election. But instead they come up with a rag-tag bunch of goofballs who even they don't want to vote for to run against him. I think because the real power and money would love to have another 4 years of passing the same soundbites around (was he really born in Hawaii has some more air time) while in the background Congress fumbles the football and calls a time out so they can all check there stock options.