New Wall Street Bubble Putting The Hurt On Workers

Are we are in another credit bubble getting ready to pop?
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    Wall Street protesters denouncing the taxpayer bailout of "too-big-to-fail" banks. (Photo: A. Golden/ Creative Commons/ Flickr)

    Wall Street protesters denouncing the taxpayer bailout of “too-big-to-fail” banks. (Photo: A. Golden/ Creative Commons/ Flickr)

    Published in partnership with Shadow Proof.

    Yet more evidence that having a Wall Street-led recovery was a bad idea. The third installment in the Reuters series on post-crash Corporate America, called “The Cannibilized Company,” details a sad state of affairs for workers employed by large companies that turned to stock buybacks financed by increased borrowing to juice the company’s share price.

    The push by Congress and the Federal Reserve to re-inflate the financial markets through bank bailouts and zero interest rates/quantitative easing has helped build a demented corporate finance system that encourages companies to borrow money to buyback their own stock then layoff workers.

    Companies are using the Fed’s cheap credit policies to pile on debt through increased borrowing, then using the funds to buy their own stock back in hopes of increasing the share price. A corporate executive’s compensation is often tied to increases in stock share price, so while this financial engineering is good for the CEO and fellow top tier managers, it damages the company and screws lower level workers.

    The money borrowed and used to buyback stock is also money not used to invest in property, plant, and equipment or research. To offset the borrowing costs companies not only forgo capital investment to pay lenders, they layoff workers. We are now in a vicious cycle of sterile activity that enriches CEOs and Wall Street money managers while hollowing out the real economy:

    … corporate America is pouring unprecedented amounts into buybacks. Using debt to finance buybacks can produce tax or accounting benefits. The buybacks provide an alternative to capital investment or research spending when business conditions don’t justify making long-term bets. Instead, buybacks return profits to shareholders – and often enhance executive pay – even when a company hits lean times and is laying off workers.

    In fact, buybacks have become the fuel powering the more-than twofold increase in the stock market since the depths of the financial crisis in 2009. Together, U.S. non-financial companies have spent $2.24 trillion on buybacks since 2009, while borrowing an extra $1.9 trillion to help finance those purchases, according to a Reuters review of Federal Reserve data.

    What kind of a “recovery” is this? Or, more to the point, how long can such a vampiric system go on?

    In 2008, the federal government took unprecedented and unpopular actions to save the large Wall Street banks. Part of that rescue involved keeping interest rates low and unorthodox efforts to stimulate the financial markets. The hope was that by stimulating Wall Street policymakers could indirectly stimulate the real economy.

    Now, the markets are well stimulated and re-inflated. The problem — beyond increasing inequality by shifting wealth up — is that that rise is based significantly on an unsustainable corporate confidence game, not on fundamental economic strength. As the debt piles up and the pink sheets go out, one is forced to wonder if we are in another credit bubble getting ready to pop.

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    • TecumsehUnfaced

      Flagged for obscenity.

      • James Wherry


    • James Wherry

      I was angry at Senators Obama, McCain and Biden in 1988, when the bail-out was rammed through and signed into law by President Bush without any REAL strings attached. Remember that 65% of ALL Americans opposed this bail-out/fail-out for the rich so that they could keep $50 Billion of Wall Street bonuses going. It was NOT done to save the economy from dire warnings of despair.

      The only sop we sops were given was the creation of a so-called “Pay Czar” who could review and veto the pay, bonuses and allowances of wealthy bankers. During the ENTIRE Obama administration, not a SINGLE pay package was struck down. One banker received a $200 million bonus.

      Curiously, the regulated bankers were “invited” to the White House and Congress for regular meetings. I was not.

      Curious. that.

      • TecumsehUnfaced

        Too bad you aren’t as skeptical about the evil ZioNazi con games and the war criminals it hides…

        David Ben-Gurion — #1 — he commanded the ethnic cleansing of 750,000 Arabs during the destruction of hundreds of Palestinian villages in 1948
        Levi Eshkol — #2 — he presided over the ethnic cleansing of 250,000 Palestinians
        Menachem Begin — #3 — he was the preeminent terrorist in the Middle East … until Ben-Gurion and Eshkol surpassed him
        Ariel Sharon — #4 — a murderous war hawk, he was responsible for massacres at Qibya, Sabra and Shatila
        Benjamin Netanyahu — #5 — he was responsible for the deaths and mutilations of thousands of children during Operations Cast Lead, Pillar of Defense and Protective Edge
        Yitzhak Shamir — #6 — he had British and Swedish nobles murdered for seeking to have Arabs treated as equals of Jews
        Ehud Barak — #7 — a cross-dressing assassin, he participated in death squads that killed women, policemen and a poet known as “The Conscience”
        Golda Meir — #8 — she threatened to destroy the world with nukes during a BBC interview and more than once insisted that Palestinians “did not exist” as a people
        Shimon Peres — #9 — he aggressively pursued nuclear weapons and succeeded in delivering them
        Yitzhak Rabin — #10 — he signed an order for the children of Lydda to be ethnically cleansed “quickly, without attention to age”
        Yigal Allon — #11 — he served in Special Night Squads which tortured and killed “without compunction”
        Ehud Olmert — #12 — he presided over the 2006 invasion of Lebanon, which killed 1,300 people and displaced more than a million others
        Moshe Sharett — #13 — he was a staunch proponent of compulsory population transfer (ethnic cleansing)
        Israeli Prime Ministers who were Terrorists and War Criminals

        • James Wherry

          I don’t know: I’m too busy making $87 p/h from home, myself.

          So you criticize one of these for allegedly trying out cross-dressing, when Mummar adagio openly kidnapped and raped little boys? This is simply a reason to justify your hatred of Jews.

          Thomas Jefferson and George Washington owned slaves. Nth at did not make America an illegitimate nation – which is what you are arguing about Israel.

          Your fact are also phony: the Palestinians left at the direction of the vicious, savage invading Arab armies. Those same armies showed what they intended to do, later on, when they forcibly expelled 100% of all Jews from the West Bank and Gaza. Thank God that the Arabs were stopped in Israel.

    • TecumsehUnfaced

      Beware of Dodd-Frank and the coming of the bail-ins.

      A Banking Crisis Worse Than ISIS? Bail-Ins Begin

      By Ellen Brown/Web of Debt

      Banking Crisis Worse Than ISISAt the end of November, an Italian pensioner hanged himself after his entire €100,000 savings were confiscated in a bank “rescue” scheme. He left a suicide note blaming the bank, where he had been a customer for 50 years and had invested in bank-issued bonds. But he might better have blamed the EU and the G20’s Financial Stability Board, which have imposed an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bond holders suffered losses in the “rescue.”

      • James Wherry

        You frighten me: We agree.