Class Warfare Blog

May 31, 2013

It’s The Effing Corporations (Business as Usual is Killing this Country)

There needs to be a healthy debate about corporations because business as usual is killing this country.

First I want to set aside the idea of “small business.” The tax definition is simply a business which has a small number of owners, so the Koch brothers own small businesses. It is a completely useless definition. Let me also set aside all “little” business that are owned and operated by the same folks. I am a part of several of these. These businesses are run by the same people who own them and generally aren’t incorporated, but might be.

What I am talking about are larger corporations with hired gun CEO’s and Boards of Trustees. Here’s the problem: these corporations are run based on totally fallacious “business models” that are ruinous to this country. Here’s why I say this.

Public owned corporations, those with stock “shareholders,” are completely distorted by the stock market. Their management teams operate in such a manner that they show a small amount of growth in profits every quarter of every year. Slack periods aren’t wanted, nor are bumper years wanted. Just slow steady growth of profits. There is, of course, no real value in slow steady growth. The reason this is so is the stock market. Stock market analysts create predictions as to how much growth each of these companies will have for any year. The stupid thing is that if the company meets those expectations they are rewarded by people buying their stock, driving up its price. Since the officers usually are given generous stock options, they aren’t exactly innocent bystanders, plus most companies hold some of their own stock, and it is a good thing when it becomes more valuable.

But if, the fates forbid, the company fails to meet the analyst’s expectations people sell the stock and the price falls! I can’t think of any other situation where this sort of thing happens. If the weatherman predicts rain and it doesn’t, what do you assume? The weatherman made a mistake, no? If a sports commentator has a prediction of which horse will win a race or which team will win a ball game and he is wrong, what do you assume? The sports commentator made a mistake, no? If a radio talk show guy says that a particular singer is the “next big star” and she wasn’t, what do you assume? The talk show guy made a mistake, no?

How is it that Wall Street analyst are so effing good that people buy and sell their stocks based on how well a company did compared to their predictions rather than assume the analysts made a mistake? The answer is that they aren’t all that effing good and their public records show this. Those analysts get their data from … anybody know? Yep, the companies themselves, through public filings and such, but those companies know how the game is played and they regularly “massage” the data so that it appears as they want it to. Thus a faulty predicting ability, based on data massaged to be somewhat unreal, results in perfect predictions? WTF?

Plus, the completely synthetic rules of this game are designed for abuse. The CEO’s pay is tied to the stock price, so what is important to the CEO? Yep, you got it in one. So, if it is necessary to fire a bunch of people he felt were necessary to be hired six months ago, to “lower costs” and “raise profits” to meet this quarter’s Wall Street expectations, then that is what is done.

Most of these CEO’s don’t actually run anything. The actual performance of the company is due to underlings efforts. The CEO’s job is to manage the stock price by hook or crook. The amazing thing is that the “owners” don’t give a rat’s ass and accept this as the status quo. Even though this behavior doesn’t correlate with the long term health of the company, it’s all good to the shareholders.

One of the most profitable ways to bolster a company’s profits (showing a whopping 26:1 return on investment) is to bribe our politicians to create special tax breaks for their companies. And if we need to cut Social Security and Medicare to pay for it, so be it. Corporate taxes as a fraction of federal receipts have been shrinking for years.

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We need to ask ourselves if the fantasy we learned in school about the value of corporations is really playing out like we thought, because by shipping jobs overseas, shirking paying their taxes, and playing the Wall Street Mambo for profit they are ruining this country.

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7 Comments »

  1. I told you the other day about our publishing company being sold to Fairfax, one of the biggest media players in Australia. It was common knowledge they wanted us, so our board brought in a new CEO. No experience in publishing. he was a numbers man and his sole purpose was the cook the books (so to speak) over a 6 month period so as to value the company at X-amount. Strangely enough, a part of this strategy was to actually dive the entire company into debt by purchasing a new building.

    Like

    Comment by john zande — May 31, 2013 @ 2:06 pm | Reply

    • Yep, it is all a bullshit game to them and they don’t even realize it. They think they are captains of Industry when they do almost nothing by cook the books. One reason to buy a useless building is to get rid of cash on hand. Moves some numbers out of one column into another, but what the fuck does it have to do with anything real?

      Like

      Comment by stephenpruis — May 31, 2013 @ 3:40 pm | Reply

  2. Reblogged this on Jerry Welch and commented:
    100% agree… Business as usual in this country NEEDS to be reexamined. We are toppling downhill towards ruin while a small minority makes an obscene amount of money.

    Like

    Comment by revelationtoo — May 31, 2013 @ 4:12 pm | Reply

  3. Very good points. Would you be in favor of eliminating corporate taxes all together? Personal income taxes too? Perhaps going to a sales tax? How would that help or hurt? (honest questions).

    Like

    Comment by conservative2cents — May 31, 2013 @ 6:48 pm | Reply

    • Eliminate corporate taxes? They seem to be doing a good job of doing that for themselves and the rest of us are paying for it.

      I will be for sales taxes when Wall Street endorses a transaction tax on every exchange of value.

      Our system reached its greatest heights based on the concept of progressive taxation. If you made more, you paid a little more. That system has been turned on its head so that the more you make, the more you get to keep proportionately.

      I am for eliminating all special tax breaks, all deductions, etc. combined with relatively low, but progressive rates. The tax code is not the place to show government favor. If the government wants to favor somebody or some business, let it give a grant or buy stock, etc. The support through reduced taxation is hidden from the populace and is rife with corruption.

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      Comment by stephenpruis — June 1, 2013 @ 7:21 am | Reply

  4. It doesn’t help either when oversight agencies like the SEC are unwilling to prosecute vigorously when violations occur. The best they seem to be able to do are fines that never seem to make a dent in a company’s overall profits.

    Like

    Comment by lbwoodgate — June 3, 2013 @ 9:33 pm | Reply

    • It seems the government is fully in the corporation’s pocket. Remember the Savings and Loan debacle? Over 1000 bankers went to jail over that. How many bankers have gone to jail over the 2007 illegalities? And guess who is creating the tax “loopholes” for the corps?

      Oversight is what they accomplish every day. Oops, another oversight.

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      Comment by stephenpruis — June 3, 2013 @ 9:43 pm | Reply


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