More on the Damaging Implications of Corporate Cash-Hoarding

[Joanne98]

John Authers of the Financial Times provides an update on corporate cash-hoarding. In brief, it’s getting worse due to probably-warranted executive nervousness about business prospects. As Authers puts it:

Corporate chieftains the world over have lots of cash, and want to hold on to it. It is a critical symptom of a new Age of Anxiety, as the corporate world tries and fails to convince itself that the global financial crisis has blown itself out. As Richard Dobbs, head of the McKinsey Global Institute, puts it: “Companies are uncertain about where the world is going to go. Until they are sure, they don’t want to pay the money out.”

In their drive for efficiency, companies have gone for operating too lean. There are two elements to this tale. One syndrome is well known, the now-infamous big company short-termism, which can easily come at the expense of longer-term results. But there is a second, related, but less well recognized aspect, that of operating with fewer buffers against risk. You see it in all sorts of practices: whittling down supplier networks to fewer companies (so as to gain more bargaining leverage over then) to just-in-time inventory to outsourcing (reliance on a partner reduces flexibility and responsiveness).

And as we wrote some months ago, we’ve hit the point where capitalists are no longer playing their proper role. The intuitive understanding most people have of how a proper economy works is that households save and businesses invest. But that is not how it has worked for quite some time. The time of onset varies by country, but in most advanced and emerging economies, the business sector has been a net saver too, in many nations for over a decade. And as Authers observes, that pattern has gotten even worse among big companies in the wake of the financial crisis:

http://www.nakedcapitalism.com/2010/11/more-on-the-damaging-implications-of-corporate-cash-hoarding.html

[Tippy]

1. GREED.....All I can say is if they need to be bailed out down the road.....

Our Government will be right there to bail them out again. HOwever I do believe we did the right thing, we just bailed the wrong business's....

[CanonRay]

2. They know the truth

our economy is as fucked up now as it was in 2008. It's like a rotting corpse with Airwick sprayed over it.

[rfranklin]

3. I think part of the impetus to hoard is the idea that the corp. is a piggy bank

for the top execs. They no longer fear the stockholders. They have been able to pay themselves huge unwarranted salaries and bonuses without fear of a backlash.

[dragonlady]

4. Capitalists looking toward electoral success

If CEOs use corporate cash to invest in their firms, which might create jobs, that would help Democrats retain control of the government. People without jobs who also don't understand how we got into this financial crisis are more likely to vote against the party in power, which just happens to be the Democrats. This worked beautifully in the midterm elections and may be just as helpful to the Republican nominee for president in 2012. So why shouldn't the CEOs sit on the cash as long as they keep getting their own salaries and bonuses?

[jtuck004]

5. Thus, all the Democrats have to do is what we should have done

when we took power in 2009. Start working on a massive jobs program which puts money in the hands of the people. This will create demand, and if those who are "hoarding" the money (though I think that's a bad description - they just don't see any demand) won't invest, we can build around them.

[kickysnana]

6. Back to pirating businesses for the cash...we learned: nothing. n/t