THE BIG SKIM, EXPOUNDED *1
A Corporation fails miserably at an ill-conceived and poorly executed business deal. That Corporation loses billions of dollars and no Executive is fired; no Director on the Board resigns in shame. How can that be?
In that financial fiasco, Shareholders and Investors did not lose any money. Since those people suffered no financial loss, there was (in their minds) no reason to fire or replace any Executive or Board Member. That’s how. Allow me to expound.
“Any investment carries risk” is a common warning on any investment portfolio. Except that said risk does not apply to the bigger, wealthier Investors. They enjoy protection from loss not availed to small Investors. I doubt there is any paper trail to prove in a court of law that such unethical practices exist, but they do. So how does such a staggering loss not affect the ultra-wealthy?
Occasionally a Corporation suffers a loss like the aforementioned, or from government fines via the EPA or OSHA, etc. That loss should reduce a corporation’s profits, and hence Shareholder payouts. But the money from these self-inflicted wounds does not come out of profits. Executives will cut wages and benefits for workers, such as eliminating pensions or recalculating bonuses. The money that was to go to workers is redirected to protect Investors.
Also, the corporation will raise the cost of service and equipment, usually in the guise of a “fee” slipped into intentionally confusing customer billing forms. And often, money that had been slated for maintenance of existing company infrastructure (building cleaning services, replacement of aging equipment for example) is likewise redirected. Another sleight of hand with corporate profits is cancelling planned build-outs. Instead of three hundred miles of fiber laid down, it becomes fifty miles.
In the end, customers and workers suffer the loss. Shareholders are protected by the Executives, and then the Executives are rewarded by the Shareholders (keep the bonuses, do not get fired, do not resign in shame). It’s a nifty system if you are a wealthy Investor or an Executive or Board Member. For workers and customers, not so much.
- The stock market’s ‘big skim’ *1
Like the mobsters who used to run the Las Vegas casinos of old, said Harold Meyerson, America’s biggest investors have been skimming off the top of corporate revenues for the past four decades. Throughout the 1960s and ’70s, roughly 40 cents of every dollar that a U.S. corporation “borrowed or realized in net earnings” was reinvested in facilities, research, or new hires. But since the 1980s, “just 10 cents of those dollars have gone to investment,” while the rest has gone directly “into shareholders’ pockets.” This “shareholder revolution” has effectively undone the “broadly shared prosperity that Americans enjoyed” for much of the postwar era. Money that once went to expansion, new ventures, and employee compensation is now earmarked for payments to already wealthy investors. From 2003 to 2012, Fortune 500 companies devoted 91 percent of their net earnings to shareholder payouts. As a result, “finance is no longer an instrument for getting money into productive businesses” says City University of New York economist J.W. Mason, “but instead for getting money out of them.” In perpetrating this “perfectly legal skim,” American investors have done something not even the mob ever could: They have brought “America’s middle class to its knees.”