The Fed Did It… All of It
Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedies.
– Sir Ernest Benn, as quoted in What Is Truth? by Henry Powell Spring (1944)
In the aftermath of its near-death experience of 2008-09, General Motors (NYSE: GM) knew that the market for passenger cars was shrinking drastically.
It went from about 50% of light-vehicle sales as recently as 2012 to less than 33% today.
Its chiefs knew they needed to spend big-time cash to upgrade its vehicle fleet and to revamp its production system to assemble products of the future. Mustering every dime it could toward these ends was a matter of survival.
What stock-options-obsessed CEOs and CFOs did was spend $14 billion buying back GM stock.
This, in short, is “financialization.”
Where do they get the gall to spend billions pleasuring Wall Street while Main Street bleeds jobs?
Well, it came from the Eccles Building…
[Click to Enlarge]
Nearly a decade of “negative carry” turned Wall Street into a casino. Easy money also incentivized Corporate America to plunder balance sheets and cash flows to feed that casino.
So, we saw an endless flow “special” dividends, mergers and acquisitions, “leveraged recaps,” and… stock buybacks.
You might say destructive monetary central planning brought the once-mighty Lordstown plant to its knees.
When he complains that the Federal Reserve is a bigger problem than China, the Donald accidently hits on the basic truth of 21st century American capitalism.Read More
