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The roots of this bailout go back over 20 years….

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I am so frustrated with the short-term memory and lack of information of the American public. Suddenly, everyone is screaming about what has happened on Wall St and the recent bailouts and the yet to be announced plan to shore up the financial markets.

Whether you’re for or against what is occurring now, the fact of matter is that this mess has been brewing for over 20 years. Yes, that’s right. For over 20 years!

In the mid-80s, a pension fund sued a corporation because it wanted a greater share of the corporations profits. Essentially, it said that profits should be given to shareholders rather than be put into growing the business or research and development or upgrading its capabilities. Not long after that suit, companies found themselves needing to supply quarterly forecasts on how much profit they perceived they’d make over the next quarter for the shareholders.

By having to make predictions each quarter of how much money would be turned over to shareholders, the companies could no longer focus on long term business goals. CEOs of many major corporations decried this quarterly profit to shareholder reporting practice because it limited their options to grow their companies over the long term.

Instead of being able to put profits into R&D or upgrading facilities, they had to turn their profits over to shareholders. But big pension fund managers and Wall Streeters didn’t care. All they cared about was making the most money now. So they pushed even harder for higher and higher profits each quarter, regardless of the consequences.

While corporate management and Wall Street salaries far exceed the salaries of average workers by several hundred percentage points, those people have been under the gun to provide huge profits to the shareholders each and every quarter. It was a game of give us the greatest amount of money or die.

In the mid-90s, one major corporation’s CEO said his company’s only obligation was to provide the greatest possible profit to the shareholders.

With that kind of pervasive attitude in business, it’s no wonder that Wall St. went off the deep-end in taking risks. They, too, have been under the gun to provide the greatest profit to shareholders and investors.

If investors believed they weren’t making enough profit, they took their business elsewhere. The result of what seemed like the ultimate need to provide ever increasingly greater returns each quarter caused Wall St. firms to take greater and greater risks, hoping for ever greater returns.

So, it’s not just the greed of Wall St. CEOs and companies that has caused this crisis. The blame is much more pervasive and wide-spread, and the greed reaches much deeper. It reaches all across America…and should, I hope, make everyone stop and think about what is realistic to expect from companies.


Written by Valerie Curl

September 20, 2008 at 1:12 AM

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