The crisis of middle-class America

[washunut]

You would think that they would have a businesses model that would prevent them collapsing if credit was shut off quickly. That doesnt sound like a good business model. I could run my businesses "hand to mouth" or paycheck to paycheck also (as a matter of fact, I pretty much do), but I don't expect to be helped out by the "Fed window" or any other type of government help. I would expect that any business that was just one day away from collapse would generally be thought to be a poorly run business. Most accountants would likely recomend any business to have cash reserves large enough to outlast any temporary economic downturn.

What the heck did they do with all the "proft" that they made? Overpay their executives? Or maybe buy off a lot of congressmen?

The only way these financial companies could make more and more money was to take on more and more leverage. No bank can stand a run on their deposits. That is why there is an FDIC, to stop runs on banks with this insurance.

Look at Goldman's financial stateements to see where their profits went. They have plenty of sharejolder equity.

 

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The only way these financial companies could make more and more money was to take on more and more leverage.

So they were risking the entire business to make more and more money. Nothing wrong with profits, but there is a point when a business is so leveraged that it doesnt make any sense to leverage any more, even if it means loosing out on some profit opportunities. Again, that doesn't sound like a well ran business

Look at Goldman's financial stateements to see where their profits went. They have plenty of sharejolder equity.

Sure.

Seems like they would have set aside a good chunk of that shareholder equity in a cash or near cash account to ensure their long term stability. Especially sense they were so leveraged.

One of the things that may be a big flaw in our capitalistic system is allowing for companies to call themselves "growth stocks". They use this designation as an excuse to not issue dividend checks, then they keep all they money that they make to grow larger and larger. A strong capitalistic system depends on having lots of small competititors in order to provide competition. When corporate growth is unchecked, companies can potentially get so big that they squeeze out the smaller competitors, and thus they loose part of their incentive to be lean and well run.

I never quite understood the logic in the government allowing several of the bailed out banks to merge. They were already "too big to fail", so why the heck did we allow mismanaged banks to merge and to become even more "too big to fail". Just because to large mismanaged businesses combine doesn't neccesarally produce one giant well managed business - it just reduces competition.

A simple fix to this would be a requirment that corporations have to issue X% of profits as dividends (maybe on a sliding scale depending on profitability or 3 year averages or such). If the company has more profit opportunities than can be financed without keeping ALL their profits, then they would be welcome to issue additional stock or debt, so it is not like such a dividend regulation would in any way restrict the company.