by Kerry Lutz
Financial Survival Network
Dear Readers,
As usual, the American Taxpayer is getting the short end of the bail-out stick. Since we’re already running trillion-plus deficits, the taxpayer won’t be directly picking up the tab for the latest round of corporate welfare transfer payments. Rather currency holders, savers, bond holders and society will at the cost of seeing their assets debased by inflation. And for what? Flashback to 2008, when the nation’s banks and investment houses were caught flat-footed by the mortgage meltdown, a crisis of their own making. They were given trillions in cash with virtually no strings attached. Large portions of the bailout went towards these unworthy titans to finance bonuses.
The very same scam is happening yet again. This time the Congress intends buy middle class votes and acquiescence to this fraud by doling out $1200 or more per person. They’ve learned their lessons from the universal outrage at the 2008 financial crisis and resulting bailout. Wall Street got its rescue package and the middle class was left to twist in the breeze. Worst of all, none of the banksters ever had to account for their malfeasance. They kept their jobs and their escalating bonuses and the public be damned. Unfortunately for Congress, this pittance or crumbs as Nancy Pelosi would call it, is not nearly enough. We estimate that they will wind up giving at least $3500 each in an effort to buy us off.
Boeing, among many other companies and industries, is currently seeking $60 billion in loan guarantees and other benefits from Uncle Sam. If they had had sound management, they would be swimming in cash and wouldn’t require a bailout. Since 2012 Boeing has spent over $45 billion buying back its shares. Share buybacks benefit no one but management and its Wall Street lackeys. They squander company cash, increase interest expense when borrowed funds are used and weakens the company balance sheets. It artificially increases a company’s per share profitability, thereby helping management achieve earnings per share targets that trigger massive bonus payouts. In the case of IBM, this happened even though top line revenues cratered and net profit was in serious decline. For nearly a decade the country’s largest and most distinguished businesses have been engaging in this massive fraud.
Boeing was so busy buying back their shares that they forgot how to build quality reliable aircraft. Boeing’s major blunder came earlier in the decade, when it chose to upgrade the 1960’s vintage 737(MAX), instead of replacing it with a plastic or composite successor. The billions saved were then applied to share buybacks. All the while management was raking in overly generous compensation. Fired CEO Muilenberg, who was ultimately responsible for the 737MAX fiasco, received a golden parachute valued at $80.7 million, after earning $30 million in 2018 and $18.5 million in 2017. Let’s keep rewarding incompetence and self-dealing, what can possibly go wrong.
The airlines are clamoring for their piece of the bailout pie. Since 2012 they have squandered $43.7 billion buying their shares. This took place at the same time they were cramming more seats into their planes, nickel & diming the public with unfair fees, charging for food, dramatically increasing management’s already obscene pay and generally treating their customers like Covid 19 victims.
According to Wolff Richter from 2012 the S&P 500’s cumulative share buybacks topped $4.5 trillion. When I attended college (a very long time ago I confess), we were taught that a company’s surplus cash should first be reinvested in the company to improve its products and competitive position. Any remaining surplus could then be paid out in a special dividend. As a rule, a company’s shares would never be bought back, unless they were trading well below book value.
We can quibble over the extent of the bailout and the eventual payments to average Americans, but we can’t allow a 2008 repeat performance. Here’s a running list of strings that need to be attached to any company bailout, whether by the US Congress or the Federal Reserve. Please feel free to add to this list and pass it on to your corrupt congressman or senator and anyone else who you think might care.
The Taxpayer Bailout Bill of Rights
Any company receiving a government or Federal Reserve Bailout must agree the following:
1 – Immediate termination of top five members of management (who presumably got them into this mess;
2 – Perpetual prohibition on all stock buybacks;
3 – Permanent ban on all lobbying of Federal, State and Local governments;
4 – Termination of all golden parachutes to senior management;
5 – Withholding of management bonuses for 5 years;
6 – Prohibition on linking management compensation to stock price;
7 – Bonuses only allowed on increases in company profitability and free cash-flow, the way Warren Buffet does it;
8 – Cessation of all social welfare programs and benefits by company until loans are repaid;
9 – 50% claw back of past three years of management bonuses.
10 – No contribution or sponsorship of any political activities and a complete prohibition on payments to PACs.
We find ourselves in the current economic situation because our leaders have endorsed and benefitted from policies that not only accept, but encourage misbehavior by corporate management and Wall Street. While no one could have predicted the exact occurrence of the Coronavirus and the ensuing havoc it’s exacted upon the global financial system, the past decade saw red flags popping up all over the place. While many of us were out there like Paul Revere sounding the warning (see www.FinancialSurvivalNetwork.com) we were often laughed at and dismissed as doomers and financial Cassandras.
Now is the time to rethink our entire government, economic and legal systems, before the next meltdown, which may well be the final one. For nearly a century, we have been following a policy who’s end result is economic doom. If we don’t turn back soon, any semblance of our great country will surely be lost.
Regards,
Kerry Lutz