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Wall Street gets giddy over the urge to merge
Uh-oh. You always have to worry when you hear that there's a new "air of giddiness on Wall Street."
That's a sure sign that financial disaster is looming on our horizon again. After all, giddy is a synonym for featherbrained, frivolous, and foolish. This latest outbreak of what was once called "irrational exuberance" among financial titans has been sparked by a sudden splurge on corporate mergers. In just the past four months, a dozen super-sized corporate takeovers have siphoned-off between $3 billion and $24 billion each in capital – money dumped into frothy deals that create nothing.
Why are they done? Follow the money. First, such financial giants as JPMorgan Chase constantly push mergers because bankers pocket a fortune in fees for packaging and financing the buyouts.
Second, since CEOs have drastically whacked jobs and wages the last few years, while also inflating their stock prices, they've now got trillions of dollars in cash they need to move. How about investing in more employees, better service, or improved products? Nah – it's easier and flashier to just buy up competitors, swell their fiefdoms, and get mega-kudos for "boldness."
Third, the biggest private equity buyout firms are also sitting on mountains of cash they accumulated from speculators before the 2008 crash. Hundreds of billions of these speculator dollars – known as "dry powder" – have to be invested by the end of this year. So the rush is on for them to snap-up corporations, whack as many jobs as possible, sell-off or shut-down segments of the business, then cash-in for themselves and the speculators.
One Wall Street economist says, giddily, that today's urge to merge is "a sign that corporate America believes that the [economic] expansion is going to accelerate." Yeah, and run right over us.
"Confidence on Upswing, Mergers Make Comeback," The New York Times, February 15, 2013.
"A Job-Hacking Fed Policy," Austin American Statesman, February 24, 2013.
"Buyouts a boon to investors," Austin American Statesman, February 18, 2013.
"From ketchup to computers, companies are buying each other again. Is a flurry of LBOs next?" www.washingtonpost.com, February 15, 2013.