The role of investment banks in the decline of American corporations.

[KlatooBNikto]

During the late 70's and more so in the 80's, the rise of arbitragers like Boesky and Milken, started a trend in our corporate life that has brought about the swift demise of otherwise profitable corporations. These men, with plenty of money to back them up,convinced many corporate boards to trade the equity painstakingly built up over several decades for quick cash in leveraged buyouts.The new buyers, financed by the likes of Drexel, Burhnam Lambert and Boesky's own firm and several others, were saddled with enormous debts that their cash flow from continuing operations was supposed to repay.Sort of corporate Argentinas one might venture to say. The result has been an enormous line item cost that, during a downturn dragged many corporations down. On top of this there were many scam artists, like a guy called Fairley, who got Fruit of the Loom for a song and quickly cashed it in and fled.

I bring this up because the same situation now faces GM.Although it was not part of the rage of leveraged buyouts, it too saddled itself with debt to pay its pension and health care obligations which it is now unable to repay because its basic business has been neglected for a long time.The cost of health care and pension obligations for GM is now estimated to be $675 per car. And because its cars are not popular
it is also forced to offer rebates to move them out of dealer lots essentially eviscerating profits.

I believe that when the history of the demise of our corporations gets written an infamous chapter should be devoted to the replacement of equity by debt thanks to the quick buck investment bank scam artists.