Originally posted by Eagler
Yes, their exaggerations of the issue doesn't help but neither does almost daily 10,000 employee lay offs along with ever expanding discoveries that the "best economy of our lifetime" 93 - 00 was nothing but a bunch of hot air and corruption, just like the admin it emulated.
That "best economy" was generated by a change in the pension laws that no longer forced companies to maintain an employee pension fund (instigated by a US government official who was too close to his business associates) which forced a lot of middle-class salary people to invest in the stock market ala 401(k) plans in order to build a retirement plan. The corporations stopped their pension funds as a cost-saving device and recouped that money to offset their losses, which made them look like they were going gang-busters on profits, which raised their stock value, which then caused the salary people to put their money in those companies because the company stock was high and the people thought their money would be safe there and be available when they retired in 30 years.
Eventually, the pension-cost savings were fully recouped and there was nothing left to offset the operating losses (and the uncontrolled corporate executive self-greed, but that's another issue). When the losses were realized, the stock price plummeted, taking the 401(k) plans with it and eroding consumer confidence.
Contributing to this was the large investment people were making (via their 401k stock plans) in the tech sector's dot-Com companies, which was fueled by the growth of the Internet, which was in turn fueled by the increase in homes with access to a computer and a modem. All of those dot-com companies needed bandwidth and servers to accomodate their business transactions and the telecom industry began to flourish. As the .Com companies expired into bankruptcy due to either faulty business models or lack of demand for products, the tech sector went belly-up, taking the traditional communications companies with it.
But there was also another factor contributing to the expiration of the telecom business: the de-regulation of long distance services and fees which split the AT&T core business and opened it up to competition from companies like MCI/Worldcom and Qwest Communications (names sound familiar?), companies who were fueling their low prices by offsetting their losses with cash recovered from the closed pension funds. As one company undercut their costs with low prices, the other companies were forced to do the same in order to remain competitive in sales.
Now, the telecom companies are teetering on the edge of collapse. I predict Worldcom will get broken up and bought out for pennies by a local carrier or foreign investor (if the government/taxpayer money doesn't prop it up, which I don't see happening); AT&T will be laying off employees by the end of this month, with more to follow at year-end (you can bookmark this thread if you don't believe me); and Qwest will close its doors or go the way of Paradyn Communications (a DSL provider that went through severe lay-offs, then cut salaries because they got to the point that if they laid any more people off, they'd cease to function as a business). Check out Global Crossing for a glimpse into the future of the telecom industry. I wouldn't be surprised if Adelphia Communications becomes nothing more than a name on a sports arena by this time next season.
But its not just tech and telecom that's hurting. All of that online business needed shipping in order to deliver the goods that were being purchased, and FedEx and UPS saw increases in demand for their services. Don't be surprised if UPS, FedEx, and Airborne Express start announcing lay-offs (they've already reduced the number of hours their hourly employees are worked).
So how can the economy turn around?
First, reinstate the pension plans so that people feel they have some long-term security. We've already seen what happens when the general population (typically, people with only a high-school education) try to handle their own retirement plans. When the consumer confidence is restored, people will be more likely to make purchases.
Second, invoke criminal charges against Scott Sullivan (CFO of Worldcom) and conduct extremely public trials for corporate wrong-doing. Send a message to the business leaders. Bring Ross Perot to task for his involvement in the manipulation of energy prices during the California energy crisis (remember that?).
Third, make it unprofitable for companies to give executives buy-out packages to dismiss. Tax them to the point that it hurts. Right now, executives can come into a company, determine how its run, but make those decisions risk-free. K-Mart did that and ended up paying their ex-CEO big money for running the company into the ground and then resigning. The bankers supporting K-Mart's bankruptcy proceedings are now suing to recover those funds (but I don't see it being successful). The decision-makers should bear the risk for bad decisions. As a stockholder, I want the guy controlling my money to have some skin in the game.
Fourth, re-instate regulation of the telecom and transportation industries, two industries with strong implications for national security. Airlines began collapsing left and right when the US gov't deregulated the industry, forcing airlines to cut expenses to remain competitive, which led to airlines' reduction in spending on such things as airport security (gee, I wonder what would've happened on Sept. 11, 2001 if gov't regulation had been in place). Worldcom is going to go the way of Braniff, Eastern, and other major airlines and its going to take down AT&T with it.
And finally, continue farm subsidies. When the American lifestyle ends up in the crapper, we're going to need a lot of bread for those breadlines.
