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"An intense burst of consolidation will boost their profits more. Since 2008 American firms have engaged in one of the largest rounds of mergers in their countr

by dkopi 11y ago

"An intense burst of consolidation will boost their profits more. Since 2008 American firms have engaged in one of the largest rounds of mergers in their country’s history, worth $10 trillion. Unlike earlier acquisitions aimed at building global empires, these mergers were largely aimed at consolidating in America, allowing the merged companies to increase their market shares and cut their costs." I suspect being "Too big to fail" is another major reason for these mergers. Eric Dash actually let out a warning in the NY Times in 2008: http://www.nytimes.com/2008/11/01/business/01bank.html http://www.nytimes.com/2008/11/01/business/01bank.html "As the government makes taxpayer funds available to banks weakened by the financial crisis, the criteria being used to choose who gets money appears to be setting the stage for consolidation in the industry by favoring those most likely to survive." Mega companies can make huge profits because they feel more confident taking huge risks. If we succeed - we profit. If we fail - we're too big to fail. This is commonly refered to as a Moral Hazard: https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard

disposeofnick9 11y ago
Accordingly, the US is currently in qualitatively worse shape risk-wise because there are fewer banks with larger portfolios, and regulators are part of the chorus of revolving characters in the banking-government complex... making another structural or "mistake" (flash crash) failure more likely because of institutional resistance to more objectively deploy necessary measures (enforcement) to regulate economic behavior. Check out Robert Reich on Thom Hartmann for more. Elizabeth Warren and Peter Schiff probably have a thing or two to say as well.
- mineshaftgap 11y ago
  "By the way, it cost us more — the S&L crisis cost the taxpayers more than the TARP did in 2008. So, I don’t know why he would cite that. In fact, the failure of a very large number of smaller institutions turned out to be much more expensive to the taxpayers. In fact, as far as the bailout of 2008 was concerned, we made money on that in the money that was extended to financial institutions. And, by the way, it wasn’t just to big ones then. It was to small ones as well. The only institutions that weren’t able to pay us back were the auto companies. And I don’t think — I thought it was a good idea to pay them. As to size, the question is not just to the size, but what would happen if they couldn’t pay their debts. And that’s what people ignore. We did two things in the legislation to deal with that. First of all, we made it much, much less likely that they would get so indebted that they couldn’t pay them back. It’s not their overall size. It’s the indebtedness that’s the threat. You could not now have an AIG, which got itself $170 billion beyond what it could pay off in derivatives, because we do not allow institutions under the law now to get so indebted without the capital to back it up. Secondly and most importantly, what we said is this: If a large institution can’t pay its debts, it fails. It is not too big to fail. It is put out of business, by law. No federal official can advance any money to pay its debts under the law until it is dissolved. What then happens is this: It may be that we would have to borrow from the taxpayers to pay some of the debts, not all, as the previous law required, but if we have to pay some of the debts to prevent the failure of a large institution from having serious economic consequences, the treasury secretary is mandated by law to recover every penny from large — other large financial institutions. And, again, it’s not the size of the institution, but the size of the unpaid indebtedness. Well, we have dealt with that by reducing the indebtedness and requiring that the institution will be dissolved if it fails." Barney Frank on PBS NewsHour.
WalterBright 11y ago
I've been investing for 30 years. My experience is, whenever a couple megacorps announce a merger, SELL! The deals always look good on paper, but the reality of trying to merge two gigantic organizations is just an unrelenting, slow motion disaster. The last time I got gulled into believing the hype was the AOL-TimeWarner merger.
- hkmurakami 11y ago
  It's also often a way for a new CEO to "prove" to the board that he/she is doing good work to propel the company forward. The key is that they're going through the motions of "doing big things" rather than truly pursuing the best interests of the company. Not limited to megacorps either. Plenty of smaller companies engage in this behavior.
  - crdoconnor 11y ago
    CEO pay doesn't correlate with effectiveness but it correlates very strongly with company size.
- derefr 11y ago
  There are two kinds of mergers: those between roughly orthogonal businesses that want to exploit some vague "synergies" between them (as in the AOL-TimeWarner case); and those between companies that were previously competitors, as in the constantly-growing brewery megacorp of Annheiser Busch. The latter is both much safer for investors, and much worse for customers, than the former; this type of merger has the direct goal of decreasing margin pressure by decreasing competition.
  - jpatokal 11y ago
    But the second type can also fail quite miserably. Daimler-Chrysler, Kmart-Sears, Sprint-Nextel...
    - charlesdm 11y ago
      Sure. But if it works, it's amazing for the shareholders. Just look at Anheuser-Busch Inbev (and their history of merging/consolidating) and their soon to be merger with SABMiller.
tw04 11y ago
I know of leaders at a company who shall remain unnamed that literally came right out and said (in private obviously) their last two mergers were to grow large enough to be too big to fail. So you're not at all off base.

by dkopi 11y ago

disposeofnick9 11y ago

Accordingly, the US is currently in qualitatively worse shape risk-wise because there are fewer banks with larger portfolios, and regulators are part of the chorus of revolving characters in the banking-government complex... making another structural or "mistake" (flash crash) failure more likely because of institutional resistance to more objectively deploy necessary measures (enforcement) to regulate economic behavior. Check out Robert Reich on Thom Hartmann for more. Elizabeth Warren and Peter Schiff probably have a thing or two to say as well.

mineshaftgap 11y ago
"By the way, it cost us more — the S&L crisis cost the taxpayers more than the TARP did in 2008. So, I don’t know why he would cite that. In fact, the failure of a very large number of smaller institutions turned out to be much more expensive to the taxpayers. In fact, as far as the bailout of 2008 was concerned, we made money on that in the money that was extended to financial institutions. And, by the way, it wasn’t just to big ones then. It was to small ones as well. The only institutions that weren’t able to pay us back were the auto companies. And I don’t think — I thought it was a good idea to pay them. As to size, the question is not just to the size, but what would happen if they couldn’t pay their debts. And that’s what people ignore. We did two things in the legislation to deal with that. First of all, we made it much, much less likely that they would get so indebted that they couldn’t pay them back. It’s not their overall size. It’s the indebtedness that’s the threat. You could not now have an AIG, which got itself $170 billion beyond what it could pay off in derivatives, because we do not allow institutions under the law now to get so indebted without the capital to back it up. Secondly and most importantly, what we said is this: If a large institution can’t pay its debts, it fails. It is not too big to fail. It is put out of business, by law. No federal official can advance any money to pay its debts under the law until it is dissolved. What then happens is this: It may be that we would have to borrow from the taxpayers to pay some of the debts, not all, as the previous law required, but if we have to pay some of the debts to prevent the failure of a large institution from having serious economic consequences, the treasury secretary is mandated by law to recover every penny from large — other large financial institutions. And, again, it’s not the size of the institution, but the size of the unpaid indebtedness. Well, we have dealt with that by reducing the indebtedness and requiring that the institution will be dissolved if it fails." Barney Frank on PBS NewsHour.

WalterBright 11y ago

I've been investing for 30 years. My experience is, whenever a couple megacorps announce a merger, SELL! The deals always look good on paper, but the reality of trying to merge two gigantic organizations is just an unrelenting, slow motion disaster. The last time I got gulled into believing the hype was the AOL-TimeWarner merger.

hkmurakami 11y ago
It's also often a way for a new CEO to "prove" to the board that he/she is doing good work to propel the company forward. The key is that they're going through the motions of "doing big things" rather than truly pursuing the best interests of the company. Not limited to megacorps either. Plenty of smaller companies engage in this behavior.
- crdoconnor 11y ago
  CEO pay doesn't correlate with effectiveness but it correlates very strongly with company size.
derefr 11y ago
There are two kinds of mergers: those between roughly orthogonal businesses that want to exploit some vague "synergies" between them (as in the AOL-TimeWarner case); and those between companies that were previously competitors, as in the constantly-growing brewery megacorp of Annheiser Busch. The latter is both much safer for investors, and much worse for customers, than the former; this type of merger has the direct goal of decreasing margin pressure by decreasing competition.
- jpatokal 11y ago
  But the second type can also fail quite miserably. Daimler-Chrysler, Kmart-Sears, Sprint-Nextel...
  - charlesdm 11y ago
    Sure. But if it works, it's amazing for the shareholders. Just look at Anheuser-Busch Inbev (and their history of merging/consolidating) and their soon to be merger with SABMiller.

tw04 11y ago

I know of leaders at a company who shall remain unnamed that literally came right out and said (in private obviously) their last two mergers were to grow large enough to be too big to fail. So you're not at all off base.