"Identity crisis for American capitalism" by Steven Perlstein at WP

[applegrove]

Identity crisis for American capitalism

by Steven Perlstein at WP

http://www.washingtonpost.com/business/identity-crisis-for-american-capitalism/2012/05/26/gJQACsRAtU_story.html?hpid=z1&tid=sm_twitter_washingtonpost

"SNIP...............................................

Coming from the opposite direction, however, was “shareholder capitalism,” which was based on the theory that workers were largely interchangeable and expendable and that companies should be managed solely to maximize short-term profits and share prices for owners and investors. In many ways, shareholder capitalism was an effort to overcome the self-interested complacency of managerial capitalism that, in the view of many, had allowed the American economy to fall behind Germany, Japan and the other Asian “tigers.”

The driving force behind shareholder capitalism came not from Wall Street’s traditional investors but from upstart financiers known as “corporate raiders” who were the first to use a new financing mechanism, the “junk bond,” to launch hostile takeovers of under-performing public companies.

Although corporate executives decried the trend, the threat of having their companies bought out from under them led to a fundamental shift in corporate management in which the interests of customers and employees have been subordinated to the interests of shareholders. To reinforce this new orientation, top executives were loaded up with stock and stock options that would better align their own economic fortunes with those of other shareholders.

From there, it was only a short hop and a skip to capitalism’s newest incarnation, “financial capitalism,” where the focus has shifted from running companies to simply buying and selling them for profit. More and more of the country’s capital and talent was diverted toward trading and financial engineering, with more and more of the economy’s profits and the nation’s income captured by a relatively small number of investment bankers and the managers of hedge funds and private-equity funds.


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[pnwmom]

1. K & R n/t

[pscot]

2. KK&R

Mike Millken, Ivan Boesky.