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When the executive of Lehman Brothers, Dick Fuld was testifying to Congress, there was a point that he was explaining why $10 billion dollars was spent at the end of the year buying back stock. His explanation was that the compensation contract with employees had a stock component and that they were buying up their Lehman stock such that these would be available for employees’ packages.
Now, at what point did it become appropriate to sell stocks that belonged to their employees in the first place? It makes it look like the company was selling these stocks for cash each year, floating them in the market and then at the end of each year, buying them back to “balance the books,” so to speak. When it became obvious that there was a liquidity problem, this method of maneuvering these stocks (that they didn’t actually own since they belonged to employees,) was part of what contributed to their downfall. But why were they doing it in the first place?
Second thing I’ve noticed lately, is that politicians, leaders, Senators and business “experts” are suggesting that payrolls and orders for products to sell, among other things can’t be made without credit to cover them. How is it possible that solvent, profitable businesses are covering the basic costs of doing business, using credit? They’ve had costs covered through sales and profits over many years. They have stocks out in the marketplace. They continue to make money as their sales in the consumer markets had increased over past years. So, what does this mean? Why would they need credit to cover the basic costs of doing business?
It looks to me like something is very wrong with that picture. It is so prevalent that there must be a business method at work that has been a commonplace way of doing things for awhile. But, when I go into any business, the costs of my products or services must be covered by sales of the product or service and paid to cover overhead directly.
What have they been doing with that money such that it isn’t available to cover their overhead on a regular basis? How did these companies figure they could afford $60 million dollar a year executives when their basic costs of doing business were not being covered first and they were running almost completely on credit?
Written by Cricket Diane C Sparky Phillips, 10-08-08, USA