The default operating model of every major company in this greed-maximized era is based upon leverage. These Country Club CEOs who make every two months what an average employee makes in a lifetime, were hatched in the Marketing and Finance departments and therefore have no clue or inclination as to how to create or build anything real or sustainable.Therefore, they turned their companies into massively leveraged call options - heads the economy goes up and they score obscene bonuses, tails the economy goes down and they walk away from the scene of the crash.
17:1 Leverage
Here we see plain as day how ludicrously leveraged corporations have become.
During the "great recession" of 2008/2009, GDP only fell by -2.8%, however, corporate profits dropped 50% !!!
GDP is the blue line (left scale). Corporate profits are the red line (right scale):
The Bush Estate Sale
Notice above that corporate profits (red line) were flat during the latter 1990s, but as soon as Bush took office they went parabolic. GDP grew ~40% during his term, whereas corporate profits gained 150% in that same timeframe. The Bush Administration basically said, sell everything that isn't bolted down. Intellectual capital export restrictions to China and India were totally eliminated. Meanwhile, it was also the beginning of 1% interest rates, so Greenspan subsidized corporate financial leverage on an unprecedented scale.
The Real Great Depression
Today's policy-making morons don't know anything about the Great Depression - including or especially Bernankenstein. During that real Depression, GDP fell -8.5% in 1930, then a further -6.4% in 1931, then a massive -12.9% in 1932. Compounded, GDP fell roughly 30% from 1929 to 1933.
Now put that in the perspective of today's corporate profits which fell 50% on the back of a -2.8% recession. In the meantime of course, since 2008, 0% interest rates have boosted leverage even further as corporate profits as a % of GDP went parabolic in the past five years.
Take It To The Limit, One More Time:
Here below shows corporate profits as a % of GDP. During Bush, this ratio went to a new all time high, then the 2008 collapse. Now under Obama, this ratio has reached an even higher high, which means that profits are even more sensitive to underlying changes in GDP.
In this pseudo-economy, the only thing left to get obliterated are the profits:
