By David L. Brown
We all know that investments have been evaporating like dry ice on a July afternoon. The Dow Jones average has dropped by more than half since its peak about 18 months ago.
That’s bad enough, but the real damage to major iconic corporate stocks has been far more terrible. Here are some examples:
General Electric, one of the bluest of Blue Chips, stood at over $40 in the Fall of 2007. As I write today it is at $6.76. That’s a drop of about 85 percent.
Eastman Kodak, another old-time favorite of conservative investors, was at around $30 a share in 2007. Right now it’s at $2.44. A drop of approximately 92 percent.
Bank of America, which sold in the range of $53 in 2007, today is at $3.21. A decline of 93 percent.
Think that’s bad. Try these examples:
General Motors. Peak price in 2007: about $43 a share. Price right now: $1.83. A decline of more than 95 percent.
But wait, it gets worse…
CitiGroup, sold for around $55 in 2007. Current price $1.01. A drop of roughly 98 percent.
AIG, which (was) the nation’s largest insurance company. Sold for around $73 a share in 2007. Price today: $0.36. Decline in value: about 99.5 percent.
When separated from the overall market averages such as the Dow, which are terrible enough, the hollowing out of major corporations such as these is absolutely stunning. Can there be a future for a company whose shares sell for a fraction of their former values? Perhaps not. Several of these companies have already received life support from the government, including major commitments of taxpayer money to keep AIG, Citi, BofA and GM above water. None of this has seemed to have much effect on the downward spiral.
The outlook for most of these former corporate giants is grim. Today, for example, GM’s auditors reported “substantial doubts” that the company can avoid bankruptcy. And the review stated that putting GM into bankruptcy protection would cost the government up to another $100 billion. Well, that’s for Chapter 11, with the goal of reconstituting the company. What about Chapter 7, liquidation?
These companies and others like them were the cornerstones of the late 20th Century American economy. Some claim that these entities are “too big to fail”. But those are just words, as are these: “They are too big to save.” It’s almost certainly true that there isn’t enough money on Earth to “save” all these failing companies. It’s time to apply the principles of triage, applying financial aid only to those that have a reasonable chance to survive.
Keeping dying dinosaurs alive on life support isn’t necessarily a wise choice. Better to let them slip into the Great Corporate Beyond and get on with letting them be replaced with new entrepreneurial models. History is filled with examples of sweeping technological changes. In the early days of America, steamboats and canal barges were the big thing. Then the era of railroads came along and made those models redundant. That was followed by the age of the internal combustion engine, the era that is now drawing to a close.
There is ample reason to believe that we are approaching new technological tipping points, which if we embrace them will lead to new opportunities and new ways of living that we can only begin to imagine. And it’s a safe bet that it will not be the old, failed businesses of the past that will usher in the new era, any more than it was canal builders who pioneered the railroads, or railroad magnates who built the auto industry.
These examples apply most directly to the auto industry, but the lessons could be equally pertinent in every other field. Kodak lost its profitable film business and failed to successfully make the transition to digital. Many banks forgot what their core business was and became casino gamblers, betting depositor’s money on speculative investments and all kinds of scams. Some insurance companies did likewise, much to their regret. And General Electric, well, they always made fine appliances and power plants and aircraft engines and so forth, but that isn’t their problem. It’s their deep involvement in the credit business that’s sinking them now.
I have written much about the root causes of the economic disaster that is consuming the world. It is the inevitable result of centuries of “growth” based on “development” (read: destruction) of natural resources. Such growth could not be sustained, and as the ability to “develop” more and more natural resources has reached its limits, most especially with Peak Oil, continuing the growth economic model is no longer feasible or even desirable.
Only movement toward sustainable models can have any chance of success. And thus, it is disturbing to see our “leaders” throwing trillions of dollars here in America, plus billions more of Euros, Pounds, Yen, Yuan, Won and so forth by other nations, into the black holes of failed commerce and industry. Until those vain efforts to turn back the clock are brought to an end and major emphasis focused on models of sustainable energy, food production, manufacturing, and lifestyles, we cannot hope for anything but more economic disaster.
It’s time to pull the plug on those dying dinosaurs and let the living get on with the business of building a sustainable future.