Financialization is wearing out its welcome

On the eve of Apple issuing a credit card (and following Carl Icahn's 2013 advice that "Apple should be a bank"), we seem to be reaching the end of financialization's dominance over the economy, a trend that started in the 1970s and has risen ever since -- but the tricks are wearing thin. See for example, the notorious Brazilian corporate raiders 3G bought out Kraft-Heinz and tried its usual MO of goosing profits by squeezing suppliers, paying its bills late, and cutting costs at the expense of growth -- only to have Kraft-Heinz's value drop by more than 50% in less than three years.

This pattern is repeating everywhere: where once corporate raiders could seize a company, loot it, load it up with debt and sell it on to suckers, now everything from energy bonds to shale gas are being pounded by the markets after private equity looters tried their usual shenanigans, to say nothing of GE being forced into a $15B write-down as a direct result of private equity engineering.

The debt-fuelled expansion of the financial economy seems to be reaching a breaking-point: financial assets are sitting at more than 300% the value of "real economy" assets, and debt has doubled since the financial crisis of 2008. Government bonds are being given failing grades by rating agencies, and the OECD is warning that private debt bonds are high risks for defaults.

Every time we write about financial engineering here, where raiders borrow heavily to cash themselves out and leave behind empty husks in place of once-thriving businesses, the comments are full of questions about why anyone would lend these grifters so many billions of dollars (sometimes these questioners imply that private equity and its lenders must know something we don't). Read the rest