Whats UP (Weekly, Hot, Applicable Topic Summary - Unbiased Perspective)

U.S. Government Stimulus for U.S. Corporations - Will it Work? During the Summer 2008, signals of a faltering U.S. economy intensified. According to national reports, unemployment rates increased; housing starts and auto sales decreased; stock prices plummeted; and Fortune 100 corporations traveled to Washington, D.C. in search of federal financial assistance. Questions and debate focused on whether the government should help these companies that arguably constitute the backbone of the U.S. economy; how will these companies use federal funding; and will investing taxpayer dollars in these companies be effective. This week's blog entry addresses the question: "Will a federal economic stimulus package work?"Economists and Financial Analysts' Perspective Highly regarded economists, financial analysts, and researchers have consistently (uniformly?) stated they are unsure if an economic stimulus package will work. I have the utmost respect and trust in those who have admitted uncertainty around this issue. I am also extremely encouraged that our government has acted swiftly to take action on behalf of its citizens. I have no economic or financial research data to question their judgment. However, based on my research, experience, and observations, I can address why the economic and financial experts are unsure. Diagnosing the symptoms and prescribing a remedy for high unemployment, or low stock prices, or fluctuations in the Gross National Product (GNP) is a science. Understanding what a corporate leader (or civic leader, or individual citizen for that matter) will do with federal financial assistance is not. There are a variety of behaviors and attitudes that will enter the equation in determining the "optimal" use of financial stimulus dollars.The Economic Stimulus Package Objective The economic stimulus initiative is a 3-pronged approach intended to rejuvenate the U.S. economy. First, stimulus dollars have been given to states, cities, and municipalities to improve public services (i.e. health care, education programs, police service, streets and sanitation, roads, bridges, etc.). Providing economic stimulus for this initiative has a high probability of success. What civic leader/politician wants the reputation of mis-managing federal funding to improve their communities in light of the current economic scenario? Second, stimulus dollars have been given to U.S. citizens in the form of tax breaks or tax refunds. The expectation is that recipients will spend their dollars to help boost a sagging U.S. economy. Undoubtedly, there will be a mixed bag of individual behavior and attitudes. Some will save; some will pay off debts - specifically credit card debts; some will indeed go out and spend. Every individual case will be different, and thus, there is room for uncertainty. The third, and most significant portion of the $750 Billion stimulus package has been given to ailing multi-billion companies. Despite the good intentions, this part of the economic stimulus initative may not work! And here's why: the objective of a corporation is to make a profit and deliver a favorable return on investment (ROI) for its shareholders. No corporation that requested and recieved federal stimulus money is going to use that money on any expense-related activity that adversely impacts their bottom line. Some way, somehow, this money will be reflected in the company's annual reports and demonstrate their profitability. Ponder this - is there any corporation out there who wants to report to their shareholders that they received millions of dollars in stimulus incentive, yet, still had an operating loss for the year?Corporate Behavior and Activity with Federal Stimulus The following examples summarize diverse corporate behavior, attitudes, values, and activity with federal stimulus money. In an effort to keep this discussion and data as a positive analysis, no corporate names are listed. The objective is not to paint a negative picture of U.S. corporations, but to highlight what may have led to success of some companies and failure of others.
One highly successful bank recieved federal funding - and bought/acquired another bank;
It has been reported that lending institutions who recieved federal stimulus have been "slow" to resume lending activity to its customers, but the lending institutions' cash reserves are quite high;
One automotive giant received an economic "bailout" (as opposed to an economic stimulus). This money was needed to maintain operations and prevent a total collapse of the corporation, and possibly the entire U.S. auto industry. This automaker has since returned to Washington, D.C. in search of additional economic bailout assistance. In spite the good intentions, economic stimulus, bailout, or any other terminology we use for helping U.S. corporations has not provided the desired results - yet! The intent of this week's blog entry is not to paint a negative picture of the economic stimulus initiative or U.S. corporations, but to offer a glimpse of the corporate mission and objectives, and the behaviors, attitudes, values and expectations of those chosen to lead. More information on corporate leadership can be found in Corporate Leadership Selection: Impact on American Business, Employees, and Society (Authorhouse Publishing). Feedback to the weekly blog entry is always welcome.