By Tyler Durden | 5 June 2020
ZERO HEDGE –It was all the way back in 2012 when we first described in “How The Fed’s Visible Hand Is Forcing Corporate Cash Mismanagement” that the era of ultra cheap money unleashed by the Fed is encouraging corporations not to invest in capex or growth or investing in a satisfied employee base, but to rush and spend it on cheap, short-term gimmicks such as buybacks and dividends which benefit the company’s shareholders in the short term while rewarding management with by bonuses for reaching stock price milestones, vesting incentive compensation.
We concluded by saying that this was “the most insidious way in which the Fed’s ZIRP policy is now bleeding not only the middle class dry, but is forcing companies to reallocate cash in ways that benefit corporate shareholders at the present, at the expense of investing prudently for growth 2 or 3 years down the road.”
For years, nobody cared about what ended up being one of the most controversial aspects of capital mismanagement in a time of ZIRP/NIRP/QE, then suddenly everyone cared after the coronavirus crisis, when it emerged that instead of prudently deploying capital into rainy day funds, companies were systematically syphoning cash out (usually by selling debt) to rewards shareholders and management, confident that if a crisis struck the Fed would bail them out: after all the Fed bailed out the banks in 2008, and by 2020 US corporate debt had reached $16 trillion, or over 75% of US GDP, making it a systematic risk and virtually assuring that expectations for a Fed bailout would be validated.
Sure enough, that’s precisely what happened. […]