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The Economic Crisis: Are Companies Victims of Their Own Egos?

By Jay L on March 3, 2009 at 9:45 PM in American Consumers, Current Affairs, Economy, Larry Johnson, No Quarter Blog, NoQuarter Radio

I am going to start out by saying that I am far from an economist. In fact, much of the “translation” for what is going on with the crash and stimulus is being explained to me by our own Larry Johnson & by fellow NQ Radio Host LD, whose show NoQuarter’s Dollars & Sense with LD airs every Sunday night at 8pm Eastern on our NQ channel on BlogTalk Radio.

Just this week, the NY area lost a retailer with a long history here in the northeast. Fortunoff’s, a family business with its roots back in Brooklyn, grew into a good sized regional chain. For the second time in two years, the store filed for Chapter 11 bankruptcy, but this time there will be no saving them and it will be converted to a Chapter 7 and the liquidation sale has begun.

As I was reading the paper Saturday morning there was a great piece written by Jeffrey A. Wurst, a New York area business bankruptcy lawyer. His piece (click here if you would like to read his op-ed piece) is what put the question and title of this post in my mind.

Are companies, retailers, banks and even politicians just arrogant egomaniacs in this tough economic time?

If you headed up a major company on the brink, what would you do?

Me, I don’t have the answers.

But I am interested in what you have to say.

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Join me every Wednesday night at 9PM Eastern on “No Topic Taboo…Everything Else with Jay” where we can take some of the topics and comments from the NQ website and discuss them here, on the air.

  • Prem

    Maybe our society has become a narcissistic culture and that’s why we have lost our sense of economic balance, and it could account for the fact that we have elected a narcissistic man for a President. During the 1950′s and 1960′s, a CEO’s salary would reach approximately 42 times the lowest paid employee in their company. Now our CEO’s are paid approximately 620 times the lowest paid employee. What does that tell us? Greed, avarice, self-absorption and self-importance, undervaluing the contribution of all employees to help create/generate profits?

    I think the wars in Iraq and Afghanistan have not helped our economy. Yes, a few, but only a few defense contractors have made war profits. We have not learned from the Soviet Union, now Russia, how bankrupt they became because of their long war in Afghanistan. Wars for the most part, especially prolonged wars, drain a nation’s treasury.

    I think the overall economic situation is very complex. Granted the problems did not completely start with the Bush/Cheney administration, but it seems that the problems went into hyperdrive with them at the wheel. Fewer jobs were created in our country with them, and many jobs were outsourced. A thriving economy cannot occur without the creation of jobs. Bush/Cheney “no oversight or regulation”-administration made it even more possible for the greedy and unethical robber barons to flourish.

    I know several Libertarians who believe that businesses/corporations should have no regulations, but I always ask them if there is no oversight, how does “greed” get regulated?

    I do think when it comes to making money, the activity can become addictive, obsessive and maybe even “demonic.” Not everyone is oriented that way, but there are individuals who get “crazed” when it comes to amassing wealth. . . Madoff, for instance.

    • socalannie

      Well said. Could not agree more.

  • Ellen D

    Sorry, I don’t see the Fortunoff story as an ego thing. I see it completely differently and as soon as it was sold to a money management company, its fate was sealed.

    I’ve started and managed a lot of small companies. Some closed, some were sold (to people who didn’t have a clue as to what they were doing) and I still have and manage a few.

    Small companies are started by people who have a passion for their business. If they’re in the right place at the right time, all will go well. If they become very successful they are in jeopardy. If a new group buys your company, it doesn’t have a clue as to how to run it. If they are very smart they will hire you to advise them but it won’t be long before they know better and that’s the first sign the business is on its way out.

    In that way, I guess you are right – it is ego, but not the ego of the people who know how to run the company – the ego of those who don’t.

    Gosh – I shouldn’t have made this so long – I should write it all up for Susan.

    • Jay L

      I don’t know if you had a chance to look a the piece I referenced but that was his point. Once the family sold the business it was the ego of the new owners, the alleged “rescuers” from a year ago that got in the way.

      • Ellen D

        Yes, I saw it. The company seems to have been sold from one Asset partner company to another – all money companies. In this case I don’t think they would have an ego problem – they wouldn’t even have considered that they didn’t know how to run the company. They just see numbers. Everything is “how much?” with them.
        I’ve dealt with them – no egos, all they care about is numbers without regard for what those numbers actually mean.
        Those kind of guys are aliens.

        • allimom99

          Yes – my husband worked for Restoration Hardware in Eureka, CA (the original store), closed at the end of January. They are owned by Catterton Partners, who also the owners of the late Mother’s Cookies (I guess they did sell that, tho).

          I’d love to hear the take of someone who knows about these crooks re the weak retail sector. Anyone?

  • I’m a Linda too

    OH NO! I did NOT know this. How terribly sad that Fortunoff’s is gone.

    Do you want to hear the most ironic, lastnight shopping for a dishrack online, I saw the same one being carried by a few stores and …. FORTUNOFFS. I said to hubby, “OH, Click on Fortunoffs, I’d much rather give them our business”, then greeted with “server error” and said “great”. I didn’t buy it from someone else, I just stopped searching, my brain was hurting. And now you shed this dark light on why.

    I am truly sad. Fortunoffs was one of a kind to me. I used to buy so much there when I lived in Long Island (Garden City)and even managed to buy things on return trips as a tourist. I will now treasure even more so a very special pair of earrings I got there, now many years ago, but that’s probably the only thing I can think I still have. I’ve moved up on the Espresso machines and sat on all my sun glasses.

    I know, this is not what you all I’m sure expected to be reading on this thread, sorry. Just another very sad result of our downward spiral in this country. And I had first hand experience with this one that does sadden me.

    • DAB

      I no longer live in the NY metro area but I agree that Fortunoff’s was a real gem. Truly sorry to hear of its demise.

  • HARP
    • DAB

      I saw David Brooks on Lehrer the other night and he was a bit animated about the unexpected evolution of Obama’s agenda. Guess he got fooled.

  • jwrjr

    A money management company will be interested making money, not in keeping a business running. If it is a difference between making money and saving the employees’ jobs, then welcome to the unemployment line.

  • Babs

    I live in an area of PA which used to be the world headquarters of both Mack Trucks and Bethlehem Steel. As a young married, I remember these companies being run by folks who started out on the production floor, or in an engineers’ loop program, people who spent years and years gathering knowledge, building relationships, and developing a great loyalty to their respective companies. That all ended with the influx of what we called the “bean counters”, people with lots of letters behind their names, but no knowledge of the internal workings of the company, no knowledge of the product itself, no loyalty to anything but the bottom line. Add to that inept new management the ever increasing power of the unions, and the inability of top management to deal with it, and you have the downturn and eventual destruction of two fine American companies.

  • huh

    Long but good (i think)

    I hope this thread is not dead yet.

    Re: Hyperinflation. It might not be the case. I cannot do it total justice, but if you have a lot of time, look at the battle between Mike Shedlock “Mish” v. Peter Schiff. They have been back and forth on the deflation v. inflation battle.

    Right now we are in a deflationary death spiral. Think real estate, Dow, US Treasuries. Ben Bernanke’s worst enemy is deflation. The Fed and the US Tres Dept are at wits end trying to “re-flate” the system, but it is not taking. Look at their complaint that the banks are not using TARP money to create new loans. Look at the spike in US savings rate. The consumer is toast and is hunkering down. Yet, the banks are tight fisted with the bailout money. Why? Because they are insolvant! The bailout money is sitting in the case that the consumer/depositors go deep underground demanding their cash back.

    The Fed and Tres don’t get it. They want another asset bubble to lift consumer spending and the GDP. Not going happen for a long time. Money has been flying out the risky stocks into safe US Tres notes. However, there is a bubble forming there now. If the money freaks out (don’t ask me how or why) and pulls out of the Tres notes it will not be going back to the stock market, it will go to cold hard cash in hand.

    This flight to the safety of cold cash will cause depositors to demand their money out of the banks. Bec the banks were leveraged 30:1 during the housing bubble, they don’t have it. That is where your bail out tax money went to. The banks stopped loaning and are hoarding the baliout dough just waiting for the runs to begin. And they will. The first few depositors that ask for their cash will just be getting their tax dollars back!

    The Johnny-come-latelies will get nothing. The FDIC is so poorly funded, they will not get their $100,000. This will cause MASSIVE civil unrest, to say the least. This is The Event Horizon. This is when deflation will shift to inflation. The Fed and Tres will try to correct by printing $100g’s for every stiffed depositor to try to make right. Those who never even had a deposit will flip out screaming discrimination and demand $100g’s also or else. The Fed will cave due to further civil unrest, and will print $100g’s for every American, legal or not.

    There are two very large problems at this point. Number one, how long has the deflationary death spiral lasted? If it goes on for too long the GDP will be greatly reduced and American production will be minimal. Imagine nearly every factory shut down and moth-balled. The issue is the length of time our production ability needs to ramp up.

    The Second major issue will be how long the athorities allow the civil unrest to persist. The longer it persists, the longer it takes for the angry populace to become docile consumers again. The printing of money directly to the populace and the reduced production abiliies of this country will be the hyperinfaltion rocket ship. And it will only cause a further civl unrest spiral.

    IMHO, this or something like this is the senario that Bush’s Tres Sec Hank Paulson spelled out to Nancy Pelosi on his knees. Pelosi obviously did not take him seriously.

    Hope ya’all have a good day!

    • Linda C.

      I think Pelosi took him seriously, just not enough and neither did the Republicans. The Republicans rebelled against the TARP. We were led, or misled, that this TARP money was going to get lending going again. The banks are just sitting on it to cover the losses that are on their books. Then they rewarded themselves with big bonuses for their new found good business sense. The fact that by not lending out the money will cause more business and personal debt failure. This will be the self fulfilling prophecy of the Paradox of Thrift. However, each bank is hopeful that they will hold onto to our money and be the last one standing when all of the other banks collapse. The bank left standing can gobble up the other banks thereby increasing their overall profits and by gaining now undervalued assets. They will again reward themselves with another round of big bonuses for their new found business sense. Meanwhile our wealth has been destroyed people will be in bread lines, and we will get the bill.

  • Kyle

    In order to clear up any confusion, the business referenced in this article that is in the process of closing is “Fortunoff”. Fortunoff’s often refers to Fortunoff’s Hewlett, an independently owned and operated store still owned by decendants of the Fortunoff family. This store is also located on Long Island, and after 87 years, is still around. You can search for them online, and find they have a lot of the same offerings.