The Great Corporate Cash Hoard

“Power is a formidable aphrodisiac”–Henry Kissinger

Stung by the financial crisis, companies are holding more cash — and a greater percentage of assets in cash — than at any time in the past 40 years.

The Wall Street Journal reports that “in the second quarter, the 500 largest nonfinancial U.S. firms, by total assets, held about $994 billion in cash and short-term investments, or 9.8% of their assets, according to a Journal analysis of corporate filings. That is up from $846 billion, or 7.9% of assets, a year earlier.”

I’ve heard estimates as high as $ 1.5 trillion as the real number. Some Google shareholders are up in arms and are now insisting that they pay a “special dividend” or buy back gobs of stock. Google shareholders are spoiled, and want action as the stock has underperformed. Growth is tough to come by. Sound familiar? See Microsoft. I’ve been saying for two quarters now that GOOG jumped the shark.

Why are companies hoarding? Mainly because of uncertainty about the economy. Big companies don’t think much differently than you and I, especially when there are clouds surrounding health care, taxes, unemployment and monster deficits that continue to grow by the day.

Back in the Depression, FDR actually taxed companies that didn’t spend, it was basically a punishment for not playing along with the administration. World War II helped us emerge from the Apocalypse, not the New Deal or FDR. Hoover and Roosevelt overestimated the value of government planning and intensified and prolonged the very problems they were seeking to fix. Who said history doesn’t repeat itself? I need to hit him with a waffle iron.

As Amity Shlaes said in her great book “The Forgotten Man”, The government is like a lobster. It will eat anything, it wants to survive, it will compete with anything, and it can be a cannibal. When you look back at the ’30s using the public choice lens, what you discover is the extent to which the Depression wasn’t about a virtuous government and bad business people. Rather, it was about people in office competing with the private sector for power.

It speaks volumes, that with the cash on hand in corporate coffers, the activity in the merger patch is practically non-existent. There isn’t a CEO out there that wants to be Christopher Columbus. From their perch, the world still looks flat.

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