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Wednesday, July 14, 2010

CEOs won't invest in America, why should you?

Remember what we said in our last post about the dangers of corporatism and crony capitalism taking hold in America? Frederick Sheehan, writing for Credit Writedowns, has a few things to say on that point.

From, "Corporate CEOs won't invest in America, why should you?":

"American CEOs are voting with their feet. Since they aren’t investing in the United States, does it make sense for the individual stockholder or bondholder to do so?

One armchair columnist told his readers to ignore corporate whiners. Those overpaid stuffed shirts will always gripe, goes his argument. The columnist may have a point, but also an inconsistency. The columnist, who is also an economist, has skewered CEOs in the past for cashing out their stock options as quickly as possible. There is much truth to that.

But, it is not in a CEO’s interest to publicly denounce the Obama administration, which still has over two years to hand out and withhold favors. It is the favoritism that the CEOs are denouncing, either directly or by implication.

Corporate managers lived through the last episode of blatant favoritism, during the final months of the Bush administration. In the fall of 2008, when credit was scarce, the Treasury Department and Federal Reserve decided which companies would receive loans and government guarantees. Those that fell under the umbrella paid around 5% interest on their debt. Those not so blessed paid 15%, or went broke..."

As Sheehan explains in his post, many American CEOs and investors are looking for options outside the US when it comes to making new capital investments. Large manufacturers are looking to Asia as a place to move their business, as mounting regulations and ever-increasing costs of doing business make the USA an unattractive place to do business.

Read on to learn why those whose businesses are more rooted locationally are left to stay and fight for a less intrusive business climate, and why even formerly willing corporatists (like GE's Jeff Skilling) are chafing at the new environment of over-regulation in the US.