When I saw the S&P downgrade of ExxonMobil today, my first reaction was similar to Chris Anderson’s — it’s more proof that Big Fossil Fuel is on the decline. But then I recalled the lessons I learned from reading early galleys of Rana Foroohar’s timely and lucidly reported book, Makers & Takers, out next month.
Foroohar explains the destruction wrought by the financialization of our global economy. She pays particular attention to how the world’s largest and wealthiest companies are incented by Wall Street to raise cheap and risky debt to buy back their own shares and issue dividends to shareholders, even as they sit on massive, tax-sheltered hoards of cash. Exxon is not alone in this practice, in fact, one of the worst offenders is Apple — which Foroohar notes regularly borrows at low interest rates so as to buy back shares, pay dividends, and drive its share price up.
With its action today, S&P may be repenting for its sins of the past, when it whistled past the graveyard that became the 2008 financial crisis. And while the downgrade may not have much a material impact (the WSJ notes that Exxon will have no problem continuing to borrow at preferred rates), it’s my hope that this news — and Foroohar’s book — will spark a robust dialogue about the way we want our largest companies to manage their business, and the impact current practices have on our society.
It’s time we admitted what’s true: Companies that maximize the extraction of capital, and its replacement with high risk debt, are not adding value to our society. Quite the opposite: These practices exacerbate income inequality and inflate destructive debt bubbles. We can’t blame BigCos for acting according to the prevailing wisdom of our current financial system, but we can certainly have a conversation about what kind of system we really want.
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