Saturday, September 19, 2009

And another thing

BBC economic journalist Robert Peston recently professed himself "nauseous" on reading of the paltry £9 million per head earned by the hapless Rover Four; yet when I read his book "Who Runs Britain?" this year, I failed to see him confess a similar gut reaction to Sir Philip Green's £1.2 billion dividend raid on Arcadia Group. (Actually, the money went to his wife, who is domiciled for tax purposes in Monaco, but that hardly improves the flavour.)

At the time, this monster cash extraction (done with freshly borrowed money) was more than three times Arcadia's operating profits, but I'm sure the banks that (expensively) approved the loans didn't care. And it was legal.

However, if, in the economic downturn, turnover and profits are savaged, and tangible assets decline sharply in value, and Arcadia becomes very weak, or even goes bust, what will Peston say then? Arcadia Group employs 27,000 people; was it really OK, other than in a strictly legal sense, to put such a heavy yoke around its neck? Had the dividend not been paid - and especially, not been funded by humungous bank loans - what more might the group have achieved? The consolidated balance sheet for 31 August 2008 is here; what will the 2009 one look like?

What are the implications for our so-called democracy when captains of industry become so gigantic, and the rest of us become relatively as insignificant as crablice?


Paddington said...

And I am back to 'eat the rich'. They are fed healthily, and according to Lady Astor, should be good lean meat.

Sackerson said...

Green wasn't always rich, though. He gambled. At one point, he was technically 3 or 4 million under water. But when the gambler has succeeded beyond most people's dreams, and thousands of ordinary people have come to depend on him, perhaps he needs to change his approach to reflect his responsibilities.

Paddington said...

Once you are that far down, the system won't let you drown. Look at Donald Trump.

Sackerson said...

Haven't read about Trumpy - his path to wealth wasn't smooth either, then?

Paddington said...

At one point in the 1990's, Trump was something like $1 billion in debt.