They borrowed the money, then paid it out to shareholders. Every penny in profits ($2.4 trillion) went out in dividends ($.9 trillion) and stock buybacks ($1.7 trillion), plus another $.2 trillion--seven percent more than they earned.
What's not to like? Shareholders are happy (just borrow the money and buy 'em off!), stock prices rise, and the execs are in clover--they get those unearned dividends (funneled from oh-so-familiar "creative" loans) on their shares, plus whopping bonuses to reward artificially inflated stock prices, and their troves of dividend- and buyback-inflated shares are worth even more. (Until the loans come due. Dividends are now being slashed everywhere.)
If investment capital was so crucial to growth, would these companies have been divesting themselves of capital for all those years? If investment capital was so hard to come by, would they have found it so easy to borrow, only to give it away again?
As I pointed out in an earlier post, only 9% of U.S. privately held companies cite a shortage of long-term capital as a constraint on their growth. According to the people who run those companies, long-term capital is the last thing they need.
But here comes the likes of Hal Varian in (surprise) the WSJ (with an approving link from Greg Mankiw) singing that same old song. And the Obama people seem to be listening (or, "caving")--they're talking about giving $150 billion--a third of the tax cuts (14% of the stimulus plan)--to businesses. This is presumably to spur investment that creates jobs.
But businesses obviously don't need more investment capital. (There are oceans of it out there, frantic to find actual productive uses delivering real returns). That's a faith-based, supply-side delusion. What they need is demand--people, companies, and governments who have money and want to buy their products and services.
Absent that demand--or prospect of same--how much do you think businesses are going to invest in expansion?
It's time to put aside childish supply-side voodoo and deal with the facts on the ground.