Al-Jazeerah: Cross-Cultural Understanding
Opinion Editorials, February 2010
The United States Expects the World to Support its Lifestyle and Wars
By Christopher King
|2006||2007||2008 (last full year)|
|Sales 2006-08 (billion USD) going up:||33||36||42|
|Profits from sales going down:||2.9||2.4||1.8|
This doesn’t look good so they sold off part of the business to boost
2008 net profits by 1.1 billion dollars to make the 2008 profits 2.9 billion
dollars and gave shareholders a bigger dividend. In fairness, they sell off
something every year – probably OK – but the 2008 selloff was much bigger
than usual. The business isn’t doing well.
How sound is the business? That is, what is its capital position and net worth? The balance sheet, slightly reorganized, shows that for 2008 ( 2009 is much the same) it has:
|Total assets – cash, property etc||63,079 million USD|
|Total liabilites – debts etc||40,878|
|Balanced by shareholder funds||22,201|
Excellent, you say, but wait! There’s an item under assets called
“goodwill” (in 2009
here called “cost in excess”) valued at 27.5 billion dollars. What is
this? Well, it’s a hole. It’s not cash or anything that you can sell. It’s
simply the figure that Kraft put in to make the figures look alright. If you
deduct it from the shareholders’ funds, they don’t have any. The net worth
of Kraft as a tangible business, cash, bricks and mortar etc is MINUS 5.3
billion dollars. Kraft has spent all shareholders’ money and owes 5.3
billion (yes, that’s billion) dollars in addition, to shareholders.
Actually, any company that sets out its balance sheet like Kraft is trying
to baffle you with big numbers and has something to hide. Has anyone not on
a bonus noticed that Kraft has pension and post-retirement health care
obligations to its current staff of five billion dollars that don’t exist?
Technically, the goodwill figure is what Kraft hope that they can earn in the future, that is, the value of its brands based on customers’ future willingness to buy its products, in this case valued at 15 years net earnings from operations. That’s high for a company operating on loans and with no capital whatsoever of its own. What does it do for capital? It borrows it. It’s operating entirely on borrowed money.
So where did Kraft get the money to buy Cadbury? The same place. It borrowed it. Kraft borrowed part of its purchase funds from the Royal Bank of Scotland that is almost completely owned by British taxpayers. Probably a great deal of the rest came from the US taxpayer funds propping up US banks. It’s on these foundations that the US economy is built and this is the way that the US is exporting its instability to the UK among other countries, just as it exported its toxic derivatives. Cadbury’s jobs now depend on whichever banks are propping up Kraft and the dubious management of capital-less Kraft itself. Worse, I suspect that the US banks won’t lend Kraft any more money with its declining profits. It needs Cadbury to stay afloat.
Irene Rosenfeld, Chief Executive of Kraft, said: "We acquired Cadbury because we believe it is a fabulous business and it is our intention to protect those assets." Of course they do. “We intend to invest in the business.” She said. With what? American taxpayer money?
Kraft therefore is unlikely to bring the virtues of good management to Cadbury. The reverse is true. It needs Cadbury as a crutch to help its falling profits and doubtless executive compensation. Rosenfeld’s package was worth 17 million dollars in 2008. Although Kraft has no net assets at all and exists on borrowed money, nevertheless from the viewpoint of the US economy, this is a good deal. US banks are evidently using their bailout funds which are just notional, printed money anyway, to acquire income from other countries when they can’t earn it in their own country. It’s not even economic imperialism. It’s economic fraud. The US government probably encourages this.
So why have the Cadbury directors and shareholders approved it? Well, they’ve been bribed with taxpayer cash. It’s the American way. You can see why Royal Bank of Scotland and the American banks aren’t lending to small domestic businesses that need the money. It’s a tremendous hassle to manage a lot of accounts, profits are tied to the general economy and bonuses are small and slow in coming. These big deals are fun to negotiate, easy to manage when set up and bonuses are large and fast.
Because our politicians are completely innocent of business and economics
knowledge and the interaction between these, they believe that it is a
matter of indifference if a company like Kraft purchases one of our largest
companies. That was the case with Ferrovial, the company that bought the
British Airports Authority from the government, completely on borrowed cash.
When I looked last at its balance sheet the company was worth exactly zero
after removing “goodwill”. This precision is because “goodwill” can be any
figure you like. It’s in trouble at the moment with the Competition
Commission. So when we hear expressions like “end of the recession” we
should recall that the gross domestic product figure is underpinned by
companies like these and huge taxpayer funding on both sides of the
This is the reason why Alistair Darling should take the Royal Bank of Scotland into public ownership and use it as well as other banks that the public have bought into to get money into UK businesses that actually create wealth. Although I doubt that he can read a balance sheet it would not matter if he were to consult accountants and economists rather than bankers who have no interest in the economy outside the City of London and Wall Street.
Darling’s next trick will be to sell the Royal Bank of Scotland that taxpayers already own back to the taxpayers. If not bought by UK taxpayers direct they will be bought by pension and investment funds using taxpayer deposits. It’s a swindle piled on swindles. Here’s the present position. The government:
The Americans must think that it’s taking candy from a baby dealing with
Brown and Darling. No wonder Hank Paulson thought that Alistair Darling
should apologise for not letting Barclays take the problem of Lehman
Brothers off his hands.
Our once-independent country that invented the agrarian and industrial revolutions is being managed by fools, thieves and war criminals pandering to America, a bankrupt country operating on borrowed money while executing economic and strategic wars of aggression. Can no-one in government read a balance sheet? Have our chiefs of defence staff no conception of what a war crime is? Anthony Blair set the standard for subservience and subsequent payoff. It’s now the British way. The prospects for economic recovery and state security are remote.
I’m wondering whether to join the Communist Party or to emigrate.
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