The 2007-09 U.S. mortgage scandal is considered by many economists to have been the worst financial crisis since the Great Depression. So, what have we learned from that crisis? Perhaps not much.
Financial institutions and public companies are subject to relentless pressure to deliver short-term revenue and profit growth. As Wall Street's demand for quarterly growth persists, corporate revenue-inflating fraud that perpetrated by WorldCom, HealthSouth, Enron and more recently by BofA and Wells Fargo are becoming more significant and our inability to repair the damage without dire consequences is becoming increasingly inevitable. Even now there are rumors of a looming financial crisis involving the bundling of questionable car loans that could be even more catastrophic than the mortgage crisis as Wall Street strives to sustain its unsustainable growth.
After saturating the U.S. market with their goods and services, American corporations looked to new markets in Europe, Asia and the Far East to sustain their growth. But before long those markets too became unable to support any more growth.
So, where has corporate America turned to satisfy it investors' demand for growth now that the global markets have been saturated? To it's very own customers. American companies are imposing higher costs on their customer for providing the same or lesser value of product or service. Let me explain ...
- The airline industry business is about flying its customers from city to city, Yet airlines are making billions of dollars of revenue ($31.5 billion in 2013) without incurring any incremental cost by charging their customers fees for baggage, extra leg room, reservation bookings and flight changes.
- Oil companies have not materially changed their gasoline formulas in decades but the spread between regular and premium gas prices has increased from 10 cents a gallon just a few years ago to 65 cents a gallon yet oil prices have dropped by half.
- Packaged food producers are charging the same price for their products while reducing the quantity of the product they provide by as much as 50 percent or more. Since the packaging remains the same, the customer is often unaware that their cost for the product has actually dramatically increased.
- Hotels are charging up to 30 percent or more of the advertised room rate in service fees. Many non-resort hotels are now charging a mandatory “resort fee” to cover Internet and exercise facilities even if their customer doesn't use these services.
- Cable TV companies promised less commercials in exchange for a monthly cable service fee. Have you watched any commercial free cable recently?
- Banks have imposed up to 20 or more service fees they now charge their customers from bank statements fees, ATM fees, minimum balance fees and even teller fees. Banks earned $32 billion in fees in one year just from overdraft fees.
This artificial growth of U.S. corporations is unsustainable. Is our economy rapidly becoming based upon a scheme of charging more fees and charging more for less product and service? Are we close to a point where there is insufficient value to warrant the cost of the products or services being provided and the customer stops buying?
Perhaps Wall Street, our financial institutions and our public companies need to be allowed to undertake more managed, long-term growth to relieve the pressure to deliver quarter-over-quarter growth that can lead to "creative" schemes or outright illegal activities. In addition, should our judicial system impose harsh criminal sentences on corporate executives and significant financial penalties on their companies as a deterrent to end corporate malfeasance before we have a catastrophic financial crisis?