Liquidated:An Ethnography of Wall Street – Ch. 3
How is shareholder value constructed? How were leveraged buyouts supposed to save Wall Street institutions? On what ground could you be critical of this thinking? In Chapter 3 of Liquidated, Ho talks about the historiographies of Wall Street and the shareholder value revolution and it’s equivocal affects on various Wall Street players in the 1990’s. Ho introduces the issue of shareholder value by defining it as a concept that has become a part of mainstream, everyday discourse (122).
In her contextualization of shareholder value, she highlights that shareholder value was important to her informants because it helped them make sense of their world and how they defined their capabilities and work. With honesty, Ho concludes that “shareholder value itself is an all-encompassing objective, which implodes and contradicts itself in practice” (123). In a place where a company advances to gain shareholder value, it is the private investment in companies that ends up shifting the balance and creating liquid networks that harbor economic inequality and disorder.
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Through her research, Ho finds out that this is not how Wall Street always operated. The “liquidation of Corporate America” began in the 1980’s with the Takeover Movement, where corporations instituted fundamental structural changes that left a lasting impression of a shareholder value worldview (129). Through different players, mechanisms and worldviews, the Takeover Movement was a revolutionary shift towards the importance of shareholder value.
One important technique that was popularized by investment bankers was the “LBO” or leveraged buyout, where people would provide large investment funds which they used to take over companies by buying up their stock (139). Leveraged buyouts were supposed to help Wall Street institutions by being a “healthy change” for the market: “a partial reuniting of corporate ownership with corporate management, reversing the broad twentieth-century trend toward separation of ownership from control” (140).
Simply, leveraged buyouts were supposed to strengthen corporations by putting shareholders in charge to play the character of “one of the people”. What it actually was was a transfer of wealth from corporate stakeholders to themselves as shareholders and restructure corporate government. By popularizing new financial products and techniques, they made takeovers easier and more people bought into them. Ho listens to her informants call it a “leveraged rip-off” where corporations distinctively contributed to the culture of finance (141), and they indicate that none of it was incredibly successful.
It is easy to be critical of the motives of Wall Street stakeholders because they clearly benefit one group over another. While the Takeover Movement may have been beneficial in theory in the 1980’s, it clearly went too far when Corporate America was almost completely “liquid” in the late 1990’s. As we sit in a recession now, it is hard not to wonder what may have happened if this liquidation had been held off or avoided completely.