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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 22, 2010 at 9:50 AM

Windows onto Microsoft’s enemies on Wall Street

Everyone should read the column by the Seattle Times’ Brier Dudley on taking Microsoft private. With an analyst at the trustworthy Goldman Sachs and others calling for the company to be broken up, it’s important for the bigs at Redmond to realize that the capital markets are not their friends.

The days are long gone when most shareholders were real owners, making an investment for the long-haul in companies they admired. But we’ve even moved beyond the era that began in the 1980s: Institutional investors demanding short-term and unsustainable growth to a company’s stock price and investment banks peddling mergers for a one-time fix. That dynamic, with little anti-trust scrutiny and bad tax policy, devastated many cities as their local companies were taken over, with massive layoffs. It made the economy less competitive because of highly concentrated sectors with fewer players. And it helped create incentives for scandal after scandal.

In recent years, this casino has added the lightly regulated shadow banking system, including hedge funds and other private equity players. Many of these playerz are after even shorter-term and more destructive deals: rip, strip and flip. Buy a company, “rationalize” it with massive cuts and sell it again for a big profit. One example: Elliott Associates forcing Novell to put itself up for sale — not for a compelling economic or business reason, but simply for a quick buck. (N.b., a consortium involving Microsoft will buy some of Novell’s intellectual property). No wonder the economy is having such a hard time creating many new jobs or that funding of R&D and other productive reinvestment lags.

If Microsoft were broken up, a case could be made that the parts would spawn a renaissance of new software, gaming and other activity in the Seattle, adding even more wealth and jobs. But that’s not how the economy is set up now. A more likely outcome would be consolidation that siphons decision-making, capital, R&D and jobs to Silicon Valley and New York. And the remainder would be hounded into further self-destruction as happened with the old Dial Corp. in the 1990s.

Microsoft has created so much good here, including $1 billion in local investment over three years. If Wall Street succeeds in its new form of creative destruction, it would be devastating for the Puget Sound economy. The Microsoft bigs may think they need Wall Street’s capital, or that they’re smarter than the hedge fund boyz. Think again. Wall Street is not your friend.

Today’s Econ Haiku:

Irish sovereign debt

Who profited from crisis?

You can bank on it

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