The cover story of the Economist has a story titled "All you need is Cash", and eloquently discusses how the modus operandi of efficient businesses around the world has turned so upside down so quickly of late:
the 1980s the fashion had been to make companies as lean as possible,
outsourcing all but your core competencies, expanding your just-in-time
supplier system around the globe, loading up with debt to “leverage”
Old-style defensive conglomerates, such as Arnold Weinstock’s General Electric Company, were dismantled. Companies that hoarded cash—even ones as good as Toyota and Microsoft—were viewed with suspicion.
No longer. For many big American companies, the day of reckoning
came two months ago when the deepening financial crisis brought about
the abrupt closure of the overnight commercial-paper market.
This briefly sent even the most solid companies into a desperate scramble to find money to meet such basic obligations as paying their staff. Since then, the guiding principle for managers everywhere has been to gather up whatever cash they can find, and then do their damnedest to keep as much of it as possible for as long as possible."
Very high commissions are paid to those who can secure cash, especially for financial institutions so desperately trying to raise some in the toughest of times. Case in point is the hundreds of billions of Euros paid to several middlemen (and a middle-woman, Amanda Staveley), to secure billions of Euros for Britain's Barclays bank a few days ago:
"...Staveley’s PCP Capital Partners, a boutique advisory firm, acted for Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family. He is investing £3.5 billion and will control 16% of the bank.
For Staveley, 35, it marks the second big deal she has brokered in recent weeks. She also masterminded the takeover of Manchester City football club by the same sheikh. Her firm is thought to have banked £10m in commission for that deal.
PCP’s total commission will be £110m, but after paying other advisers it will make a £40m profit on the Barclays deal.
Staveley has put years into building the trust of Middle Eastern investors. It dates back to when she ran a restaurant in Newmarket and earned the respect of high-rolling racehorse owners, many of whom came from the Gulf states.
PCP is not the only adviser to have benefited from commissions. The other main investor, the Qatar Investment Authority, received a payment of some £120m, much of which will be shared among QIA officials. Barclays’ total fees will be £300m.
The scale of the payouts by Barclays is expected to further ignite tension with its investors since the terms of the £7 billion capital raising was announced on Friday."
The broader problem is well-summarized by the Economist in the following excerpt:
"This cash squeeze is a huge problem for the world economy, because as
firms cut discretionary spending wherever they can, the result is
likely to be a corporate version of what John Maynard Keynes called the
“paradox of thrift”.
Every firm does what is prudent for itself, but by cutting its spending it slows down the economy still further and thus hurts everybody, including itself. This will only reinforce the need for expansionary monetary and fiscal policy (see article) to boost demand.."
There's no easy solution to this downward spiral, recognition of the problem at the mainstream level is probably the first step to the beginning of ending it.