Question: Can you explain why, when these huge companies collapse, the bleeding isn’t slow and steady? Is it that they cannot forecast months ahead of time and see the end approaching? Or, have they just been operating with leveraged assets for so long that no one noticed until now that they’re not backed with actual money? It just doesn’t seem possible to be liquid one day and in deep trouble the next.
Paul Solman: But many DO fail over time. Look at the list of America’s top firms in any given era. Look at a book called Life and Death on the Corporate Battlefield, written in 1983 by my friend Tom Friedman and me. (Friedman, as I’ve pointed out here before, subsequently wrote not The World is Flat but 1,000 Unforgettable Senior Moments: Of Which We Could Remember Only 246, a humor bestseller in the U.S. and UK.)
To illustrate the process of “creative destruction” which characterizes a market system, we listed the top ten firms of 1917. They were, in order:
1) U.S. Steel (by far the biggest, now a shadow of its former self)
2) Standard Oil of New Jersey (now Exxon/Mobil)
3) Bethlehem Steel (1857-2003, RIP)
4) Armour (the meat packer, so sliced up over the decades it’s impossible to say just where it is anymore)
5) Swift (another meat packer, now owned by a Brazilian firm)
6) International Harvester (whose parts are dispersed among several firms)
8) Midvale Steel (acquired by Bethlehem in 1923)
9) U.S. Rubber (what was left of it was bought by Michelin in 1990)
10) General Electric
These were the giants of the land. “Slow bleed” describes the decline of those that did actually decline much better than “sudden crash.”
As for the economy as a whole, when it swings, it tends to do so more suddenly. The downward lurches then take many firms with them.
Editor’s Note: Here’s a question for readers: Which corporate collapses have most surprised you in recent months?