The End Of the American Dream, and Speculative Froth
The Washington Post reports:
Circuit City fired 3,400 employees in stores across the country yesterday, saying they were making too much money and would be replaced by new hires willing to work for less.
The company said the dismissals had nothing to do with performance but were part of a larger effort to improve the bottom line. The firings represent about 9 percent of the company's in-store workforce of 40,000...
..."It's definitely going to have some cost-savings, but I think the bigger impact could be seen in weaker, poor service," said Timothy Allen, an analyst with Jefferies & Co. "I have a feeling the people they're letting go have probably been there longer, have more experience, more product knowledge."
The stock price jumped 2%. General analyst sentiment actually, for a change, seems to be that this is a mistake.
But it will improve results in the short run - which is to say, the next quarter. And that's the problem - the vast majority of public companies are run on a quarterly basis - nothing matters more than beating Wall Street earnings expectations. In large part this is because executive compensation is based mainly off stock options, at this point, and even with all the cheating, spiking your stock price is still the way for executives to cash out.
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