Saturday, November 24, 2012

Would the U.S. be Considered a Good Company?

By Caroline Gangware
MSBA Class of 2013

In light of the fiscal cliff debate on the Hill, I 
thought it would be appropriate to speak about our looming debt crisis. This week, Business Roundtable launched an ad campaign, trying to get the President and Congress to focus in on the issue and come to an agreement. As part of this informational campaign, they interviewed CEO’s from various companies who said this: they won't invest in the U.S. if the cliff isn't addressed. However, there are the other, less concerned CFO’s who wrote into the CFO journal section in the Wall Street Journal, and say, “Politicians have created this event to pressure one another into a deal. It is theater. The most likely outcome is a combination of tax increases, spending cuts and kicking the can down the road…It is going to be imperfect, but it is going to be OK”.

My question to you…Is it going to be OK? Kicking the can down the road doesn’t seem like an OK idea and allowing this debt to accumulate actually seems like quite a bad idea.

Recently, in our MSBA Accounting and Financial Management class, we conducted an exercise as potential investors for an unknown company in order to get us to think like a shareholder. The first year, the revenue was $2.1 (millions or billions, not important) the expenses were $3.5, leaving net income to be -$1.4. 

The Management Committee?
Professor Bill Kirst asked what we thought of the company and of course there were some severe concerns. Then, year two and three go up on the board, revenue was about the same ($2.1 & $2.3) and so were expenses ($3.4 & $3.5). We were asked again what we thought about the company and while all of us were skeptical, it was also clear this company was unable or unwilling to make any significant financial changes for the betterment of their future. 
We were asked to give them one more chance, another year to see how it goes before deciding. As you might suspect, little changed. Revenue increased slightly to $2.4 and expenses stayed at $3.5. One of our classmates said “I want out”, which led us all to laugh because of the obvious reasons for his sentiment. 
The numbers clearly put this company into the danger zone and showed our class there was no good plan to improve its numbers. As a result of its current business plan, net income loss accumulated to a total of -$5.1. It was revealed to our class that this was the balance statement for the U.S. government over that past four years. (now the millions or billions or TRILLIONS does become significant!)
While I acknowledge government is in place for entirely different reasons than any business organization and so should be held at different standards, it is imperative that the public and our leaders understand just how detrimental our current situation is. If an investor were to ever look at a company’s records and state “I want out”, that would send a strong red flag in the direction of that company to shape up.

So now poses the ultimate question, as a young adult, ready to invest in my future and inherently in my country, why would I think any differently? 

Caroline Gangware
MSBA Candidate
Class of 2013


  1. How can we get through this situation our country is facing right now? It's time to work for such plans that will contribute for the solution of this problem. If we let things happen in unusual way, it will affect our economy's growth.
    ( )

  2. Thanks for the video, Ed Butowsky definitely knows what he is talking about! I think when he mentions that investors should be focusing on the long term he hits the nail on the head. Our leaders should be thinking long term, not next election cycle or what they say to the press. CATO had a great article by Michael Tanner on how taxing the rich would only cover $1.6 trillion over ten years and all the while our government officials are looking to increase our spending by $2.6 trillion over the same time period. And this is adding on to what we already have. If they were REALLY thinking long term, they would realize this is not good policy and that it is failing to lead us in the right direction.