2/28/2005

STRIPPING FOR CASH

The article “Asset stripping is good” recaps a small portion of the movie “Pretty Women” from an economic standpoint. It talks about a character in the movie that buys large companies and then turns around and sells them for pieces. The sum of money received from selling the pieces was greater than the whole. This is smart business but not always the best way to make friends. The article also draws an interesting correlation between the asset stripping business and prostitution, which you can read for yourself.

“When economic resources are tied up in activities with an insufficient economic future to justify their use in this way, it makes perfect sense for someone to un-bundle them and release them into the wild, separately.”
Basically, asset stripping involves the whole idea in economics that we are working with scarce resources. If you take resources that were otherwise locked up in something like a large business with a lower overall worth, it’s sometimes good to strip it down for a higher net benefit to society.

2 comments:

Jane said...

Okay, I will agree that asset stripping may very well be beneficial to the economy by reallocating resources that are being poorly used. However, I disagree with the post written in your link in regard to "Pretty Woman." Richard Gere's character was playing very dirty in his game of asset stripping. When the company he was looking at tearing apart to make a buck found a way to put its resources to good use, he put a halt to it using contacts in upper-level government. His practice was extremely unethical. I'm not sure how "economic" this comment is, but I wanted to comment on the statements made in defense of Richard Gere's character. :)

Dr. Tufte said...

Would you believe I've never seen "Pretty Woman"? So, I can't comment on the specifics of this (but I have added this to my list of movies to show if Wayne Roberts and I ever put together a GenEd class on how business is portrayed in film).

Just a not though - asset stripping usually occurs when embedded managers are maximizing something other than profits.