Helwett-Packard Woes Show Problems with Business Mergers Wall Street's disproportionate sway over the U.S. economy has caused big problems in recent years, from the subprime crisis to high-frequency-trading debacles (just look at the new research out from the CTFC showing how speed traders rip off average Joes). But here's one you may not have noticed: it's crippling innovation. To understand how, look at the latest victim, the once mighty Hewlett-Packard. It's hard to think of a company that's been as loved and, more recently, loathed. The godfather of high-tech firms, HP was started in a garage in 1939 by two engineers and came to symbolize the Silicon Valley culture of creativity and collaboration. But that was then. For more than a decade, HP has been plagued by management flameouts, layoffs and slumping profit margins. Now the company is reeling from its Nov. 20 announcement that it is taking a massive write-down on Autonomy, a software company it paid $11 billion for in 2011. HP is erasing $8.8 billion of Autonomy's value from its books amid allegations of accounting improprieties and disclosure failures. And HP's stock chart is looking like a downward slope on one of the mountains near its headquarters. MORE: The Art of the Bad Deal HP's real problem - it is one that also troubles the rest of corporate America - is an addiction to buying short-term growth at the expense of long-term innovation that can produce profit and jobs. The Autonomy deal, which many investors felt was wildly over-priced, certainly fit that description. But so did several others, like HP's 2001 merger with Compaq and its later purchase of tech services company EDS, which became a foil for earnings boosting cost-cutting (at the expense of innovation, say analysts like Rob Cihra at Evercore Partners). Much of this is down to the fact that executives in corporate America are still rewarded on the basis of stock price and behave accordingly. Many large firms have come to resemble financial institutions, running their balance sheets like portfolios to hedge short-term bets while failing to invest in their future. Over the past three decades, those sacrificing long-term growth for short-term gain have included companies ranging from Kodak and Merck. Suffice it to say the list is long and, thanks to ever-shorter investor time horizons, growing. This problem really took off in the 1980s, which is when finance itself became a much larger percentage of the economy. Research from the Kauffman Foundation, which studies entrepreneurship, has found that the number of new businesses created in the U.S. has actually floundered as banking has come to represent a bigger part of the economic pie (which, not incidentally, is exactly the opposite line we were sold during the banking bailouts). MORE: Why the Coconut Craze Isn't Helping Farmers But even less well understood is the way in which financial thinking has come to dominate corporate America, in part because corporate leadership is increasingly plucked from finance rather than from industry and manufacturing as it was during the 1950s and 1960s. "Corporate culture tends to reflect the culture that leaders come from," says Kimberly Elsbach, a professor at the University of California at Davis who co-authored a paper last year titled, "The Building of Employee Distrust: A Case Study of Hewlett-Packard from 1995 to 2010." To the extent that more and more business leaders take their cues from banking, that may bode ill for the U.S. economy.