5 ms·

I would really like to see new laws (or deleted old ones) in order to increase safety for such unexpected conditions. It feels something is terribly wrong with

by lez 7y ago

I would really like to see new laws (or deleted old ones) in order to increase safety for such unexpected conditions. It feels something is terribly wrong with the world and the basic laws of capitalism, now that it turns out many companies don't pile on stuff, and go out of business in a matter of weeks when supply is lagging behind.

ceejayoz 7y ago
Something like "you have to have 6 months worth of payroll in a fund before you can do stock buybacks" would be a nice bit of regulation.
- whatshisface 7y ago
  Don't we want people who do too much stock buybacks to lose their businesses to be replaced by people who are more sensible? Putting all these guardrails on would just make sure insufficiently conservative CEOs never lose their jobs.
  - ceejayoz 7y ago
    Sure, if you don't care at all about the employees and customers affected by industry-wide collapses of companies all doing the same "goose the stock" tactic. Are there any examples of companies using "we can pay our employees for six months" as a competitive advantage on Wall Street you can point to? Industry self-regulation in this regard has a pretty dismal track record.
  - willyt 7y ago
    Trouble is that in order to remain competitive all companies have to take the same risk as the lowest common denominator. If there is a regulation, then there is no market pressure to take the risk.
    - Consultant32452 7y ago
      Let's give it a shot. Let's let all the investors get wiped out this time and see how they feel about this risk next time.
      - TeMPOraL 7y ago
        This has nothing to do with how investors feel. Sufficiently strong competitive pressure will create the same situation again. The market fundamentally can't handle low probability events, even if they're absurdly high-impact (i.e. the so-called black swans).
        whatshisface 7y ago
        >Sufficiently strong competitive pressure will create the same situation again. What if nobody is willing to invest in an insane business? Then they will all have more difficulty accessing capital than sane businesses.
        TeMPOraL 7y ago
        A business like this is not insane per se. The time horizons relevant in investing are so small that you can round the probability of a black swan to zero. So there will be investors, and reserve capacity will be cut. Unless some completely new regulations are passed, nothing will change about the basic incentive structures of markets. And these incentive structures are more powerful than whatever an investor or a CEO may feel.
        deleted 7y ago
        [deleted]
        Consultant32452 7y ago
        I don't think this is true. People analyze every detail of the books on those public filings. If the culture of investors changes such that a low cash reserve (or whatever) is considered risk, that will be factored into the stock price. This is particularly true if having continually low reserves bumps you off important indexes.
  - pjc50 7y ago
    The CEO gets to use the entire staff as cannon fodder first. Even CEOs that are forced out for disappointing the investors are usually given a golden parachute on the way out.
    - toast0 7y ago
      The CEO and the board usually negotiate the golden parachute on the way in. Sometimes, the board can convince a CEO to waive the parachute on the way out.
TeMPOraL 7y ago
> It feels something is terribly wrong with the world and the basic laws of capitalism But this is the basic law of free markets at work. If you can run on a leaner supply chain, you'll outcompete those that can't. It's regular market competition that makes systems extremely fragile - all redundancy is considered as waste, fat to be cut off.
- Funes- 7y ago
  >But this is the basic law of free markets at work. I absolutely agree with your comment, but that's exactly what the original poster was referring to, I think, with "something is terribly wrong with [...] the basic laws of capitalism", one being the free market, as you just mentioned.
  - TeMPOraL 7y ago
    I thought they meant "wrong" as in "deviate from pure ideals of capitalism". But I agree that these pure ideals are wrong in a social/ethical/risk management sense.
- Retric 7y ago
  Having cash on hand is independent of being a lean company. 40 years ago it was illegal in the US to pile on debt and use that money for stock buybacks. Which frankly is reasonable as looting struggling companies is bad for the economy and arguably fraud.
  - TeMPOraL 7y ago
    > Having cash on hand is independent of being a lean company. Having cash on hand is leaving money on the table - you could put it to use in something that makes you grow, or lose to a competitor that does. It's a different thing than lean manufacturing, but same forces cause both.
    - Retric 7y ago
      For an efficient buisness excess capital is no longer a competitive advantage. A hypothetical movie theater can only pull in so many people cost effectively from the surrounding area. Whatever maximizes long term profits is the limit after which they need a new business model. Expansion seems like an obvious solution, but in a competitive market that’s not always a winning strategy. Read up on the rise and fall of Subway to see the issues.

by lez 7y ago

ceejayoz 7y ago

Something like "you have to have 6 months worth of payroll in a fund before you can do stock buybacks" would be a nice bit of regulation.

whatshisface 7y ago
Don't we want people who do too much stock buybacks to lose their businesses to be replaced by people who are more sensible? Putting all these guardrails on would just make sure insufficiently conservative CEOs never lose their jobs.
- ceejayoz 7y ago
  Sure, if you don't care at all about the employees and customers affected by industry-wide collapses of companies all doing the same "goose the stock" tactic. Are there any examples of companies using "we can pay our employees for six months" as a competitive advantage on Wall Street you can point to? Industry self-regulation in this regard has a pretty dismal track record.
- willyt 7y ago
  Trouble is that in order to remain competitive all companies have to take the same risk as the lowest common denominator. If there is a regulation, then there is no market pressure to take the risk.
  - Consultant32452 7y ago
    Let's give it a shot. Let's let all the investors get wiped out this time and see how they feel about this risk next time.
    - TeMPOraL 7y ago
      This has nothing to do with how investors feel. Sufficiently strong competitive pressure will create the same situation again. The market fundamentally can't handle low probability events, even if they're absurdly high-impact (i.e. the so-called black swans).
      - whatshisface 7y ago
        >Sufficiently strong competitive pressure will create the same situation again. What if nobody is willing to invest in an insane business? Then they will all have more difficulty accessing capital than sane businesses.
        TeMPOraL 7y ago
        A business like this is not insane per se. The time horizons relevant in investing are so small that you can round the probability of a black swan to zero. So there will be investors, and reserve capacity will be cut. Unless some completely new regulations are passed, nothing will change about the basic incentive structures of markets. And these incentive structures are more powerful than whatever an investor or a CEO may feel.
        deleted 7y ago
        [deleted]
        Consultant32452 7y ago
        I don't think this is true. People analyze every detail of the books on those public filings. If the culture of investors changes such that a low cash reserve (or whatever) is considered risk, that will be factored into the stock price. This is particularly true if having continually low reserves bumps you off important indexes.
- pjc50 7y ago
  The CEO gets to use the entire staff as cannon fodder first. Even CEOs that are forced out for disappointing the investors are usually given a golden parachute on the way out.
  - toast0 7y ago
    The CEO and the board usually negotiate the golden parachute on the way in. Sometimes, the board can convince a CEO to waive the parachute on the way out.

TeMPOraL 7y ago

> It feels something is terribly wrong with the world and the basic laws of capitalism But this is the basic law of free markets at work. If you can run on a leaner supply chain, you'll outcompete those that can't. It's regular market competition that makes systems extremely fragile - all redundancy is considered as waste, fat to be cut off.

Funes- 7y ago
>But this is the basic law of free markets at work. I absolutely agree with your comment, but that's exactly what the original poster was referring to, I think, with "something is terribly wrong with [...] the basic laws of capitalism", one being the free market, as you just mentioned.
- TeMPOraL 7y ago
  I thought they meant "wrong" as in "deviate from pure ideals of capitalism". But I agree that these pure ideals are wrong in a social/ethical/risk management sense.
Retric 7y ago
Having cash on hand is independent of being a lean company. 40 years ago it was illegal in the US to pile on debt and use that money for stock buybacks. Which frankly is reasonable as looting struggling companies is bad for the economy and arguably fraud.
- TeMPOraL 7y ago
  > Having cash on hand is independent of being a lean company. Having cash on hand is leaving money on the table - you could put it to use in something that makes you grow, or lose to a competitor that does. It's a different thing than lean manufacturing, but same forces cause both.
  - Retric 7y ago
    For an efficient buisness excess capital is no longer a competitive advantage. A hypothetical movie theater can only pull in so many people cost effectively from the surrounding area. Whatever maximizes long term profits is the limit after which they need a new business model. Expansion seems like an obvious solution, but in a competitive market that’s not always a winning strategy. Read up on the rise and fall of Subway to see the issues.