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For Years WallStreet Spent More on Buybacks Than It Earned-Now They Want Bailout

• generalpass 7y ago
  This can be listed among the moral hazards of bailouts. These companies know that when a downturn occurs, the government or the Fed will bail them out.
• theandrewbailey 7y ago
  > The appropriate course of action for distressed companies that have engaged in share buybacks is that they should issue new shares to raise capital. If they can’t raise enough capital through share issuance, they should enter Chapter 11 bankruptcy and be restructured. If they cannot pull through a restructuring, they should go out of business. That’s how capitalism works. If Uncle Sam stopped bailing out corporations, I wonder how differently they would do business.
  • mojo74 7y ago
    The excuse that always seems to endlessly get rolled out is that these companies are 'too big to fail'. So they continuously get bailed in the US and the UK too whether it be banks or airlines.
    • nikanj 7y ago
      Too big to fail should mean public utility. If we can't live without it, why is it privately owned?
      • CommieDetector 7y ago
        COMMUNIST DETECTED!!!
      • pythonaut_16 7y ago
        It should at least mean additional regulations. If you're getting a public bailout then the public has a greater interest in regulating how you conduct your business.
        • grecy 7y ago
          Greater interest? By very definition the public owns the business, because they paid to keep it afloat. Absolutely the company should be publicly owned.
  • jetrink 7y ago
    It's telling that Spirit Airlines (among the least likely airlines to be bailed out) has 3x the cash on hand as American Airlines.
    • stopyellingatme 7y ago
      Calls on Spirit, Puts on American ftw
• cultus 7y ago
  This behavior is being systematically reinforced more and more with every recession. Is there anyone outside of the mainstream of the two US parties who thinks that modern capitalism is desirable or sustainable?
  • mschuster91 7y ago
    > This behavior is being systematically reinforced more and more with every recession. Not surprising, given that employment is going ever more and more centralized. What has been, for example, two dozen airlines is now concentrated to four airlines. Mom-and-pop food stores in every village? Mostly gone, replaced by huge supermarkets. Software/startups? Picked up by the megacorps. Regional phone/internet carriers? Same thing. Banks? Same thing, especially after the fire sale following 2008 where bigger banks bought off the skeletons of smaller collapsed ones. The ultimate advantage of modern capitalism is that it benefits from simple scaling to outright monopolic domination (where scale effects are fully exploitable). But on the other hand, this creates situations that are vulnerable to either exploitation of customers (e.g. when Uber has destroyed all local taxicabs, then it can jack up prices as it wants as they're the sole remaining provider and people need on demand transportation), exploitation of upstream vendors (e.g. Walmart with its scale can dictate vendors absolutely ridiculous terms) or to "too big to fail" status (most famous: banks, but just imagine Walmart going out of business, that would be 700k (!) people out of a job overnight plus MANY MANY MANY regions without a place to shop food). This is why originally there was anti-trust regulation established, but it fell out of use for a couple decades now. No company should be so big that it vanishing can threaten national security (Boeing!), or hundreds of thousands of lost jobs (Walmart, McDonalds, ...), or destitute entire regions overnight, or the national food supply.
    • snarf21 7y ago
      Exactly. This is regulatory failure. The FTC has failed us. We've accepted it because of ever increasing retirement returns but this is the cost.
      • mschuster91 7y ago
• formercoder 7y ago
  We need a way to include "black swan readiness" in corporate finance / valuation. Historically, it's not something investors have cared about, so corporations haven't done it.
  • RayMan1 7y ago
    It is 2 black swans this time, coronavirus and gas prices, but yeah, you are right
    • dragontamer 7y ago
      Low gas prices would be good for airlines normally, because gas prices are a large portion of their operating costs.
      • supdatecron 7y ago
        +1 to this. I think it was 4 years back, the oil prices dropped hard and the airlines bought futures quantities in large supply to hedge for future needs. It was a smart strategy
        • UncleEntity 7y ago
          ...then they sold the futures when prices went back up to make a quick, tidy profit. Except Southwest -- which had the other airlines whining because they had an "unfair advantage" with their locked-in lower prices.
          • rym_ 7y ago
            Wow, do you have a source for that last part?
    • acdanger 7y ago
      Oil prices have cratered, that should be a positive for the transportation industry.
• lowdose 7y ago
  The least we can demand for these bailouts is that executive bonus of last years will be returned. These companies don't deserve bailouts and should all go into chapter 11. We got all severely fucked last time. Boeing bought for $52 billion shares back and now they want $60? I hope Donald Trump is going to push his Tough guy act now. If he says no to all the bailouts he is going to be remembered as the best president ever.
  • darksaints 7y ago
    The only tough guy act that Trump will play is for election support. He'll gladly bail out any company that supports his reelection, and play tough guy to any company that doesn't. And there are no possible circumstances where he'll be remembered as the best president ever. He's fighting for 44th place.
    • aguyfromnb 7y ago
      >He'll gladly bail out any company that supports his reelection, and play tough guy to any company that doesn't. A more generous reading of this strategy is that Trump will do what the people want. I fail to see how that's any worse than someone in Washington saying they know what's best, or tat we need to "tighten our belts". >He's fighting for 44th place. In a survey of Californians maybe. You're sorely mistaken if you don't think Trump is popular, and might be surprised (again) in November. Will the Democrats blame the Russians again?
  • newen 7y ago
    Trump is stuck between Wall Street and his base, I think. He is going to be crucified by his base if he bails out large companies like Obama did.
    • frandroid 7y ago
      If he's not crucified by his base for letting the disease go rampant, he won't get crucified for anything else. In any rational country his approval ratings would be in the teens, not the forties, right now.
• basch 7y ago
  Wouldn't it make the most sense then for the Bailout to be mostly for equity at the current price? They have stock, they want cash, they sell the stock. American Taxpayer holds onto the stock for a while, fixes the company, and then sells for profit. That of course is if the American Taxpayer wants to save that business.
  • mantap 7y ago
    Sells for profit to who? The "american taxpayer" isn't a person, the taxpayer is the economy. The taxpayer is every business and most individuals. Yes buybacks were dumb. It's done now. Just change the regs and make sure it never happens again.
    • basch 7y ago
      The last bundle of financial bailouts included the Government taking an equity position in companies. They made profit when they sold the stock. One example is the ownership stake they took in Citigroup. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/ >The main sources of that revenue are $23.1 billion through dividend or interest payments, $19.7 billion from sales of equity or other assets that Treasury acquired (mostly stock in Citigroup); and $9.63 billion through stock warrants which Treasury received as part of most of the investments. When companies pay back the TARP investment, the warrants are either sold back to the company or auctioned off.
      • mantap 7y ago
        Such numbers are purely notional. Governments are not judged based on profit or loss, particularly the US government because of the special status of the dollar (in times of crisis people want USD or USD bonds). Governments are judged based on the strength of their economy which requires a holistic approach. "Making a profit" does absolutely nothing for any of the economic indicators that governments are judged on, such as employment, GDP PPP, etc
  • asdfasgasdgasdg 7y ago
    I think this is the answer. If they want additional runway, they should dilute. It's fine for the government to act as a buyer of last resort in the event that it believes the market is responding irrationally. But it should still get a steep discount. The government can sell the assets back into the market when it believes the situation has stabilized.
• vijay_nair 7y ago
  This was a compelling read on the buyback issue from earlier this year: https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...
• jb775 7y ago
  I want to say just let them fail, but that would make competition even lower in already low-competition industries. If there are bailouts, it should be in a form that spreads out the losses over time, so these companies can still operate short-term but still get punished for the mis-management.
  • 0xffff2 7y ago
    Failing doesn't mean that the airline disappears. All of the planes and personnel don't just evaporate. Failing should mean replacing the current equity holders with the current bondholders and continuing to operate.
    • copenja 7y ago
      Honest question here. How would they continue to operate post-bankruptcy if they cannot pay their employees? Or why would they?
      • 0xffff2 7y ago
        To start with, they don't pay a lot of their (former) employees. Global travel demand is going to take a long time to recover and a lot of furloughs are going to happen across the industry in any case. Second, the new company probably takes on some amount of new debt. If they can't find it in the private market then there's nothing wrong with the government stepping in. The two keys are that the government steps in after the current equity holders are wiped out completely, and that the government support comes in the form of loans, not grants.
• zigzaggy 7y ago
  Trust me, I am the LAST person to advocate corporate socialism. But I think this deserves an honest conversation. I really wonder what would happen if we didn't save the airlines. What would happen if we let an entire industry collapse under the weight of a natural disaster? (That's not a rhetorical question, I'm honestly asking). Wouldn't that cause a domino effect crashing through the whole system? Don't get me wrong - I agree that it's terrible to have to continue bailing out greedy corporations. But is this the time to rebuild the system? I'm not so sure we can handle that on top of everything else going on. We should attach all kinds of strings to this bailout, and then hold our representatives responsible for fixing this mess. But I'm not sure letting the whole thing collapse is the reasonable thing to do.
  • zimpenfish 7y ago
    > But is this the time to rebuild the system? Thing is, though, whenever this conversation is relevant (ie when the airlines need a bailout because of recession, whatever), you can always dodge the issue by saying "but we have too much going on right now for this". > We should attach all kinds of strings to this bailout Definitely. But normally what happens is that corporate lawyers are much smarter and more devious than government lawyers with the benefit of huge leverage and these strings get waived, ignored, litigated for years, etc.
    • Ididntdothis 7y ago
      “corporate lawyers are much smarter ” They aren’t. They just have more money to throw around. Anybody who really (!) wants to see knows what’s going on.
    • zigzaggy 7y ago
      >you can always dodge the issue by saying "but we have too much going on right now for this". I agree with this, which is why I'm looking for an honest conversation. Maybe THIS IS THE TIME to push back. I fully support direct political action in response to the bail outs, if "we the people" decide enough is enough. I just think we should do so thoughtfully, not emotionally. >these strings get waived, ignored, litigated for years, etc. Unfortunately we also allow that by being swept up by the next big emotional moment, and once we've been redirected to something else, the strings magically disappear.
• grandinj 7y ago
  If they hadn't used stock buybacks, they would have issued dividends, and we would be in the same situation.
  • WillPostForFood 7y ago
    Buybacks are worse because so much of it has not been financed with cash, but cheap debt from issuing corporate bonds which are now at risk of default.
    • Ididntdothis 7y ago
      It’s weird that paying out dividends from borrowed money is not ok but doing buybacks is.
      • grandinj 7y ago
        So then the real problem is the debt, most likely that US corporate debt is given special tax treatment.
        • formercoder 7y ago
          Borrowing for tax purposes is sort of a perpetuated myth. Firms in zero tax nations have debt, and firms in the US prior to corporate taxes had debt. Debt is first a foremost a way of financing corporate activities.
    • pythonaut_16 7y ago
      This seems like one of the core problems to me. I don't necessarily think that companies should be banned from ever doing stack buybacks when they have sufficient cash (for some definition of sufficient), but allowing companies to take on debt to do stock buybacks seems asinine, both on the part of the company doing the buyback, and the creditor lending them the money to do it. Any company doing so should be the last one to receive a public bailout; so maybe regulations should be targeted to industries deemed too critical to fail, such as airlines.
  • 7y ago
• sturza 7y ago
  When companies do these buybacks, they deprive themselves of the liquidity that might help them cope when sales and profits decline in an economic downturn.
  • formercoder 7y ago
    That’s why banks have regulatory capital requirements, which have gone up since ‘08. There are no such regs for non financial firms sadly.
• pjmorris 7y ago
  If an individual is expected to have a 3-6 month 'emergency fund', would it be reasonable to expect the same of a corporation?
  • vsareto 7y ago
    That 3-6 month projection of operating expenses goes out the window once an emergency happens. Business require many more things to sustain itself. The recommendation is good for every day people because the actual cost to keep a healthy human sustained is actually pretty cheap (food, water, shelter). A business does not have human needs, it might need oil, metal, ores, chemicals, etc. to do its job. If the prices of those things spike dramatically, your 3-6 month emergency fund could quickly turn into 1-3 months.
    • 0xffff2 7y ago
      Have prices spiked dramatically? The only variable costs to an airline that I can think of are fuel and parts. With worldwide travel demand evaporating, it seems unlikely to me that either of those things are in short supply.
      • vsareto 7y ago
        Oil and airline parts may not necessarily go down in price for every emergency. Forcing companies to keep 3-6 months cash for Covid-19 is too little too late. This would be regulation that has to consider many more emergencies.
      • mardifoufs 7y ago
        You could take all of the profit (including buybacks) American made in the last 6 years and that would still be only enough to fund 4 months of operations. I'm against the bailouts because I think we shouldn't make some investments riskless and subsidized , but to blame airlines for not having 6 months of reserve is just weird. Buybacks are just a scapegoat when in reality an airline parking 14b$ in case of a black swan event would have made absolutely no financial sense especially since shareholders expect some reward for their risks. Imagine if they did that and ended up with just 4 more months of operation at incredible losses. Stocks would probably have plummeted to similar levels anyways and the shareholders would've ended up with no returns at all. The reality of the industry is that they had to keep prices super low to satisfy consumers expecting always cheaper flight and at the same time satisfy shareholders who are aware of how cyclical the industry is and require a big RoI to justify their risk. That requires a lot of leverage, high efficiency and a low margin of error in their cashflow predictions.
• mattmcknight 7y ago
  The generic reference of "Wall Street" in the title, but then not referring to financial firms but transportation, manufacturing and other firms located across the country seems to be a misuse of the term. Like many other things the meaning drifts into "things I don't like".
  • theandrewbailey 7y ago
    I've always took "Wall Street" to mean all parties involved in the U.S. financial market, publicly traded companies in particular.
    • whatshisface 7y ago
      I thought "Wall Street" meant financial firms and exchanges.
      • kevas 7y ago
        Those two words have an extremely fluid definition depending on who you talk to.
        • smokelegend 7y ago
          Having worked on Wall Street, it essentially boils down to public/private businesses and financial institutions/firms/banks/exchanges are considered "Wall Street"... Everyone one else is considered "Main Street"... They have their own language and culture that exhorts greed and profit above humanity and peace. ie. "Wolf of WallStreet"...
  • mattnewton 7y ago
    It’s not the transportation firms who are owed the money, my understanding is the airlines took on debt to financial institutions (to buyback stock, held by other financial institutions), and the bailout money would ultimately go to those obligations to financial institutions (“wallstreet” here).
  • 7y ago
• awinder 7y ago
  People want to get all pissy about this, and come up with all kinds of contrived punishments for the offenders. I’ll grant that this is an awful looking situation, but the most cost effective thing we could do is just learn the damn lesson finally. Don’t give companies money in boom times, keep it around for when a true unexpected disaster strikes. It literally requires no work, no new bills, just a memory that lasts a little bit and some introspection.
  • mdszy 7y ago
    Doesn't take much contriving really, guillotines are simple enough.
  • nicbou 7y ago
    The problem as I understand it is that those large companies hire thousands of skilled workers, and are often the only source of employment in some regions. If they go under, they bring a significant segment of the population with them.
    • Nasrudith 7y ago
      And how is that different from thousands of small businesses who went under with nary a peep? Of all of the others who put their eggs in one flimsy rotten basket? The way I see it too big to fail is always just special pleading furiously rationalizing from being spoiled by status. There is no logical reason to give them special treatment in spite of all of the stupid human hierarchy tricks. I see it no different than demanding that a rich kid who killed someone driving drunk be treated as "making a mistake" and anyone else as "proven an irredemable waste of human life". The only sane and just thing is equal treatment. Either everyone can get bailouts or nobody can. The favor for a few approach doesn't work morally or practically - just producing more spoiled nitwits who can and should be replaced. There are no redeeming circumstances or grand sacrifices on their part to justify special treatment.
• themagician 7y ago
  I don’t see a problem with the loans. They get paid back with interest. I see no problem loaning the airlines money. Grants, however, is something else entirely. If they are in so much trouble they need a literal bailout then they should be nationalized. They can be re-privatized later, after a decade of drama and red tape, but nationalization should be the consequence that’s faced until bad actors can become responsible.
  • michaelt 7y ago
    > I see no problem loaning the airlines money. A cynic would say if the airlines want market-rate loans, they can get them from the market. If the airlines want subsidised loans, that's just a grant with a stick-on moustache.
• jcfrei 7y ago
  As usual Matt Levine has a pretty good take on this: https://www.bloomberg.com/opinion/articles/2020-03-17/the-good-times-for-airlines-are-over https://www.bloomberg.com/opinion/articles/2020-03-17/the-go...
  • sm0ss117 7y ago
    This gets to one of the fundamental limits of for profit operation of businesses, different scales of firm have different incentives. For American Airlines it made logical sense to do stock buybacks, but if the whole of society was in control of American Airlines they would've prioritized service and just paid to keep the operation on life support during the downturn.
    • jcranmer 7y ago
      Given the way that public transit is run, I think service would be the lowest priority of an airline if it were run by society instead of capitalists.
      • sm0ss117 7y ago
        Try public transit in literally any country besides the US, the US is currently terrible at public utilities for ideological reasons. Basically the line of thinking is the government doesn't work, so let us in power to prove it to you
  • throwaway55554 7y ago
    > But you are the hypothetical CEO of American Airlines and your loyalty is to the shareholders. Because screw your employees!
• lordnacho 7y ago
  People seem to forget that when a business goes under, there's still something left. If an airline goes down, the planes are not immediately turned to dust. The pilots and ground crew do not forget how to fly and maintain aircraft. What happens at bankruptcy is that the claims on various assets are reassigned. The planes will get sold to someone who reckons they know how to run an airline, and the staff are likewise hired by new businesses. This is worth keeping in mind when considering bailouts, because they tend to keep things in the hands of the same people, sometimes even on not much worse terms. And that's despite having steered the firm into the ground. Don't forget there's value in this sort of reassignment. Assets and labor get moved around in new configurations that might be better.
  • asdfasgasdgasdg 7y ago
    It's true that not all of the value is destroyed, but it is still very inefficient compared to a well functioning business. Whether it's less efficient than bailing folks out is I think an open question. Maybe with a case-by-case answer.
    • chris_wot 7y ago
      Sure, compared to a well run business. I think the point is they aren’t well run.
      • asdfasgasdgasdg 7y ago
        I don't know. I don't necessarily think it's efficient for businesses to keep cash on hand for weathering events of a magnitude that have literally never happened in the history of their industry. I think that's a little too conservative and people would not like the drag that imposes on the economy if the rule were to be applied universally. I don't think it's a sign of poor management that the airlines did not foresee the possibility their whole industry would be entirely shut down for a year or more.
        • untog 7y ago
• rmrfstar 7y ago
  For those who want to understand buybacks, please read the first 7 pages of [1]. This is the leverage ratchet effect in action. [1] https://www.gsb.stanford.edu/faculty-research/working-papers/leverage-ratchet-effect https://www.gsb.stanford.edu/faculty-research/working-papers...
• CHsurfer 7y ago
  Instead of a bailout, lets do a stock offering, with the government as the purchaser. This way, the government can sell it's shares later on and get the public's money back.
  • mdasen 7y ago
    This is close to how the TARP bailout (2008) worked and the government did get the public's money back. From the banks, the Treasury got about a 21% profit (https://www.thebalance.com/tarp-bailout-program-3305895 https://www.thebalance.com/tarp-bailout-program-3305895) One thing to remember is that the current share price of companies is based on the value that buyers and sellers are agreeing to. There are many more people who own shares and are unwilling to sell at the current price. When someone talks about Boeing costing $51B, that doesn't take into consideration that many people holding Boeing shares wouldn't sell at that price. That's the price you can buy at if you're looking to buy 1 share. If you're looking to buy all the shares (or a substantial portion), there probably aren't enough sellers at that price. The point of that is to note that companies will reject money that comes with terms or pricing that is too bad. If you offered to give Boeing $60B in exchange for 100% of the company, shareholders would reject it. Might as well take your chances that the company will survive. Fire all employees, eliminate all payroll for a year, and then try and re-start in 2021. If you ask too much, investors have other options. For the government, these other options are really bad for the economy - and ultimately for government revenue. We don't want a situation like that if there's a way to avoid it. If the government lends $10B to a company at 0% interest and it means that the company keeps paying $5B per year in taxes instead of filing for bankruptcy and paying $0 in taxes, that's still important even though the government is getting no interest. One thing that people don't realize is that the government basically already owns parts of companies - the government gets a percentage of the profits. If those profits go down, so does government revenue. The TARP bailout was smart. Dividends to the government were between 5% and 9% interest along with warrants for shares. Usually banks bought the warrants back from the government rather than the government converting them into shares and selling the shares, but it's essentially the same as what you're talking about (without throwing the market into chaos as the government tries to find buyers for hundreds of billions in shares). Could the government have gotten more? Maybe. Berkshire Hathaway got a couple deals at a slightly higher interest rate before the government started stepping in. However, some banks wanted to reject the government's help because it was expensive - they thought they had enough reserves to weather the storm without help. It's bad that the public thinks of these "bailouts" as free money. They aren't free money. It makes a lot of sense for the government to be a lender in a time of crisis since they're the only lender that can print money. If the government lends with an appropriate eye to risk and sets reasonable interest rates and secures those loans against the companies, it's a really good thing for the economy. Personally, I think that the government should also be working on the individual side as well. In some ways, they are. Unemployment usually covers instances where you're temporarily unemployed for things like this. I'd go even further and say that the government should save money for rainy days and give people grants (rather than loans) to keep everything normal. Bailout loans wouldn't help a lot of people who wouldn't be able to pay back an 8% loan easily. However, grants would go a long way to making sure that people were taken care of. If people start spending less money, it has cascading effect. Businesses employ X number of people assuming a certain number of customers. If their customers go down by 10%, they probably need 10% fewer employees. Then those laid off employees start spending less causing other businesses to lay off unneeded employees. Then those new laid off employees spend less causing... and so on. We want the country to go through this crisis as smoothly as possible. The government should lend money to companies on terms that are good for the government and good enough for companies that they'll take it. We don't want companies thinking that they should take their chances or shut down for extended periods of time beyond what is necessary for public health. We don't want a huge drop off in government revenue if companies shut down more than is necessary for public health.
• outside1234 7y ago
  In my opinion, we need to support them with a bailout because we can't not have functioning airlines or banks. But we should do by taking a stake in the company by having them issue stock. This would punish shareholders (through dilution) while at the same time not bankrupting the companies. The stakes in the company would be tied to a timeframe and then sold by the government within a time window.
  • joshstrange 7y ago
    If they want money they can always issue stock. Just like how they bought it up to artificially inflate it in the first place.
    • outside1234 7y ago
      Good point - although I wonder - can they do that in the timeframe they need the money on (I have no idea on how long it takes to issue stock)?
      • joshstrange 7y ago
        I'm fairly certain they can do it immediately if they want, the reason they don't is it will cause their stock price to fall. Why spend your own money when you can just wait for the government to bail you out?
• moosey 7y ago
  Our leaders, both business and government, find themselves entrapped in thinking about economics in terms of money. Soon we will be thinking about it in terms of productivity: how do we make sure enough food is made and distributed? How do we make sure we have enough medical supplies? We got away without thinking about productive capacity, instead focusing on money. We will lose more people to this disease than any war since WW2, based on the statistics presented by people I trust. If we don't learn about wartime economics and fast, then the number will be higher than it needs to be. Unfortunately, like I said, the people in charge are trapped in a box, believing that the systems that awarded them with great wealth must be the best possible system. The side-effect of this will be more death than necessary.
  • Nasrudith 7y ago
    There is a reason why money was used for eons - planned economies failed horribly and the logistics of it likewise would utterly break. I accept that it is theoretically possible for a better system to be come up with but in practice we have been kept waiting. Even when there was a nominal alternative in the USSR their "economics" were nonsense backed by ideology even by the standards of questionable economics. I would be interested in seeing theoretical and hypothetical alternative system models but sadly what I have come across is more like "alternative" in the alternative medicine sense. Sellinf questionable cures and railing against "big pharma" rhetoric and attacks and little to none on rigorous models or experimentalism to actually build anything.
• deleted 7y ago
  [deleted]
• TomMckenny 7y ago
  It's remarkable that the same parties who denounce any government participation in markets will be using that government to decide which companies to prop up. No doubt with lobbyist's advice. The irony is there is a way to do this _and_ use a little market force: dump the money on to consumers and let them rather than lobbyists decide what is worth keeping afloat. I imagine in that case, cruise lines would be lower priority.
• cryptica 7y ago
  Through this unprecedented money printing, the Fed is devaluing not only the dollar and all pegged fiat currencies but also all institutions which are centered around it. It's not surprising then to see cryptocurrencies outperforming stocks over the past couple of days. The Fed's QE program back in 2008 was one of the main incentives which drove the creation of Bitcoin and its subsequent adoption. The Fed has a real problem now. People are beginning to realize that not everyone has to work as hard to get the same amount of money, but the truth is even worse than that; not everyone has to deliver the same amount of value to society in order to get the same amount of money... The root of the problem is the Fed and the mechanism by which this newly printed money enters the economy. It's not a fair process. The real intrinsic value behind fiat money is based solely on its ability to: - Deceive people into thinking that it has value backed by real economic contributions. - Forcibly coherse people into accepting its nominal value even if some of those people doubt it. In other words, the intrinsic value of fiat is rooted in lies and manipulation. Smoke and mirrors. Then it follows logically that every institution which derive their value from it is also rooted in those same lies and manipulations.
• gdubs 7y ago
  This crisis is exposing that our modern economy has a very thin layer of resilience. I can't help but think of Climate Change as the next obvious thing that we should have seen coming, but have not adequately taken seriously.
• mcguire 7y ago
  "Prior to 1982, stock buybacks were considered market manipulation and were illegal under SEC rules. Whether buybacks should be outright illegal or not, they are a sign that a company thinks so little of its own products, services, and market potential that its capital should be diverted from growth and towards financial engineering." That's very well put.
  • TrackerFF 7y ago
    Performance based compensation, were share value is the key measure/indicator for performance, leads to this kind of culture. There are legitimate reasons for stock buybacks, but when they're being used for nothing more than short-term increases (in share prices), then that says something about the system.
• lochuan 7y ago
  The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
• Taniwha 7y ago
  Surely they can just start selling those shares? that's where their current investments are. Of course they likely wont get as much as they paid for them, but that's just a poor investment decision on their part, not something the government should bail out
• simonblack 7y ago
  Buybacks signify that the company's management can't find any better use for their money. It signifies that the company sees no value in investing that money in developing more business for the company in the future, but wants to spend that important money on ephemeral share prices instead. Companies that only plan for today instead of planning for their own greater futures deserve to go under.
• llcoolv 7y ago
  I found a book which very well explains the ideology behind what has been happening over the last 11 years. It is called Capitalism 4.0 by Anatole Kaletsky. If Capitalism 4.0 is really capitalism I would leave to everyone's discretion. It is about to end in an really really ugly way though. P.S. The book distinguishes between american 'democratic capitalism' and chinese state-run capitalism, but I personally don't see how the democratic one based on money printing[1; the stock market growing 20% a year with GDP only 2%] is any different or capitalism in any way. 1. https://www.businessinsider.com/qe-correlations-between-stocks-and-bonds-2013-11 https://www.businessinsider.com/qe-correlations-between-stoc...
• sunstone 7y ago
  Boeing LOL.