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As others here have mentioned, during normal times, companies have strong economic and competitive incentives not to invest in expensive, redundant, inefficient

by cs702 7y ago

As others here have mentioned, during normal times, companies have strong economic and competitive incentives not to invest in expensive, redundant, inefficient infrastructure that is robust to rare events.[a] This is true of financial companies too. For example, banks that are run to survive rare events like global pandemic or world war cannot compete with banks that ignore the possibility of such events during normal times. The obvious question is, should societies impose limits on competition to ensure there is always a minimum baseline level of redundancy in the economy, and if so, what kinds of limits? I don't know of any obviously good answers to this question. [a] See, for example, https://news.ycombinator.com/item?id=22628239 https://news.ycombinator.com/item?id=22628239 and https://news.ycombinator.com/item?id=22628157 https://news.ycombinator.com/item?id=22628157

BoiledCabbage 7y ago
> This is true of financial companies too. For example, banks that are run to survive rare events like global pandemic or world war cannot compete with banks that ignore the possibility of such events during normal times. The opposite can't be allowed to continue. Spending heaps on stock buybacks to then months later be completely out of cash. > Take McDonald’s. With $21.1 billion in revenue last year, it ended 2019 with only $898.5 million in cash on its balance sheet, a little more than two weeks’ worth of sales. Considering that the fast-food chain, which owns more than 2,600 stores, franchises 36,000 more and employs 205,000 people, generated $5.7 billion in free cash flow last year, it could have as much cash as it wants. Instead, McDonalds’ bought back $4.9 billion worth of stock in 2019 and paid another $3.6 billion for its dividend, almost exactly the $3.24 billion the company borrowed last year. This is a joke. It borrowed 3.2 billion to pay a 3.6 billion dividend? And now it's CEO is meeting directly with the president to argue how enforcing paid sick time off due to coronavirus is a bad idea because it will hurt businesses too much. The system is so broken there are barely words. https://www.cnbc.com/2020/03/17/crash-shows-major-corporations-broke-no-1-personal-finance-rule.html https://www.cnbc.com/2020/03/17/crash-shows-major-corporatio...

by cs702 7y ago

BoiledCabbage 7y ago

> This is true of financial companies too. For example, banks that are run to survive rare events like global pandemic or world war cannot compete with banks that ignore the possibility of such events during normal times. The opposite can't be allowed to continue. Spending heaps on stock buybacks to then months later be completely out of cash. > Take McDonald’s. With $21.1 billion in revenue last year, it ended 2019 with only $898.5 million in cash on its balance sheet, a little more than two weeks’ worth of sales. Considering that the fast-food chain, which owns more than 2,600 stores, franchises 36,000 more and employs 205,000 people, generated $5.7 billion in free cash flow last year, it could have as much cash as it wants. Instead, McDonalds’ bought back $4.9 billion worth of stock in 2019 and paid another $3.6 billion for its dividend, almost exactly the $3.24 billion the company borrowed last year. This is a joke. It borrowed 3.2 billion to pay a 3.6 billion dividend? And now it's CEO is meeting directly with the president to argue how enforcing paid sick time off due to coronavirus is a bad idea because it will hurt businesses too much. The system is so broken there are barely words. https://www.cnbc.com/2020/03/17/crash-shows-major-corporations-broke-no-1-personal-finance-rule.html https://www.cnbc.com/2020/03/17/crash-shows-major-corporatio...