7 ms·

People are completely underestimating how much leverage and pumping there was on those companies, and how thats effecting us now. Companies dropping 75% because

People are completely underestimating how much leverage and pumping there was on those companies, and how thats effecting us now. Companies dropping 75% because they might lose 3 months of revenue is not an expected outcome.

jdminhbg 7y ago
It really doesn't matter. If 20% of the economy is zeroed out because it's not safe under current conditions, the stock market will crash. Nothing you could have done beforehand, and no hobby-horse you've ridden for no matter how long, can fix that.
- sbashyal 7y ago
  I disagree that nothing one could have done beforehand could fix that. The argument is not that there would not be a decline in share prices at all but the magnitude of it. You need to have enough saved to survive 6 months w/o income is preached a lot in personal finance and somehow this is not practiced for businesses.It is understandable that cash-strapped startups can't afford to do this but the companies buying back shares to increase their stock price certainly could.
  - Anon1096 7y ago
    This is an article about small businesses, which make up the backbone of the economy. It makes 0 financial sense to save up 6 months of savings for any company, big or small. This is literally a once-a-century event.
    - scep12 7y ago
      Doesn't mean it will be a century until the next one. There are other reasons to require business to have emergency funds... Weather comes to mind
  - solidasparagus 7y ago
    Massive publicly traded companies are not the companies that are collapsing. It's mostly small business that aren't publicly traded let alone doing buybacks.
    - psfollow 7y ago
      But somehow, when all is said and done, companies like Boeing will not even face any consequence for their bad decisions. When times are good, these companies divvy up the profits to give large bonuses. When times are bad, they divvy up the bailout money to give smaller bonuses. It certainly seems like there is no connection between compensation and performance once you are too big to fail. And there is a very convenient "heads I win, tails you lose" structure in favor of the large companies.
- codingslave 7y ago
  Nope. It does matter. The credit markets which deal with corporate debt could fail as a result. This will drag down the rest of the economy. The main issue is most people dont understand the contagion and risks taken on by the practices I laid out in my main post.
  - ivalm 7y ago
    The fed discount window is wide open for business. But seriously, aggressive monetary policy should keep the credit markets working even if mostly by adding to fed's balance sheet.

jdminhbg 7y ago

It really doesn't matter. If 20% of the economy is zeroed out because it's not safe under current conditions, the stock market will crash. Nothing you could have done beforehand, and no hobby-horse you've ridden for no matter how long, can fix that.

sbashyal 7y ago
I disagree that nothing one could have done beforehand could fix that. The argument is not that there would not be a decline in share prices at all but the magnitude of it. You need to have enough saved to survive 6 months w/o income is preached a lot in personal finance and somehow this is not practiced for businesses.It is understandable that cash-strapped startups can't afford to do this but the companies buying back shares to increase their stock price certainly could.
- Anon1096 7y ago
  This is an article about small businesses, which make up the backbone of the economy. It makes 0 financial sense to save up 6 months of savings for any company, big or small. This is literally a once-a-century event.
  - scep12 7y ago
    Doesn't mean it will be a century until the next one. There are other reasons to require business to have emergency funds... Weather comes to mind
- solidasparagus 7y ago
  Massive publicly traded companies are not the companies that are collapsing. It's mostly small business that aren't publicly traded let alone doing buybacks.
  - psfollow 7y ago
    But somehow, when all is said and done, companies like Boeing will not even face any consequence for their bad decisions. When times are good, these companies divvy up the profits to give large bonuses. When times are bad, they divvy up the bailout money to give smaller bonuses. It certainly seems like there is no connection between compensation and performance once you are too big to fail. And there is a very convenient "heads I win, tails you lose" structure in favor of the large companies.
codingslave 7y ago
Nope. It does matter. The credit markets which deal with corporate debt could fail as a result. This will drag down the rest of the economy. The main issue is most people dont understand the contagion and risks taken on by the practices I laid out in my main post.
- ivalm 7y ago
  The fed discount window is wide open for business. But seriously, aggressive monetary policy should keep the credit markets working even if mostly by adding to fed's balance sheet.