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1) Hedge funds didn’t crash the market. There’s just no evidence for that. The market crashed because there’s enormous uncertainty and people would rather be li

1) Hedge funds didn’t crash the market. There’s just no evidence for that. The market crashed because there’s enormous uncertainty and people would rather be liquid while they wait to see what happens vs losing a huge percentage of their wealth. 2) Businesses exist to make a profit for their shareholders. Yes, they should have some retained earnings as a rainy day fund, but some of these companies are losing 75-100% of their revenue (airlines, cruises) and it doesn’t make sense to try and self-insure for the most extreme tail risk ever. So they return profit to shareholders. And for various reasons, buybacks are often preferred to dividends. Would you be this up in arms if they had never done a buyback but had been paying a regular dividend to return those profits?

dwaltrip 7y ago
> Businesses exist to make a profit for their shareholders. It is an insidious and morally bankrupt myth that this is the only purpose of a company.
- senordevnyc 7y ago
  I didn’t say it was the only reason, and you ignored my question. Would dividends be OK?
  - digitaltrees 7y ago
    Dividends that leave the business effectively insolvent in an emergency or financial downturn are irresponsible and should be disallowed. It should be remembered that direct stock by backs were illegal until recently as they were seen as a violation of insider trading and presented conflicts of interest. Further stock based compensation for executives is also relatively new. So we now have a situation that the incentives are clearly aligned for executives to pump stock prices to boost their own compensation through a previously illegal means of stock buy backs. Just look at the ratio of dividends to stock by backs in the last few years. You will see the result of those incentives.
    - airstrike 7y ago
      By and large most publicly traded companies are not insolvent right now and don't look to be in the near future. For the most part, all that's happened is their stock price is down, some are double-checking if they have sufficient liquidity to weather the pandemic and how long they have, some have drawn on their revolvers, started hiring advisors to rethink capital structure, and some very few are thinking about restructuring.
- stickfigure 7y ago
  I don't know how you do your financial planning, but when I invest my money, I expect to see a return. I expect most folks do. Everything else falls out of that.
  - sho 7y ago
    > when I invest my money, I expect to see a return If that return is at the cost of the stability and welfare of society at large then sorry, but no. No-one "deserves" a return and nothing happens in a vacuum. Larger society comes first, full stop. Seems this is a lesson we humans forget, and need to collectively and painfully relearn, every few decades.
    - stickfigure 7y ago
      Larger society comes first, full stop. Ah, the rallying cry of 20th-century tyrants. You can justify just about anything with that statement.
      - sangnoir 7y ago
        If you prefer to think of it in economic terms, you may consider disrupting societal stability as counterparty risk, writ large.
  - deleted 7y ago
    [deleted]
  - coldpie 7y ago
    This kind of thinking is why some of us are starting to talk about rolling out the guillotines.
ramraj07 7y ago
Wasn't buybacks banned for a longtime in the century? Perhaps you consider this to be socialism and that's why it was unbanned, but given the perverse incentives politicians seemed to have had for the past few decades, I don't see an unbiased argument why it was in the interest of the public to unban stock buyback. Clearly the past year has proven why it should have stayed banned.
- senordevnyc 7y ago
  Should dividends be banned? Would you be equally upset if these companies paid out their profits in dividends? Or maybe you’re suggesting we should have liquidity requirements for all businesses like we do for banks? That’s actually not the worst idea in a world where we’re going to be bailing companies out. If you want a bailout, you have to have a rainy day fund to make it less likely you’ll need one.
  - digitaltrees 7y ago
    Dividends are fundamentally different than stock buy backs. They are the distribution of profit to owners of a business. No nonpublic information involved. No misaligned incentives. Yes, liquidity requirements and add personal liability for executives if their firm goes through bankruptcy, or restructuring. Goldman Sachs was a partnership until the 90s with each banker personally liable for the firms debts. They took risk much more seriously then.
    - airstrike 7y ago
      > They are the distribution of profit to owners of a business. So are buybacks
      - digitaltrees 7y ago
        No they are not. They reduce the amount of equity and raise the stock price but unless the share holder sells there is no real gain. That’s not to say buy backs don’t convey possible value but it’s not accurate to say they are the distribution of profit any more than if the company bought stock of another company (like yahoo buying alibaba stock) or a piece of equipment. In all cases the company has value reflected on its balance sheet. There is no true net gain.
digitaltrees 7y ago
Business does not have to be structured as a Corporation with limited liability. That is a privilege allowed by the sovereign power of the people through an elected government. If companies don’t behave responsibly they should lose that privilege and the owners could be held liable for debt and these kinds of mistakes personally. The fetishized obligation to shareholders and ONLY shareholders is not some holy pronouncement from on high. It was made up by a professor at University of Chicago and ran contrary to the history of business and limited liability company structures. If we, as a society, determine that such a practice is harmful based on the evidence we can and should end it.
- deleted 7y ago
  [deleted]
- OGWhales 7y ago
  > It was made up by a professor at University of Chicago and ran contrary to the history of business and limited liability company structures Who is this guy? Also where can I learn more about this and related topics. I’ve taken an interest to learning about our economic system in my free time and would love it if someone could point me to some good resources/podcasts/whatever.
  - digitaltrees 7y ago
    Milton Friedman. https://www.forbes.com/sites/stevedenning/2013/06/26/the-origin-of-the-worlds-dumbest-idea-milton-friedman/#6581d7e7870e https://www.forbes.com/sites/stevedenning/2013/06/26/the-ori... The amazing thing is when you compare this with the history of corporate structures. For much of history after the joint stock ventures were created in the 1600s they were extraordinary one time grants from the king and only for very very risky ventures. Basically they were used to induce businesses that wouldn’t exist but were vital for society. In exchange there was an express charter that laid out the obligations of the firm. There were expectations on how the company would act in society. There were obligations to employees, bond holders, the community etc.
  - akiselev 7y ago
    He means Milton Friedman. The "theory" itself is called "shareholder primacy": https://en.wikipedia.org/wiki/Shareholder_primacy https://en.wikipedia.org/wiki/Shareholder_primacy

dwaltrip 7y ago

> Businesses exist to make a profit for their shareholders. It is an insidious and morally bankrupt myth that this is the only purpose of a company.

senordevnyc 7y ago
I didn’t say it was the only reason, and you ignored my question. Would dividends be OK?
- digitaltrees 7y ago
  Dividends that leave the business effectively insolvent in an emergency or financial downturn are irresponsible and should be disallowed. It should be remembered that direct stock by backs were illegal until recently as they were seen as a violation of insider trading and presented conflicts of interest. Further stock based compensation for executives is also relatively new. So we now have a situation that the incentives are clearly aligned for executives to pump stock prices to boost their own compensation through a previously illegal means of stock buy backs. Just look at the ratio of dividends to stock by backs in the last few years. You will see the result of those incentives.
  - airstrike 7y ago
    By and large most publicly traded companies are not insolvent right now and don't look to be in the near future. For the most part, all that's happened is their stock price is down, some are double-checking if they have sufficient liquidity to weather the pandemic and how long they have, some have drawn on their revolvers, started hiring advisors to rethink capital structure, and some very few are thinking about restructuring.
stickfigure 7y ago
I don't know how you do your financial planning, but when I invest my money, I expect to see a return. I expect most folks do. Everything else falls out of that.
- sho 7y ago
  > when I invest my money, I expect to see a return If that return is at the cost of the stability and welfare of society at large then sorry, but no. No-one "deserves" a return and nothing happens in a vacuum. Larger society comes first, full stop. Seems this is a lesson we humans forget, and need to collectively and painfully relearn, every few decades.
  - stickfigure 7y ago
    Larger society comes first, full stop. Ah, the rallying cry of 20th-century tyrants. You can justify just about anything with that statement.
    - sangnoir 7y ago
      If you prefer to think of it in economic terms, you may consider disrupting societal stability as counterparty risk, writ large.
- deleted 7y ago
  [deleted]
- coldpie 7y ago
  This kind of thinking is why some of us are starting to talk about rolling out the guillotines.

ramraj07 7y ago

Wasn't buybacks banned for a longtime in the century? Perhaps you consider this to be socialism and that's why it was unbanned, but given the perverse incentives politicians seemed to have had for the past few decades, I don't see an unbiased argument why it was in the interest of the public to unban stock buyback. Clearly the past year has proven why it should have stayed banned.

senordevnyc 7y ago
Should dividends be banned? Would you be equally upset if these companies paid out their profits in dividends? Or maybe you’re suggesting we should have liquidity requirements for all businesses like we do for banks? That’s actually not the worst idea in a world where we’re going to be bailing companies out. If you want a bailout, you have to have a rainy day fund to make it less likely you’ll need one.
- digitaltrees 7y ago
  Dividends are fundamentally different than stock buy backs. They are the distribution of profit to owners of a business. No nonpublic information involved. No misaligned incentives. Yes, liquidity requirements and add personal liability for executives if their firm goes through bankruptcy, or restructuring. Goldman Sachs was a partnership until the 90s with each banker personally liable for the firms debts. They took risk much more seriously then.
  - airstrike 7y ago
    > They are the distribution of profit to owners of a business. So are buybacks
    - digitaltrees 7y ago
      No they are not. They reduce the amount of equity and raise the stock price but unless the share holder sells there is no real gain. That’s not to say buy backs don’t convey possible value but it’s not accurate to say they are the distribution of profit any more than if the company bought stock of another company (like yahoo buying alibaba stock) or a piece of equipment. In all cases the company has value reflected on its balance sheet. There is no true net gain.

digitaltrees 7y ago

Business does not have to be structured as a Corporation with limited liability. That is a privilege allowed by the sovereign power of the people through an elected government. If companies don’t behave responsibly they should lose that privilege and the owners could be held liable for debt and these kinds of mistakes personally. The fetishized obligation to shareholders and ONLY shareholders is not some holy pronouncement from on high. It was made up by a professor at University of Chicago and ran contrary to the history of business and limited liability company structures. If we, as a society, determine that such a practice is harmful based on the evidence we can and should end it.

deleted 7y ago
[deleted]
OGWhales 7y ago
> It was made up by a professor at University of Chicago and ran contrary to the history of business and limited liability company structures Who is this guy? Also where can I learn more about this and related topics. I’ve taken an interest to learning about our economic system in my free time and would love it if someone could point me to some good resources/podcasts/whatever.
- digitaltrees 7y ago
  Milton Friedman. https://www.forbes.com/sites/stevedenning/2013/06/26/the-origin-of-the-worlds-dumbest-idea-milton-friedman/#6581d7e7870e https://www.forbes.com/sites/stevedenning/2013/06/26/the-ori... The amazing thing is when you compare this with the history of corporate structures. For much of history after the joint stock ventures were created in the 1600s they were extraordinary one time grants from the king and only for very very risky ventures. Basically they were used to induce businesses that wouldn’t exist but were vital for society. In exchange there was an express charter that laid out the obligations of the firm. There were expectations on how the company would act in society. There were obligations to employees, bond holders, the community etc.
- akiselev 7y ago
  He means Milton Friedman. The "theory" itself is called "shareholder primacy": https://en.wikipedia.org/wiki/Shareholder_primacy https://en.wikipedia.org/wiki/Shareholder_primacy