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> Loss or profit only happens when you sell your assets. This is a meme phrase; losses absolutely do happen before you sell your assets. (If I bought Enron at

> Loss or profit only happens when you sell your assets. This is a meme phrase; losses absolutely do happen before you sell your assets. (If I bought Enron at $90 and never sold, I didn't lose any money, right?) > "American Airlines spent $13 billion on share buybacks for 10 years through 2019". They should have used that money more wisely. Why should the taxpayers give money away You have two misunderstandings here. The Fed is not bailing out American Airlines by giving money away. That has to go through Congress. (I have no claims about whether bailing out AA is a good decision or not). Bailouts also generally are not free giveaways; the government often takes equity stakes. > or lent money at close to zero interest The Fed is lending everyone money at 0% to avoid a recession. Regardless of whether AA previously bought back their stock, they could still borrow at 0%. The Fed is doing this because the alternative (letting everything crash) is much worse. > when the companies had the money and dedicated it to artificially increase share prices? Share buybacks do not "manipulate the market" (not your words, but common phrasing among anti-buyback advocates) and artificially increase share prices. They return capital to shareholders. The share price goes up because the stock now represents a better return on investment (when AA buys back stock, it no longer a bunch of market cap tied up in money uselessly sitting around in a money market account). When times get tough, AA can sell equity for more money, which is a stock buyback but in reverse. That's what could happen here. This ebb and flow (raising capital by issuing shares when you need it, returning capital when you don't) is the whole point of equity markets. See 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... for a more comprehensive argument about why share buybacks for airlines are more rational than holding money for a rainy day.

chii 7y ago
> When times get tough, AA can sell equity for more money, which is a stock buyback but in reverse so why are they not doing this, but instead asking for low interest loans? (https://finance.yahoo.com/news/airline-ceos-promise-to-eliminate-dividends-and-stock-buybacks-if-congress-passes-29-b-coronavirus-bailout-175925540.html https://finance.yahoo.com/news/airline-ceos-promise-to-elimi...) The reason is that raising equity dilutes all current shareholders. It's a bigger "loss" to them than a termed interest loan which the tax payer gets minimal reward for taking on the risk. I say, that any bailout loans _should_ come with an equity dilution component. Tax payers should get compensated, or this moral hazard will just continue into the future.
- tylerhou 7y ago
  > The reason is that raising equity dilutes all current shareholders. But like venture funding, dilution is fine as long as it means that the company survives or grows. I'd rather own 1% of a billion dollar company than 10% of a dead one. > It's a bigger "loss" to them than a termed interest loan which the tax payer gets minimal reward for taking on the risk. Yes, I agree, but my key point is that buybacks are a natural part of equity markets and are not done solely to "manipulate the market" as commonly claimed. > I say, that any bailout loans _should_ come with an equity dilution component. Tax payers should get compensated, or this moral hazard will just continue into the future. Agreed, any exceptional bailouts through the government should come with an equity stake. I'm fine with lending to airlines at normal corporate lending rates without needing any additional compensation, though.
  - chii 7y ago
    > I'm fine with lending to airlines at normal corporate lending rates without needing any additional compensation, though. the problem is that the current bond and credit markets have seized up because nobody wants to lend (at "normal" rates). If the gov't comes into the market and act as a perfect lender of last resort, then true price discovery don't happen, and you cannot really know what the "true" corporate lending rate would be. That's my take on why it doesn't work without an equity stake for the gov't to do the lending.
Hokusai 7y ago
> This is a meme phrase; losses absolutely do happen before you sell your assets. It is not a meme, is how accounting works, is how governments tax. If you look at your own example, some people though that they had made a lot of profit with Enron, if they did not sold the shares then they only got losses. Because the you only win or lose money when you sell your shares (not counting dividends if any). UK law: "You’ll need to work out your gain to find out whether you need to pay Capital Gains Tax. Your gain is usually the difference between what you paid for your shares and what you sold them for." - https://www.gov.uk/tax-sell-shares/work-out-your-gain https://www.gov.uk/tax-sell-shares/work-out-your-gain Until you sell there is NO gains as price varies in function of time. And it can go up or down. The other claims are more complicated. It's difficult to discuss them if common accounting knowledge is not understood.
- perl4ever 7y ago
  " is how accounting works," There is no one accounting standard that is the ultimate reality. Accounting is a means of representing reality for a particular purpose like any other model. And it can only change and attempt to improve with the understanding that an outside reality exists. And "mark to market" is a thing that exists, and is sometimes required, anyway. So I think you're completely wrong in a deep sense, but also in a shallow technical sense.

chii 7y ago

> When times get tough, AA can sell equity for more money, which is a stock buyback but in reverse so why are they not doing this, but instead asking for low interest loans? (https://finance.yahoo.com/news/airline-ceos-promise-to-eliminate-dividends-and-stock-buybacks-if-congress-passes-29-b-coronavirus-bailout-175925540.html https://finance.yahoo.com/news/airline-ceos-promise-to-elimi...) The reason is that raising equity dilutes all current shareholders. It's a bigger "loss" to them than a termed interest loan which the tax payer gets minimal reward for taking on the risk. I say, that any bailout loans _should_ come with an equity dilution component. Tax payers should get compensated, or this moral hazard will just continue into the future.

tylerhou 7y ago
> The reason is that raising equity dilutes all current shareholders. But like venture funding, dilution is fine as long as it means that the company survives or grows. I'd rather own 1% of a billion dollar company than 10% of a dead one. > It's a bigger "loss" to them than a termed interest loan which the tax payer gets minimal reward for taking on the risk. Yes, I agree, but my key point is that buybacks are a natural part of equity markets and are not done solely to "manipulate the market" as commonly claimed. > I say, that any bailout loans _should_ come with an equity dilution component. Tax payers should get compensated, or this moral hazard will just continue into the future. Agreed, any exceptional bailouts through the government should come with an equity stake. I'm fine with lending to airlines at normal corporate lending rates without needing any additional compensation, though.
- chii 7y ago
  > I'm fine with lending to airlines at normal corporate lending rates without needing any additional compensation, though. the problem is that the current bond and credit markets have seized up because nobody wants to lend (at "normal" rates). If the gov't comes into the market and act as a perfect lender of last resort, then true price discovery don't happen, and you cannot really know what the "true" corporate lending rate would be. That's my take on why it doesn't work without an equity stake for the gov't to do the lending.

Hokusai 7y ago

> This is a meme phrase; losses absolutely do happen before you sell your assets. It is not a meme, is how accounting works, is how governments tax. If you look at your own example, some people though that they had made a lot of profit with Enron, if they did not sold the shares then they only got losses. Because the you only win or lose money when you sell your shares (not counting dividends if any). UK law: "You’ll need to work out your gain to find out whether you need to pay Capital Gains Tax. Your gain is usually the difference between what you paid for your shares and what you sold them for." - https://www.gov.uk/tax-sell-shares/work-out-your-gain https://www.gov.uk/tax-sell-shares/work-out-your-gain Until you sell there is NO gains as price varies in function of time. And it can go up or down. The other claims are more complicated. It's difficult to discuss them if common accounting knowledge is not understood.

perl4ever 7y ago
" is how accounting works," There is no one accounting standard that is the ultimate reality. Accounting is a means of representing reality for a particular purpose like any other model. And it can only change and attempt to improve with the understanding that an outside reality exists. And "mark to market" is a thing that exists, and is sometimes required, anyway. So I think you're completely wrong in a deep sense, but also in a shallow technical sense.