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The rage against buybacks is how many are funded - through debt. Boards are gearing their companies to the hilt to fund shareholder returns (in whatever form),

The rage against buybacks is how many are funded - through debt. Boards are gearing their companies to the hilt to fund shareholder returns (in whatever form), to the point the ship itself is rendered unable to whether significant storms. If bailouts are normalized, there is no disincentive against such reckless behavior. I would like there to be permanent cash buffers to fund 1 year HR costs before any form of shareholder returns are allowed.

imtringued 7y ago
Your company makes 2 million profit per month. You don't want to sit on the cash for 12 months just to pay out 24 million, you want to give the money to shareholders immediately. That's a pure liquidity problem so the answer is to just get a dirt cheap loan.
- tialaramex 7y ago
  In a year's time, weirdly there isn't 24 million cash profit to pay off the "cheap loan" and the company go bankrupt. In hindsight it's obvious the "profit" was illusionary. Your million dollar "performance" pay for orchestrating this is securely in your personal bank account, the auditor's million dollar "consultancy fee" in theirs, and employees, the tax man, and shareholders are left with nothing. Yet another "success" for capitalism.
  - ComputerGuru 7y ago
    Yes... except the risk of this happening is theoretically priced into the interest rate on the loan. If it’s dirt-cheap it must also be a low-probability scenario. (Not that I necessarily disagree with you on principle.)
    - a_c_s 7y ago
      That's the theory, but that assumes all stakeholders aligned incentives (or it ignores employees as stakeholders). In the real world it is far easier to fire lots of employees than it is to stop paying the bank loan. So being only sort-of wrong by giving a company a loan they can't quite afford to pay back doesn't hurt the bank at all - they still get their money. The entity "pricing" the consequences has few consequences if they get it wrong, so why wouldn't they err on the side of doing more business and making more money?
SilasX 7y ago
Fine, but then rage against that debt regardless of whether it's used for dividends or buybacks. Focusing such hate on buybacks per se is still confused. Also, it might be worth probing the cause of bizarrely low rates, or wondering if it's a good idea for a high corporate tax rate that distorts behavior so much. (If you're going to reply that the effective corporate tax rate is actually low because they engage in complex schemes X, Y, Z, to reduce their effective rate, then you're agreeing it's distortive and encourages socially-wasteful activity.)

imtringued 7y ago

Your company makes 2 million profit per month. You don't want to sit on the cash for 12 months just to pay out 24 million, you want to give the money to shareholders immediately. That's a pure liquidity problem so the answer is to just get a dirt cheap loan.

tialaramex 7y ago
In a year's time, weirdly there isn't 24 million cash profit to pay off the "cheap loan" and the company go bankrupt. In hindsight it's obvious the "profit" was illusionary. Your million dollar "performance" pay for orchestrating this is securely in your personal bank account, the auditor's million dollar "consultancy fee" in theirs, and employees, the tax man, and shareholders are left with nothing. Yet another "success" for capitalism.
- ComputerGuru 7y ago
  Yes... except the risk of this happening is theoretically priced into the interest rate on the loan. If it’s dirt-cheap it must also be a low-probability scenario. (Not that I necessarily disagree with you on principle.)
  - a_c_s 7y ago
    That's the theory, but that assumes all stakeholders aligned incentives (or it ignores employees as stakeholders). In the real world it is far easier to fire lots of employees than it is to stop paying the bank loan. So being only sort-of wrong by giving a company a loan they can't quite afford to pay back doesn't hurt the bank at all - they still get their money. The entity "pricing" the consequences has few consequences if they get it wrong, so why wouldn't they err on the side of doing more business and making more money?

SilasX 7y ago

Fine, but then rage against that debt regardless of whether it's used for dividends or buybacks. Focusing such hate on buybacks per se is still confused. Also, it might be worth probing the cause of bizarrely low rates, or wondering if it's a good idea for a high corporate tax rate that distorts behavior so much. (If you're going to reply that the effective corporate tax rate is actually low because they engage in complex schemes X, Y, Z, to reduce their effective rate, then you're agreeing it's distortive and encourages socially-wasteful activity.)