4 ms·

Okay, but why is buying a company's stock not the same as bailing it out? If you're "investing" in the business, why does money have to be given to them directl

by btrask 7y ago

Okay, but why is buying a company's stock not the same as bailing it out? If you're "investing" in the business, why does money have to be given to them directly, using a completely different mechanism?

hnarn 7y ago
"Bailing [a company] out" implies severe issues with the financing of the company, and that without that investment the company would go under. I'm not sure what you mean by "a completely different mechanism", a bailout can definitely happen through acquiring stocks in that company.
- btrask 7y ago
  What I mean is, simply buying a company's stock does not immediately benefit them. They have to issue new shares to turn their elevated stock price into cash. So if companies simply issued shares, they could raise money and effectively undo all of the buybacks they did. Problem solved, right?
  - hnarn 7y ago
    Yes, assuming anyone will buy the stocks, and at the price you want them to...
    - btrask 7y ago
      Well, they can keep issuing stock until their share price hits $0.00. If they still need money, then maybe the state can step in and start buying some.
      - sp332 7y ago
        If traders credibly believed that a stock's value was going to 0, then the price would already be 0. Just saying in advance that your scheme was about to be implemented would crater the price before any new stock was sold.
Taniwha 7y ago
Plain buying a company's shares gives no money to the company, just to its shareholders Buying new shares from the company in exchange for bailout money dilutes the value of existing shares (not necessarily a bad thing, the investors bet on a company that wasn't prepared for such a downturn). Of course companies that have done stock buybacks could sell stock on the open market with roughly the same effect. Buying debt from a company likely means future dividends will be lower, share prices are also likely to go down. Plain bailing out a company with no payback is essentially an investment in jobs and a healthy economy, I can't see any reason why at the very least it shouldn't be exchanged for equity. Of course in all these cases it's all of us who are doing this collectively (very socialist!) we should expect that companies that are bailed out by the taxpayers repay their bailouts eventually, from that point of view investing in companies that don't pay their fair share of taxes (by playing accounting games, moving profits offshore etc) are particularly poor investments
- hnarn 7y ago
  > Of course in all these cases it's all of us who are doing this collectively (very socialist!) "Very" seems like a generous adjective since actual socialism would require the company to be run by the employees. It's more like "almost" socialism.

by btrask 7y ago

hnarn 7y ago

"Bailing [a company] out" implies severe issues with the financing of the company, and that without that investment the company would go under. I'm not sure what you mean by "a completely different mechanism", a bailout can definitely happen through acquiring stocks in that company.

btrask 7y ago
What I mean is, simply buying a company's stock does not immediately benefit them. They have to issue new shares to turn their elevated stock price into cash. So if companies simply issued shares, they could raise money and effectively undo all of the buybacks they did. Problem solved, right?
- hnarn 7y ago
  Yes, assuming anyone will buy the stocks, and at the price you want them to...
  - btrask 7y ago
    Well, they can keep issuing stock until their share price hits $0.00. If they still need money, then maybe the state can step in and start buying some.
    - sp332 7y ago
      If traders credibly believed that a stock's value was going to 0, then the price would already be 0. Just saying in advance that your scheme was about to be implemented would crater the price before any new stock was sold.

Taniwha 7y ago

Plain buying a company's shares gives no money to the company, just to its shareholders Buying new shares from the company in exchange for bailout money dilutes the value of existing shares (not necessarily a bad thing, the investors bet on a company that wasn't prepared for such a downturn). Of course companies that have done stock buybacks could sell stock on the open market with roughly the same effect. Buying debt from a company likely means future dividends will be lower, share prices are also likely to go down. Plain bailing out a company with no payback is essentially an investment in jobs and a healthy economy, I can't see any reason why at the very least it shouldn't be exchanged for equity. Of course in all these cases it's all of us who are doing this collectively (very socialist!) we should expect that companies that are bailed out by the taxpayers repay their bailouts eventually, from that point of view investing in companies that don't pay their fair share of taxes (by playing accounting games, moving profits offshore etc) are particularly poor investments

hnarn 7y ago
> Of course in all these cases it's all of us who are doing this collectively (very socialist!) "Very" seems like a generous adjective since actual socialism would require the company to be run by the employees. It's more like "almost" socialism.