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Nothing personal, but how is it not a company's fault to take on tons of leverage and not have cash reserves? I know this is typical SV growth mindset, but it i

Nothing personal, but how is it not a company's fault to take on tons of leverage and not have cash reserves? I know this is typical SV growth mindset, but it isn't conventional financial wisdom. Seems to me companies need to get lucky if they go growth at all costs, because if you havent flipped the profit switch before a recession, your balance sheets are too red.

dustingetz 7y ago
When one org takes on too much leverage it is the org's fault When every org, smb, landlord and individual takes on too much leverage, it is the macro economic system we exist in that is at fault
- watwut 7y ago
  It is not case that every org, smb, landlord and individual took on too much leverage. Quite a few among those who are laying people off run out of money because their customers are not buying services now or because they were flat out closed. Which is something else then "my company took on way too much leverage".
  - dustingetz 7y ago
    Do you have a credit card, a car payment, a mortgage, rent or lease, or a student loan? Can you make payments for several months without a salary? Several years? Literally everything for the last 50+ years is financed with debt, labor doesn't own anything anymore, and it's not possible to opt out of debt and simultaneously compete, which is how we got in this Chinese finger trap in the first place.
    - watwut 7y ago
      I can make payments for a year without changing lifestyle much. That was intentional, I had the option to spend all money. I never pretended I am poor. I work as programmer and so does my partner. Most people on this forum are not poor. We are comparatively well paid group. There is debt and then there is excessive debt or "leverage". Ans when management take on excessive leverage so that you fulfill your dream of being big and then company fails, yes it is management fault. "We took excessive debt and then failed by no mistake of ours" is an oxymoron and illogical statement. That is not nearly the same as debt because your kid would die without it or something like that.
      - dustingetz 7y ago
        Sorry wasn't aiming at you individually. My point is that debt == leverage and every one of us is complicit in this insane and unsustainable system.
- frockington1 7y ago
  If you look at some of the biggest winners out of '08/'09 it was the institutions with large balance sheets and cash reserves. With earnings season just starting we are able to see the value of a strong balance sheet. Seems to me the macro economic system is rewarding those who bothered with risk management
- fallingfrog 7y ago
  Good point. If I’m being fair I would have to say that the system that encourages individuals to live paycheck to paycheck and the system that encourages companies to leverage to the gills is the same system, and so maybe it is unfair to blame corporations for needing a bailout- they’re just responding in a rational way to their environment. I hadn’t thought of it that way. But the downside to that is: if in fact you can’t pin this moralistically on bad actors, then you are definitely going to see the same behavior over and over, until policies change.
jazzyk 7y ago
I wholeheartedly agree with you, but the fault lies with the Federal Reserve, which has been promoting reckless behavior for years now. Artificially setting interest rates so low (say 1%) that by saving money, you are actually losing money to inflation (real inflation at least 5%, if you include healthcare, real estate and higher education) promotes over-leveraging and that's what we got.

dustingetz 7y ago

When one org takes on too much leverage it is the org's fault When every org, smb, landlord and individual takes on too much leverage, it is the macro economic system we exist in that is at fault

watwut 7y ago
It is not case that every org, smb, landlord and individual took on too much leverage. Quite a few among those who are laying people off run out of money because their customers are not buying services now or because they were flat out closed. Which is something else then "my company took on way too much leverage".
- dustingetz 7y ago
  Do you have a credit card, a car payment, a mortgage, rent or lease, or a student loan? Can you make payments for several months without a salary? Several years? Literally everything for the last 50+ years is financed with debt, labor doesn't own anything anymore, and it's not possible to opt out of debt and simultaneously compete, which is how we got in this Chinese finger trap in the first place.
  - watwut 7y ago
    I can make payments for a year without changing lifestyle much. That was intentional, I had the option to spend all money. I never pretended I am poor. I work as programmer and so does my partner. Most people on this forum are not poor. We are comparatively well paid group. There is debt and then there is excessive debt or "leverage". Ans when management take on excessive leverage so that you fulfill your dream of being big and then company fails, yes it is management fault. "We took excessive debt and then failed by no mistake of ours" is an oxymoron and illogical statement. That is not nearly the same as debt because your kid would die without it or something like that.
    - dustingetz 7y ago
      Sorry wasn't aiming at you individually. My point is that debt == leverage and every one of us is complicit in this insane and unsustainable system.
frockington1 7y ago
If you look at some of the biggest winners out of '08/'09 it was the institutions with large balance sheets and cash reserves. With earnings season just starting we are able to see the value of a strong balance sheet. Seems to me the macro economic system is rewarding those who bothered with risk management
fallingfrog 7y ago
Good point. If I’m being fair I would have to say that the system that encourages individuals to live paycheck to paycheck and the system that encourages companies to leverage to the gills is the same system, and so maybe it is unfair to blame corporations for needing a bailout- they’re just responding in a rational way to their environment. I hadn’t thought of it that way. But the downside to that is: if in fact you can’t pin this moralistically on bad actors, then you are definitely going to see the same behavior over and over, until policies change.

jazzyk 7y ago

I wholeheartedly agree with you, but the fault lies with the Federal Reserve, which has been promoting reckless behavior for years now. Artificially setting interest rates so low (say 1%) that by saving money, you are actually losing money to inflation (real inflation at least 5%, if you include healthcare, real estate and higher education) promotes over-leveraging and that's what we got.