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Would Warren Buffett fire the entire management of any company he owned that borrowed more than 10% of earnings in one year, regardless of circumstances? Becaus

Would Warren Buffett fire the entire management of any company he owned that borrowed more than 10% of earnings in one year, regardless of circumstances? Because that is what his suggestion amounts to.

sc68cal 15y ago
Firstly - I wouldn't put it past him to do something like that if he thought that would maximize his investment. The market doesn't view a debt of +10% of earnings to be that big of a deal however, has priced that risk accordingly, and Buffet has never been put in that situation. Secondly - there is always a problem with equating governments to corporations, since governments are formed for public good and corporations are formed to maximize shareholder value. Their roles and motivations are quite different.
- coconutrandom 15y ago
  Is it naive to suggest that citizens are shareholders? and to extend the metaphor, that other countries are customers/clients?
  - sc68cal 15y ago
    You could make that case with some examples, but even then, the metaphor overwrites the reason why governments are formed - for the public good (and the protection of personal property, if you are a fan of John Locke). Thus, governments in your metaphor lose their actual purpose. This ultimately typecasts actions that a government does, into business actions. Even though some of them would make absolutely no business sense. For example, why would a country raise tariffs or raise trade barriers? This would demonstrate weakpoints in the metaphor that other countries are clients. A more extreme example would be where a country starts to kill people, by going to war with another country, or killing it's own people due to political upheaval. The metaphor really breaks down in that case. Businesses by and large, don't go and kill people intentionally. Obviously there are some historical and modern examples (Chiquita comes to mind) but I don't think that "Killing People" is in anyone's charter.
    - Klinky 15y ago
      the metaphor overwrites the reason why governments are formed - for the public good Money isn't the only way to represent wealth. The ideal government would ensure proper infrastructure(justice, defense, interstate transport) to the country without concern of profiting from it & for the benefit of all citizens. Money goes in, "shareholders"(citizens) earn dividends based off the infrastructure/programs they get back. For example, why would a country raise tariffs or raise trade barriers? Why would Verizon put an early termination fee on a contract? Is it because the customer benefited from a subsidized phone, kind of like how business benefits from subsidized infrastructure?
  - jhamburger 15y ago
    It would be more accurate if the directors of a corporation had the power to arbitrarily give out dividends to certain shareholders and not others.
  - 127001brewer 15y ago
    But aren't citizens both customers and shareholders? And aren't non-citizens who buy our debt shareholders too?
  - yummyfajitas 15y ago
    Yes. In principle, the shareholders are the people to whom the profits flow. If you follow the money, you discover it goes to government employee's unions, old people and various other special interests. They are the shareholders in government. Not ordinary citizens.
    - gnaritas 15y ago
      Old people are ordinary citizens and all ordinary citizens with either die early or become old people. Unions are also collective groups of ordinary citizens. Thus following the money leads to ordinary citizens.
      - barry-cotter 15y ago
        I sympathise with your first sentence and mostly agree with it. The second is wrong, even if you don't understand it as it was meant, as government employee unions.
    - anigbrowl 15y ago
      'Old people'? You mean citizens who paid taxes to finance social security and medicare for previous generations of retirees? Scandalous - how dare they.
    - coconutrandom 15y ago
      ...and to infrastructure and public services and creation and maintaining of them.
      - yummyfajitas 15y ago
        Such things actually make up a fairly small portion of government spending. http://usgovernmentspending.com/piechart_2009_US_total http://usgovernmentspending.com/piechart_2009_US_total Further, ask yourself who makes a profit on public service - the child who is poorly educated by a failing school, or the teacher who is overpaid to provide that service?
Brewer 15y ago
I think the US government is one company that needs to have most of its management fired, or at least scared shitless. It's not the best solution, but we really do need to do something.
deleted 15y ago
[deleted]
RogerK 15y ago
I'm guessing the oracle wouldn't fire a team for taking on debt of 10% of earnings but would likely fire the management of a company in a low growth industry that incured a debt level of 5.5x it's annual revenue (public debt / tax revenues) though. Unfortunately the current discussion is more about people's frustration over the notional amount (long term issue) than the marginal amount (short term issue).

sc68cal 15y ago

Firstly - I wouldn't put it past him to do something like that if he thought that would maximize his investment. The market doesn't view a debt of +10% of earnings to be that big of a deal however, has priced that risk accordingly, and Buffet has never been put in that situation. Secondly - there is always a problem with equating governments to corporations, since governments are formed for public good and corporations are formed to maximize shareholder value. Their roles and motivations are quite different.

coconutrandom 15y ago
Is it naive to suggest that citizens are shareholders? and to extend the metaphor, that other countries are customers/clients?
- sc68cal 15y ago
  You could make that case with some examples, but even then, the metaphor overwrites the reason why governments are formed - for the public good (and the protection of personal property, if you are a fan of John Locke). Thus, governments in your metaphor lose their actual purpose. This ultimately typecasts actions that a government does, into business actions. Even though some of them would make absolutely no business sense. For example, why would a country raise tariffs or raise trade barriers? This would demonstrate weakpoints in the metaphor that other countries are clients. A more extreme example would be where a country starts to kill people, by going to war with another country, or killing it's own people due to political upheaval. The metaphor really breaks down in that case. Businesses by and large, don't go and kill people intentionally. Obviously there are some historical and modern examples (Chiquita comes to mind) but I don't think that "Killing People" is in anyone's charter.
  - Klinky 15y ago
    the metaphor overwrites the reason why governments are formed - for the public good Money isn't the only way to represent wealth. The ideal government would ensure proper infrastructure(justice, defense, interstate transport) to the country without concern of profiting from it & for the benefit of all citizens. Money goes in, "shareholders"(citizens) earn dividends based off the infrastructure/programs they get back. For example, why would a country raise tariffs or raise trade barriers? Why would Verizon put an early termination fee on a contract? Is it because the customer benefited from a subsidized phone, kind of like how business benefits from subsidized infrastructure?
- jhamburger 15y ago
  It would be more accurate if the directors of a corporation had the power to arbitrarily give out dividends to certain shareholders and not others.
- 127001brewer 15y ago
  But aren't citizens both customers and shareholders? And aren't non-citizens who buy our debt shareholders too?
- yummyfajitas 15y ago
  Yes. In principle, the shareholders are the people to whom the profits flow. If you follow the money, you discover it goes to government employee's unions, old people and various other special interests. They are the shareholders in government. Not ordinary citizens.
  - gnaritas 15y ago
    Old people are ordinary citizens and all ordinary citizens with either die early or become old people. Unions are also collective groups of ordinary citizens. Thus following the money leads to ordinary citizens.
    - barry-cotter 15y ago
      I sympathise with your first sentence and mostly agree with it. The second is wrong, even if you don't understand it as it was meant, as government employee unions.
  - anigbrowl 15y ago
    'Old people'? You mean citizens who paid taxes to finance social security and medicare for previous generations of retirees? Scandalous - how dare they.
  - coconutrandom 15y ago
    ...and to infrastructure and public services and creation and maintaining of them.
    - yummyfajitas 15y ago
      Such things actually make up a fairly small portion of government spending. http://usgovernmentspending.com/piechart_2009_US_total http://usgovernmentspending.com/piechart_2009_US_total Further, ask yourself who makes a profit on public service - the child who is poorly educated by a failing school, or the teacher who is overpaid to provide that service?

Brewer 15y ago

I think the US government is one company that needs to have most of its management fired, or at least scared shitless. It's not the best solution, but we really do need to do something.

deleted 15y ago

[deleted]

RogerK 15y ago

I'm guessing the oracle wouldn't fire a team for taking on debt of 10% of earnings but would likely fire the management of a company in a low growth industry that incured a debt level of 5.5x it's annual revenue (public debt / tax revenues) though. Unfortunately the current discussion is more about people's frustration over the notional amount (long term issue) than the marginal amount (short term issue).