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> Suddenly, borrowing money in order to fork it over to shareholders makes less sense in a world of higher interest rates What a lot of people probably dont re

> Suddenly, borrowing money in order to fork it over to shareholders makes less sense in a world of higher interest rates What a lot of people probably dont realise when they read the term "business" is how big a fraction of management attention, incentives and remuneration is pure financial engineering: a parasitic game between financiers, accountants, tax code, central banks and company treasuries that has nothing to do with the mission of the company. A modern corporation is a gigantic financial spreadsheet with its real assets a mere footnote. In its most benign form debt is an accelerator for a healthy business that is growing. It is possible to get a debt hangover when misestimating actual business prospects and that is a serious enough challenge of its own. The virtual reality of Wall Street and the obese financial system only serves to inflate the volatility. That is by design because volatility is precisely what it is milking.

monero-xmr 3y ago
It may be true that at the top of any corporation is a lot of financial engineering and games. But at the bottom is the actual work, and when the leaders neglect the bottom is when the vultures swoop in to remind everyone. There is a sick game in the world. The cause is not the workers, it’s the elites. However cold water washes away the crabs.
- carlosjobim 3y ago
  That actual work is in many cases just for keeping up appearances. The company owners and leadership know that the product or whatever their staff is working on is doomed to fail from the beginning, but need something to show to /with bankers and politicians to increase borrowing. Just think about how many truly awful competitors there are in any market or product sector. If you noticed, don't you think they've noticed?
- lazide 3y ago
  Both hands are required to clap, and frankly workers play their own games too. The vast majority of folks have no issues enabling terrible situations for a paycheck, and pretending to work isn’t exactly new either.
  - CapstanRoller 3y ago
    >The vast majority of folks have no issues enabling terrible situations for a paycheck Is it really "enabling" when there's a metaphorical (and often literal, in the case of police) gun to one's head? Most of us can't opt out of this arrangement, and that's by design. There isn't even a "run away into the forest" option, because all the forests are already owned by someone. Being homeless is effectively illegal. Being dispossessed in general is illegal, even though the system is predicated on dispossessing the populace to enrich those at the top. It's less like a dysfunctional relationship and more like a hostage situation. Don't blame the hostages, please.
    - lazide 3y ago
      If the hostages are also usually the ones holding the guns, it’s an apt comparison. If labor never walks, it has no power.
      - CapstanRoller 3y ago
        >If labor never walks, it has no power. Agreed, the power we have must be exercised. Use it or lose it. There are more of us than there are of them, but getting started is the hard part. It's a tall order to ask someone to stick their neck out first. I'll stop here as HN is not the place to plan a revolution :)
        lazide 3y ago
        If someone won’t take any risk - they get the corresponding reward. Law of the jungle and all.
  - AvocadoPanic 3y ago
    They pretend to pay us, we pretend to work. What's my incentive to take the considerable effort, burn what political capital I may have, and use my little spare energy to overcome the enertia of the terrible situation? I save the company 400k by eleminating unnecessary services. Great a challenge coin. I'll remember this next time you ask for savings opportunities or volunteers.
bryanrasmussen 3y ago
>What a lot of people probably dont realise when they read the term "business" is how big a fraction of management attention, incentives and remuneration is pure financial engineering an anecdote I've shared before, was talking to an acquaintance from my child's kindergarten who was an investment guy and I said I thought that finance services were increasingly capturing too much value and he countered that was because finance was where "all the innovation is." He later got indicted for fraud and couldn't explain how a lot of money disappeared.
- nologic01 3y ago
  you anecdote is very apposite and imho applies beyond just the financial realm. financial innovation is dirt cheap. get enough aligned interests around a table and you can create new contracts, new financial markets etc out of thin air. its all fundamentally just a game around information control, an intermediary forcefully interjected in the economy and extracting rents. now, the quiz: in which other sector is most "innovation" dirt cheap and essentially just a game around information control, an intermediary forcefully interjected in the economy and extracting rents? the only thing that could be worse than what we have today is when those two "innovative" sectors merge. yet this outcome is inevitable and it will happen fairly soon.
  - djbusby 3y ago
    What's the other sector? Tech?
    - lazide 3y ago
      Not the poster you are replying to, but IMO it clearly applies to a large number of tech sectors, medical care, real property, and higher education.
    - cudgy 3y ago
      Pharmaceuticals?
- lordnacho 3y ago
carlosjobim 3y ago
All money is created by banks issuing debt, so it makes complete sense that people want to be as close to the money tap as possible to siphon from it. The alternative is trying to build up a productive business in the extremely competitive and harsh free market, where you have to deliver to customers, who are free to choose. Who wants that hassle when you can just pretend being a business and keep on borrowing?
- CapstanRoller 3y ago
  >so it makes complete sense that people want to be as close to the money tap as possible to siphon from it This is known as the "Cantillon Effect"[0], and it also explains the concept of biflation[1]: if you're close to the money tap and there's a surge of money, you can profit from arbitrage before that money hits the larger economy and spreads out. The further away from the money tap you are, the less you're able to profit from changes in money supply. Everyone who isn't close to the money tap is on the losing end of this arbitrage opportunity. This creates perverse incentives for large well-connected business entities, typically centered around schemes involving juggling debt. >Who wants that hassle when you can just pretend being a business and keep on borrowing? Yep. Eventually every business model starts turning into some variation of a pump and dump scheme. We see this most prominently in crypto, but also in the traditional economy (stock buybacks, real estate speculation, startups running on VC fumes, etc.) When enough of the economy turns away from production to speculation, the entire thing falls over and implodes. We don't know the exact point when this happens, and it's probably impossible to model, but history tells us it eventually does happen. People like Michael Burry believe this implosion is imminent, but things keep getting patched at the last second and the machine keeps lurching along. Despite the fancy math and terminology, the stock market (and the larger financialized economy) is ultimately based on "vibes" and the vibes now are bad. Even the 2008 crash didn't put a stop to these speculation games. Nobody knows how long "we" can keep this up. It's like a slot machine with a bomb inside. The rich guys pulling the lever are getting most of the coins, and the rest of us will get mostly blast damage. [0] https://en.wikipedia.org/wiki/Richard_Cantillon https://en.wikipedia.org/wiki/Richard_Cantillon [1] https://www.investopedia.com/terms/b/biflation.asp https://www.investopedia.com/terms/b/biflation.asp
midland_trucker 3y ago
This is my gut feeling about a lot of activity going on in modern corporations. Private equity firms, for example, have been historically blamed for a lot of once great engineering companies in the UK being combined into a bloated mess of activities - which ends up ultimately sacrificing competitiveness. However I feel like your average voter shaking my fist angrily a bankers sometimes when trying to put it into words (I don't honestly have a lot of insight on how it all works). Have you got any good book/essay recommendations on over-financialisation?
pwpw 3y ago
> A modern corporation is a gigantic financial spreadsheet with its real assets a mere footnote. This is the opposite of the reality. Financial statements following GAAP (USA) or IFRS (EU + many other major countries) explicitly list assets on the balance sheet with associated footnotes that explain more complex areas in greater depth. Often, footnotes will include more detailed information for those assets such as depreciation schedules (particularly for PP&E: Plants, Property, and Equipment). A company can raise capital either via debt or equity financing[0]. Relevant footnotes usually include the terms of how capital was raised, which is normally to fund the core business operations for most companies I have come across. > The virtual reality of Wall Street and the obese financial system only serves to inflate the volatility. That is by design because volatility is precisely what it is milking. I agree there are indeed Wall Street firms that conduct unhealthy business, but I believe this is more common within Wall Street banks and investment firms rather than most American businesses as your comment seems to be implying. I encourage you to read a set of financial statements to better understand how a business truly operates from an accounting perspective. Apple’s financial statements[1] are a good place to start since they have many PP&E assets, conduct financial services, and regularly deal with more complex accounting topics such as foreign currency conversion and derivatives for hedging. It’s truly valuable insight into how a company that’s incredibly expansive operates in (my opinion) a rather healthy manner all things considered. [0] https://www.investopedia.com/ask/answers/032515/what-are-different-ways-corporations-can-raise-capital.asp https://www.investopedia.com/ask/answers/032515/what-are-dif... [1] https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/_10-K-2022-(As-Filed).pdf https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/...

monero-xmr 3y ago

It may be true that at the top of any corporation is a lot of financial engineering and games. But at the bottom is the actual work, and when the leaders neglect the bottom is when the vultures swoop in to remind everyone. There is a sick game in the world. The cause is not the workers, it’s the elites. However cold water washes away the crabs.

carlosjobim 3y ago
That actual work is in many cases just for keeping up appearances. The company owners and leadership know that the product or whatever their staff is working on is doomed to fail from the beginning, but need something to show to /with bankers and politicians to increase borrowing. Just think about how many truly awful competitors there are in any market or product sector. If you noticed, don't you think they've noticed?
lazide 3y ago
Both hands are required to clap, and frankly workers play their own games too. The vast majority of folks have no issues enabling terrible situations for a paycheck, and pretending to work isn’t exactly new either.
- CapstanRoller 3y ago
  >The vast majority of folks have no issues enabling terrible situations for a paycheck Is it really "enabling" when there's a metaphorical (and often literal, in the case of police) gun to one's head? Most of us can't opt out of this arrangement, and that's by design. There isn't even a "run away into the forest" option, because all the forests are already owned by someone. Being homeless is effectively illegal. Being dispossessed in general is illegal, even though the system is predicated on dispossessing the populace to enrich those at the top. It's less like a dysfunctional relationship and more like a hostage situation. Don't blame the hostages, please.
  - lazide 3y ago
    If the hostages are also usually the ones holding the guns, it’s an apt comparison. If labor never walks, it has no power.
    - CapstanRoller 3y ago
      >If labor never walks, it has no power. Agreed, the power we have must be exercised. Use it or lose it. There are more of us than there are of them, but getting started is the hard part. It's a tall order to ask someone to stick their neck out first. I'll stop here as HN is not the place to plan a revolution :)
      - lazide 3y ago
        If someone won’t take any risk - they get the corresponding reward. Law of the jungle and all.
- AvocadoPanic 3y ago
  They pretend to pay us, we pretend to work. What's my incentive to take the considerable effort, burn what political capital I may have, and use my little spare energy to overcome the enertia of the terrible situation? I save the company 400k by eleminating unnecessary services. Great a challenge coin. I'll remember this next time you ask for savings opportunities or volunteers.

bryanrasmussen 3y ago

>What a lot of people probably dont realise when they read the term "business" is how big a fraction of management attention, incentives and remuneration is pure financial engineering an anecdote I've shared before, was talking to an acquaintance from my child's kindergarten who was an investment guy and I said I thought that finance services were increasingly capturing too much value and he countered that was because finance was where "all the innovation is." He later got indicted for fraud and couldn't explain how a lot of money disappeared.

nologic01 3y ago
you anecdote is very apposite and imho applies beyond just the financial realm. financial innovation is dirt cheap. get enough aligned interests around a table and you can create new contracts, new financial markets etc out of thin air. its all fundamentally just a game around information control, an intermediary forcefully interjected in the economy and extracting rents. now, the quiz: in which other sector is most "innovation" dirt cheap and essentially just a game around information control, an intermediary forcefully interjected in the economy and extracting rents? the only thing that could be worse than what we have today is when those two "innovative" sectors merge. yet this outcome is inevitable and it will happen fairly soon.
- djbusby 3y ago
  What's the other sector? Tech?
  - lazide 3y ago
    Not the poster you are replying to, but IMO it clearly applies to a large number of tech sectors, medical care, real property, and higher education.
  - cudgy 3y ago
    Pharmaceuticals?
lordnacho 3y ago

carlosjobim 3y ago

All money is created by banks issuing debt, so it makes complete sense that people want to be as close to the money tap as possible to siphon from it. The alternative is trying to build up a productive business in the extremely competitive and harsh free market, where you have to deliver to customers, who are free to choose. Who wants that hassle when you can just pretend being a business and keep on borrowing?

CapstanRoller 3y ago
>so it makes complete sense that people want to be as close to the money tap as possible to siphon from it This is known as the "Cantillon Effect"[0], and it also explains the concept of biflation[1]: if you're close to the money tap and there's a surge of money, you can profit from arbitrage before that money hits the larger economy and spreads out. The further away from the money tap you are, the less you're able to profit from changes in money supply. Everyone who isn't close to the money tap is on the losing end of this arbitrage opportunity. This creates perverse incentives for large well-connected business entities, typically centered around schemes involving juggling debt. >Who wants that hassle when you can just pretend being a business and keep on borrowing? Yep. Eventually every business model starts turning into some variation of a pump and dump scheme. We see this most prominently in crypto, but also in the traditional economy (stock buybacks, real estate speculation, startups running on VC fumes, etc.) When enough of the economy turns away from production to speculation, the entire thing falls over and implodes. We don't know the exact point when this happens, and it's probably impossible to model, but history tells us it eventually does happen. People like Michael Burry believe this implosion is imminent, but things keep getting patched at the last second and the machine keeps lurching along. Despite the fancy math and terminology, the stock market (and the larger financialized economy) is ultimately based on "vibes" and the vibes now are bad. Even the 2008 crash didn't put a stop to these speculation games. Nobody knows how long "we" can keep this up. It's like a slot machine with a bomb inside. The rich guys pulling the lever are getting most of the coins, and the rest of us will get mostly blast damage. [0] https://en.wikipedia.org/wiki/Richard_Cantillon https://en.wikipedia.org/wiki/Richard_Cantillon [1] https://www.investopedia.com/terms/b/biflation.asp https://www.investopedia.com/terms/b/biflation.asp

midland_trucker 3y ago

This is my gut feeling about a lot of activity going on in modern corporations. Private equity firms, for example, have been historically blamed for a lot of once great engineering companies in the UK being combined into a bloated mess of activities - which ends up ultimately sacrificing competitiveness. However I feel like your average voter shaking my fist angrily a bankers sometimes when trying to put it into words (I don't honestly have a lot of insight on how it all works). Have you got any good book/essay recommendations on over-financialisation?

pwpw 3y ago

> A modern corporation is a gigantic financial spreadsheet with its real assets a mere footnote. This is the opposite of the reality. Financial statements following GAAP (USA) or IFRS (EU + many other major countries) explicitly list assets on the balance sheet with associated footnotes that explain more complex areas in greater depth. Often, footnotes will include more detailed information for those assets such as depreciation schedules (particularly for PP&E: Plants, Property, and Equipment). A company can raise capital either via debt or equity financing[0]. Relevant footnotes usually include the terms of how capital was raised, which is normally to fund the core business operations for most companies I have come across. > The virtual reality of Wall Street and the obese financial system only serves to inflate the volatility. That is by design because volatility is precisely what it is milking. I agree there are indeed Wall Street firms that conduct unhealthy business, but I believe this is more common within Wall Street banks and investment firms rather than most American businesses as your comment seems to be implying. I encourage you to read a set of financial statements to better understand how a business truly operates from an accounting perspective. Apple’s financial statements[1] are a good place to start since they have many PP&E assets, conduct financial services, and regularly deal with more complex accounting topics such as foreign currency conversion and derivatives for hedging. It’s truly valuable insight into how a company that’s incredibly expansive operates in (my opinion) a rather healthy manner all things considered. [0] https://www.investopedia.com/ask/answers/032515/what-are-different-ways-corporations-can-raise-capital.asp https://www.investopedia.com/ask/answers/032515/what-are-dif... [1] https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/_10-K-2022-(As-Filed).pdf https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/...