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| Author: | MNGunner [ Wed Mar 18, 2020 6:35 pm ] |
| Post subject: | Bailouts |
https://www.bloomberg.com/news/articles ... acks-chart Airlines spent 96% of their free cash flow re-purchasing their own shares so that execs enjoy tax free wealth growth (something seen as stock manipulation up until the SEC changed rules in 1982). Now they're getting $50B from the government because of covid-19. The crazy part is these genius CEOs could now be buying their airline stock at half price. Capitalist profits, socialist losses. |
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| Author: | Wchauvin [ Wed Mar 18, 2020 7:34 pm ] |
| Post subject: | Re: Bailouts |
No matter the facts, you will still have a lot of misguided people who think that socialism works, even though it has failed in every country that has tried it out. Hopefully examples and information like you have here will help guide the misled in the future elections. |
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| Author: | bluesky2012 [ Wed Mar 18, 2020 7:47 pm ] |
| Post subject: | Re: Bailouts |
So I want to preface, I am not at all in favor of bailouts, but I do want to clarify that buy backs in and of themselves are not a bad thing, it’s just a question of when and where. Imagine opening a lemonade stand, and having a friend give you $100 for 25% ownership to help you get going. The stand grows and you open more and decide to buy the 25% ownership back from your friend for $200. He decides to sell so he came out on top and you came out on top. A buy back is a great way to reward equity investors at a lower tax rate than a dividend and is valuable in a market to encourage capital investments. It is ALSO a very important step to restructure capital within a company. As a young company, equity investments may be crucial so that loan interest doesn’t suck cash flow out of the company and prevent growth. Later, short and long term debt may be cheaper than equity, so a company needs to buy back equity and do a capital restructure to grow and remain profitable. Anyone with a 401k that plans to retire has benefited from this system immensely and is very important for companies to operate. It’s not a buy back issue, it’s a bailout issue. It’s also a FED issue. When companies believe they are too big to fail, they take over leveraged positions because they believe they will be bailed out if it goes poorly. As a result, companies will assume a highly leveraged position to buy back equity because it does create profit for both equity shareholders and also executives (who a big portion of their compensation comes from preferred stock). Additionally, the government has encouraged this behavior through ridiculously low treasury rates. Debt is incredibly cheap for large companies so they can assume more debt at a lower risk which means they don’t feel the need to carry as much cash and short term highly liquid assets. The problem is IF it goes wrong, they implode FAST-see Boeing. If companies don’t believe a bailout is possible, they wouldn’t take over leveraged positions. They will maintain a liquid reserve and be prepared for market cycles and black swans. Airlines and Boeing all know they will get bailed out. The airlines all have many times in the past, and Boeing has a HUGE lobbying force in DC. It’s a shame but it’s true. They should all be allowed to fail. It will hurt, but it will teach a lesson. Crony capitalism is the problem. Sent from my iPhone using Tapatalk Pro |
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| Author: | MNGunner [ Thu Mar 19, 2020 8:50 am ] |
| Post subject: | Re: Bailouts |
| Author: | bluesky2012 [ Thu Mar 19, 2020 10:47 am ] |
| Post subject: | Re: Bailouts |
I don’t disagree with the moral hazard aspect. A big reason for this being such an issue is quarterly SEC reporting requirements and vesting periods for executives. The SEC requiring quarterly reporting drives a much shorter term thought process which drives away from strategic investments. Vesting periods should also be 5+ years so that executives and boards have to plan strategically for future growth rather than short term decisions. Sent from my iPhone using Tapatalk Pro |
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| Author: | MNGunner [ Thu Mar 19, 2020 11:05 am ] |
| Post subject: | Re: Bailouts |
| Author: | bluesky2012 [ Thu Mar 19, 2020 11:40 am ] |
| Post subject: | Re: Bailouts |
| Author: | MNGunner [ Thu Mar 19, 2020 1:25 pm ] |
| Post subject: | Re: Bailouts |
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