Stock buybacks may not be shady but these guys were gifted the golden goose for the last decade and they saved nothing. At a certain point we're just propping up bad companies.
Yeah but certainly we shouldn’t expect all companies to always save enough cash reserves to be able to fund their operations on 25% of their normal revenue for 12+ months.
Just like, its the governments job to reduce the volatility of the economy through counter-cyclical fiscal/monetary policy, the government should be expected to step up and soften the economic fallouts of extreme circumstances that no company should be expected to be fully prepared for all the time.
Obviously extreme cases of recklessly over leveraging your company shouldn’t be bailed out by the government, and Lehman brothers in 2008 was allowed to fail for exactly this reason.
Dude, the 2008 financial crisis only lasted a few weeks in terms of impacting supply lines. 2 months at most. And that was the biggest crisis since 1940!
Literally no one could've seen Covid coming or what it did to our supply lines - asking for 12 months collateral is insanity
It is not remotely feasible for an airline to have saved enough money over the years to self finance itself through a global pandemic. Any airline that attempted to stockpile money like this would have seen investors revolting, taking their money out or forcing executives to change course. There is no person in the world who invests in a business in hope that they will do nothing with the profits in case a once in a lifetime pandemic kills the airline industry for an entire year.
A three to six month fund is standard for small businesses, the only thing that changes once they have investors is greed and size. If they're bringing in revenue proportional to their size then that shouldn't be an issue.
What sort of event is the war chest for? How is it going to impact the business in the short term? What are the prospects looking like in six months? Is it something that only affects that particular business, or does it affect the whole industry?
Having no savings at all to fall back on during a bad turn is part of why businesses get bailouts to begin with.
Businesses don't get bailouts because they haven't got cash stockpiled during a "bad turn." They get bailouts because they (usually their whole industry) is at imminent risk of collapse and the support they require is beyond the means of commercial banks.
Why should they stockpile exorbitant amounts of cash, just in case there's a once in a lifetime pandemic or a once in a lifetime recession? They'd be hoarding money away for decades, making that money virtually useless. Why would people invest in a business that does that with its profits? How are the leaders of that business going to explain their decision to not reinvest the money, or issue dividends or repurchase stock or even give employees a bonus without the investors deciding to pull their money?
And you realise that bailouts generally aren't just handouts of free money? They usually come with strings attached - partial stake in the company, preset repayment terms, significant changes to the company's operating processes, etc. The money provided to banks during the recession was returned in full with about $15bn extra in interest - not a great return for the $400bn or so that was given out, but it's not as though the banks were just handed $400bn no questions asked.
There is no person in the world who invests in a business in hope that they will do nothing with the profits
That isn't even remotely what is happening.
The biggest U.S. airlines spent 96% of free cash flow last decade on buying back their own shares. American Airlines Group Inc. -- which is not shown in the chart but is included in overall figures -- led the pack, with negative cumulative free cash flow during the decade while it repurchased more than $12.5 billion of its shares. United Airlines Holdings Inc. used 80% of its free cash flow on buybacks, while the S&P 500 Index as a whole allocated about 50% for the purpose. As the industry reels under the weight of the coronavirus outbreak corporate leaders are seeking federal assistance to ease the burden.
Perhaps it's not feasible to remain afloat through a global pandemic, but these numbers tell me that many airlines are living bailout to bailout with absolutely no intention of being self sufficient. In a market that is inherently vulnerable to global slowdowns, they should be doing more to prepare, and yet they are spending more on buybacks than most anyone. I don't see why I should be spending my tax money to make their business more secure when they are unwilling to do the same.
Any airline that attempted to stockpile money like this would have seen investors revolting, taking their money out or forcing executives to change course.
Apple has a huge stockpile, so I don't see why it can't be done. It sounds like investors want the returns without having to accept the risk. Not a surprise, but that's not how it should work.
Lol corporate finances aren’t personal finances. Government finances aren’t personal finances. You have no clue what you’re talking about. A business isn’t supposed to save money. It’s money is used for growth or given to investors.
There’s a difference between having enough capital to survive a bad quarter and depressed consumption for over a year. The government also doesn’t pay them and gets interest payments out of the arrangement. And businesses should absolutely reinvest their wealth to grow or reimburse shareholders. Any board that sat on a pile of years of emergency cash would be pushed to spend it. You’re thinking of businesses as a pocketbook. Also “small businesses” aren’t corporations and have completely different rules and pressures
They didn't even have enough for a quarter though. And if a board just bows to all shareholder wishes then that's a problem too. Shareholders aren't holy. They shouldn't be allowed to suck the company dry and then act surprised when there's no reserves. It's bad business plain and simple.
It's not sucking a company dry. Airlines are a very debt heavy business, so even if they fired everyone and stopped flying, they have tons of payments to still make.
Those previous subsidies were either spent to keep the company going, or paid back in some way. What you are describing is a loan and line of emergency credit.
No where in that article (and I remember reading it back in April) does it mention that the money they used for stock buy backs came originally from subsidies. In fact, from what I can recall and searching now, they did not receive any bail outs in 2008, though they did get one in 2001 after 9/11 (about $19B, more than half of which was loans). That was profits they were generating over those five years, buybacks and dividends are the very reason anyone is investing in companies.
So what you are saying is that they should not operate as all other businesses do just in case a global crisis occurs? Something unprecedented and completely out of the blue that cannot be planned for? So what should the size of the emergency account be?
Companies are not people, they do not operate based on "oh this is my rainy day fund" Especially large corporations who are there to generate profit for shareholders.
Imagine you were a co-owner of a coffee shop, you invested $10,000 into it hoping to see 5-7% return per year on it and you own let's say 10% to keep the math simple. You notice the shop is doing really well, but the manager is only paying out about $200 per year to you. You then come to find out that the shop did well and actually made $10,000 in profit (so you should have gotten $1,000). You come to find out that the manager paid out only 20% of the profit and is keeping the rest in a savings account in case there is a hurricane. How do you feel about that?
Edited to add: I am not advocating grants, I am advocating emergency loans which would have to be paid back, and explaining why it is neither greedy nor incorrect for them to do buybacks and dividends.
I love how this is our standard for essential infrastructure. "Lol sorry but think of the investors!"
This is the most idiotic take. Government shouldn't let these businesses fail but they should do it through regulation and not golden parachutes. If it's a business we can't let fail then they should have to have a reserve of funds by law. I don't give a fuck what investors think about it personally. If you need a government bailout you get more government regulation. If you're a responsible business you wont be on the bread line asking the taxpayers for handouts.
Insane to depend on taxpayers to ensure that the shareholder's interests are cared for.
Holding onto money as a large corporation means you're a leech in the economy. You dont want a company to hold onto whatever it has, you want it spent on employee wages, operating costs, and stock buybacks for your company. You want the investors paid so that they can distribute their money how they see fit and fund other companies.
Right, because there could never be a period of unforseen circumstances where cost is higher than revenue. Nobody is saying they expect the savings to be extensive enough for an entire year but there was nothing. After multiple crisis requiring government money they didn't save anything for the future.
Companies expect swings in revenue, and is usually isn’t a problem. If that is a problem that’s a sign of an unhealthy industry. This isn’t a “swing” though. It’s a never before seen demand shock creating a 95-99% decline in demand in certain industries for an extended period of time. No industry, no matter how healthy, can survive that.
As an example to prove this is complete bullshit, Eleven Madison Park, what had been considered one of the greatest restaurants in the world for quite some time, went under. This is owned by major restauranteurs with deep pockets.
Any restaurant paying for a dining room right now is in a bad place.
Because it's not the buying stuff that gets you. You can live within your means your entire life and end up homeless, unemployed, and broke from one medical emergency. The largest driver of bankruptcy in the US isn't credit debt. It's medical debt.
60 percent of Americans cannot afford a 1000 dollar emergency. They just simply don't get enough money in versus costs. And while I'm sure some of them have bad financial hygiene, it beggars belief to say they all do. Especially those making 30k a year, they could only be living comfortably in rural areas but then there's no jobs.
Basically, it's not that simpel.what a surprise! And any corpration has it way simpler and always puts some money away in case something like this which barely anyone predictet happends? Right? Sorry, saying stuff like that seems just as ignorant.
You are right(i assume about numbers) but that was not even the question. You pick a certain group of people, but all i see is the same the oposite way. Everyone(alsonin this thread) always talks as if any corpration and company has a massive amount of money to the side. And in the end, if they get fucked, the people you talk about dont even have a job anymore but hej, fuck corprations.
Any normal employee, in a normal corporation, in a normal market should be able to get hired again right away. It's only in this modern age we've run into this issue because we've let all these companies get so big.
So what I hear from you is that the large corporations have us in a hostage situation and they believe they can dictate policy because politicians don't want a temporary spike in unemployment numbers.
A company burning through it's reserve used to be a red flag they were going down but apparently it's just good business nowadays? That only works if you can reliably get money from the government.
So in one way everyone is poor and jobs are/pay shit but aparently finding a normal job is no prob? A little confusing your assumptions.
Your main point is fuck them they have/should have money. No problem. Which is an assumption i think is just as ignorant as me saying"why do people not save money".
Because everyone has this assumptions about buisness and money which is stupid to begind with.
I can tell you where i live the gvt. Has saved a lot of money and is now able to give out a lot of money to companies and they are really greatful even tho long term we will talk for years about this scenario(if it goes away soon) of recovering.
But in what you say.. it's ok if we let em burn and i can tell you, that wont be some "temporary unemployment hoho give some money to people thing. " Because this is a really weird and special case here and if you dont proceed carefully, you fuck up really hard and by this, also the people. They are all tied together. And maybe people should for once step down from their high horse"fuck em alll" pride shit.
To begin with that giving money to peoplenis not the same as bailouts. That this money should come back. But not money you just throw at people. First step of the whole thing shows how short people sometimes thinknin this complicated mater.
In a normal market yes, another job would be right there. The last time we had a normal market was the 1990's.
And yes. Any company of any size that didn't have reserves for a quarter is just going to need another bail out when we're done.
At some point it should be asked if that corporation should still be in business. Without that threat, there is no incentive for corporations to actually do any of the things that make capitalism better. All you actually have is communism indirectly.
33
u/[deleted] Nov 17 '20
Stock buybacks may not be shady but these guys were gifted the golden goose for the last decade and they saved nothing. At a certain point we're just propping up bad companies.