Re:America's 1% Has Taken $50T From the Bottom 90%
by webmaven on Thursday February 11, 2021 @06:21PM
(#26108859)
What about paying dividends to stockholders or (heaven forfend) raising wages?
As for "rainy day" uses, giving the company pension fund a windfall would probably qualify.
Re:America's 1% Has Taken $50T From the Bottom 90%
by tylerhou on Thursday February 11, 2021 @06:58PM
(#26109212)
Paying dividends to shareholders accomplishes the same thing as buying back stocks: both return capital to investors.
Increasing the company pension would not have saved them from their current woes: they would still need to issue debt or equity.
Re:America's 1% Has Taken $50T From the Bottom 90%
by nmfisher on Friday February 12, 2021 @12:47AM
(#26111077)
Not exactly, because share buybacks are optional. A shareholder can decline to participate, increasing their stake in the company (meaning the investor believes that the net present value of the shares is higher than the price offered under the buyback).
It’s not common, though (and for the purposes of the comment you responded to, the distinction isn’t relevant). If management are saying “we can’t think of anything to do with this money”, most investors won’t disagree with them.
Re:America's 1% Has Taken $50T From the Bottom 90%
by Thorrez on Friday February 12, 2021 @03:02AM
(#26111587)
A shareholder can also reinvest dividends. Doesn't that accomplish the same thing as not participating in a buyback?
Re:America's 1% Has Taken $50T From the Bottom 90%
by nmfisher on Friday February 12, 2021 @03:23AM
(#26111681)
Only if the company allows them to (or is simultaneously raising capital). Also I believe (though not 100% sure, depending on where you are) that income tax is paid on dividends, irrespective of whether you subsequently reinvest.
Re:America's 1% Has Taken $50T From the Bottom 90%
by cudgy on Friday February 12, 2021 @12:02PM
(#26115759)
Basic financial planning. Unstable cash flow (for example the cyclical airline industry) requires cash reserves and ideally a cost structure that emphasizes variable costs tied to actual units (passengers) to lessen impact of up/down cycles. Bailouts short-circuit this type of healthy planning.
Re:America's 1% Has Taken $50T From the Bottom 90%
by anchpop on Thursday February 11, 2021 @05:49PM
(#26108493)
Can you link to Matt Levine's argument? (I googled a little but didn't see what you were talking about)
If airlines didn't spend money on buying back stock, they could have:
1. Invested it in growth. But if they had invested it in all the normal things an airline might invest in, they would still suffering because of the pandemic.
2. Saved it for a rainy day.
You're arguing (2) should have happened. But an important thing to remember is that companies' savings are not like your savings — companies have far more reliable future cash flow, which means that they can borrow at much lower rates than you can through the equity markets.
If airlines had saved their earnings, maybe they would have grown at bond rates (investing the company's savings in the stock market is too risky and unorthodox for corporate finance officers). That's not good for investors who are looking for 1) return on capital and 2) higher exposure to travel. By returning the capital to investors, airlines increased their exposure to airline-adjacent things and their return on capital. That's a good thing for investors because it gives them more choice! If an investor wants a safer investment, they can create their own basket of bonds and airline stonks.
Similarly, now that the coronavirus has hit, investors know that airlines' fundamentals haven't changed — they're just hitting temporary turbulence. So, to raise capital, airlines can issue stocks and bonds to temporarily get them through 12-24 months. And that's exactly what they did last May: https://www.wsj.com/articles/aviation-industry-races-for-cas...
Basically: corporate finance is not like personal finance, and it's a mistake to think that companies need "rainy day funds." They don't: that's what the equity markets are for.