Trump tax cut, buybacks, and bailouts

[Vol8188]

The left wanted to prevent buybacks and dividends because “they reward the largest investors the most”. Ummm...isn’t that the goal of any business? To reward investors proportionally? Isn’t that the same thing that happens when a business sells something?

What am I missing?

 

[MG1968]

The left wanted to prevent buybacks and dividends because “they reward the largest investors the most”. Ummm...isn’t that the goal of any business? To reward investors proportionally? Isn’t that the same thing that happens when a business sells something?

What am I missing?

The only thing you’re missing is the leftist’s ability to pretend to be selectively outraged by simple arithmetic.

 

[Vol8188]

The only thing you’re missing is the leftist’s ability to pretend to be selectively outraged by simple arithmetic.

My favorite is hearing their version of the bank bailout. Evil bankers stole money from you taxpayers and then gave it all to their ceos!

The truth:
1. banks were forced to take the money.

2. The banking bailout was overall profitable for the government.

 

[happy-go_vol]

It was ok for Obama to bailout the auto industry (and the UAW) but it’s bad when orange man bails out other “too big to fail” corporations.

Why does any partisan think that their side has the moral high ground?

Remember, obama closed down many car dealerships dufrom the auto bailout

 

[MontyPython]

When Trump announced the tax cuts and those were passed, we were constantly reassured that the companies benefiting from those cuts would reinvest the money in expanded production, growth, and jobs. Is that what happened?

No. Despite warnings from the left, the companies did what was feared. They took the money and bought back company stock, raising the price of their shares and rewarding management and their largest investors. Whenever Trump was asked about this, he responded, just look at your 401ks. And he was right, because managed funds did well in that they also saw their value increase due to the stock market boom.

But now, with a quick turn measured in days and weeks and the market tanking, what about those same big business that took the tax break money and, rather than reinvest it, enriched their management and shareholders?






Companies that binged on buybacks now seek bailouts from taxpayers - CNN

They want bailouts. They want more money, or they threaten to shutter their doors and fire all of their employees.

Here's the thing. We have no choice. We have to do the bailouts because our economy is too dependent on these corporations to sustain itself if they go under. So I, for one, do support a multi-trillion dollar effort to get us through this.

We cannot legislate corporate morality, if for no other reason than that they will find ways to beat it, including loopholes in the legislation that might try to dictate it. So I see no value in an Elizabeth Warren type of approach. It is Pollyanish to think we could force it.

But, something needs to change in the leadership of corporate America. Some sort of refocus on the long term, on the wisdom of long term growth over short term gain for the betterment of their own interests and the economy long term. Don't know how we do it. But this endless circle of siphoning off public dollars and turning it into private wealth, at the levels we see in the last decade or so, is unsustainable.

Yes bail, but not for free. The US taxpayer does not have to simply blindly cough up a bunch of dough to bail these guys out. Rather, it should be done so with strings.

Firms must issue additional preferred shares and/or bonds in an amount equivalent to the amount spotted, and provide them to the government. This way, current shareholders are diluted in an amount directly proportional to the benefit their firms receive.

This will harm share / bond prices for the respective firms due to dilution, but it's fair to taxpayers and, most importantly, creates a huge cash pool for each of the corporations to save them in their time of need.

 

[MontyPython]

Yes, just like we should have let GM and Chrysler go into bankruptcy. If we start allowing these major corporations to go into bankruptcy other BODs will start paying attention. I'd like to see the "you're only as good as your last quarter" mentality die a painful death.

Do these firms have national strategic defense value? Asking for a friend.

 

[hog88]

Do these firms have national strategic defense value? Asking for a friend.

Could, why?

 

[Vol8188]

Could, why?

I agree with you on opposing the auto bailout. I see this as different because this isn’t caused by poor business practices. This is caused by government.

 

[hog88]

I agree with you on opposing the auto bailout. I see this as different because this isn’t caused by poor business practices. This is caused by government.

I’m torn on this myself.

 

[LouderVol]

At some point we have to just let capitalism work, good and bad. JMO.

That's what people dont understand. Capitalism is the good and the bad. Not just a constant rise. But resets too. That's what makes the market healthy.

Wanting to flatten the curb on the bad is what lead to the last recession, and will lead to the next.

Instead of facing small problems socialism props them up until a total collapse. And instead of a 6 month downturn, we look at 6 year recession patterns.

 

[SpaceCoastVol]

That's what people dont understand. Capitalism is the good and the bad. Not just a constant rise. But resets too. That's what makes the market healthy.

Wanting to flatten the curb on the bad is what lead to the last recession, and will lead to the next.

Instead of facing small problems socialism props them up until a total collapse. And instead of a 6 month downturn, we look at 6 year recession patterns.

But DEMOCRATIC Socialism is different.

 

[LouderVol]

But DEMOCRATIC Socialism is different.

popularity contests dont justify anything.

 

[Purple Tiger]

Remember, obama closed down many car dealerships dufrom the auto bailout

No, GM closed down the dealerships. Obama did not.

 

[hog88]

No, GM closed down the dealerships. Obama did not.

I think it was mandated in the "bailout".

 

[NCFisher]

I don't remember, but it seems like some of the financial institutions were required to take bailout money whether they needed or wanted it.

Correct me if I'm wrong, but during the 2008/09 bailout one of the auto giants refused to take the bait. Ford? Trying to recall who, if any, also repaid on that bailout. GM? Not sure at this point.

Ford didn't want/need money, but had a legitimate concern of large overlap of suppliers among the auto groups; if GM and Chrysler went under, those suppliers die and materially harm Ford. Also, many auto retail groups held dealerships for all three brands. So Ford petitioned Congress on behalf of the others.

There were a number of financial institutions that told Paulson they weren't playing, didn't need the money. The Fed worried the optics would drive money from the weak entities to the strong ones, and forced everyone into the bailout pool to have everyone appear equally weak and needy.

 

[NCFisher]

So if airlines, for example, repurchased shares in the last how many years they shouldn’t be eligible for bailout money?

What is the rationale for this line of thought?

Eternal capitalist damnation.

 

[NCFisher]

Buybacks take cash out of the corporation and do not replace it with another real asset or pay off any liabilities (which, in the case of the airline industry, were considerable). It leverages the remaining outstanding shares and the value of the “purchase” is totally speculative. Their ability to recover their shareholders’ cash is based entirely on market factors.

Want to see a real life example of this risk paying off? Pick up a newspaper.

Yeah, airline shareholders were going to take a hit from this, regardless, but the fact that the companies are now seeking a bailout is a result of their own failure to manage risk. Or at least reflects that they accounted for a government life raft in their risk assessment.

If we’re going to maintain this policy of government bailing out big businesses that run themselves into the ground, then it needs to come with so many strings attached that the businesses adjust risk management strategies and stop acting like teenagers with their first credit card.

And that policy would not, in any way, reflect the government hampering the freedom of businesses to do what they want, so long as they aren’t in the midst of a bailout.

This isn't that, though; businesses aren't running themselves into the ground but rather a combination of a 100-year viral outbreak AND government shutting down economic activity, are. Our own state and federal governments aren't prepared for such an event, so how are businesses to prepare for a novel virus and government mandated shutdown of their business once a century?

I think the argument misplaced, whereas in the absence of a 100-year event AND government NOT shutting down the economy, I'd agree with not bailing out business.

 

[NCFisher]

popularity contests dont justify anything.

I think he's referring to the term 'democratic socialism' which is plain old socialism, not justifying bailouts.

 

[happy-go_vol]

I think it was mandated in the "bailout".

Yes obama made them

 

[NCFisher]

When Trump announced the tax cuts and those were passed, we were constantly reassured that the companies benefiting from those cuts would reinvest the money in expanded production, growth, and jobs. Is that what happened?

No. Despite warnings from the left, the companies did what was feared. They took the money and bought back company stock, raising the price of their shares and rewarding management and their largest investors. Whenever Trump was asked about this, he responded, just look at your 401ks. And he was right, because managed funds did well in that they also saw their value increase due to the stock market boom.

But now, with a quick turn measured in days and weeks and the market tanking, what about those same big business that took the tax break money and, rather than reinvest it, enriched their management and shareholders?

Companies that binged on buybacks now seek bailouts from taxpayers - CNN

They want bailouts. They want more money, or they threaten to shutter their doors and fire all of their employees.

Here's the thing. We have no choice. We have to do the bailouts because our economy is too dependent on these corporations to sustain itself if they go under. So I, for one, do support a multi-trillion dollar effort to get us through this.

We cannot legislate corporate morality, if for no other reason than that they will find ways to beat it, including loopholes in the legislation that might try to dictate it. So I see no value in an Elizabeth Warren type of approach. It is Pollyanish to think we could force it.

But, something needs to change in the leadership of corporate America. Some sort of refocus on the long term, on the wisdom of long term growth over short term gain for the betterment of their own interests and the economy long term. Don't know how we do it. But this endless circle of siphoning off public dollars and turning it into private wealth, at the levels we see in the last decade or so, is unsustainable.

We can't legislate how our government reacts to a 100-year novel virus; in this case probably overreacting by closing down the entire economy.

You're arguing business should be forced to pay for government shutting down the economy, and doing so for as long as government keeps it shuttered. Carping about stock buybacks is a misplaced guise to support the argument.

 

[RockyTop85]

This isn't that, though; businesses aren't running themselves into the ground but rather a combination of a 100-year viral outbreak AND government shutting down economic activity, are. Our own state and federal governments aren't prepared for such an event, so how are businesses to prepare for a novel virus and government mandated shutdown of their business once a century?

I think the argument misplaced, whereas in the absence of a 100-year event AND government NOT shutting down the economy, I'd agree with not bailing out business.

Risk management is risk management. You never know what the risk event is but the effects it will have on your company (lost revenue) are generally pretty predictable. Bailout programs like Tarp have encouraged big industries to assume more corporate debt because they basically think they have free government insurance in the event that they screw up.

Using American Airlines as an example:
They had a bunch of shareholder cash on hand.
They had a bunch of debt.
Their executives had an incentive structure based around price per share.

For nearly 4 years, they spent almost all their cash on reducing the number of shares to trigger those executive bonuses, rather than servicing their debts (reducing their risk) or paying dividends (reducing shareholder risk). They got criticized for it well before this month, so it’s not like nobody foresaw a pending problem.

Now, the government wants to invest in those companies to bail them out of hard times. Fine. But restricting what they do with that money to force them to have a heightened fiduciary duty to the government as a lender is perfectly reasonable. The public’s interest is in preserving the industry and making sure that the money changes hands as much as possible to stimulate the economy and replenish the treasury through taxes. We have no interest in lining the pockets of rich shareholders by allowing them to use public cash to play games with their incentive metrics.

If they can’t agree to our terms then they should be told to **** right off. The demand for air travel will ensure that somebody will fill the void in that market.

 

[lawgator1]

The left wanted to prevent buybacks and dividends because “they reward the largest investors the most”. Ummm...isn’t that the goal of any business? To reward investors proportionally? Isn’t that the same thing that happens when a business sells something?

What am I missing?

That's the goal of business. But this is public money being used to prop them up. Strings attached to that money are entirely reasonable. And the public wants to be sure that their money is used to keep paying employees, not generating multi million dollar bonuses for people already worth 8 figures +.

 

[Vol8188]

That's the goal of business. But this is public money being used to prop them up. Strings attached to that money are entirely reasonable. And the public wants to be sure that their money is used to keep paying employees, not generating multi million dollar bonuses for people already worth 8 figures +.

The goal is to keep them in business. Which means continuing to earn money for the business owners disproportionately.

Do you believe there should be strings attached to the 1,200 given to people or only the money to businesses? And can you define these restrictions

Edit: to clarify, I’m asking you to define the restrictions you propose. Not those within the legislation.

 

[SpaceCoastVol]

That's the goal of business. But this is public money being used to prop them up. Strings attached to that money are entirely reasonable. And the public wants to be sure that their money is used to keep paying employees, not generating multi million dollar bonuses for people already worth 8 figures +.

This is pretty funny to me. You are a lawyer, and you honestly believe there is a way to prevent what is and has been going on. I guarantee you that there are floors of Madison Avenue lawyers just champing at the bit to sharpshoot any roadblock you think the brilliant US Congress can put in the way. The C Suite bubbas are gonna get their money, and lots of it, and there's nothing you can do about it. Oh, and 8 figures are for utility infielders. Lots of CEOs are worth far more than that.

 

[NCFisher]

Risk management is risk management. You never know what the risk event is but the effects it will have on your company (lost revenue) are generally pretty predictable. Bailout programs like Tarp have encouraged big industries to assume more corporate debt because they basically think they have free government insurance in the event that they screw up.

Using American Airlines as an example:
They had a bunch of shareholder cash on hand.
They had a bunch of debt.
Their executives had an incentive structure based around price per share.

For nearly 4 years, they spent almost all their cash on reducing the number of shares to trigger those executive bonuses, rather than servicing their debts (reducing their risk) or paying dividends (reducing shareholder risk). They got criticized for it well before this month, so it’s not like nobody foresaw a pending problem.

Now, the government wants to invest in those companies to bail them out of hard times. Fine. But restricting what they do with that money to force them to have a heightened fiduciary duty to the government as a lender is perfectly reasonable. The public’s interest is in preserving the industry and making sure that the money changes hands as much as possible to stimulate the economy and replenish the treasury through taxes. We have no interest in lining the pockets of rich shareholders by allowing them to use public cash to play games with their incentive metrics.

If they can’t agree to our terms then they should be told to **** right off. The demand for air travel will ensure that somebody will fill the void in that market.

I don't disagree that bailouts propagate fiscally unsound decisions. By the same token, I don't want government - the most fiscally unsound and reckless entity of them all - to tell corporations how to run their business. We either accept the "too big to fail" concept, or not bail out anyone, ever.

Again, even if AA had done exactly as you'd wish them to do, they'd still be in dire straits just like every other business sector who didn't cause a virus, didn't cause governments to shut down the economy. This event has nothing to do with corporate malfeasance.