President Trump: The NEW one and only politics thread

On bailouts. ...

In 2011/2012, American Airlines filed for bankrupcy. The company is more leveraged today than it was then. It's bonds are trading at distressed debt levels.

In a vacuum, you can look at the virus and its impact on the airlines and feel really bad for what these companies are facing. And there will be calls for bailouts for companies like this, because "Who could have seen the virus coming?" and "We need to step up and save these great American companies."

Just keep in mind that American Airlines borrowed billions of dollars over the last 5, 6 years. ... and immediately turned over about $13.5 billion of that debt it is now drowning under to its shareholders in the form of share buybacks and dividends. Financial engineering for a payout in the moment, without considering the fragile financial footing they were putting the company into. American is paying as much as 1o to 15 percent interest on that borrowed money. And it couldn't have been used in any worse way than drastically overpaying to buy back its own stock, which is looking more and more worthless by the day, as the debt it took on to do those buybacks gets more and more expensive to service.

This is what the Federal Reserve has created. They have incentivized that kind of behavior -- and will double down until they completely lose control. And then the answer from politicians is to bail out the problem companies that are entirely a function of that stupid "monetary policy," compounding the whole mess.

 

Indeed. But when you bankrupt yourself because of costs -- namely labor costs usually -- it's one thing. When you bankrupt yourself because they artificially made the cost of money in real terms free, so as a company you decided to avail yourself of billions of dollars of that free money that they were begging you to take, and then you handed it right over to the owners of your company (not even token investment in the company). ... it's a much different thing. I don't agree with ANY bailout at other people's expense. But when those are the actual circumstances when you cut through it?