President Trump: The NEW one and only politics thread

This is what is going to drive me crazy, though. The Elizabeth Warren types are going to pounce. We are going to give a lot of money to some companies that are politically well connected (while ignoring a lot of others that are going to be bankrupt). And she is going to start with the populism.

Here is the thing about buybacks and dividends. If you own a company and you have cash, it is none of Elizabeth Warren's business WHAT you do what that cash. Unless she's a shareholder.

Sometimes, a company legitimately can't find any better use for cash than returning it to its owners. That has certainly been the case for a lot of companies over the last 5 to 10 years. It made no sense to do capital expansion in an economy where your actual earnings were stagnant (despite the nonsense of the greatest economy ever).

But here is the thing. ... If you make the decision to borrow a boatload of money and overpay for your own stock. ... and then end up drowning in the debt you took on. ... the solution is bankruptcy. Failure. That is the incentive NOT to do that. No bailouts. No socializing that behavior.

If Elizabeth Warren (or any other politician, I am using her as an example) wants to do a legitimate-role-of-government thing to address what has gone on, GET RID OF THE CENTRAL BANK that works against the country's health. Yes, those companies brought about their own bankruptcies, but they were acting EXACTLY the way the Federal Reserve was trying to force them to act by price fixing the most important price there is -- the cost of money. It's perverse that we don't address that. But that would require them to scale back the government and all the meddling they do, because without a central bank to monetize all of the reckless debt THEY are saddling us with, they have no power themselves.

 

He actually didn't quite say that. He said that one of the conditions of a bailout should be no buybacks ever again.

I just don't get why the problems of any company should be socialized. It doesn't matter what you did that took on a lot of debt that you now can't pay back. One action that gets you to there is no better than another. It means you bankrupted yourself.

Let's say you personally decided to take a risk on something and you ended up losing everything you owned. Most people don't think that their losses should be foisted on everyone else when they aren't successful. That is exactly what we are talking about.

Business failure isn't a moral failing. If you borrowed billions of dollars and used the money to repurchase your shares, it wasn't an immoral act. But if you then go bankrupt because of all the debt you took on, that is the price. The immoral thing is to actually make everyone else pay that price.

 

Just to expand on this. ... What I see is the populism now. And it turning into a "buybacks are bad," thing. Which is silly.

Share repurchases in and of themselves aren't a bad thing. When you invest in a business, you do it to make money. If that business is successful and earns a lot in profits. ... why WOULDN'T the owners of the business (the people who took the risk of investing) want some of those profits paid out to them, whether it is a dividend or share repurchases that make their equity more valuable? That is their right. It's their business and they are in it to profit.

Where things went absolutely bonkers was that for the last decade or so, a lot of businesses that haven't been succesful and earning a lot of profits. ... loaded themselves up on debt, because the cost of borrowing was made. ... well costless and way too easy. They then looked around for things to do with all of that money they borrowed, and it didn't make a lot of sense to invest in the business and try to grow, because the economy itself has been growing anemically. You don't build more factories to produce more stuff, when consumers can't afford to buy more of your stuff.

So those companies did share repurchases and paid dividends to keep their stock prices rising -- which rewards the owners (and management, which are rewarded by the owners for making the stock price rise).

They were actually acting the way the messed-up incentives being forced on them were trying to force them to behave. If you think that kind of borrowing to do share repurchases is bad, then look at what actually caused it -- mispriced debt. If the credit markets had been left free to price risk without being manipulated by Ben Bernanke or Janet Yellen or Jay Powell, that borrowing, and the share repurchases, wouldn't have been possible.

But some other things that wouldn't have been possible would have been for our government to run trillion dollar annual deficits.