Author Topic: Never ceases to amaze me how history repeats itself  (Read 2083 times)

chairman5

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Never ceases to amaze me how history repeats itself
« on: March 23, 2020, 02:57:23 PM »
In the financial world.

We praise our economy, and then faced with a severe disturbance for what, 4 weeks now, many of our largest companies are ready to file for bankruptcy.  I have been blessed with making decent money so have saved much and have easily 2-3 years cash on hand to weather this severe downturn.  Why don't we demand the same for our companies?

I understand that someone who works a MCD's or other low-level service job can't save enough to be in the position I am in, and will truly struggle with rent, etc.  But why do we allow our major companies/industries, who pay their Exec staff 100s of millions, to be run as if they are low-level service jobs?  Why should they be rewarded for that?

It just boggles my mind that our airlines are out of money literally 3 weeks after reduced passenger flow.  And this is operating with reduced tax rates and other government subsidies.  Why don't we just have government owned airlines?  They essentially are anyway.  Why not government owned banks?  Why is the prime fed rate 0% and my HELOC rate still 4.5% - what a bunch of crooks, as if the banks worked to have the money they loaned me.  YOU WERE GIVEN THE MONEY FREE FROM THE FEDS YOU CROOKS!!!!  Do we really need these "industries" which are really essential in service, but not necessary to make profit, to be private?

I just hope when we get through this the taxpayer has an ownership stake in all these companies, or we will just repeat it again.

What makes me laugh is how many people will call me a socialist, but then just like Obama, Trump (who claimed he would never bailout companies) is now rushing to bailout these companies.  When will people learn we are only capitalists when the waters are calm.  But if the waters get turbulent we all become big-government socialists.  I am not saying it is wrong, cause I don't want people dying in the streets.  But please, both sides of the isle, admit we love our big-government when we want/need it.

American GenX

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Re: Never ceases to amaze me how history repeats itself
« Reply #1 on: March 23, 2020, 03:07:36 PM »
Mehh... nothing to see here.

Stachless

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Re: Never ceases to amaze me how history repeats itself
« Reply #2 on: March 23, 2020, 04:21:32 PM »
The Fed Funds rate is for overnight borrowing to banks...it has nothing to do with your mortgage or HELOC.

Besides that...can you give me a few examples of when our government did a better job than the private sector?

Do the Democrats know who won in Iowa yet? :)  The USofA is built on free markets.  Its not perfect, but its the best this planet has seen so far.

MilesTeg

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Re: Never ceases to amaze me how history repeats itself
« Reply #3 on: March 23, 2020, 06:00:52 PM »
The Fed Funds rate is for overnight borrowing to banks...it has nothing to do with your mortgage or HELOC.

Besides that...can you give me a few examples of when our government did a better job than the private sector?

Do the Democrats know who won in Iowa yet? :)  The USofA is built on free markets.  Its not perfect, but its the best this planet has seen so far.

Well, so far the federal government has survived for 244 years without imploding and needing to be saved by a third party. So it has that going for it.

The longer we privatize profits and socialize risk the weaker we become. There are a whole slew of companies right now (mostly small businesses) that are just flat out getting a raw deal because the economics of small business just can't cope with what's going on right now. We should definitely do something for them.

But the companies that have been raking in the dough and DON'T have a rainy day fund? We should help them too, if they perform a necessary service. But it should be done under new ownership/management. The current ones have failed (in many cases, many times) -- don't reward them.

Papa bear

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Re: Never ceases to amaze me how history repeats itself
« Reply #4 on: March 23, 2020, 06:17:37 PM »
The Fed Funds rate is for overnight borrowing to banks...it has nothing to do with your mortgage or HELOC.

Besides that...can you give me a few examples of when our government did a better job than the private sector?

Do the Democrats know who won in Iowa yet? :)  The USofA is built on free markets.  Its not perfect, but its the best this planet has seen so far.

Well, so far the federal government has survived for 244 years without imploding and needing to be saved by a third party. So it has that going for it.

The longer we privatize profits and socialize risk the weaker we become. There are a whole slew of companies right now (mostly small businesses) that are just flat out getting a raw deal because the economics of small business just can't cope with what's going on right now. We should definitely do something for them.

But the companies that have been raking in the dough and DON'T have a rainy day fund? We should help them too, if they perform a necessary service. But it should be done under new ownership/management. The current ones have failed (in many cases, many times) -- don't reward them.

Donít want to jump in on the argument, but maybe read this about our government getting bailed out.


https://historydaily.org/panic-of-1893


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Joe Schmo

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Re: Never ceases to amaze me how history repeats itself
« Reply #5 on: March 23, 2020, 07:22:44 PM »
Preach on brotha

MustacheAndaHalf

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Re: Never ceases to amaze me how history repeats itself
« Reply #6 on: March 24, 2020, 12:46:44 AM »
... just like Obama, Trump (who claimed he would never bailout companies) is now rushing to bailout these companies.  When will people learn we are only capitalists when the waters are calm.  But if the waters get turbulent we all become big-government socialists.
I enjoyed that middle quote - it's funny.  But it also ignores the wide gap between calm markets and a global pandemic.  When markets hit black swan events seen only once in decades, yes the government has to step in.  Most turbulent markets do not require government intervention, and certainly not when conditions are merely worse than mild.

If we're going for accuracy over humor, I'd put it this way:
Black swan market drops show that the government must sometimes rescue markets.

chairman5

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Re: Never ceases to amaze me how history repeats itself
« Reply #7 on: March 24, 2020, 08:46:39 AM »
The Fed Funds rate is for overnight borrowing to banks...it has nothing to do with your mortgage or HELOC.

Besides that...can you give me a few examples of when our government did a better job than the private sector?

Do the Democrats know who won in Iowa yet? :)  The USofA is built on free markets.  Its not perfect, but its the best this planet has seen so far.

Well, so far the federal government has survived for 244 years without imploding and needing to be saved by a third party. So it has that going for it.

The longer we privatize profits and socialize risk the weaker we become. There are a whole slew of companies right now (mostly small businesses) that are just flat out getting a raw deal because the economics of small business just can't cope with what's going on right now. We should definitely do something for them.

But the companies that have been raking in the dough and DON'T have a rainy day fund? We should help them too, if they perform a necessary service. But it should be done under new ownership/management. The current ones have failed (in many cases, many times) -- don't reward them.

This!!!!  Said better than I did.

VaCPA

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Re: Never ceases to amaze me how history repeats itself
« Reply #8 on: March 24, 2020, 09:21:25 AM »
You didn't know your HELOC wasn't tied to the fed funds rate, so I'm pretty sure you don't have a ton of insight into running a massive airlines corporation. This is kind of an unprecedented disruption, and may be hitting some sectors like F&B and hospitality harder than 2008 did. I'm not going to act like I know they screwed something up, while I sit on my couch working my 9-5.

bigblock440

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Re: Never ceases to amaze me how history repeats itself
« Reply #9 on: March 24, 2020, 09:31:52 AM »
The Fed Funds rate is for overnight borrowing to banks...it has nothing to do with your mortgage or HELOC.

Besides that...can you give me a few examples of when our government did a better job than the private sector?

Do the Democrats know who won in Iowa yet? :)  The USofA is built on free markets.  Its not perfect, but its the best this planet has seen so far.

Well, so far the federal government has survived for 244 years without imploding and needing to be saved by a third party. So it has that going for it.

The longer we privatize profits and socialize risk the weaker we become. There are a whole slew of companies right now (mostly small businesses) that are just flat out getting a raw deal because the economics of small business just can't cope with what's going on right now. We should definitely do something for them.

But the companies that have been raking in the dough and DON'T have a rainy day fund? We should help them too, if they perform a necessary service. But it should be done under new ownership/management. The current ones have failed (in many cases, many times) -- don't reward them.

We've been doing it for 244 years though....

bendixso123

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Re: Never ceases to amaze me how history repeats itself
« Reply #10 on: March 24, 2020, 09:46:31 AM »
I wrote a post on this last week, and after reading what others have said and doing some thinking for myself I've basically come to the conclusion that most people are weak and unprepared and if we want free markets, we need to be standing at the ready to rescue these people.

Over the long run it won't matter anyway because people who are shitty with money will keep on being shitty with money. We'll profit off of their stupidity and the rich will keep getting richer anyway. It's basically the modern day equivalent of 'Panem et circenses'.

Give the plebes their bread for a day so they can go sign up for 84 month car loans tomorrow and you and I can keep profiting off their wage slavery. Heck, given some of the car commercials I've seen, they're probably signing up for those car loans while the world is burning around them. The average American is that dumb.

soccerluvof4

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Re: Never ceases to amaze me how history repeats itself
« Reply #11 on: March 24, 2020, 10:09:17 AM »
I wrote a post on this last week, and after reading what others have said and doing some thinking for myself I've basically come to the conclusion that most people are weak and unprepared and if we want free markets, we need to be standing at the ready to rescue these people.

Over the long run it won't matter anyway because people who are shitty with money will keep on being shitty with money. We'll profit off of their stupidity and the rich will keep getting richer anyway. It's basically the modern day equivalent of 'Panem et circenses'.

Give the plebes their bread for a day so they can go sign up for 84 month car loans tomorrow and you and I can keep profiting off their wage slavery. Heck, given some of the car commercials I've seen, they're probably signing up for those car loans while the world is burning around them. The average American is that dumb.



Very!

Painters Brush

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Re: Never ceases to amaze me how history repeats itself
« Reply #12 on: March 24, 2020, 06:06:25 PM »
But the companies that have been raking in the dough and DON'T have a rainy day fund? We should help them too, if they perform a necessary service. But it should be done under new ownership/management. The current ones have failed (in many cases, many times) -- don't reward them.

I must be the only person in the world who thinks that corporate bailouts should only occur in the context of providing cash in exchange for receiving an equity stake that could be sold at the government's discretion.

In that way, the people who bailed out a company could benefit from the ensuing success of the bailout and, in all likelihood, reap a very well deserved profit.

MKinVA

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Re: Never ceases to amaze me how history repeats itself
« Reply #13 on: March 24, 2020, 06:31:22 PM »
Emergency Economic Stabilization Act of 2008.....Bush signs 2001 airline bailout package...Savings and Loan bailouts...Fannie Mae Freddie Mac bailouts...Chrysler...New York City...AIG...auto industry...TARP...come on, guys, our economy is based on bailouts of all kinds of industries and companies. And for many of these, the US Government did receive an equity position and was paid back and maybe even made money off the deal. Still, I agree that companies that received major tax relief because Trump wanted to buy support for the 2018 mid-terms and those companies gave executives huge bonuses/pay increases and bought back stock should not again be given that gift at the expense of the American taxpayer.

mastrr

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Re: Never ceases to amaze me how history repeats itself
« Reply #14 on: March 24, 2020, 10:16:53 PM »
commie alert

Schaefer Light

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Re: Never ceases to amaze me how history repeats itself
« Reply #15 on: March 25, 2020, 05:41:22 AM »
If I was running a big company, why would I save for a rainy day if I knew the federal government was going to bail me out if times got tough?

vand

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Re: Never ceases to amaze me how history repeats itself
« Reply #16 on: March 25, 2020, 06:16:15 AM »
Government precedent creates moral hazard.

Paper Chaser

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Re: Never ceases to amaze me how history repeats itself
« Reply #17 on: March 25, 2020, 06:26:05 AM »
In the financial world.

We praise our economy, and then faced with a severe disturbance for what, 4 weeks now, many of our largest companies are ready to file for bankruptcy.  I have been blessed with making decent money so have saved much and have easily 2-3 years cash on hand to weather this severe downturn.  Why don't we demand the same for our companies?

I understand that someone who works a MCD's or other low-level service job can't save enough to be in the position I am in, and will truly struggle with rent, etc.  But why do we allow our major companies/industries, who pay their Exec staff 100s of millions, to be run as if they are low-level service jobs?  Why should they be rewarded for that?

I mean, there have been many, many posters here that say keeping more than a couple of months worth of expenses in cash is an inefficient use of those funds and comes with significant opportunity costs. Some even advocate for essentially no cash emergency funds (choosing to use credit cards as the E fund while they liquidate other assets to generate income to pay the card off). Many of these people are intelligent, wealthy, successful people that view cash on hand as a drag rather than an important safety net. Cash on hand is money that's not earning anything for you. It's not being invested. It's not being used to increase your skills. It's just sitting there making you feel more secure until the odd day that you do need it.

If we're going to treat companies like people, and expect them to have cash on hand for emergencies, then that's money that can't be spent on R&D. It's money that can't be spent on retaining talented employees. It's money that can't be returned to shareholders. Basically, if we want our companies to keep a ton of cash on hand to cover times of need, then we need to be willing to accept lower investment returns all the time from those companies.

*Not necessarily advocating for/against any specific viewpoint, I just think it's worth pointing out that there are always trade-offs and that "we" as intelligent, financially minded people can't come to a consensus on a topic like this any more than Big Businesses can
« Last Edit: March 25, 2020, 06:31:41 AM by Paper Chaser »

vand

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Re: Never ceases to amaze me how history repeats itself
« Reply #18 on: March 25, 2020, 06:36:37 AM »
In the financial world.

We praise our economy, and then faced with a severe disturbance for what, 4 weeks now, many of our largest companies are ready to file for bankruptcy.  I have been blessed with making decent money so have saved much and have easily 2-3 years cash on hand to weather this severe downturn.  Why don't we demand the same for our companies?

I understand that someone who works a MCD's or other low-level service job can't save enough to be in the position I am in, and will truly struggle with rent, etc.  But why do we allow our major companies/industries, who pay their Exec staff 100s of millions, to be run as if they are low-level service jobs?  Why should they be rewarded for that?

I mean, there have been many, many posters here that say keeping more than a couple of months worth of expenses in cash is an inefficient use of those funds and comes with significant opportunity costs. Some even advocate for essentially no cash emergency funds (choosing to use credit cards as the E fund while they liquidate other assets to generate income to pay the card off). Many of these people are intelligent, wealthy, successful people that view cash on hand as a drag rather than an important safety net. Cash on hand is money that's not earning anything for you. It's not being invested. It's not being used to increase your skills. It's just sitting there making you feel more secure until the odd day that you do need it.

If we're going to treat companies like people, and expect them to have cash on hand for emergencies, then that's money that can't be spent on R&D. It's money that can't be returned to shareholders. Basically, if we want our companies to keep a ton of cash on hand to cover times of need, then we need to be willing to accept lower investment returns all the time from those companies.

+1

Companies have evolved to become very efficient just-in-time operations to deliver the best profit and return, but at the trade-off of resilience, and we collectively praise them for doing so when we feel great when the S&P is hitting new highs.

A business analyst would look at the human body and conclude that having 2 lungs and 2 kidneys was financially inefficient, and probably engage in the organ trade business.

The world could do with an approach that leaves a little more fat on the bones for most companies to survive a bad downturn, even at the cost of a few percentage points of efficiency and profitability.


DadJokes

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Re: Never ceases to amaze me how history repeats itself
« Reply #19 on: March 25, 2020, 08:40:40 AM »
In the financial world.

We praise our economy, and then faced with a severe disturbance for what, 4 weeks now, many of our largest companies are ready to file for bankruptcy.  I have been blessed with making decent money so have saved much and have easily 2-3 years cash on hand to weather this severe downturn.  Why don't we demand the same for our companies?

I understand that someone who works a MCD's or other low-level service job can't save enough to be in the position I am in, and will truly struggle with rent, etc.  But why do we allow our major companies/industries, who pay their Exec staff 100s of millions, to be run as if they are low-level service jobs?  Why should they be rewarded for that?

I mean, there have been many, many posters here that say keeping more than a couple of months worth of expenses in cash is an inefficient use of those funds and comes with significant opportunity costs. Some even advocate for essentially no cash emergency funds (choosing to use credit cards as the E fund while they liquidate other assets to generate income to pay the card off). Many of these people are intelligent, wealthy, successful people that view cash on hand as a drag rather than an important safety net. Cash on hand is money that's not earning anything for you. It's not being invested. It's not being used to increase your skills. It's just sitting there making you feel more secure until the odd day that you do need it.

If we're going to treat companies like people, and expect them to have cash on hand for emergencies, then that's money that can't be spent on R&D. It's money that can't be returned to shareholders. Basically, if we want our companies to keep a ton of cash on hand to cover times of need, then we need to be willing to accept lower investment returns all the time from those companies.

+1

Companies have evolved to become very efficient just-in-time operations to deliver the best profit and return, but at the trade-off of resilience, and we collectively praise them for doing so when we feel great when the S&P is hitting new highs.

A business analyst would look at the human body and conclude that having 2 lungs and 2 kidneys was financially inefficient, and probably engage in the organ trade business.

The world could do with an approach that leaves a little more fat on the bones for most companies to survive a bad downturn, even at the cost of a few percentage points of efficiency and profitability.

Both replies are well-stated. I'm as guilty of over-optimizing as anyone.

For the individual, what constitutes 3 months of expenses? $10k? How much realistically does not having that $10k in the market set a person back? If we're estimating 8% gains in the market and 1.5% in a savings account, then the difference is a little over $54 in a month, $680 in a year, and $10,600 in a decade.

Is $10,600 over a decade going to make or break FIRE plans? No, but the peace of mind is certainly worth more than that if your work industry is unstable.

Is it really going to kill businesses to have 3 months' of expenses hanging out not being utilized? It'll hurt earnings a little, but not significantly over a long period of time. Since we haven't held businesses to that standard in the past, I'm fine with providing some degree of assistance now, but with the requirement that businesses maintain an "emergency fund" going forward.

ChpBstrd

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Re: Never ceases to amaze me how history repeats itself
« Reply #20 on: March 25, 2020, 09:29:49 AM »
In the financial world.

We praise our economy, and then faced with a severe disturbance for what, 4 weeks now, many of our largest companies are ready to file for bankruptcy.  I have been blessed with making decent money so have saved much and have easily 2-3 years cash on hand to weather this severe downturn.  Why don't we demand the same for our companies?

I understand that someone who works a MCD's or other low-level service job can't save enough to be in the position I am in, and will truly struggle with rent, etc.  But why do we allow our major companies/industries, who pay their Exec staff 100s of millions, to be run as if they are low-level service jobs?  Why should they be rewarded for that?

I mean, there have been many, many posters here that say keeping more than a couple of months worth of expenses in cash is an inefficient use of those funds and comes with significant opportunity costs. Some even advocate for essentially no cash emergency funds (choosing to use credit cards as the E fund while they liquidate other assets to generate income to pay the card off). Many of these people are intelligent, wealthy, successful people that view cash on hand as a drag rather than an important safety net. Cash on hand is money that's not earning anything for you. It's not being invested. It's not being used to increase your skills. It's just sitting there making you feel more secure until the odd day that you do need it.

If we're going to treat companies like people, and expect them to have cash on hand for emergencies, then that's money that can't be spent on R&D. It's money that can't be returned to shareholders. Basically, if we want our companies to keep a ton of cash on hand to cover times of need, then we need to be willing to accept lower investment returns all the time from those companies.

+1

Companies have evolved to become very efficient just-in-time operations to deliver the best profit and return, but at the trade-off of resilience, and we collectively praise them for doing so when we feel great when the S&P is hitting new highs.

A business analyst would look at the human body and conclude that having 2 lungs and 2 kidneys was financially inefficient, and probably engage in the organ trade business.

The world could do with an approach that leaves a little more fat on the bones for most companies to survive a bad downturn, even at the cost of a few percentage points of efficiency and profitability.

Exactly. A company holding, say, a billion dollars in cash in a highly liquid savings account or treasuries would be killing it's own ROI and ROE. They would be borrowing at, say, 5% and sitting on the cash, paying $137k in interest every day, on the rationale that something bad could happen someday. Investors (i.e. us) would flee from such a company. Activist investors would take over the board and evict the management who made such a decision. Competitors would steal market share by offering lower prices and reinvesting their higher profits. Bottom line, the concept of a company that could self-insure itself is an impossibility.

The closest we get to that would be the commodities companies who use futures contracts to hedge and buy themselves a year or two of survival at commodity-crash prices like we're seeing now. But at least futures contracts have an expected value of near zero (the losses and the gains offset over very long periods). There is no break even rationale for a company paying the cost of capital to hold cash earning nothing.

I was taught in my MBA finance class that companies can boost their ROE by increasing leverage - at least to the point that their cash flows are reliable enough to make the payments. Also, one gets a job in upper management by offering shareholders a plan to boost ROE. So the incentive is there to take on debt and buy back shares to increase ROE. Thus, most companies will be leveraged to the full extent allowed by their lenders.

Fast is fragile. If you drove an F1 race car around your neighborhood, you might do a million dollars damage to the carbon fiber bodywork or suspension while slowly rolling over the first bump. The space shuttles Challenger and Columbia blew up due to small cracks on the tiles. Meanwhile a family sedan can continue to function at its speed after having its entire bumper knocked off, and a locomotive can continue to function at its speed after crashing into a family sedan. Ships frequently collide and continue to function afterward. Investors prefer the F1 race car or the space craft, because these are expected to outrun their competitors in the foreseeable future. Investors set their own AA's and cash cushions instead of expecting their companies to do it for them, and own funds containing thousands of companies. They are only even aware of bankruptcies if it is one of the larger more newsworthy companies.

Given these facts and circumstances, it is inevitable the economy will be full of highly leveraged companies holding almost no cash.

Does a government backstop encourage this behavior? Maybe, but it's debatable. I think the easy availability of huge amounts of venture capital and loans during the good times negates the benefits of saving up for bad times. A company with a conservative balance sheet might be the only one in its industry to survive a black swan event. However, a short time after the crisis they would face startup competitors with no prior debts and huge amounts of venture capital and bond funding. Then they get beaten in the good times by competitors who can afford all the best equipment, tech, talent, and supply deals! So why invest in companies with conservative balance sheets? Heads (no crisis) you lose and tails (crisis) you lose, just a little bit more slowly.