This article comes across as a narrative in search of a justifying story: it could just have easily used a 1980s example of corporate raiding instead (or deceptive advertisement of pink sheet stocks to consumer investors, etc.)
This, however, wouldn't allow the author to tell a reactionary "just so" story about our feckless and greedy rulers. One wonders.
>This article comes across as a narrative in search of a justifying story: it could just have easily used a 1980s example of corporate raiding instead
I don't understand your point. The 1980s were over 40 years ago, this just happened. In fact, it's ongoing.
>"just so" story about our feckless and greedy rulers
Oh, that's your point. Yeah, your leaders trading stocks on insider info, politicians selling influence to foreign governments..it's always happened, so who cares?
My point concerns the end of the article: the author applies their three phases to the last 35 or so years of American society, conveniently ignoring the rot that came with their childhood, adolescence, young adulthood, &c.
So no, the point isn’t defeatism. It’s to observe that so many of these types of polemics come with a healthy dose of rose colored glass.
I agree with this overall sentiment. When the author speaks of "crappy institutions and leaders" I understand he mean something along the lines of "we shouldn't accept this level of performance from things we can change" or some other call for more effective government/infrastructure/etc.
It's when the author drops into 'overwhelming debt ending in failure' that he drops the mask enough to show that he doesn't want any sort of government or public infrastructure. It's a libertarian, leaning anarcho-capitalist, viewpoint that explains the discontinuity in tone that permeates many of the articles I sampled from this author.
They say you can't cheat an honest man. WSB users were trying to take advantage of shorts by creating a short squeeze; instead they themselves got taken advantage of.
It was obvious. I giggled when a journalist asked a Robinhood executive "how could you dare grey out the buy button, you re scamming investors", and he replied befuddled "how is it a scam to prevent them to buy at the peak of a bubble?".
The disconnect between the short squeeze amateurs and the reality of any market was painful to witness, myself working at a large stock broker. Stocks are worth their dividend over time: stock with no dividend and with only a speculative future value are always a trap. It's ok to be conservative and expect a regular payment related to performance, it's very risky to speculate on other market participants' behavior: they have agency too, and sometimes are competent.
And it created new inflated reality. That's what current baseline is and nobody ain't going back, money are simply worth less... I do expect this trend to continue on medium to large time scale
From a practical standpoint, there's little difference between these things. It's all more money in the pool. It's not like wages are tied to productivity.
Unfortunately it's a fever dream that, as an individual, you have no choice but to buy into. In a world with 7% annual inflation, putting your money in a traditional savings account is tantamount to hiding it under your mattress.
A high yield savings with Discover has a 4.3% APY right now. That's higher than both the mortgage I took out in 2016 and the loan I took out a few years later for new windows on said house.
Don't discount credit unions. If you or a family member is or was in the military you can get into Navy Federal which even offers interest on their checking accounts (!!). And more importantly, a serious lack of fees and add-on charges.
The problem is, eventually there will be a correction, there has to be, as every bubble will pop sooner or later. And then, a lot of people will be left holding really fucking large bags, like the Detroit housing market post-2008 where people were completely underwater with their mortgages, and communities/society at large would be left with the fallout of urban blight.
Meanwhile, those profiting from the bubble all the time have long since cashed out.
And what their shareholders borrow against the value of their inflated shares and never have to pay income taxes? Seems almost like a national bust out based on the article definition.
Either I'm missing your point, or you are missing mine.
Any loans that the ultra-rich take out against their assets to fund their lifestyle, are going to have an associated interest rate, and a payment schedule. If they don't want to default, they'll need another source of funds to make those payments.
IF that source of funds for load servicing is a salary, they'll be paying income tax (income) + interest payments (loan).
IF that source of funds is dividends, then they may be cap-gains or income, depending on qualification status.
In either case: there is..
* A limit to how much can be borrowed, before the loan payments outstrip the loan-funding income or qualifying dividends
* In the case of income, they are still generating an income tax liability to service that loan, and also paying interest on top of it. Paying 124K/year for 10 years to pay off $1M at 4.5% means they fell into the 24% bracket for 10 years ($297.6K tax total) , rather than 37% in 1 year ($370K tax total). So while it does appear to create a tax savings -- even with the 4.5% loan interest -- funding life with loans is not the absolute "never have to pay income taxes" that my PP described it as.
The core thesis of the piece, if I'm comprehending it right, is that a failing retailer had insiders who -- with full knowledge of what they were doing -- engaged in self-enrichment schemes that they knew would leave investors holding a worthless bag. He mentions that they did a massive raise, including billions in debt, ostensibly to modernize and digitize and compete online, and instead they used it to buy back stock.
There doesn't seem to be any waving of hands.
And the primary target of the piece are low info gambling meme-stock bettors.
> He mentions that they did a massive raise, including billions in debt, ostensibly to modernize and digitize and compete online, and instead they used it to buy back stock.
Honestly, that one should be prosecuted under fraud regulations. And stock buybacks that leave the company with more debt than the company had before should be banned ASAP.
A firm can be financed with debt or equity. Issuing bonds to buy back stock is simply changing the structure of how the firm is financed. It does not have a moral component.
This doesn’t apply to the BBBY case, but back when long-term corporate bonds could be sold at ~2%, it made a ton of sense to issue low rate bonds to buy back stock. Apple made a killing on this play in 2013-2017, then again in 2021: https://www.macrotrends.net/stocks/charts/AAPL/apple/debt-is...
Raising money by issuing stock for the purpose of modernizing a company is one thing, as an investor I'd be happy to buy such stock.
But I would not buy stock only for the company to do buy-back programs for other shareholders, especially not if the company would be in a worse shape (i.e. less net worth of its assets and debts) afterwards.
You can't finance a stock buy back with more stock.
A firm has assets and operations and those are funded with either debt or equity. Borrowing money to buy back stock is simply changing the capital structure of the firm.
For BBB the fraud is that the execs knew it was failing, used the debt to cash out. Maybe they lied to retail-investors but typically one has to tell the financier what the debt is for and then not doing that is a contract breach which could be labeled fraud.
They lied to no one. I don't believe anyone has questioned the financials.
I find it amusing that everyone has sympathy for the the shareholders (who were given an opportunity to get out), while no one seems to feel a bit of sympathy for the bond holders. If anyone was defrauded (and personally I don't believe anyone was) it was them.
This has been happening non stop since the 70s and the current state of America shows the results of 50 years of breakneck capitalism
What you’re seeing is that at this point it’s so entrenched that people can look at it and shrug instead of being horrified that instead of being a rare situation it’s “Business as usual”
Breakneck capitalism, so to speak is why I can get almost any material , consumer or professional, delivered to my door in a few days - including things that would be considered exotic a year ago, at a tenth the price they would have been (even adjusting for col).
Corporate raiding is nothing new, and financialization does let it happen at a pace that it couldn't previously - but just saying "but that's capitalism!" is quitting
Worker owned collectives have the same problems, people want to acquire power and then use it to be ahead when strategies fail and someone has to take responsibility.
How do you prevent that looks different in a market economy than a planned one (planned ones having more widespread but also more small scale corruption issues like these) - but you still do need to do the work to prevent it.
One of the larger issues that is causing problems is the misnomer of "maximizing shareholder value" which took hold in the late-1970s and especially the 1980s (unsurprisingly the same era as Reagan).
I for one can’t get all the things I want in a few days: I want ethically sourced clothing, or milk from local cows gently pasteurized. Sometimes I want a particular kind of cheese from a farmers market and they’re sold out that day.
When you start looking for quality material produced in a way that minimizes human suffering, no, capitalism doesn’t make this available to me in a few days or for cheaper.
People were given the choice between having lots of things made with shortcuts or having a few things but made the right way.
People, completely as expected, chose lots of things made with shortcuts.
A gallon of locally sourced, ethically made milk is awesome. But so is a gallon of milk, a loaf of bread, a dozen eggs, and a pack of cheese slices for the same cost.
Because the externalities are completely hidden from them, and because their own situations are precarious enough that they have no real choice but to choose the cheapest options.
Make it clear at the point of purchase all the negative tradeoffs made to enable that Low, Low Price, and some significant percentage of people will choose to buy things that cost more.
Make sure that everyone—yes, everyone, no exceptions—has a decent amount of disposable income on a reliable basis, and that percentage will grow a lot more.
No it will not. Larger incomes are only larger because of industrial machinery, the same process that makes it more expensive to buy "organic' is what drives income up.
Software engineering is so well paid due to these dynamics.
All of those came from public investment in infrastructure, funded by taxing the shit out of robber barons and trust busting at a never before seen scale starting in the 1930s and going until we went to Vietnam.
It’s like capitalists completely forgot about the massively successful Great Society program (which is the only thing holding this all together still) that literally created from whole cloth most of the roads, sewers, electricity, social security, elderly healthcare, consumer protections, etc… that we all rely on everyday.
So no. That’s totally wrong, the world you live in much worse than it could have been for MOST people had generations of psychopaths not divested the public benefit aspect of organizing
It's nice that you can get things. But there's a cost - increasingly large numbers of people can't.
I'm sure as the game continues you won't become one of them.
IMO the real problem is that maybe 5% of the population are amoral sociopaths, and being absolutely heartless and uncaring - often with a liking for outright abuse and violence - gives them a competitive edge in almost any political and social system you can imagine.
Normal people just can't imagine that another human might operate like this.
But worse - many people seem to have some kind of bizarre deferential herd instinct to follow these crazies off the suicide cliff.
It may not be a fixable problem. We're a flawed species. Perhaps it won't be long before evolution - the ultimate owner of the casino - shrugs and moves on.
Those are difficult questions. Are we talking about how "happy" people are? That's the goal for some people, and an official goal for Bhutan according to its constitution (https://en.wikipedia.org/wiki/Gross_National_Happiness). But I don't think we know very well how to measure it accurately.
It has been claimed that the move from hunter-gathering to agriculture brought a lot of misery while improving efficiency according to economic measures.
>IMO the real problem is that maybe 5% of the population are amoral sociopaths, and being absolutely heartless and uncaring - often with a liking for outright abuse and violence - gives them a competitive edge in almost any political and social system you can imagine.
Absolutely. Bob Menendez's indictment is the definition of: this is a powerful, already wealthy individual selling out the US people to a foreign government for, frankly, not a lot of money. Why? He may spend the rest of his life in prison.
How can anyone but a sociopath think that's a good trade?
As for 'defend Cohen', He wrote a letter to the board specifically calling out the company’s executive compensation structure as noted in the article. They ignored him. He held through a 50% loss then when finally profitable filed his paperwork to sell. Any informed investor looking at the fundamentals would know the risk of this vs just reacting to noise on social media.
“Bust Out 1” seems basically OK to me. Everyone hates stock buybacks, but they’re economically very similar to dividends, and seem like a reasonable way for a fading company to return cash to shareholders. Could BBB have survived if they spent $4B on a new initiative instead of returning it to shareholders? I doubt it.
“Bust Out 3” seems pretty sleazy, selling stock in a failed company to retail investors. But hey, that’s what they said about Hertz, so maybe there’s some universe where this could have worked out OK?
I agree “Bust Out 2” was just a scam. Ryan Cohen is a grifter.
> Everyone hates stock buybacks, but they’re economically very similar to dividends, and seem like a reasonable way for a fading company to return cash to shareholders.
consider the passive investor who just Buys and Holds. three alternate timelines:
1) company pays dividends for 5 years and goes bust with a balance sheet of zero.
2) company sells off its assets over 5 years and dissolves.
3) company does share buybacks for five years and goes bust.
in 1) and 2) the passive investor receives the same value as any other shareholder. in 3) the passive investor receives $0 and the value accrues exclusively to those shareholders who sold before the end.
the combination or buyback + predictable bankruptcy makes sense only if you’re a shareholder close to the company seeking to maximize your own distribution. putting “right” and “wrong” aside, this pattern should at least make you more wary of being a passive investor, generally.
Nobody owes passive investors money. It is an investment strategy that many people take, and like any strategy it can be exploited. If you buy stock and don't look at how the company you own is doing, then you deserve to lose your money. Nobody lied here. Everything was done right out in the open.
in whichever branch of the multiverse has alternate me by some bizarre chance hosting you at a dinner party, remember to not take off your shoes. alternate me will meet you in your own ethical framework and confiscate them for himself when you're not paying attention.
If you include: "Oh, btw, if you take off your shoes, I'm keeping them" on the party invite, and follow up with quarterly updates that you're going to be taking everyone's shoes, it would be my own fault for going, wouldn't it?
Most passive investors nowadays are investing in index funds. In that case all three of your investors receive equivalent return as the index rebalances away from the failing company.
the impact is lessened, sure, but i shouldn't think the returns would be identical. the raiders try to sell their shares while the price is buoyed by the buyback program. the index funds wouldn't rebalance during that time because of that price buoy. at the point the buoy weakens, those index funds are stuck selling into the decline. a simplistic model with instant rebalancing and infinite liquidity would put their returns near half.
Actually it’s not okay. You’re basically making money for investors who are “in on it” at the moment at the expense of future investors and other large investors who are just in the stock as a result of big fund diversification. My retirement money could be funding the sleazy stock sales from the insiders while they sell out the company.
It’s changing the capital structure from equity based to debt based.
Effectively it’s a change in ownership from stock holders to bond holders. Indeed it’s a sensible move if you are in a non-growth industry with stable and predictable cashflows - this is often how utility companies were financed.
It’s arguable that that was the intent of Bust Out 1.
Borrowing money to buy back stock is the opposite of funding: it's de-funding. It's the acquisition of liabilities with no offsetting acquisition of assets or future cash flows.
From an accounting standpoint it's funding-neutral: you assume a debt liability with offsetting reduction of the equity liability. This makes the return on invested capital larger, since the same profits get divided over less shares. The investors to whom the capital was returned can then invest that capital somewhere else.
It does make the company more vulnerable to economic downturns of course, since debt comes with mandatory payments that equity doesn't have. But making the tradeoff between larger profits and larger stability is what the investors hired managers for. If they don't like the tradeoffs being made, they should get different management or sell their stake in the poorly run business.
What gets me here is that bust out 1 happened after one bad holiday season to a company that was doing great the previous year. Another company in New Jersey (Toys R Us) had a similar one mistake year and ended up owned by Bain Capital -- the people who profited from the bust out weren't even part of company. Why is it that retail companies only get one strike before their stocks are pillaged leaving them crippled? Is there another market as ruthless as this?
You are looking at only two companies, not a representative sample of retailers. ANF, for example, has multiple "strikes" but they're still around. Retailers only become vulnerable to takeovers when investors lose confidence in management's competence. All other industries are equally ruthless.
In general the US still has a surplus of retail space. There will probably be more major bankruptcies in the next few years, which is fine. Let them die and more innovative companies will take their place.
Stocks and bonds (or loans) are both liabilities. Only difference is priority. Lenders have priority over shareholders in the event of a liquidation. If you own stock in a company and they're shifting from being funded by capital to being funded by debt, it mostly shouldn't matter unless they're going bankrupt, and in this case they clearly were headed that way and stockholders should have sold.
In some sense _the entire reason that companies exist_ is so that shareholders can at some point extract some money from the company and there's only two ways to do that -- either through dividends or growth. BB was (at best) clearly no longer a growth company, and stock buybacks are just dividends in disguise. They're a strong signal that you should be cashing out at least some of of your position as a stock holder while you can.
So what? It's just a change in capital structure. Most corporations are funded by a mix of equity and debt. On average, taking on some debt boosts shareholder returns despite the increased risk of bankruptcy.
> On average, taking on some debt boosts shareholder returns despite the increased risk of bankruptcy.
Define "shareholder".
The day trader? The hedge fund who wants a position for a few weeks/months? The pension fund that would like regular cash flow? The person with a retirement account that is dollar cost averaging into the market over a period of decades?
On average having some level of debt boosts shareholder returns. It does increase the risk of bankruptcy, but usually it's a net win. Smart shareholders are diversified so that the bankruptcy of any single company in their portfolio has minimal impact.
More interesting that debt to equity ratio, is what is done with the capital that is raised by either mechanism. Is it possible for investment into operations, marketing or strategic expansion or reduction to improve shareholder returns? Does CEO compensation that is well into the hundred million dollar range for performance that isn’t remarkable typically boost shareholder returns? These are questions that I think are more interesting to people running and governing companies. Even to CFOs which all know in their sleep the first year MBA financial engineering tricks of CAPM, WACC, and leverage to determine optimal capital structure.
The attitude conveyed in your last sentence should be a large red flog to a competent and attentive Board or share holder. First, it is of no concern to the management how much I am or am not diversified- management’s job is to optimally run a company, not my portfolio. Second, leveraging up a compsny in low interest rate times is likely largely increases systemic risk to the share holders which, according to Markowitz’s modern portfolio theory, is not reduced by diversification versus idiosyncratic risk, which is.
For an individual, perhaps. Even there some exceptions can be found though: taking on a mortgage to buy a house can be the right decision even though you could keep on renting and don't technically need to take on the debt.
For a business it gets much muddier: do they "need" to take on debt if it makes them more competitive in the market? A company with a well optimized capital structure containing both debt and equity can be much more profitable than a company without, and can use those extra profits to out-compete companies that are less efficient.
If you acknowledge that the company was doomed anyway in 2014 (which I don't think mgmt believed) then the proper solution would have been to find a buyer rather than 5 years of buybacks. And personally I don't think it was a foregone conclusion that the end would come 9 years later.
Borrowing money and turning it over to shareholders via buybacks and the destroying the debt with bankruptcy is obviously better serving the shareholder's interests.
Not sure what standard for “proper” you are using, or how you expect it to be a norm in a basically-capitalist economy.
The board is fiscally responsible to the company and its future, not shareholders. It should not have approved a buyback program funded with debt because it is not in the best interest of the company. It was in the best interest of current shareholders.
The board represents the shareholders, the management represents the company.
The board absolutely has to care about shareholders or shares would be entirely worthless... and therefore not a good avenue to finance the company at a lower cost than bonds.
It's a delicate balance but you cant blame a board for saving their shareholders, that's why we pay them as owners of the business.
I don't see the distinction. What sbest for shareholders may well not be best for the employees of the company... but that's just how it is. Companies are run to benefit the capital that funded them, employees are just an expense.
Read up on “fiduciary responsibility”. It has nothing to do with “employees of the company” or “to the benefit of the capital that funded them.”
Fiduciary responsibility is every board member’s responsibility and is legally binding (documents are signed stating as such when one becomes a board member). There are probably law suits pending against board members because they broke this responsibility.
> At a large enough scale, the bust-out goes on forever.
I don't think that's true. It didn't work for Louis XVI, it won't work for us. If you continually degrade the reasons to bother playing this game, eventually somebody will start playing a different one.
A lot of People already can't afford food in the US. You think the Potato Famine was caused by not enough food and not governmental / economic ineptitude? That is like arguing bullets kill people not guns.
The potato famine (which had nothing to do with Louis XVI) wasn't even caused by ineptitude.
It was caused by outright cruelty.
Ireland had plenty of food at the time. It was just going to feed the English overlords. Potatoes were all that the Irish were allowed to keep, so when the blight hit, they starved.
The perils of under-regulation, of regulatory capture, and the naivete of individual day-traders. There are no incentives to increase regulation, but there are incentives and inducements to look the other way and to par back the regulatory environment even further. Hell, one of LTCM is even getting airplay these days and saying how they really only made a tiny, correctable mistake but that they were completely right otherwise.
The premise of the piece depends on making a connection between BBY and the US. I'm not sure it works.
> In the American context, my personal view is that Bill Clinton and George W. Bush presided over Bust Out 1, Barack Obama orchestrated Bust Out 2, and Donald Trump kicked off the lulz period, which we are now squarely in. I mean, how can you understand Trump and Biden as anything other than lulz?
Those BBY bust-outs were its leadership sucking the company dry. How did Clinton, Bush, Obama, and Trump suck the country dry? I'm not saying those leaders were effective but rather asking the more specific question about the connection between those administrations and the BBY serial vampire syndrome. The article seems to be saying that wealth/vitality was somehow sucked from the US into the leaders themselves or their cronies. If so, name names. Or at least offer a single example.
Instead, the article ends up with a much less interesting message. The US is going down the tubes and has been for a long time. That's a very old idea that may go back to the country's founding. It doesn't offer new insights. It doesn't open new perspectives. It just riles people up for a time. It's the kind of thing that politicians looking for new slogans to congeal a base of support turn to in campaign speeches so they can portray themselves as the only one who can drain the swamp.
Did anyone else start getting lots of BBB spam coupon messages in the last few weeks?
I'm getting several a day. No BBB even close to my area to use such coupons, if they are by chance real.
Greed Street, Rapacious Street, Wall Street. Is all the same. We all let our
401 fund managers do their dirty work for us while we dream of lofty retirements. For older folks, that lived through the .com bubble, savings and loans and too-big-to-fail, and so on, this article rings disingenuous.
Poker-specific term. In one sense it's a loan, but really it's more like "investing" in a player, giving them the money they don't have to buy into a game ("table stakes") in exchange for a percentage of their winnings.
I've often heard it used to mean buying a player's buy-in, in return for (hopefully) a percentage of their winnings. Often there's no obligation to pay the staker back in the event of a loss, but in the case of a large stake to a mobster, maybe it's a different story
The amount you’re playing with is called your “stake”. (Same root as “proof of stake” in crypto.)
You might stake another player (loan them the money and collect interest/vigorish). In modern high-stakes poker, you might also “buy a piece” of a player where they put up half and you put up half and split the win/loss (or have another split).
Staking, the present participle of stake, which means a wager, bet, or pledge. Tony is loaning Davey the money, but specifically to use as a wager, or stake, so it is Tony that is staking.
I'm kind of surprise about how the author extrapolate the BB&B situation to politics, when it's clearly the financial system crashing the economy because stock manipulation is somehow more profitable than doing actual business.
The author's pivot to enlightened centrism at the end is an unfortunate miss where he might have instead argued that this example and all of the other broader institutional bust-outs he describes or alludes to are just natural, predictable consequences of unregulated capitalism.
It's still an ideological position, but it's got a more solid footing than the political one. Reasonable people can disagree on the effects or values of different monetary policies under different political environments, but nobody can arrive at the view that they're the same without being pretty ignorant on the subject. "This is the nature of capitalism" [1] can become a discussion between sane people, vs., "there's a 70-year-long grand conspiracy to loot society and it's because men aren't men anymore", for which no charitable interpretation exists.
Some people will be quick enough to point out that everything that happened in the BB&B case was completely legal, and maybe even right or correct to do under certain circumstances, that there shouldn't even be disagreement that this is the house capitalism builds. Under this system, some people can build a business (which may have some unfortunate side-effects in some communities or on the environment), and the same people or other people can come along and then loot the business for everything they can get away with, enriching themselves at the expense of everyone else. At the moment, there are lots and lots of businesses that have ripened on the tree of capitalism, and there are lots of people with the skills and greed required to loot them. Sure, it sucks for consumers and the public [2], but how many times in history have they really had a say in how society should be run?
[1]: Please don't misread this as an argument that other -isms are better. That's not an argument anyone can productively have on this website.
[2]: Arguably. There are plenty of people that will counter-argue that society is actually better off when this sort of thing happens because, I dunno, people got cheap toasters or something.
You lost me in the first sentence. It's an odd turn of phrase to claim the essay's conclusion was a "miss" just because it doesn't align with your ideology. It's more honest to just say you disagree with the conclusion.
But the company belongs to the owners. If they want to sell it, it’s none of your business. If the new owners want debt financing, that’s none of your business either.
I think there's a broad conception that businesses exist not just as a vehicle to earn money for their owners, but as a component of society at some scale. That a store is not merely a collection of goods, but a cultural touchstone, as the stores we visit and the goods we consume are the majority of our culture. As those goods vanish or are perverted, or as those stores shutter or become something different, there is a sense of grief and betrayal -- of a member of the community going away or breaking our trust. This doesn't align with any reasonable view of a collection of shares reflecting ownership components of a company selling overpriced soap. But I think this view of the world, of large corporations as society fixtures, explains why so many corporations are expected to "behave well", and why people are mad when they don't.
> "there's a 70-year-long grand conspiracy to loot society and it's because men aren't men anymore", for which no charitable interpretation exists.
what actually are you looking for? you want the author to challenge unregulated capitalism? to convince citizens that we’re right to reign it in, because we’re right to defend ourselves against the rapacious scammers in both the economic and political realms?
because if so, just re-read the last 4 paragraphs. pay attention to the groups he calls out, and if you’re still not satisfied then explore the possible meanings of this part in particular — which he bolded — and recognize that the “weak men” here most probably includes you and i and 95% of the author’s audience.
> I am full of hope that weak men will choose to reclaim their autonomy of mind
This, however, wouldn't allow the author to tell a reactionary "just so" story about our feckless and greedy rulers. One wonders.