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Was corporate profit growth a bubble inflated by "financial engineering"?

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Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#171

Post by LeoTinnitus »

BlackCherry wrote: post #13
LeoTinnitus wrote: post #6

It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…

It’s not the “corporations” as this abstract entity that are focusing on shareholder value as a top priority. It’s the C Suite members, and it’s the board members... it’s a small group of people at the top who are trying to enrich themselves at the expense of the company and at the expense of the people who actually run the company.

Yes that is most definitely true. The intent isn't for your company to go spiraling down into bankruptcy. The problem is these bourgeoisie types at the top don't change even after getting bailout money. Why the hell are we rewarding the people who maintain a company culture of "Well if we go bankrupt, we'll just ask the government for money cause they can't afford for us to go out of business!"

It's a load of crap that this is even a concept if the government cannot get involved at that point.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#172

Post by bawana »

TeMPOraL wrote: post #164
grecy wrote: post #161

Earlier quoted context omitted.

> 't that precisely what you get from competitive pressure in a free market? Things end up priced barely above production costs. Evidently no. Companies are making hundreds of millions in profit every ear, they're paying their CEOs tens of millions as a "bonus". They're they're making a lot, LOT more than just "barely above production costs"

There is no competitive pressure within a company. CEO pay is usually an insignificant fraction of a company's revenue; there's enough inefficiencies both within the system and within the market to allow this to exist, even if the actual product of a company is a commodity. The other part of my comment also mentioned that companies do everything they can to avoid being commoditized: that's another source of inefficie…

"CEO pay is usually an insignificant fraction of a company's revenue" What is insignificant? For example, the CEO of Aetna walked away with 500million. That's money that should have gone to insured, injured and sick people. What risk did he take that exceeded the risks of the children we sent to Afghanistan and Iraq?

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#173

Post by LeoTinnitus »

Retric wrote: post #43
enraged_camel wrote: post #26

Earlier quoted context omitted.

Keep in mind that over the past couple of decades, Walmart has replaced small mom-and-shops in most towns and small cities. An enormous amount of people in America would be utterly screwed if it went away.

For a few weeks possibly, but most of their items can be ordered online and their failure would open many doors for new stores. Also, the overwhelming majority of people are driving to Walmart so even if significantly less convenient they can also drive somewhere else.

It would open many doors over the course of a few decades of market correction. Just cause walmart closes shop doesn't mean local poor people suddenly have the capital to start a business and compete. It's why ghost towns are still a thing. When the oil derrick town dries up, the driller who now lost his job isn't gonna just start drilling for oil now.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#174

Post by LeoTinnitus »

jimbob45 wrote: post #120
enraged_camel wrote: post #26

Earlier quoted context omitted.

Keep in mind that over the past couple of decades, Walmart has replaced small mom-and-shops in most towns and small cities. An enormous amount of people in America would be utterly screwed if it went away.

Sounds like a decent reason to nationalize Walmart (other than that their margins are very thin and it’s unlikely anyone could do better)

Why nationalize them? What would be the point? The purpose for nationalization is to give preferential treatment to the state. Walmart already does that and (in my personal opinion) does for the people as well.

Although the only thing I wish they cut back on was their employee culture cult stuff. It reminds me of McDonalds where you have to say thank you to a supervisor after everything, even if they're yelling at you to be a dick. It's like the f'ing military. That kinda brainwashing garbage needs to go.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#175

Post by TeMPOraL »

bawana wrote: post #172
TeMPOraL wrote: post #164

Earlier quoted context omitted.

There is no competitive pressure within a company. CEO pay is usually an insignificant fraction of a company's revenue; there's enough inefficiencies both within the system and within the market to allow this to exist, even if the actual product of a company is a commodity. The other part of my comment also mentioned that companies do everything they can to avoid being commoditized: that's another source of inefficie…

"CEO pay is usually an insignificant fraction of a company's revenue" What is insignificant? For example, the CEO of Aetna walked away with 500million. That's money that should have gone to insured, injured and sick people. What risk did he take that exceeded the risks of the children we sent to Afghanistan and Iraq?

Well, according to [0], Aetna's revenue in Q3 2018 was $15.5 billion - so, extrapolating, their yearly revenue was something on the order of 60 billion dollars, of which that 500 million you mention is just 0.8%. Also, some of that $500M is in stock, not cash.

--

https://www.modernhealthcare.com/article/20181030/NEWS/18103...

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#176

Post by LeoTinnitus »

dsfyu404ed wrote: post #114
skrebbel wrote: post #56

Earlier quoted context omitted.

> They essentially are the government as they have a larger impact on your daily life than the actual government! Even if that were true, "the organization that has the biggest impact on your daily lives" is a weird definition of "government".

Just to further highlight the lunacy of that definition, most people's "government" is their employer if you define government in that manner.

Your employer most certainly "governs" your life in ways you may not even be conscious of. Just because they don't have a label on it in that way doesn't mean the concept doesn't exist. Industrial feudalism is the same as the old ways, it just confuses people more because there are innumerable things to do, buy, and see. You're "employer" is no different than a fief. The "entity" is the manor. The "inheritance" is described in the companies by-laws. And yes, it is 100% legal to have direct inheritance to your kin, and you can even write it in the by-laws that cannot be usurped by the board. You can write whatever the hell you want so long as it doesn't go against the way the federal government wants you to play the game (IE, basically the Emperor of the HRE or Emperor of China proclaiming a mandate for all tributaries to follow).

Your behavior is shaped by so many external influences that we often forget that the government most often has very little direct influence in our lives. Businesses typically encounter more interactions with the government, but average folks interact with businesses. Corporate cultures in a weird way end up becoming our "culture" we believe in, our "religious" views (not in a theological way). While we're all essentially considered "Freemen" in this world, sometimes you are not because of things like bills or debt bondage. You cannot leave from your "Lord" or "company" because you owe a debt somewhere or simply cannot afford to leave. It's a complicated system, but the concept of fuedalism has just been expanded.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#177

Post by jazzyk »

H8crilA wrote: post #149
engineer_22 wrote: post #137

Earlier quoted context omitted.

can you provide a list of examples?

Everything the Fed, the BOJ, the ECB, the SNB and what have you are doing, reducing all the rates that they can: - starting from short riskfree rates [all since 1981, but problems surfaced only in 2008] - to long riskfree rates [all since 2008] - to corporate default rates [ECB since 2012, the Fed since 2020] - and in some cases, even to equity risk premium rates [BOJ and SNB since 2008] Also China, but China is spec…

Yes, but it all started in 2008 (to me, the starting point was really the 1998 government bailout of a private business - a hedge fund LTCM [1]). It was all downhill from there.

Still, not "since forever", only since 1998, or so.

1. https://en.wikipedia.org/wiki/Long-Term_Capital_Management

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#178

Post by LeoTinnitus »

sokoloff wrote: post #158
matlin wrote: post #138

Earlier quoted context omitted.

I agree. I think one of the more interesting approaches to solve this particular problem as well as private companies staying private too long is the Long Term Stock Exchange. I don't know a lot about it but from my understanding, it aims to eliminate short term investors which removes a lot of the speculative nature of public stocks. Not sure that this would eliminate stock buybacks but the long-term investors might…

It also likely eliminates all but the quite wealthy from investing in one of the greatest wealth-creation engines of the modern era.

Playing with stocks is no different than selling phsyical commodities, except that unlike selling items on amazon, ebay, craigslist, or your own storefront, you have NO idea what that share will be worth. Plus even a 20% return on 10 shares of say amazon will give you a decent amount of money, all you are doing is sitting waiting to sell. It's not even compounding of an increase. So you need an incredible amount of capital and knowledge of the market to even make it worth your time, much of which most people don't have. It's very easy to lose money in the stock market. It's completely nonsensical to believe that everybody is competent enough to play into that system. Most people understand how to directly translate their labor into a currency. If it was an easy way to get rich, why aren't most people drawing an income off of it? Because they need a job first for their principal. Which tends to often get eaten up elsewhere for a myriad of reasons.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#179

Post by ej3 »

abakker wrote: post #165
ej3 wrote: post #109

Earlier quoted context omitted.

Honestly I've always shared a perspective much like this until yesterday someone mentioned that through the stimulus (I'm not sure of the figures, but what I roughly recall is) each citizen gets $1200 they're then taxed on, and companies get the balance as an interest free loan. If the balance of the stimulus had been simply evenly distributed to individuals, everyone would have received nearly $10,000. I can't imagi…

competition == unemployment. corporate failure == unemployment. innovation == unemployment. Maybe all in the short term, but, this stimulus is specifically looking to avoid short-term discontinuities. That said, I'm a big fan of corporate stress tests and capital buffers as well. I'm not a fan of debt-fueled share buybacks, but, I understand them as a response to a system that allows them.

do you really think it's likely that they can avoid short term discontinuities in this context? Maybe we should be looking farther ahead?

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#180

Post by jazzyk »

jrs235 wrote: post #152
alexpetralia wrote: post #116

Earlier quoted context omitted.

Yes, asset inflation. Which we've seen (in corporate & startup valuations). We have not seen similar inflation of goods in the wider economy (except real estate, health care and higher education).

>(except real estate, health care and higher education). All also being assets. (Health care equating to health). Who has benefited the most from asset inflation? Those well off or the lower working class?

Real-estate is assets, of course.

But I think the inflation in health-care/education is caused by lack of competition.

As in - you can choose to not buy a new coat this winter, but you HAVE to buy health insurance. You HAVE to buy college education for your kid or otherwise s/he won't be able to ever start a family (working as a barista, or some such).

Also, none of these services were outsourced to cheaper location (because they can't. although a good number of people have been going abroad to get their medical degree, etc.)

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