Comment by LeifCarrotson | Hacker News Reader

Comment by LeifCarrotson | Hacker News Reader

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> Toshiba is expected to detail the extent of its write-downs next month. Analysts have suggested they could amount to $4 billion to $7 billion, enough to put Toshiba’s future at risk. Banks have indicated they will keep lending money so the company can pay its bills, but without that lifeline, Toshiba, a 140-year-old business, could collapse.

Startups collapse all the time. That makes sense, they've often been operating for just a few months or years. Some are dependent on regular cash infusions from investors, hoping to grow large quickly, while bootstrapped businesses turn every meager dollar of revenue back into growing the business, hoping to beat the odds and develop into a stable business. Both models are much like a person on the edge of poverty, living paycheck to paycheck just trying to keep up with rent and bills, perhaps taking out credit cards to make something work, dreaming of a very far-off future where they're living in a house they own outright on a large retirement fund.

But why is it that a company like Toshiba, in operation for more than a century, is dependent on the goodwill of banks to remain solvent?

> why is it that a company like Toshiba, in operation for more than a century, is dependent on the goodwill of banks to remain solvent?

This is historically very common in Japan, where they are known as Zombie companies. [1] It's been suggested that this is due to a fierce cultural taboo against failure. So, for example, corporate bankruptcy rates in Japan are extraordinary low - not because Japanese companies are so much better, but because Japanese banks keep poorly performing corporations alive using debt. The bad debts then lead to the phenomenon of Zombie banks [2] that are kept alive by the government. The Japanese government also directly bails out technology companies through the Innovation Network Corporation of Japan (INCJ) [3], which bailed out Sharp last January with a $1.7 billion loan.

This "Zombie" behaviour is thought to be partly responsible for the decades of Japanese economic under-performance known as the "Lost Decades" [5]. It is also feared that "Zombies" are becoming widespread in China. It might also be showing up European and even US economies due to bail-outs actions taken by those governments after the financial crisis. It seems to me that Trump's brand of economic policy might also create these types of Zombie problems.

[1] https://en.wikipedia.org/wiki/Zombie_company#History

[2] https://en.wikipedia.org/wiki/Zombie_bank

[3] https://en.wikipedia.org/wiki/INCJ

[4] http://www.reuters.com/article/sharp-restructuring-incj-idUS...

[5] https://en.wikipedia.org/wiki/Lost_Decade_(Japan)

> It seems to me that Trump's brand of economic policy might also create these types of Zombie problems.

How so?

Subsidizing unprofitable segments of the US economy through government grants and programs to keep jobs alive?

It's sort of a big part of the platform he ran on.

When did he promise government grants?

He made some promises to workers in unprofitable industries, like reducing regulation on coal, but I can't think of or find any promises of new grants or subsidies.

And he's eliminating some huge government grant/subsidy programs, like the ACA.

Carrier is a fine example of promised government grants for not moving jobs. The grants were just in the form of tax breaks [0] (spending the tax revenue before it ever gets to congress).

[0]: https://fivethirtyeight.com/features/why-trumps-carrier-deal...

According to your source, the tax breaks were offered by Indiana, not by Trump.

Are you asking why a massive accounting fraud scandal stings so bad? Or why they resorted to accounting fraud in the first place?

No. Well, sort of - they suggest that the magnitude of the 'sting' will be $4 to $7 billion, which is obviously not a good thing. But this doesn't seem like that amount should sting all that bad to a company with the size and history of Toshiba. I mean, they had $50 billion in revenue last year! Are they really skating on such thin margins that they can't write off $5 billion without risking insolvency?

To put it in human terms, if a judge gave a $10,000 fine to a college student or a high school student, it would be totally reasonable for them to be unable to pay. But if they gave the same $10,000 fine to an older adult, for whom that might be a still painful 10% of their annual income, you wouldn't expect the adult to need to declare bankruptcy. An adult who's been making $100k for 20 years or more who's responsible with their finances is likely to have $10k available in savings, should have at least double that much in an emergency fund, and will probably have many times more in home equity, investments, and a retirement fund. Sure, companies involved in accounting fraud probably aren't being terribly responsible with their finances, but the fact that they've existed for a century must mean they're not being stupid, right?

I'm trying to get a start at understanding business finances, and (unfortunately) approaching it from a personal finance standpoint. It seems a lot of corporate 'wisdom' suggests the equivalent of paycheck-to-paycheck, and even trying to reach one step further towards payday loans with tricks like paying your suppliers on Net 30 terms that only start after your customer pays your invoice.

Companies are not individuals. It doesn't help shareholders for the company to keep a large cash pile - investors would much rather take the money and reinvest it elsewhere. Massively profitable companies like Apple (and MSFT in its early days) could get away with this because their ROE numbers are already higher vastly higher than the rest of the market. But for most industries optimizing ROE is important.

Its not really as risky as it sounds. A company can simply dilute itself and create new shares out of thin air and sell them to raise cash should their small buffer prove inadequate. A human can't do that.

For whatever reason Toshiba considers it preferable to sell assets rather than create new shares. Likely because the scandal has depressed the stock price.

That's a deep hole that involves management conflict of interest, tax incentives, and even governments monetary policy.

It's unhealthy, but nearly all big companies are leveraged and can fail in a spectacular ways.

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