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Comment by duxup | Hacker News Reader

The prevalence of stock buybacks is a problem but ...

I'm not sure that in the absence of buybacks that they would have just sat on a pile of cash (I bet some of them have some cash on hand) and paid everyone during the COVID crisis until that cash was gone. That just wouldn't make sense business wise either.

A lack of buybacks wouldn't change anything here. If you're not working these employees, you aren't going to keep paying them for long generally. Buybacks or no buybacks.

If you don't like the incentive to layoff people who aren't working for you, that's a whole other topic IMO.

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Its not that the companies should have kept the cash, though. Buybacks are not inherently bad. But the US, many buybacks were a direct result of the reduction in corporate tax rate in 2017. Instead of using their greater cash flow to reinvest, raise wages, etc, they bought back stock primarily held by wealthy and institutions. Effectively a transfer from the US Treasury to the wealthy class, leaving the US with fewer options to weather the current storm for its citizens as a whole.

I still wouldn't expect wages to rise just because.

And I'm not sure as far as an airline goes investment isn't going prevent any of this either.

I get the buyback problem, but laying people off who aren't working seems entirely disconnected from those topics.

is public assistance also entirely disconnected?

sure, they will lay people off or furlough them. there's genuine problems with work at the moment. but do they want help beyond that?

I guess for any given public assistance you could demand something about layoffs ... but I would be wary of side effects / worry about killing the company through such policies.

Nationalize them then. Wipe out management and shareholders, and take control for the benefit of workers of the company and customers.

Would they be able to compete with other airlines if they were paying everyone for not working?

One would assume that airlines requiring a bailout are financially marginal, and unable to survive without nationalization, while airlines not requiring a bailout would be in a financial position to weather the temporary black swan event causing the need for bailouts in the first place (for example American Airlines might require a bailout, but Southwest likely will not).

If every airline needs a bailout, you might have to evaluate a program of greater scale; injecting cash directly into every airline in a coordinated effort, but taking equity and putting in place governance (with a board seat or more than one) in those needing the bailout. Those who won't accept such terms would be permitted to fail.

My apologies it's not a binary answer, and more "it depends."

For many businesses, reinvestment would have been a waste because they didn't have any expansion opportunities with strong profit potential. In those circumstances the shareholders would rather get the cash back directly.

I think "buybacks are not inherently bad" is a good point and still true in a theoretical perfect frictionless vacuum. But when we look at the entire economy and how all the money has been flowing mostly tax free from the government and workers to only (literally only) the super-duper rich via this buyback tool, then it's obvious we have a problem.

They used to teach risk management and disaster preparedness in business schools. They used to teach people that you have a duty to your company and your employees and society.

Now all they seem to teach is how to maximize the stock price for the next 90 days. Just shuffle the cells around in the spreadsheet until the number looks good, that's all we're doing. Zero long term planning, zero long term safety for anyone who isn't an executive.

So if they hadn't done these buybacks, they could have deployed the capital in a number of different areas, including paying down existing debt. They now could add additional debt (bonds, loans, etc) at good rates.

In general in personal finance the first rule of excess capots is to aggressively pay down existing debts, why do corporations do that?

Many of these same companies floated bonds for their buybacks!

Corporations don't do it because they can get capitally more cheaply.

It's all about incentives. Corporations are incentivized to run their operations on cheap capital.

Artificially low interest rates, government entities buying corporate bonds for 'liquidity' (aka, bailing out the banks that shouldn't have ever made the loans in the first place) create the incentives for companies to borrow heavily and artificially boost EPS. There's literally no reason for a company to not do this.

Except for like illicit drugs, they become dependent on it. If the supply dries up they are in serious trouble. Building your business on cheap debt seems like really short term thinking...

there's many ways to use unexpected income. share buybacks are one. lower prices and higher salaries are another. pretending that this is about cash reserves is a strawman.

if the company is going to depend on the public teet, it should bite when it isn't hungry.

I wasn't pretending it was about anything. I was nothing if buyback's hadn't happened and they had cash... the incentive is to lay people off who aren't working.

That's just how things work right now.

Same would go with "lower prices and higher salaries"... the result in the article happens just the same.

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