> My analysis was in response to and in the context of large companies conducting stock buy backs which is in no way related to the position SMBs find themselves. So yes, those buy backs were mistakes.
Fair enough - I was mostly talking in the context of the article (SMBs).
And to be frank, it sounds like you're much more knowledgeable about this issue than I am, certainly in terms of actual practice.
That said, I still disagree with you and not sure why you arrived at your conclusion.
Let's put aside for a second the question of whether shareholder primacy is good social policy or not in the general case - and I agree with you here - it's not mandated by law, and even if it were, we could change that if we decide it's bad policy.
Your specific contention here is that companies are using buybacks to prop up their share price, and thus are reducing their reserves. And that they should keep more reserves around.
So firstly - tax structure aside, I've never understood why anyone treats buybacks differently than dividend payments. It's just a way of giving money back to shareholders. Do you agree with that or not?
Secondly, how much reserves should a company actually keep? If this situation/recession drags on for a year, will you be saying that it's bad that companies didn't keep a year's worth of reserves? Two years?
I think that's both an unrealistic demand, and a supremely inefficient one. No company could've, nor should've, had to predict this kind of disaster happening, and been prepared for it. I'm generally a libertarian, but this is exactly the reason we have governments - this kind of crisis should be prevent by the government - both in terms of preventing a pandemic in the first place, and in terms of fixing the economy once we're in this situation.
In other words, I don't see any good way to change the market to incentivize companies to keep tons of cash lying around as a rainy day fund - and I don't think it would make sense for so many companies to hoard so much money. Much better to have them return the money to shareholders, to go invest in new companies.
Fair enough - I was mostly talking in the context of the article (SMBs).
And to be frank, it sounds like you're much more knowledgeable about this issue than I am, certainly in terms of actual practice.
That said, I still disagree with you and not sure why you arrived at your conclusion.
Let's put aside for a second the question of whether shareholder primacy is good social policy or not in the general case - and I agree with you here - it's not mandated by law, and even if it were, we could change that if we decide it's bad policy.
Your specific contention here is that companies are using buybacks to prop up their share price, and thus are reducing their reserves. And that they should keep more reserves around.
So firstly - tax structure aside, I've never understood why anyone treats buybacks differently than dividend payments. It's just a way of giving money back to shareholders. Do you agree with that or not?
Secondly, how much reserves should a company actually keep? If this situation/recession drags on for a year, will you be saying that it's bad that companies didn't keep a year's worth of reserves? Two years?
I think that's both an unrealistic demand, and a supremely inefficient one. No company could've, nor should've, had to predict this kind of disaster happening, and been prepared for it. I'm generally a libertarian, but this is exactly the reason we have governments - this kind of crisis should be prevent by the government - both in terms of preventing a pandemic in the first place, and in terms of fixing the economy once we're in this situation.
In other words, I don't see any good way to change the market to incentivize companies to keep tons of cash lying around as a rainy day fund - and I don't think it would make sense for so many companies to hoard so much money. Much better to have them return the money to shareholders, to go invest in new companies.
Where do we disagree?