Comment on The Enshittifinancial Crisis
definitemaybe@lemmy.ca 21 hours agoA company buying money to buy it’s own stock makes sense though, doesn’t it? A share buyback reduces the number of shares, so remaining shareholders are holding more equity (as a percentage) than prior to the buyback. It’s just the reverse of issuing new shares. If the company has no productive use of the capital, then a share buyback is a way to make the company more “lean”, shedding unneeded cash to increase (relative) value.
Borrowing money to do so just means that they are deemed credit worthy by enough bond investors that they can borrow at low enough rates that the debt repayment costs are less than the value shareholders would expect from a dividend payment and/or that they don’t want to issue dividend payments for some other reason (like the idea that dividends should be consistent and only ever increase or they’re valuation gets slaughtered.)
The whole stock market is a bubble now, anyway, so this is the heart of our problems. About 2 decades ago, financial reporting allowed companies to shift their PE ratio away from Price-to-Earnings ratio and instead report on Price-to-Forward-Earnings ratio. This is the company’s projection of their future earnings potential, but investors just seen to accept that a “PE” ratio means the same thing it did for the preceding, like, century. A PtFE ratio of 25 is insane, on historical contexts, yet that’s completely normal now.
Insanity. And yet the market keeps going up. Even the '08 crash was just a small blip, compared to what it should have been.
I’ll just put my tinfoil hat back on over here.
HubertManne@piefed.social 15 hours ago
See that is the thing. “If the company has no productive use of the capital”. Borrowing is essentially money creation. Utilizing it just to artificially increase stock value is just an economics game at that point precisely because its not doing something productive. Companies are supposed to be productive in the real world but now all companies spend more of their money playing economic games over making prducts or providing services. This is the classic complaint and the reason for the late stage capitalism thing. When money is the goal everything increasingly is setup to make money but not actually do the thing the money is supposed to incentivize.
Jayjader@jlai.lu 14 hours ago
Something something when a metric becomes a target something something it ceases to be a useful metric. Only in this case the metric is fungible and can be traded for almost anything else in the world. No wonder it became the target.
The older I get, the more I think Tolkien and Herbert had it right (despite disagreeing with much of their politics); gift economies, subsistence farming, and self-reliance are the way to go to prevent us from destroying ourselves.