The markets will take Mr. Pye's children to the doctor to get their checkups!
The low cost producers of children are overseas. Free trade will allow him healthy children on top of the other goods he prefers.
I suppose now we will have to consider a bailout for subprime children.
I don't mean to pick on him. The whole article is full of terrible stories.
That said, I look forward to buying his kids as part of a government bailout.
Damn you, Smasher. I can't type that fast on my phone.
The WSJ news stuff is often really fair, and their reporting is really thorough. Many of the journalists think that the editorial as in op-ed pages are nuts, but I think that the people (are they editors?) who decide what articles get put in are very good.
Yeah, WSJ hard news has always been good, opinions have always been batshit crazy (well, from the point of view of a non-Master of the Universe, and look where their brilliant ideas have got them). One wonders how long that will continue to be the case.
I had the joy of interacting with this company last night. We had to take our younger son to the hospital in June because he tripped in a city pool and inhaled some water, and now they want me to give them all the details so they can decide whether to sue the city for the cost of taking him to the ER and getting an X-ray. Even when you have good health insurance, the system sucks- it's dumb that such companies even exist.
I wrote two McManus-level letters to my senators this morning. I didn't know I was this angry until I started writing.
I kept them short, though. Just want to put the staffers on notice that constituents are watching. Some phone calls too.
I posted this on Sick, Part 1, but the thread had died by then, so:
You know what I hate? When you go off a prescription drug but you still have some left over. It seems so sensible to pass it on to someone else, especially someone who has crappy or no drug coverage, you know?
I, for instance, no longer take the anti-depressant L-x-p-o, but have a full bottle. Gosh darn it, though, I'm not allowed to ask if anyone around here would be able to use it (someone with a prescription for it, of course). I really hate that.
mypseud at geemail
These kids are just having a mind-flu, a flu of the mind. They'll be fine.
Witt took the mcmanus meter all the way to 11.
When you go off a prescription drug but you still have some left over.
It's one of the most infuriating things about dealing with a death, too. All those terribly expensive medications, some of them unopened. I spent a couple of days researching and trying to find an indigent-drug program, seniors' organization, even hospital or free clinic where I could donate them back, and nobody could take them. I had to flush them all -- and THAT makes me fear for the groundwater supply.
I actually have an entire box of syringes left. I keep hoping I'll find out a neighbor or someone is diabetic and could use them.
11: ah, the joys of the `best health care system in the world'.
The original Paulson proposal was straight out of the Cheney "Unitary Executive" playbook. For some reason that hadn't quite sunk in until now. They are going to try to do this bailout by the same rules that they used in fucking up Iraq. And New Orleans. This will be handled with an eye first and foremost towards advancing the political interests of the crony corporatist shitheads who caused the crisis in the first place, and secondarily towards ensuring an ongoing hold on power by the hard right faction of the GOP. How exactly they are going to play that will be interesting to see, given that their electoral prospects look shitty, but they may be able to set some traps for the Democrats that will blow up before the 2010 elections, giving them a chance to take back the House and ensuring the ability to filibuster in the Senate.
To us, it's about the economy, jobs, and housing. To them it's about power, power, power.
16: Same deal when my previous dog died: insulin and syringes*, thrown away. At least the vet would take the dog food.
* I suppose I could have instituted a little needle exchange program down at my neighborhood park....
The original Paulson proposal was straight out of the Cheney "Unitary Executive" playbook.
In the Banking committee hearing today, it's becoming clear that it was Bernanke and not Paulson who was behind the broad/no oversight/not punitive dimensions of the proposal. For what he perceives as technical reasons (experimenting with different auction forms, etc.) -- he is not part of the Bush admin cabal. The Fed has traditionally wanted to run and has run as a technocracy with significant autonomy. Not always successfully, obviously.
20: How does that make sense? The bailout money isn't being given to the Fed, it's being given to the Treasury.
They are going to try to do this bailout by the same rules that they used in fucking up Iraq.
Yup. I just wrote a letter to the editor. Everybody go call your senators and representatives. Do it now!
The bailout money isn't being given to the Fed, it's being given to the Treasury.
That seems a bit like saying, "The power is given to the President, not the Vice President."
"[D]eep slump" doesn't sound nearly as bad as "recession." A slump you just shake off by putting on your rally cap or lucky underwear or something.
Separately, 11 doesn't sound at all unreasonable to me -- depending on exactly how much the trip to the ER, etc. cost. Insurance companies are always looking to see if some other insurance company should be splitting or reimbursing the cost and most policies require that you cooperate with them in that effort.
Separately, 11 doesn't sound at all unreasonable to me
I believe the technical term for this is "Stockholm Syndrome"
20 - I'd like to believe that the traditional loose reins for Treasury still exist, but we are nearly eight years into this administration. I see no reason to believe that any cabinet office is capable of independent action; there has simply been too much time to put in place back channels and discrete ways to apply pressure and ensure compliance. That may sound tinfoil-hattish, but I think the history of the administration amply justifies a little paranoia.
That may sound tinfoil-hattish
You want tinfoil hats, I'll tell you that the thought I just had was: "I wonder what kind of sneaky appointments or policy changes they're going to get through while we're all distracted with this bailout fight."
I hate feeling like a conspiracy theorist.
A slump you just shake off by putting on your rally cap or lucky underwear or something.
If you're a Cubs fan, you should know so much better than this. In fact, they should be the most terrified of all. The Japanese economy has just dealt with a 17-year slump punctuated by brief periods of promise that are ruthlessly squashed months later; Cubs fans know that can go on for a CENTURY.
And Tim, saying "The Treasury's getting the money, not the Fed" is more like saying "The VP's getting the money, not the President." Though either way, it's a crappy analogy. The Fed is officially quite independent, whereas the Treasury is under the President's command. It's been given a lot of autonomy recently, but it still technically has to listen to the Executive Branch.
It's funny, but people in international relations, finance, party politics, legislative manoeuvres, etc. are all conspiracy theorists. They always are thinking "So and so did (said) x, but that's a feint. What he really wants is y. If we do w to block x, he gets y. So we should do z."
But when peasants use that kind of thinking, they're psycho.
A couple years ago I was wondering why they replaced their generic brainless Treasury Secretary with someone who actually had his own agenda and was respected by media elites. Were they preparing to do something like this even then, knowing that the meltdown would probably come before the end of their term, and wanted to have someone who Congress takes seriously as the proposed financial dictator?
I mean seriously, can you imagine John W. Snow requesting these powers?
A couple years ago I was wondering why they replaced their generic brainless Treasury Secretary with someone who actually had his own agenda and was respected by media elites.
Yeah I don't think they had/have that much foresight.
30: Yeah. It's crazy if a peasant thinks the trilateral commission or G7 get together to plan global financial strategy but it is praiseworthy when a scholar writes a paper regarding global financial plans based on the G7 and IMF published minutes.
Cool: let's spend a trillion more dollars to buy up the private health insurance parasites. Might as well, while it's all the rage.
The Fed is officially quite independent, whereas the Treasury is under the President's command. It's been given a lot of autonomy recently, but it still technically has to listen to the Executive Branch.
You people have got to be kidding me. Exactly how long is it going to take you all to realize that referencing the org chart buys you close to nothing. If Bernanke's pushing for a plan that gives substantial power to Paulson, it's because he thinks he can roll Paulson,* just as a Cheney push for expanded Presidential power indicates that he thinks he roll the President. Cripes.
* Which, for all I know, is cheering.
If Bernanke's pushing for a plan that gives substantial power to Paulson, it's because he thinks he can roll Paulson
I think that's backwards. More likely: If Bernanke is pushing for a plan that gives substantial power to Paulson, he's been rolled by Paulson.
36: Need the two be mutually exclusive?
If Bernanke's pushing for a plan that gives substantial power to Paulson, it's because he thinks he can roll Paulson
Perhaps (though unlikely, I bet Bernanke at least respects Paulson somewhat). But my main point is that the President/VP can replace Paulson. He'll have one hell of a time getting it through Congress, but he can royally fuck up anything he wants in the meantime to twist arms. Even if he doesn't want to take on the high-visability Paulson, the executive can clear out any competent employees in the Treasury that the Secretary is leaning on, in order to eviscerate the department without a big outcry. Sure, the Treasury's been given a lot of freedom, but that can be taken away at any time. The Fed at least has org chart and other safeguards that keep it fairly independent from political pressure.
If you don't think that's an important difference that The Fed as an institution slightly more trustworthy with major financial powers... Well, I really don't know what to add.
without a big outcry.
A President at 19%? Just prior to an election? I think you're kidding yourself.
By "without a big outcry", I was mostly meaning "Congress resisting to the best of its abilities." I wasn't referring to the electorate.
Every feeble remaining safeguard, check, and balance in the system would try to resist Bush or Cheney fucking with the head of a relatively technocratic rescue effort. I don't feel that they'd exert the same effort to prevent the wholesale evisceration of the lower ranks, even though that would have the same effects or worse.
Obama Says Bankers First...Sick Kids Someday Maybe
That's our hero.
Don't you hate it when news agencies put really attention-getting and inflammatory pseudo-quotation headlines together that don't actually represent what the subject of the article actually said? I sure do.
41: This sounds like the same hedging he's made on Iraq, which isn't actually hedging so much as acknowledging that any plans he puts out several months before assuming office would of course be re-evaluated against the facts on the ground once he's in office. Which might or might not resemble the situation today.
43:I don't think the "hedging", although I don't think it is really "hedging," is good Democratic politics, unless your real constituency is Wall Street & Republicans.
He's a Reaganite.
42, 44: You have two choices, mcmanus. Pick.
You have two choices, mcmanus.
Bullshit, commie. I have 5 or 6.
Quick, someone use the term, "throw your vote away," I love the reaction when people hear that.
46: Then don't sweat it. Things might go pretty well on Earth Two. I hear you already have flying cars.
Casting your vote for a no-hope candidate does actually serve the useful function of indicating to the major parties that you care enough to go to the polls but that you chose not to vote for their candidate, as well as indicating the direction in which their candidate's policies need to shift in order to pick up your vote in the next election.
49: It also carries a cost. As some have noted at some point over the last seven years.
My vote is my responsibility, and it may be more responsible not to legitimate evil by voting for the lesser of two evils.
There have always been the alternatives of non-participation or tangential participation, at least since Diogenes moved into the tub. They are social and anti-social simultaneously.
49: I'm doubtful that it actually performs either of those functions in real life. Or at least, I haven't noticed it modifying major party behavior or philosophy any.
Bernanke is pushing for a plan that gives substantial power to Paulson, he's been rolled by Paulson
Bernanke and Paulson rolling around together in a big shitpile is not kink we can believe in.
Casting your vote for a no-hope candidate does actually serve the useful function of indicating to the major parties that you care enough to go to the polls but that you chose not to vote for their candidate
Ha! Ha ha! Ha ha ha.
Pwned, more politely I see, by 50 and 52.
52: Well, yeah. Until a third party hits 5% or more, there's no reason to move toward it. If you shift away from center to peel off some of the leaners from a 2% voting block, you're likely to lose a much larger number from the 10-15% ideologically muddled middle.
I'm not old enough to know what the effects of Perot's successful runs were. It seems that he was wacky enough that no one could really figure out what the hell was popular about him in the first place, or at least that it had nothing in particular to do with his policy platform.
Perot's successful runs were.
Deficit reduction, at a guess.
At the time it seemed an awful lot like Perot had defined the 1992 election as being about the deficit. I've never seen it argued, but I could believe a claim that Perot put enough emphasis on the deficit to hurt the chances of health care.
no one could really figure out what the hell was popular about him
He appealed to the people who believe that both parties are equally bad and what this country needs is a businessman to go clean up Washington. I call these people "idiots."
It seems that he was wacky enough that no one could really figure out what the hell was popular about him in the first place
Ears.
Perot was actually a centrist with a handful of specific issues. A left or right third party candidate tends to harm the party closest to them.
Sometimes a real game-changer ends up redefining the difference between the parties (e.g. Wallace in 1968). But he was sort of a centrist too.
He appealed to the people who believe that both parties are equally bad
"Equally bad" is not a necessary condition for opting out. Just bad.
If one candidate promises to needlessly nuke Iran, killing millions, and the other to nuke only Luxembourg, killing three...I am not morally required to assent to the murder of three people. Just the opposite.
But anyway, off topic & trollish, and time would perhaps be better spent trying to find a way to get Obama to change his priorities. And searching for ponies.
Until a third party hits 5% or more, there's no reason to move toward it.
...and if nobody votes for a third party because they haven't yet hit 5%, they'll never hit 5%. I dispute the 5% threshold, incidentally. I suspect the number is more like 1% in key battleground states.
Of course, if we had a smart electoral system such as instant runoff this wouldn't be an issue.
16: Not to be hectoring, but there are drug disposal programs.
That being said, it would be nice if there was a safe, secure way of bartering semi-used (prescription) drugs. Why, I could use a Percocet and a beer right now...
Perot was actually a centrist with a handful of specific issues.
Yes, but pretty much all of the people I talked to during '92 and '96 who voted for him were the lowest of low-info voters. Their primary motivation appeared to be nothing more than contrariness.
"Equally bad" is not a necessary condition for opting out.
I wasn't talking about your vote this year, Bob.
I dispute the 5% threshold, incidentally. I suspect the number is more like 1% in key battleground states.
Right-o. One of these days, the vote for a third party candidate is actually going to change the outcome of the election. When that happens, I predict an outpouring of respect for that candidate and his views.
Hedge Funds Suffer Mass Redemptions ...Calculate Risk, happening about a year ahead of "Sunny Skies" Nouriel Roubini's prediction.
The fullon crash is coming, but of course no one sane, even Roubini can say so. The "bailout bill", even with amendments, has no macroeconomic rationale. It will not work. It will hurt more than it helps. Other rationales:
1) Give bankers time to move assets to Cayman Islands and families to Costa Rica. Whatever Dodd writes can't work fast enough to stop them.
2) Bankrupt the gov't in front of a depression. I happen to believe this is the number one rationale.
3) Give Republicans a 2008 issue (the crash could come in days) and an enduring political issue for the next administration.
4) Exactly what can Democrats gain in return? The "grownup party" line will not work with such an recent catastrophic mistake on the record. If you are "responsible", then you are responsible.
Pass no bill. Go home and campaign. Paulson & Bernanke can bitch all they want, it will be obvious who is to blame. Bush has dropped below Nixon's worst numbers.
PS:There is a possibility that if Democrats don't pass a bill, Bush will simply act by executive order.
If Bush goes past the debt ceiling by illegally printing treasuries, I don't know what the consequences will be politically or economically.
Not sure I care.
Vote for third-party candidates all you want, just give money to Obama.
Vote for third-party candidates all you want, just give money to Obama
Offer not valid in OH, PA, CO, VA...
About a year ago my father began predicting that the US Treasury would default. I didn't really understand what that means, and still don't, but now people are starting to murmur that it's a real possibility. That it's the bad outcome that the bailout is hoping to avert.
And if my dad---who's a smart, mathemathically minded guy who's paid attention to the markets for years but is no professional and has absolutely no special information---could see this coming, why didn't anybody else? Or is it a case of nobody wanting to mention the bad scary thing for fear it would come true?
71: Well, because it's not really a possibility. If your dad really thinks it might happen, he can buy up some hella cheap bets on that scenario. Even at record highs, the cost of insuring US government debt for the next 10 years is only 0.21% of the bond's face value.
And even that number's way higher than the actual probability of default that the market expects. Financial assets are priced using risk-adjusted probabilities, which basically implies that you'll pay more for an asset that serves as insurance and goes up when everything else goes to shit. I can't think of anything that would pay much better while things are going much worse than a credit default insurance on US Treasuries.
But what your dad should've done is bought some long-dated (2-year or 3-year) puts on the financials sector, perhaps 10% to 20% out-of-the-money so they're at minimal cost. That limits the downside if the bubble continues for a while, but provides tremendous upside if the collapse happens before his puts expire.
Yeah, I don't really understand any of that. "Credit default swap price" sounds like a gibberish string of nouns to me.
Human ingenuity is amazing. Credit default swaps and collateralized debt obligations are pretty much the coolest things ever. Also: If we suffer nuclear annihilation, you still have to give credit to the guys who figured out how to make H-bombs.
72.3: Yeah, it's frustrating, or amusing, to admit that this is utter gibberish to me.
Credit default swaps are an agreement that says: Pay this much, and we will cover the full value of your bonds if and only if they end up valueless at maturity.
To that end, credit default swap prices act kind of like the prices on Intrade or Tradesports. Since the agreement is worth either nothing or $100 (to take an example notional value), you can roughly equate the price to the market's best guess of the probability that the bonds will default.
In other words, those prices suggest that the markets, at the peak of their panic, thought there was about an 18 in 10,000 chance that the US government would go bankrupt in the next five years and a 21 in 10,000 chance that it would go bankrupt in the next ten years.
My last points come from asset pricing theory, but boil down to saying that even those probabilities are likely to be far higher than the market actually believes.
Does that help at all? (honestly, I'd like to be able to explain this stuff to some friends who ask me, so it would be nice to know if I can say anything that makes sense)
73: That's because it's part of the stuff the invisible unicorns are made of; you're not supposed to understand.
Less sarcastically, as I understand it CDS's are sort-of kind-of like insurance, except you don't have to actually have anything to insure, and these things can chain together in positively byzantine ways. With a bunch of instruments like this and a whack of question marks about actual the value of everybody's books you can see why nobody can really tell you what's what these days.
"Credit default swap" is insurance. For a bond "default" means you miss a payment. If the Treasury announced, "yeah, we're out of money, we'll just pay all next month", that would be a default. If that happened and you had insurance on Treasury bonds, then the insurance company would pay you. (Credit default swaps work somewhat differently, but the effect is the same.)
Or is it a case of nobody wanting to mention the bad scary thing for fear it would come true?
That. And also the risk of being called "crazed."
I used some of my stimulus check to buy my first gun. I figure if I don't need it the value will still increase. It is a better investment than gold is.
It is a better investment than gold is.
But guns made of gold are best of all.
If anyone has any questions at all about this, I'll try to answer to the best of my ability. I have some work that needs to get done, and I've completely run out of ways to procrastinate.
Guns made out of sharks with lasers on their heads are the best investment of all.
I'm with Jackmormon. I'm trying to understand this thing, but dear lord it's a strange world.
Should I take a pile of cash out of the bank? (I don't normally keep much cash around. Is that dumb?) And what if my bank is one that everyone says is about to go under (WaMu)?
Yes, but pretty much all of the people I talked to during '92 and '96 who voted for him were the lowest of low-info voters.
I voted for Perot in '92. Mostly because I was amused at the idea of Stockdale in office. Partly because I wasn't happy that Clinton won the nomination. In no part because I though he would make a good President, although it turned out he was right about that huge sucking sound.
Yeah, so long as you've got less than $100,000 in an FDIC-insured bank, it's not going to disappear. Honestly, though, I'd move my money out of WaMu. Your deposited money won't disappear, but it could become a pain to get out and the payment systems could get bogged down if the deposits end up sold off.
Any other major banks that are convenient to your house?
Yeah, I was just wondering if it'd be a pain to get it out. I don't really like my bank anyway, but switching is a pain.
First explain how the word "put" can be a noun, and what it means. That's the first stumbling block for me.
I understand what "credit default swaps" are, though I don't understand why the words "credit" and "swap" are in the name. They seem to be what might be called "default bets".
In fact, I understand just about all the details of what the various financial investment things are. Yet at the same time I find it impossible to comprehend the significance of interest rates, or why some people want them to be high and some want them to be low, and what agencies have power to change them. Also, certain noncontroversial concepts like "short selling" and "leverage" sound like the kind of thing that nobody would do unless they were incredibly stupid or were guaranteed to succeed by virtue of having inside information.
88: A put is just the name of a specific type of option. It's a contract giving someone the right to sell an asset (frequently a stock) at a specified price sometime in the future.
Since it's an option, buying a put means that you have no downside apart from losing what you invested in it. That can make put options pretty expensive. But if you buy one that only makes money if the asset declines a lot in value (say 15-20%), those are usually pretty cheap because it's considered very unlikely in most pricing models.
"Credit" modifies "default". It's "(credit default) swap". (Yes, it seems redundant.) They're swaps because in case of default you swap the bonds for the premium. (I think this is a bit of mummery so that they can claim that it's not really insurance.)
It's a "put option" because you have the option of putting a share out to someone else for an agreed-upon price today.
89
Yet at the same time I find it impossible to comprehend the significance of interest rates, or why some people want them to be high and some want them to be low,...
Lenders want them to be high and borrowers want them to be low.
Lenders want them to be high
Only higher than their cost of funds. Too high and no loans get made, and these guys have some wicked fixed costs.
81: Those gold and jewel-encrusted handguns from Bulgari didn't go over too well.
The jewel-encrusting was the shark-jumping.
I mean, you can't go pistol-whipping somebody properly if you're worried about rubies getting knocked off.
About ten years ago there was a financial scandal in Portland Oregon which, among other things, wiped out about half of one union's pension fund. Several people went to jail, including the whiz kid running the show, who was treated worshipfully by the local press up until a year or two before he went to jail.
What struck me at the time and strikes me now was the house-of-cards quality of his empire. (He was worth $140 million at one time). At one point he did something like borrow money, use the money to buy enormous quantities of bad debt, borrow against the bad debt, and then invest the money he'd borrowed while using the income from collections on the bad debt to pay off his two loans.
Something like that. It made no sense at all to me, so I can hardly describe it accurately. I may be right in guessing that he made his money by taking advantage of very small and subtle differences between the payoffs and costs of various kinds of financial instruments, possibly differences that no one else had noticed.
Things went swimmingly for a few years, and then something went bad. He started bribing and defrauding people. At one point his own big creditor, a big NY bank, called in a loan, and he couldn't cover it. He went to NYC expecting to be able to convince him that if they gave him a little break they wouldn't regret it, but he failed.
The way that scene was described made it clear that, while he was very big time in Portland, in NYC he was nothing. You also got a feeling that he hadn't known that.
I also got the feeling that his success was mostly do to the fact that, when things are going well, almost everyone who invests profits, but that when things turn the other way, you find out who's really sound and who isn't.
Anyway, since then I haven't trusted finance.
From John's link in 97:
The controversy around Wiederhorn continued when the board of directors of Fog Cutter voted to give Wiederhorn a bonus equal to the fine he paid the US government, and paid his salary during his incarceration -- despite Federal rules that a convict can not engage in business dealings while imprisoned.
Christ.
Why can't I find that kind of dupe, I mean love?
I mean, you can't go pistol-whipping somebody properly if you're worried about rubies getting knocked off.
If you're the type to worry about losing the odd couple-carat ruby, you're probably not the kind who should be pistol whipping people with jewel encrusted pistols. Especially these days.
If you can't laugh off the loss of a ruby or two, Apo, you're not scary. Fail!
93
Only higher than their cost of funds. Too high and no loans get made, and these guys have some wicked fixed costs.
If they are borrowing and relending then they just care about the spread. A little old lady living on the interest from her CDs wants interest rates high. A home owner with a variable rate mortgage and no financial assets wants interest rates low.
97
Something like that. It made no sense at all to me, so I can hardly describe it accurately. I may be right in guessing that he made his money by taking advantage of very small and subtle differences between the payoffs and costs of various kinds of financial instruments, possibly differences that no one else had noticed.
Or he never made money at all and it was a Ponzi scheme from the start. Or he got lucky for a while and starting cooking the books when his luck ran out.
102: It's a comprehensive pwn when it includes a full quote and twice the length. Otoh, mine wasn't exactly pithy.
104: The guy was in business long enough and made enough money that it wasn't a Ponzi scheme. My guess is that it was a very fragile structure that only would work when business was booming.
IIRC, what I described was how he got his startup money. It does seem to indicate that he relied on very complicated transactions.
If you're a Cubs fan, you should know so much better than this. In fact, they should be the most terrified of all. The Japanese economy has just dealt with a 17-year slump punctuated by brief periods of promise that are ruthlessly squashed months later; Cubs fans know that can go on for a CENTURY.
Clearly, you are not a real Cubs fan. Cubs fans know, each year, that whatever the history, THIS is going to be the year. The tide will turn! Any minute now! Maybe next year! I mean, maybe next year, too, because THIS IS THE YEAR!
Clearly, you are not a real Cubs fan. Cubs fans know, each year, that whatever the history, THIS is going to be the year. The tide will turn! Any minute now! Maybe next year! I mean, maybe next year, too, because THIS IS THE YEAR THIS IS THE CENTURY!
I will bet you 10,000 2008 dollars that's true, too.
max
['I'm a Cubs fan and a Bud man, and I hope you aren't dead too.']
Careful, he's using the comma in the European way.
I see your $10.0002008 and raise you a fiver.
OK, I have a question. How do stocks work? I.e., through what mechanism does the buying of a share of stock actually fund the company? And why is it, exactly, that a falling stock price is bad for a company?
I find it amazing that I could have lived this long and not know the answer to this question.
And how is it that I didn't notice when this thread went off-topic almost immediately?
Oh, wait. This thread is dead. I didn't notice that, either.
When you own a share of stock, you supposedly own the proportionate amount of the company. In fact all you really have is a claim on the future profits. If the company does not pay out the profits in the form of a dividend, the share price tends to rise. The stock will go up and down based on the perception of future profits.
When the company sells shares of stock, it dilutes the ownership of the existing shareholders, but keeps the money (less fees) raised, to do what ever the hell they want, but presumably to buy inventory, equipment, real estate or whatever.
Falling share prices are not necessarily bad for the company, but may reflect the fact that the market thinks the company will have no future profits. that is what is bad for the company.
If a company wants to raise cash, it sells shares of stock to the public. It can't sell these shares for more than the current market price, because no one will buy a share from the company for $10 when they could buy it on the open market for $5. If they sell too many shares, the people who buy them end up able to run the company.
So if the stock price falls, the ability of the company to raise more cash by selling stock falls too. If the company is likely to need to raise $10B to pay debts, and could only raise $5B by selling itself, it's going to go bankrupt.
110
OK, I have a question. How do stocks work? I.e., through what mechanism does the buying of a share of stock actually fund the company? And why is it, exactly, that a falling stock price is bad for a company?
Buying an existing share of stock does not directly benefit the company. Sometimes companies sell additional shares in which case they receive the money paid. A falling share price does not directly hurt a company in most cases but the indirect effects can be harmful by signaling that people think the company is doing poorly. This is particularly bad for companies like banks which depend on people believing they are solid and secure places to put their money.
