Perhaps the BEST B1G Forum anywhere, here at College Football Fan Site, CFB51!!!

I know you weren't asking me, but....

I almost ALWAYS come down on the side of taxpayers not being forced to subsidize anything.

That's certainly my default position.

https://www.profgalloway.com/capitalists-or-cronyists

A pillar of capitalism is you can’t reward the winners without punishing the losers. I worry our government has been co-opted by the wealthy and is focused on protecting the previous generation of winners, even if it means reducing future generations’ ability to win. Aren’t we borrowing against our children’s prosperity to protect the wealth of the top 10, if not 1, percent?

[img width=500 height=323.963]https://api.profgalloway.com/wp-content/uploads/2020/04/NM_Share-of-US-Aggregate.png[/img]

Modern-day “capitalism” in America is to flatten the risk curve for people who already have money, by borrowing from future generations with debt-fueled bailouts for companies. We have consciously decided to reduce the downside for the wealthy, thereby limiting the upside for future generations.

CNBC guest: Equity holders deserve to get wiped out.
CNBC host: Why does anybody deserve to get wiped out in a crisis like this? This is a natural disaster, why does anybody deserve to get wiped out? Wouldn’t that be immoral in and of itself?

“Immoral,” here we go. Morality for CNBC, and the current administration, is not capitalism but the worst type of socialism, cronyism. Rugged individualism and capitalism on the way up, privatizing the gains — and then socialism/cronyism on the way down as we socialize the losses with bailouts.


In 1999, the firm I co-founded, Red Envelope, was drafting an S-1 in anticipation of an IPO. At 31, I stood to register $30-60 million on the IPO. The bursting of the bubble damaged us, but the injuries weren’t fatal, and we were the only retail IPO of 2002. In 2008, a longshoreman strike left all our holiday merchandise hostage on a cargo ship 8 miles off the shores of the port of Long Beach. Then, as the credit crisis began to take hold, a prescient analyst at Wells Fargo decided to pull our credit facility. Within 90 days we were Chapter 11. That event, combined with divorce, reduced my net worth 97%.

I didn’t deserve to lose near-everything. What happened wasn’t my fault — ok, maybe the divorce. Regardless, was this fair or (im)moral? Just as there’s no crying in baseball, there’s no fairness in shareholder accretion or destruction. Looking at jets at 31 wasn’t moral or fair either. So, what happened? Exactly what’s supposed to happen in a market economy — downside registered against commensurate upside.

Red Envelope went through something also uniquely American … and productive — bankruptcy. The equity holders (e.g., yours truly) were wiped out (#bummer). However, we did our duty as board members and found a buyer, Liberty Media, who paid our vendors and kept the employees. No job loss, all debtors paid. When a 31-year-old is shopping for jets in November, part of the agreement with the invisible hand is he may lose most/all of it by March. There’s a word for that … capitalism.

The capital structure of private firms is meant to balance upside and downside. CNBC/Trump want to protect current equity holders at the expense of future generations with rescue packages that explode the deficit. They also want to protect airlines, who spent $45 billion on buybacks and now want a $54 billion bailout, disincentivizing other firms (e.g., Berkshire Hathaway) that have built huge cash piles foregoing current returns.

The rescue package should protect people, not businesses. From 2017 to 2019, the CEOs of Delta, American, United, and Carnival Cruises earned over $150 million in compensation. But, now … “We’re in this together” (i.e., “bail our asses out”).


And what happens if they (gasp!), go out of business? Simple, the equity holders, and unsecured debt holders, get wiped out. These are the cohorts who, despite the recent meltdown, have registered a 3.3x increase in the Dow since the lows of 2008.

As long as they keep making old people, and younger people want to take their kids to Disney’s Galaxy’s Edge, there will be cruise lines and airlines. Since 2000, US airlines have declared bankruptcy 66 times. Despite the obvious vulnerability of the sector, boards/CEOs of the six largest airlines have spent 96% of their free cash flow on share buybacks, bolstering the share price and compensation of management … who now want a bailout. They should be allowed to fail. Bondholders will own the firms. Ships and planes will continue to float and fly, and there will still be a steel tube with recirculated air waiting for you post molestation by Roy from TSA.

The Lie

Trump/CNBC have adopted a narrative that this is about protecting the most vulnerable. No, it’s about buttressing the most wealthy. Pandemics typically result in higher wages over the next several decades as we recognize that essential workers (the gal/guy delivering your Greek yogurt and placing your Indian food in the backseat of your car) should be paid more. A good thing.

Letting firms fail, and share prices fall to their market level, also provides younger generations with the same opportunities we, Gen X and boomers, were given: a chance to buy Amazon at 50x (vs. 100x) earnings and Brooklyn real estate at $300 (vs. $1,000) per sq. ft. Just as we pretend our service men and women are heroes, and then treat them like chumps, CNBC advertisers and Peter Navarro want to pretend they give a sh*t about younger generations so they can protect the wealth of old people and management/advertisers. Enough already.

Earlier this week, I was on MSNBC with an early Uber employee, who reminded us, “We’re all in this together.” What bullsh*t. My guess is this executive registered $10-100 million in equity crafting software that figured out an elegant way to pay their 3.9 million “driver partners” less than minimum wage, ensure Uber isn’t obligated to provide them with health insurance, and avoid paying payroll taxes to adequately fund the CDC. But Dara Khosrowshahi and his several-hundred-strong comms department wrote a compelling letter to the government urging them to help his driver partners.

Dara, pay your “partners” before picking up the pen again.





Walking the Walk — PPP

We recently founded Prof G, a firm attempting to disrupt graduate business education. We offer online business/strategy sprints that aim to provide 30-50% of my classes at NYU Stern for 7% of the price. We are eligible for some of the $350 billion federal PPP program. With a modest amount of paperwork, in 7 days or less, we’d receive a loan for approximately $250,000. If we don’t lay off any employees, most of the loan would likely be forgiven. This is meaningful cabbage for us.

We are not going to apply for the program.

Our backers are wealthy, and if we can’t make this work — pandemic or not — then we don’t deserve to be in business. Yeah, our demise wouldn’t be our fault, nor is most success. Like steroids for the body, the moral hazard of government assistance only leaves the economy less healthy in the long run.

Just as death is a key part of life, so is the demise and reinvention of firms that can’t endure tropes. Covid-19 is no more historic than an 11-year bull market. With dangerous disregard for future generations we’ve decided that hundreds of thousands of people dying is meaningful, but the NASDAQ going down would be worse. The rescue package is $2.2 trillion. The annual CDC budget — $6.6 billion.

We. Have. Lost. The. Script.

To be clear, socialism may be a better way to go, as evidenced by the study showing 4 of the 5 happiest nations are socialist democracies. However, unless we’re going to provide universal healthcare and universal pre-K, let’s not embrace The Hunger Games for the working class on the way up, and the Hallmark Channel for the shareholder class on the way down. The current administration, the wealthy, and the media have embraced policies that bless the caching of power and wealth, creating a nation of brittle companies and government agencies.

The terrible thing about crises is they always happen. The wonderful thing is they always end. As we fight to bring this crisis to an end, let’s re-embrace capitalism and foster a future generation of leaders and firms that are soldiers, not hoarders. Yes, America is a terrible place to be stupid. It will be a worse place if we replace capitalism with cronyism.

I agree with the general thrust of this, but I have questions about a couple of the details.
First is the top chart, showing percentage of "aggregate wealth" held by the middle class is in decline.  I wonder who is measuring aggregate wealth, and how.  I have read that an explanation for the supposed shrinking wealth of the "middle class" is that the middle class itself is shrinking, because many formerly upper-middle-class Americans now qualify as "upper-class."
Second is his point about "socialist democracies" being 4 of the 5 happiest nations.  Are these truly socialist countries, or are they like Sweden, a capitalist country with a very generous welfare system?  There's a big difference.
Never mind on that last point.  I looked it up.  Those are not socialist countries.  The state does not own the means of production in Finland, Norway, Denmark, etc.  I am not surprised that the Daily Kos would claim that they are socialist.

I think we'll see students in classrooms in the Fall. 

is there a good reason for this?

otherwise, it's just bad business

It's not a good business to get into.  The failure rate is massive just 5 years out.

There are 26 positive cases in my zip code now.

About 70,000.

CNN with the sensationalism. Reporting that we may have to shelter in place and close schools til 2022!

I can see why Chris Cuomo trashed his employer and job on a radio interview.