| First, let me say this is an awesome conversation, and it really sucks to have it over comment threads. We should have a drink sometime. This may be what people say now adays (the price going up is the reason for buy backs), but when I went to school and worked on a Convertible Notes desk, the stock price going up is not the reason to issue buy backs - it’s usually because you think your price is so cheap and you can reduce your cost of capital by removing the stock from circulation. The nouveau riche way of doing things is — well we can give you 100% of the cash back now, instead of paying a 5% dividend for x years (x because of compounding / whatever else is your assumption). [Edit: now that I said this, it sounds a lot like packaging up seemingly derisked assets and marking them as safe (aka CDOs from The Great Financial Crisis (GFC)] The ETFs are important to understand the full landscape of liquidity - but yes, point taken. So to your question — in a pure free market, a corporation would tap the shareholder base (like Warren Buffetts cash, like he did in 08) rather than a TARP like agreement. The reason we did TARP was because the engine was seized up (Banks had effectively no funds to lend because a few lost all their assets) — right now it doesn’t look like the engine is seized up (no big hedge funds or banks have blown up [yet I guess]). So really, the company should issue new initial stock back to a Buffet or someone similar at a discount. But the discount is what would make everyone’s portfolio look awful. So because the government shut everything down - we say... well we made you shut down, so we will take the hit here. But really the nuance is that, had these airlines not financed buy backs with cheap debt, they could have weathered this storms themselves. These airlines were making so much money they were never thought to be able to lose money again! Matt Levine just put out a great piece on it [0] So in the free market (and consequence lens), these buy backs financed with debt was a bad business decision - so the natural consequence is to just unwind the transaction, sell back into the market for 80Bn, and restart. Prices would take a serious, serious hit, but the new direct investors would be rewarded with a recovered share price. They would literally be buying the dip. And just for added info, investors are bailing in these airline stocks because if the gov’t comes in like last time, the shareholders were wiped out first, then the company is allowed to recover. (Fannie and Freddie are still not private... the day that happens, will be a $100Bn transfer from the gov’t to the people) [0] https://www.bloomberg.com/opinion/articles/2020-03-17/the-go... |