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Originally Posted by Spock
Gov did keep rates too low for too long. That kept zombie companies alive to rack up more debt vs. culling the weak ones over time (vs. all at once during panics).
But. Bond investors also didn't ask what the $ was going to be used for when they bought the corp bonds. "So you're going to take on all this debt and use it to buy back your own stock vs. growing the business. Where does the additional income come from to pay back the additional debt?"
Stock investors did the same... continuing to pile into shares where actual revenue/earnings were flat.
Also ratings agencies didn't blink when companies borrowed to pay their dividends or do buybacks when stock prices were at their highs.
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All good points. “We” have also allowed a system in which pensions have gone by the wayside in favor of a very small tax code loophole known as 401k. Now “we” are paying the price of “our” decisions. (Air quotes because we have acquiesced to these decisions of elites.)
I think, let these companies go into Chapter 11. Investors’ holdings will be nuked and other healthier companies will take the zombies’ places in the indexes. With no bailouts our portfolios will be hurt for a while but we’ll avoid putting even more national debt burden on future generations to protect our current hides, which seems ethical. We’ll also create a healthier investment culture that expects companies to act more responsibly, spend their cash on better products instead of buybacks and stratospheric executive pay, and not expect to be able to run to the protective arms of government if they want to survive the next recession.
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