E-mails From Strategy

[SilentSnow 1]

The double taxation argument is not nonsense. If I start a business and declare myself a sole proprietor, I pay a certain level of taxes on my income, based on my personal tax rate. If, for some reason, I decide to become a corporation, any money that I keep on the business books is taxed at a corporate rate. When I then pay myself a salary or dividends the following year, it is taxed again. (This can be avoided by paying out all income in the year earned, but that is really bad business practice and defeats the purpose of organizing as a corporation). Exact same business, exact same people running it, exact same income, but because it is declared one particular legal structure it is taxed differently than another business structure. It makes no sense, is incredibly unfair, and creates economic drag by distorting business decisions toward tax avoidance rather than productivity.

This has pretty much nothing to do with why the dividend rate should be lower, but why we have corporate taxes. Also, in your example the tax avoidance would usually consist of re-investing the money which is something that society generally wants to encourage. I think the three main reasons we have corporate taxes are--Because corporations use public resources just like people do. -To keep foreign owners from getting an unfair tax break.-To keep people from committing tax fraud by hiding personal expenditures in corporations. In theory you could use other methods to fix these problems, but in practice the fixes might be worse than just having a corporate tax(which is very easy to avoid for many corporations).

[vbnautilus 48]

Compared to Washington bureaucrats who know nothing about the auto industry? Which would you rather stake your future on?

The one who was right this time?

[Balloon guy 158]

The one who was right this time?

Results based decisions...what could possibly go wrong?

[InternetExplorer 2,609]

Are you seriously arguing that dividend income should be treated differently than salary income? Why?I can't think of any good reason.Also, the double taxation argument is almost always nonsense. Just about all income would fall under this mythical "double taxation" depending on how you interpret things.

well, in short, friedman argued that dividend taxes encourage companies to reinvest excess profits back into themselves up until they're not able to beat the returns investors could get elsewhere. which is now a central tenet of corp finance. I'm not saying it's a contributor to 'TBTF' because that issue is way more complicated, but it's one of those possibly-unintended side-effects you see with government policy. the government needs $x each year and our tax code should be centered around collecting $x as cheaply and as sensibly as possible. the problem with having a corporate tax rate at all is the built-in advantages to being bigger, aka lawyer up and doge bullets, baby. just implement a steep, progressive personal income tax and put an end to the loophole/tax credit/etc. tomfoolery everywhere else in the economy. this is the abridged version of an mk post that I am too lazy to search for.

Results based decisions...what could possibly go wrong?

I will allow you to buy 15 minutes of national airtime to explain this concept to voters. good luck.

[vbnautilus 48]

Results based decisions...what could possibly go wrong?

.... so if we ignore all results, how are we deciding who is better at these decisions?

[Balloon guy 158]

.... so if we ignore all results, how are we deciding who is better at these decisions?

Height

[hblask 1]

The one who was right this time?

So the regulators who turned their heads and ignored the warnings were right to do so? The ones who created the moral hazard that created the problem were right?Sorry..... I don't see it.

[BaseJester 1]

If I'm reading this information right, the US government invested $50 billion in GM stock.On Yahoo Finance, I see GM's market cap at $42 billion.I would call that losing $8 billion.Are these numbers right? Does preferred stock get counted in market cap?

[vbnautilus 48]

The ones who created the moral hazard that created the problem were right?

There's so many layers of propaganda in this sentence that I seriously can't understand it.

[strategy 4]

If I'm reading this information right, the US government invested $50 billion in GM stock.On Yahoo Finance, I see GM's market cap at $42 billion.I would call that losing $8 billion.Are these numbers right? Does preferred stock get counted in market cap?

market cap is just a reflection of what common shareholders expect to be paid in dividends for the rest of time, present valued. 1.56B shares of common x $26.55 = $41.4Bhttp://www.google.com/finance?q=gmI don't know how the government's preferred shares work, or how the ROI picture for the taxpayer is gonna look when it's all said and done. it's safe to assume that government payments are prioritized above dividends to common (preferred > common, as a general rule), so it's looking like a good bet that whatever is left on their books will be made whole. but I had heard rumors that the government wasn't getting 100% back as part of the restructuring, so I don't know.

[mk 11]

I would call that losing $8 billion.

lol nice mathThe gubment was given ~60% ownership for the bailout, and they've already sold out a bunch of shares, recouping about $25bn of the $49.5bn invested. They still hold 500mm shares, which are currently worth ~$12.5bn. So if they sold the rest here, it would be a loss of about $12bn (49.5 - 25 - 12.5 = 12). They need the stock to trade ~$51/share to break even, but I doubt they'll hold it that long. They can restructure the deal so they get paid back in other ways, but even if they dumped it all right here for a loss of $12bn, in the grand scheme (e.g. we spent ~$2bn/week in Iraq) it's probably not the worst money burn in the history of government money burns unless you're an hblask-type ideologue.

[InternetExplorer 2,609]

ok, so it sounds like the government's stake acts pretty much like common? weird.more interesting stuff here on wiki. apparently canada has some money in play here, too.

[FCP Bob 1,312]

We kicked in to the bailout as well since more cars are manufactured in Ontario than in Michigan and we wanted to make sure to not have the restructuring more adversely affect things here due to politics.

[mk 11]

We kicked in to the bailout as well since more cars are manufactured in Ontario than in Michigan and we wanted to make sure to not have the restructuring more adversely affect things here due to politics.

true datoh canada 12% owner

[BaseJester 1]

They can restructure the deal so they get paid back in other ways, but even if they dumped it all right here for a loss of $12bn, in the grand scheme (e.g. we spent ~$2bn/week in Iraq) it's probably not the worst money burn in the history of government money burns unless you're an hblask-type ideologue.

I agree, but I refuse to let, "It's not dumber than invading Iraq; therefore, let's do it," be the standard for Federal policy.

[hblask 1]

There's so many layers of propaganda in this sentence that I seriously can't understand it.

This might help.

[hblask 1]

market cap is just a reflection of what common shareholders expect to be paid in dividends for the rest of time, present valued. 1.56B shares of common x $26.55 = $41.4Bhttp://www.google.com/finance?q=gmI don't know how the government's preferred shares work, or how the ROI picture for the taxpayer is gonna look when it's all said and done. it's safe to assume that government payments are prioritized above dividends to common (preferred > common, as a general rule), so it's looking like a good bet that whatever is left on their books will be made whole. but I had heard rumors that the government wasn't getting 100% back as part of the restructuring, so I don't know.

Market cap also includes the value of all the assets.So if a company is sitting on a million dollars of land and makes $100,000/year, investors with a ten year horizon would value that at $2M. Of course, the market cap is more complicated, because it includes all the different time frames, risk assessments, etc, of every investor.But since the govt doesn't own all of the company, and the market cap is below what the govt spent, the govt is way, way behind on this one.

[InternetExplorer 2,609]

Market cap also includes the value of all the assets.So if a company is sitting on a million dollars of land and makes $100,000/year, investors with a ten year horizon would value that at $2M. Of course, the market cap is more complicated, because it includes all the different time frames, risk assessments, etc, of every investor.But since the govt doesn't own all of the company, and the market cap is below what the govt spent, the govt is way, way behind on this one.

I actually wrote that from memory, so I messed up the wording a little bit. but it comes straight from brealey/myers/allen's book on corp finance:"The value of a share is the discounted value of all expected future dividends."think about it for a minute from the perspective of what a shareholder is entitled to. the statement captures the value of the assets.unblock the last one or two posts from mk for the rest of what you're saying. he agrees, the government is probably down some money.

[hblask 1]

I actually wrote that from memory, so I messed up the wording a little bit. but it comes straight from brealey/myers/allen's book on corp finance:"The value of a share is the discounted value of all expected future dividends."think about it for a minute from the perspective of what a shareholder is entitled to. the statement captures the value of the assets.unblock the last one or two posts from mk for the rest of what you're saying. he agrees, the government is probably down some money.

Yeah, that's why I said it's a bit complicated. But if you have two identical companies, Company A that has a billion dollars in land and factories paid off completely, and Company B that has net debt on it's land and factories, then Company A will sell for a higher price, even if the dividends are the same. Now, if by 'discounted value of all expected future dividends' they are taking into account the fact that Company B is at risk of going out of business unless it can restructure itself relatively quickly, then yes, I agree with that definition.Here's a good explanation of how close to payback we are.

[speedz99 145]

Height

Heh.

[mk 11]

Here's a good explanation of how close to payback we are.

lol reason.com

[FCP Bob 1,312]

Op-Ed from Steven Rattner about the auto bailout and why it was necessary.http://www.nytimes.com/2012/02/24/opinion/...it-bailout.html

[akoff 0]

Op-Ed from Steven Rattner about the auto bailout and why it was necessary.http://www.nytimes.com/2012/02/24/opinion/...it-bailout.html

all of these argeuments assume that the void left by the potential failure of GM or others would not be filled by a remaining stronger company or a new better start up company or that sombody wouldn't have stepped into pick up the pieces if the process was left run its course...it is the basic thought process that separates business men who create wealth and industries VS people who don't understand the basics and feel like they need big brother looking after them.

[LongLiveYorke 38]

all of these argeuments assume that the void left by the potential failure of GM or others would not be filled by a remaining stronger company or a new better start up company or that sombody wouldn't have stepped into pick up the pieces if the process was left run its course...it is the basic thought process that separates business men who create wealth and industries VS people who don't understand the basics and feel like they need big brother looking after them.

I wish I was a smart businessman like you. Then it would be obvious to me that a start-up in late 2008/2009 would have risen up, grown to the size of GM, and immediately employed the million or so people who would have lost their jobs in the collapse of the big 3 automakers, thus preventing a complete economic collapse. I guess that Rattner guy is just one of those idiots who doesn't understand the basics and for some reason feared the already 10% unemployment rate as the big 3 were collapsing, not to mention the quickly-deteriorating housing markers and insurance bombshells. A smart businessman, like yourself, realizes that all of that would have taken care of itself in a few weeks or so, certainly fast enough to avoid Great Depression 2.0

[hblask 1]

This is just the same bullshit arguments repeated. Only two companies were in trouble, and only certain divisions within those companies. There was still Ford, Toyota, and Honda producing lots and lots of cars in the US, plus who knows how much productive capacity from the other "foreign" automakers. The distinction between foreign and domestic ceased to make sense long ago, so acting like our economy and the auto industry rides on the success of GM and Chrysler is just silly. The basic question is: would people stop buying cars if there were these three? Of course not. The demand would be the same.This means that Ford, Honda, and Toyota, or any of the other 'foreign' manufacturers could pick up a whole bunch of manufacturing capacity really cheap. That's what successful companies do -- they buy up the remnants of unsuccessful companies. This is a Very Good Thing. The notion that GM and Chrysler (that's two, not three, and at least three remained) would just close their doors one day and not sell off any pieces is ridiculous -- it's another scenario without precedent in history.It is, frankly, hilarious and ridiculous how all these implausible, never-before-happened theoretical scenarios are trotted out as an inevitable result of something that has happened thousands and thousands of times in our nation's history. Yeah, this time, though, a series of events that has never happened before is the mostly likely result. WTF? A couple companies in a shrinking industry hit financial trouble....gee, I'm sure glad that never happened before.The state of economic literacy in this country is really sad when these corporate insiders can sell this self-interested crap like this and people just nod their head and act like it makes sense.