5d ago

The Enshittifinancial Crisis

www.wheresyoured.at The Enshittifinancial Crisis

Soundtrack: Lynyrd Skynyrd — Free Bird This piece is over 19,000 words, and took me a great deal of writing and research. If you liked it, please subscribe to my premium newsletter. It’s $70 a year, or $7 a month, and in return you get a weekly newsletter that’

This is long, even for Ed. But you have to admire the legwork.

One time, a good friend of mine told me that the more I learned about finance, the more pissed off I’d get.
He was right.
There is an echoing melancholy to this era, as we watch the end of Silicon Valley’s hypergrowth era, the horrifying result of 15+ years of steering the tech industry away from solving actual problems in pursuit of eternal growth. Everything is more expensive, and every tech product has gotten worse, all so that every company can “do AI,” whatever the fuck that means.
We are watching one of the greatest wastes of money in history, all as people are told that there “just isn’t the money” to build things like housing, or provide Americans with universal healthcare, or better schools, or create the means for the average person to accumulate wealth. The money does exist, it just exists for those who want to gamble — private equity firms, “business development companies” that exist to give money to other companies, venture capitalists, and banks that are getting desperate and need an overnight shot of capital from the Federal Reserve’s Overnight Repurchase Facility or Discount Window, two worrying indicators of bank stress I’ll get into later.

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That thing about the more you know about economics. We have to "invest" in our own retirements and its all just leves of scam. Without regulation investment is a dart throw. I mean companies can borrow money to buy their own stock. common!
- A company borrowing money to buy it's own stock makes sense though, doesn't it? A share buyback reduces the number of shares, so remaining shareholders are holding more equity (as a percentage) than prior to the buyback. It's just the reverse of issuing new shares. If the company has no productive use of the capital, then a share buyback is a way to make the company more "lean", shedding unneeded cash to increase (relative) value.
  Borrowing money to do so just means that they are deemed credit worthy by enough bond investors that they can borrow at low enough rates that the debt repayment costs are less than the value shareholders would expect from a dividend payment and/or that they don't want to issue dividend payments for some other reason (like the idea that dividends should be consistent and only ever increase or they're valuation gets slaughtered.)
  The whole stock market is a bubble now, anyway, so this is the heart of our problems. About 2 decades ago, financial reporting allowed companies to shift their PE ratio away from Price-to-Earnings ratio and instead report on Price-to-Forward-Earnings ratio. This is the company's projection of their future earnings potential, but investors just seen to accept that a "PE" ratio means the same thing it did for the preceding, like, century. A PtFE ratio of 25 is insane, on historical contexts, yet that's completely normal now.
  Insanity. And yet the market keeps going up. Even the '08 crash was just a small blip, compared to what it should have been.
  I'll just put my tinfoil hat back on over here.
  
  See that is the thing. "If the company has no productive use of the capital". Borrowing is essentially money creation. Utilizing it just to artificially increase stock value is just an economics game at that point precisely because its not doing something productive. Companies are supposed to be productive in the real world but now all companies spend more of their money playing economic games over making prducts or providing services. This is the classic complaint and the reason for the late stage capitalism thing. When money is the goal everything increasingly is setup to make money but not actually do the thing the money is supposed to incentivize.
  
  Something something when a metric becomes a target something something it ceases to be a useful metric. Only in this case the metric is fungible and can be traded for almost anything else in the world. No wonder it became the target.
  The older I get, the more I think Tolkien and Herbert had it right (despite disagreeing with much of their politics); gift economies, subsistence farming, and self-reliance are the way to go to prevent us from destroying ourselves.

14 comments