18,587 karma · joined August 10, 2011
What you see from IBM:
- Cut expensive (old) employees.
- Market everything as the New thing. (Watson)
- Audit your customers. Settle by forcing them to buy the New thing even if they don’t need it.
- Current and former execs go on book tours.
- Buy back shares.
This is all rational when you can’t put capital to good use anymore. It just sucks to be a customer or employee of them.
I see this in some acquisitions too. (Like when IBM buys anyone)
It all depends on the stage of the companies. When companies are still in growth mode it can create more revenue and jobs. When companies run out of ways to grow (mature industries like telecom) then mergers are almost always about economies of scale and cost savings.
What was the benefit of draining it in the first place, and who received that benefit?
I just find it strange that after all that SVB is using the bailout as marketing. “All your new dollars are safe too!”
The problem is they bought a bunch of long dates securities yielding 1.5-2% and when the deposits flooded in they started paying more than 1.5-2%.
They have been better off buying T bills or something else without duration risk and paying something less than Fed Funds. This is what most banks do.
They could have just as easily done what most other financial institutions do: match the duration of their liabilities with the duration of their bonds. If people can quickly pull their money, then keep the money in short term bonds and money market funds.
The problem with that is it’s harder to make big bonuses when you’re being fiscally conservative.
Banks are in the business to manage risk.
The sad part is this risk management and investment process is concentrated in a very small group. Most of the bank employees are very good, had no idea what was happening, and some will lose their jobs as their equity goes to zero.
In general you can’t trust salespeople and need to get everything in writing. Cloudflare is a prime example of why.
And I’d add in my case because we were keeping track of their promises, we caught them before the sales process completed. It cost them seven figures a year. But maybe it doesn’t matter - their sales approach still has them worth $20 billion.
Software projects were notoriously late and brittle in prior eras. (Ask anyone supporting a mainframe that they’re afraid to reboot)
Fraud and monopolies are as old as money. (Look up the history of Wall Street and railroads)
It’s very hard to come up with good time series data so here is my wish list to test the “we are going to crap” hypothesis:
- Air Quality Index over time.
- % of the World Population with sub-0 net worth over time.
- % of World Net Worth in discovered financial crime.
- % of technology projects overbudget and overdue weighted by dollar value over time.
- % of population literate.
Some these are hard to measure. I’m open to other measures. Absent that it’s about as accurate as asking someone “Are you busier than you were 20 years ago?”
It leaves out things like “what might the IP be worth to someone else?” and “What could the company do with better management?”
To your point, it’s frequently less than what the company trades at. Sometimes the opposite is true, and the company trades for less than the cash value of its assets minus liabilities.