4/11/20
It goes without saying that the COVID-19 pandemic
is beyond horrific, but some good can emerge from even the most horrendous
situations. While these positives can
never outweigh the negatives of such ghastly circumstances, at least they can
partially balance some of the horror. In
yesterday’s post on my Faith blog,
THE COVID-19 PANDEMIC AND THE WILL OF GOD
yours truly discussed the more profound possibly positive
by-products of the COVID-19 pandemic.
Today, I present some of the more secular benefits that could arise from
the dystopia into which the coronavirus has thrust us:
CORPORATIONS AND PEOPLE MIGHT TAKE BETTER CARE OF
THEIR FINANCES
In the wake of the pandemic, we are hearing tales of
numerous people and corporations, some of the latter of which are quite large,
that aren’t going to make it financially without government help because they
are either out of work or out of business for a couple of weeks. While one can understand not being able to
be out of work for an extended period of time, shouldn’t people and companies
have built a financial cushion capable of sustaining them for longer than the
financial equivalent of the blink of an eye?
First, corporations…
Corporations, as a class, have been taking on debt
(i.e., in finance speak, leveraging themselves) with the fervor of a
repeatedly self-proclaimed “just social” drinker on his way to his fifth
cocktail party of a given evening. Total
corporate debt in the U.S. has reached $10 trillion, or 47% of
GDP. Ten years ago, while we were
still struggling our way out of the debt crisis by issuing more debt (the
financial equivalent of the hair of the dog), corporate debt constituted 40% of
GDP; it was high then, it’s higher now.
This debt was taken on, to at least some extent, to buy back stock
and pay dividends, providing a double dose of leverage to the balance
sheets of the companies engaging in such financial engineering.
Yours truly is not going to join the ranks of the economically
illiterate yet politically powerful in castigating stock buybacks as the
biggest financial swindle since the Teapot Dome scandal of the previous
‘20s. Stock buybacks are often a very
intelligent application of a firm’s capital, taking money away from corporate
bigwigs who think they are the firm’s owners and returning it to the shareholders,
the firm’s real owners, who, because of the nature of a buyback, can decide
whether they’d like to take out the cash, possibly to invest in another
opportunity, or to stay onboard, so to speak, and enjoy the “other things being
equal” increase in the price of their underlying stock. How it is wrong to give people voluntary
access to their own money is beyond me, but, then again, yours truly understands
economics and finance. And dividends? The usual “widows and orphans” argument
trotted out by Street denizens to justify sustaining, and even subsidizing,
dividends is okay, if a bit tread-worn.
A more convincing argument for dividends is that, without dividends
and/or the prospect of future dividends, a stock’s intrinsic value is nothing,
nada, bupkus, zero (0). We could also
add to the argument for the salubriousness of dividends the above observation
regarding buybacks, to wit, it is difficult to see the patent immorality of
giving people their own money.
So yours truly has no problems with stock buybacks and
dividends under normal circumstances. However,
it simply isn’t prudent for a corporation to engage in such otherwise desirable
activities by taking on debt to the point at which one must assume nearly
perpetual continuation of good times, and hence ever-increasing operating
earnings, in order to keep that corporation from falling over the financial
edge. Given the demands for immediate government
help from many of our major corporations, one has to assume that they had been
engaging in such reckless leveraging.
Yes, the government and, mostly, the Fed nearly demanded that they do so
by making credit so cheap and abundant, but the people who run these corporations
are paid enough to display the fortitude and good sense to say “no” even when
everyone is demanding that they say “yes.”
While no one can expect a company to stay alive for
prolonged periods of little or no business, especially when that downturn was
both nearly impossible to foresee and the fault of entities and events far
beyond that company’s control, corporations shouldn’t have been operating with
balance sheets incapable of surviving even a short blip in economic
activity. Being sufficiently
conservative to wait out a crisis of the duration the COVID-19 pandemic might involve
is nearly impossible and, indeed, undesirable.
But being more conservatively capitalized than was much of corporate
America going into this crisis is far from too much to ask, especially when
many of these corporations are asking for, even demanding, public money.
Next, individuals…
Much of the same can be said on the individual side as
well. As long-time readers know,
one of my recurring themes is the dismal, and largely self-induced, financial
shape of the average American. The
statistics are stunning but, since they are boring to normal people who, unlike
yours truly, don’t get excited over economic and financial minutiae, I will
list only a few:
·
Total household debt reached a record
$14.15 trillion, a record and 2/3 of GDP, in the fourth quarter of 2019
·
Total credit card debt reached $930
billion in the fourth quarter of 2019, well above the pre-2008-’09 crisis peak.
·
The proportion of credit card debt more than
90 days late was 5.3% in the fourth quarter of 2019, the highest level in
eight years. For those 18-39 years old,
that number was 9.4%, the highest since 2010.
·
The average car loan’s maturity just reached 70
months. A third of all car loans are in
the 73-84 month range.
Simply put, many people are living beyond their means. Some people have no choice; their means are
so limited that they must live beyond them in order to live. But such people constitute a small
percentage of this problem. Yes, many
people live, as those who advocate for the poor, and those who advocate for
themselves while pretending to advocate for the poor, put it, paycheck to
paycheck. But this condition
arises, in many, if not most, cases, not so much from the size of the paycheck
as it does from the size of the expenditures made using that paycheck as the foundation
for debt. While many who practice
such financial masochism can keep the financial plates twirling when times are
good, that china comes crashing down when times suddenly turn bad, as we are
seeing now.
There are many ways to economize, on small things, like, bottled
water, hideously over-priced vending machine snacks, and $5.00 coffee drinks, to medium sized
things, like the phones we carry, the frequency with which we eat out,
the places at which we choose to eat out, and the vacations we take, to
big things, like the cars that we drive and pretend to own and the
houses in which we live. Many Americans,
out of pride, weakness, ignorance, or some combination thereof, simply choose
not to economize, but, as the great Dave Ramsey has said, spending
money you don’t have on things you don’t need to impress people you don’t like
is not a winning financial strategy.
Maybe this crisis, and the precarious position in which
it has left so many people, will convince people that financial scolds like
Mr. Ramsey and yours truly are not such killjoys after all. Maybe people will come to see that, say, six
or nine months of living expenses in a reserve fund, a long-term investment
plan, and an absence of debt are more important than the next trendy piffle
they are convinced will make them happy.
THE SUDDEN ENTHUSIASM FOR HANDWASHING AND OTHER
MANIFESTATIONS OF GOOD PERSONAL HYGIENE MAY CONTINUE
As loyal readers already know, handwashing, along
with living beyond one’s means, has been a long-time topic of interest to yours
truly. The third bullet point in
RANDOM THOUGHTS ON CHRISTMAS, CRUISES, KARAOKE, PERSONAL
HYGIENE, THE RIGHT TO VOTE, ETC.
is only the latest example of this obsession put to
writing. Now that we have been
repeatedly told to wash our hands (It is indicative of the poor state of
personal hygiene in this country that adults have to be told to wash their
hands, but I digress; at least I do so parenthetically.), perhaps people will change their disquieting
and dyspeptic ways in this regard.
Maybe when we return to restaurants, the reaction to the sign in the
washroom that reads
“Employees must wash hands”
will no longer be “Hey, I’m not an employee, so I don’t
have to wash my hands.”
PEOPLE MIGHT COME TO REALIZE THE POINTLESSNESS OF THE
MODERN POLITICAL CONVENTION
The Democratic Convention in Milwaukee has already
been delayed, and the Party’s apparent standard-bearer has already talked about
the possibility of a virtual convention.
The GOP can’t be far behind.
Maybe the electorate, and maybe even some of the pols who like to use
such circuses to bask in the glow of their own manifest wonderfulness,
will come to realize that political conventions as practiced since at least
1976 are simply useless. Yours truly,
as an only somewhat recovering political junky, used to love political
conventions…when they meant something.
But now that the nominee has already been chosen weeks, or, usually,
months before the convention, these affairs are little more than opportunities
for politicians to listen to each other, and to themselves, blather on about
how terrific, generous, wonderful, thoughtful, and mindful paragons of humanity
they are. Their minions also get to
argue over the Party’s platform, which, once put in place, is ignored by
everybody, even the pols who make a feint at pledging loyalty to its planks
despite not having read the tedious tome.
While blathering on about themselves and bickering over
things of absolutely no interest to anyone with a real job are among the
favorite activities of politicians and their sidekicks, perhaps the people will
demand an end to being subjected to such nonsense, the networks will oblige by
ceasing coverage altogether, and the entire vestigial machinery will collapse
of its own weight. We are most of the
way down this road already; perhaps COVID-19 will complete this journey.
MAYBE INTERVIEWEES WILL CEASE STARTING THE ANSWER TO JUST
ABOUT EVERY QUESTION WITH “SURE,…”
If you have yet to notice this tendency, you will after
reading this post. This malady tends to afflict interviewees who have not yet
attained a certain age, but it is spreading to afflict larger portions of the
populace.
Why COVID-19 might have anything to do with alleviating
this relatively recent bastardization of the language is beyond yours truly…but
we can always hope.
Blessed Passover and Easter to all of you. Please stay well and do all you can toward
that end.
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