Subject: Re: ...and even for those _NOT_ interested... From: Erik Naggum <email@example.com> Date: Fri, 18 May 2001 18:37:20 GMT Newsgroups: comp.lang.lisp Message-ID: <firstname.lastname@example.org> * Tim Bradshaw <email@example.com> > If a company acquires some asset, then they have to fund the cost of that > asset. If they borrow money to do so, then they need to service the > debt, and that can influence what they charge for things. Whether you borrow from your own war chest or an external lender, you still have to ensure that the money is profitable. Money is a perishable good and very quickly deteriorates in value if left alone. (Thanks in part to the very strong drive by governments everywhere to keep the money in circulation and productive through money supply manipulation, interest rates from the central bank or other lender of last resort, and taxation alike.) If you borrow from your other assets, you also limit your ability to do other things with the same money, and there is the risk of loss that is actually much more pronounced if you use your own money. This is why it is made profitable by our governments to be in debt, which ironically makes it more expensive to be in debt than if it were more profitable and a lot easier to build and keep a fortune, but I digress. > However once the debt is paid they don't need to service it any more, so > things are quite different - they need to fund the cost of maintaining > and developing the asset, but not the acquisition cost. This is superficially true, but nobody ever has money enough to do all that they want, so in order to ensure that you can take risks and have some of your acquisitions fail, you need to ensure that you recover a lot more from the profitable acquisitions than just its own cost. The whole system of limited liability means that failure is inexpensive and success needs to pay for far more than it would if failure was more expensive, in the hopes that a few huge successes actually can pay for several failures. > This is a kind of inverse sunk-cost thing - in both cases the trick is to > only look forward and not consider the history (so don't consider > paid-off debts but do consider non-paid-off ones). This is a good way to look at it if you do not plan to make acquisitions later. There is never _enough_ money to do all you want, and there is never enough available people to do it with. The more money you can make circulate profitably, the more you can do. In other words, you are making sure that you pay less for future acquisitions if you consider the need some time in the future to borrow from yourself. The serviceability requirement does not change appreciably whether you have borrowed them from someone or own them yourself. > There's a second related point which is how much you should pay to buy an > asset from a bankrupt company, which influences what you then have to > charge. If you think the asset is worth having then you should expect to > pay for it: if you get it for free, then the receiver isn't doing their > job right, and is ripping off the creditors & shareholders of the > bankrupt company. So it should not be the case that a company which gets > assets from a bankrupt company gets them for free, unless those assets > are worthless. Not quite true. Goods are worth only what others are willing and able to pay for them at the time of the offer. If someone went bankrupt with a certain asset, few lenders will give you a lot of money to acquire it, so the assets of bankrupt companies are often acquired by entitites with available (spare) money. There are also anti-trust regulations to take into account. If the sole surviving competitor buys the remains of its competition, the government will be on your tail and will "encourage" the asset to be sold to a less able buyer, all in the interest of keeping the "competition" and "market" working, i.e., avoiding "monopoly". As a result, you get a _lot_ less for the assets of a bankrupt company than you would have if it were sold off while the company had proved viable. Finance being much about trust and psychology, failures also tend to raise questions about future viability of all components, no matter how complex the relationships that caused the failure. Not to mention the fact that the government is the most aggressive killer in the market, and that a company can go bankrupt for relatively minor tax transgressions that had nothing to do with the viability of its products or management. #:Erik -- Travel is a meat thing.