Good Debt, Bad Debt and a Better Way Forward
Miembro desde 1996
Imagen del editor
Miembro desde 1996
Título: Good Debt, Bad Debt and a Better Way Forward
Editorial: S. A. Markowitz
Condición del libro:New
There are two basic financial approaches running a business: either on what it earns or on debt. The former is basic: create a product or service with value and sell it intelligently. Then, reinvest profits for growth. The latter involves leveraging the cost of debt on customers to finance growth.
In capitalism, excess corporate debt should be tempered by the implied threat to investors that comes from bad decision-making. However, when investors believe they may be bailed out during downturns, capitalism fails and feeds greed.
This book is about a real business that for over seven decades succeeded without resorting to excessive debt, resulting in a positive outcome for investors, employees and a local community. It is a story of how a small organ builder in Macungie, Pennsylvania, USA introduced digital sound technology to the world in 1971, decades prior to CDs and MP3 players. It is also a story of a company that has maintained its manufacturing in the same community since 1953. This same company then successfully diversified into the data communication field, growing that subsidiary's sales 20 times and thriving even as the industry melted down shuttering many competitors. These successes were made possible because of prudent financial management.
While debt has damaged companies, communities and even countries, the financial services industry profits by marketing leverage. This book shares real-life pitfalls of dealing with that industry and the inability of the judicial system to hold it accountable. Sworn testimony is used to show incompetence and a cover up.
This book compares two different approaches to finance and investing. One is the speculative and frenzied search for yield, without regard to those that suffer in the wake of this approach; one that prevails in the financial services industry. It has destroyed companies like Nortel Networks and many others that failed after the Dot-com and Datacom bubbles burst. This approach, promoted by the financial services industry, overloads companies with debt and in general promotes risky behavior with other people's money. It caused thousands of investors to lose their lifesavings because they had bought into the market for CDOs, which was not under proper supervision by the ratings agencies.
Government intervention in banking and finance has only led to a proliferation of government agencies - more government jobs for the politicians who rule by patronage. We have a wave of new regulations - but very little change in the way the financial services industry operates.
Compare this approach with how my family and I grew and financed businesses using a more conservative approach to investment, one that is viewed with disdain by many within the financial services industry. We built and continue to build businesses that we believe in, based on value creation. We take risks in building businesses, providing them with funds for innovative projects, and supporting them through periods of challenge.
We did this because we have a vision for the companies based on their know-how and on the characters and skills of those who run them. When we take risks on companies and finance them, we do it through cash flow and from accumulated assets, not by loading them up with debt so that they are dependent on good fortune in the future to get them out of trouble. That is, effectively, in opposite of what the bankers who focus on yield do.
Yes, we have had some failures. However, because these failures are conservatively and internally financed, not through debt, they were not catastrophic to the investors.
This is the 'good-debt' approach to business and finance, and we show how our government and financial system has disastrously veered away from this healthy way of doing business, with financial crisis and business failures as the inevitable consequences.
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