But first:

Breathtaking: “WATCH: House Dems Chant ‘USA!’ As Republicans Strip Funding From Election Security.”

And second:

If you attended the biennial Farnborough Airshow this week, here’s what you saw at WheelTug’s double-decker stand.  One feature: a cockpit simulator pilots can sit in, driving the adjacent scale-model aircraft.

WheelTug now has north of 20 airlines in queue to lease its systems if and when it gains FAA approval.  (A pre-certification agreement is in place, making it more likely a matter of when.)

Some of you have asked about this competition — a giant high-tech tow truck.  The short answer: with WheelTug, the truck in effect fits inside the nose wheel.  A more elegant solution — and with no burden on the airport to manage another vehicle every time an aircraft taxis from the gate.

And this competition.  The short answer: better . . . but the pilot still has to hook up to one, and de-hook from one . . . and would he be able to perform “the twist,” turning 90 degrees to park parallel for boarding and deplaning from both front AND rear doors?  I don’t know, but it doesn’t look that way.

I find it encouraging that people are actively seeking solutions to the gate-taxi problem.  My hope?  Most will conclude WheelTug is the best.

And now:

Matt Levine writes about “money stuff” for Bloomberg here.  Or you could subscribe here.

I liked this recent post:


What do you get if you buy a share of Snap Inc. stock? A conventional simple answer is that you own a small fraction—roughly 1/ 1,258,171,112—of the company, but that is obviously imprecise. You can’t walk into their offices and take 1/1,258,171,112 of their pens. You can’t walk into their offices at all, unless they invite you. You don’t seem to “own” the company in any normal sense of that term.

A more sophisticated answer would talk about the bundle of rights attaching to stock, but … what rights? You can’t vote to elect the directors and officers who actually run Snap: Snap’s public shares are non-voting, and the voting power is actually controlled by the company’s founders. (My Bloomberg Opinion colleague Shira Ovide points out that Snap won’t even bother holding an in-person annual meeting with its shareholders.) You are entitled to your 1/1,258,171,112 share of any dividends that Snap pays, but Snap has no obligation to pay any dividends, and it never has, and it  has said that it does “not anticipate paying any cash dividends in the foreseeable future.” If Snap is liquidated then  you get your 1/1,258,171,112 share of whatever money is left over after paying off its debt, but don’t count on that paying your kids’ college tuition. If Snap is sold to another company then, yes, you probably do get your 1/1,258,171,112 share of the proceeds, so that is something; that is a real ownership-like right. But remember that Snap is controlled by its founders, who have already cashed out hundreds of millions of dollars, so there is no particular reason to expect Snap to be acquired in any shareholder’s lifetime, and no way for the shareholders to force a sale.

There are other, more faux-sophisticated answers. You might point out that you own a share in the company that grows in value as the company does, and that right now you can sell that share on the stock exchange for $13.31. But that evades rather than answering the question: What does the person who buys the share from you expect to get from it? The value of a stock in the market is supposed to be equal to the present value of its future cash flows, and there’s nothing about the stock itself that promises you any cash flows. Or you might say that Snap’s directors and officers have a fiduciary duty to you to  maximize the profits of the company and the value of your shares, but even if that were true—it’s pretty debatable—it continues to avoid the question. If Snap made massive consistent profits for decades, it would still never have to give any money back to shareholders, and the shareholders would have no way to force it to. “I own a 1/1,258,171,112 share of a massive pile of cash,” you could say, but you could never spend it.

This is all standard dorm-room financial capitalism I guess but here is a fun paper from Amy and David Westbrook about “ Snapchat’s Gift: Equity Culture in High-Tech Firms.” They argue that, under conventional theories, there is no reason for Snap shareholders to expect anything:

This article explores the familiar rationales for equity investing, including stock appreciation and dividends, and the logical shortcomings of those rationales in these circumstances. Adopting Henry Manne’s “two systems” of corporate affairs, law and economics, we show that corporate law fails to ensure that corporations return business profits to shareholders. A similar analysis of the market for corporate control, concludes (with Manne) that the market for corporate control depends upon shareholder voting.

So why do they invest? Here’s the Westbrooks’ answer:

In expecting a return on investment even in the absence of legal or market mechanisms to secure such return, shareholders are not irrational. Instead, investors rely on cultural understandings of appropriate reciprocity. Marcel Mauss’ path-breaking essay, The Gift, helps to explain the equity culture in which shareholders invest in Snap and other high-technology firms, and in which such firms operate. 

It is an anthropological approach to corporate governance: Just as in traditional societies, chieftains give each other gifts that create obligations of reciprocity without any formal legal contracts or any explicit notion of exchange, so Snap’s managers have received a gift from its shareholders and thus have a cultural obligation to reward those shareholders’ generosity.

Even if the Snap shareholders lack a legal right to compel certain behavior on the part of the Snap managers, they have taken the always risky step of investment, and have thereby been connected to the management. The shareholders are committed, and in some moral sense owed good faith management, and so it may yet be rational, morally if not legally, for the shareholders to expect something in return for their investment. 

Perhaps contra the suspicion of management at the center of corporation law since at least Berle and Means, there is no self-evident reason to believe that Snap’s management will not do the right thing, at least more or less. As Mauss explains, “[t]he unreciprocated gift still makes the person who has accepted it inferior, particularly when it has been accepted with no thought of returning it.” … To the extent that the founders are in a particular “tribal group,” they may act in the best interests of their companies and their shareholders regardless of whether such behavior is “required” by legal doctrines like shareholder wealth maximization or by pressures from the market for corporate control.

I have no particular problem with any of this. I am constantly going around saying that the financial industry is a Maussian gift economy, and I agree that traditional norms are as important as legal requirements in explaining how people act in corporate settings.

But I don’t actually think that’s what’s going on here. My analogy would be to the rise of paper currency and the demise of the gold standard. A stylized history: Once upon a time, people thought gold was intrinsically valuable, so they used it as money. Eventually they realized that carrying around pieces of paper that said “exchangeable for one gold” was more convenient than carrying around the actual gold, particularly if there were sufficiently robust legal mechanisms to make sure that the paper was actually exchangeable for the gold. And then the pieces of paper—and even more abstract instruments, like electronic ledgers listing how many pieces of paper each person owned—became just incredibly, incredibly convenient, a centerpiece of an economic life that was vastly richer and more efficient than the old economy where you had to cart around gold ingots. And then one day, after many years of this, the government said “you know what, these pieces of paper aren’t exchangeable for gold anymore.” And everyone just sort of shrugged and said, it’s fine, we like the paper, it’s not like we were exchanging it for gold much anyway, that was a nice idea but it’s not really central to how the system actually operates. And now the pieces of paper work because they work, not because they reference some other thing.

Similarly, people like common stock of public companies. Like, it’s a nice thing. You can trade it, and put it into indexes, or keep it out of indexes, and structure derivatives on it, and decompose it into factors, and read and write quarterly stories about the company’s earnings, and use the stock to express a thesis on those earnings or the macroeconomy or the social-media era generally. You can build models of the value of the company—based on discounted cash flows or comparable-company multiples or user-based metrics—and then divide that value by 1,258,171,112 to get the expected price of a share of stock, and if the actual price is higher or lower then you have a trading opportunity. You can build vast edifices of financial capitalism out of tradable shares of stock in corporations.

And sure it says on page 1 of the textbook that the share of stock represents a claim on the future cash flows of the corporation, and sure that fact is in some sense the foundation on which the whole thing rests. But the whole thing is good, and people and business models and industries rely on it, and the notion of treating shares of stock as part-ownership in a corporation is so useful that it doesn’t particularly matter if it’s true. The shares of stock have a particular kind of value because everyone treats them as having that particular kind of value, and everyone treats them that way because that is a collectively useful way to live. It turns out in practice that if you chip away at the foundation, the edifice is so artfully constructed that it will keep on standing in midair. 

Incidentally this mostly explains initial coin offerings too.

Have a great weekend.



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