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Strategies & Market Trends : Floorless Preferred Stock/Debenture -- Ignore unavailable to you. Want to Upgrade?

To: Mama Bear who wrote (606)	7/10/1999 3:37:00 AM
From: Bilow	Read Replies (1) \| Respond to of 1438

Hi Mama Bear; I don't think that management really conspires to slaughter the stock price. If management actually went short their own stock it would prove such, but I think the fact is that they don't actually do that. I would guess that a lot of time they are buying their own stock, for their personal accounts, as their stock price collapses. Companies desperate enough to take a floorless are probably going to go under anyway, all the floorless does is make the process take a little longer. It's sort of like the terminally ill gasping for air on the death bed. I would like to suggest a more natural motivation for management's acceptance of these deals. I have worked at several companies that went bankrupt, and I have seen the dynamics in action, though none of them went to the floorless well. (I am sure, on the other hand, that if they had been aware of it, at least one of them would have gone there, but it would have gone bankrupt eventually anyway.) Humans have a very strong ability to believe what they wish to believe, even in the face of overwhelming evidence to the contrary. Members of upper management in a small company, typically have a lot of power and income, relative to the other employees. Naturally, they would like this position to continue as long as possible. In fact, I believe that, on average, they would prefer to keep their positions even if it meant that they would be less wealthy than if they dissolved the company early on. In other words, I think that to run a company into the ground is the most natural thing for management to do with a failing company. All the floorless does is keep the company afloat a little longer. Taking a floorless is a way of postponing the inevitable. And who knows? Maybe some miracle will happen, and save the company during that postponement. Last minute saves happen in the movies all the time. It is a natural human tendency to hope for the best, up until the very end. The sad fact is that we are each going to die someday. We all will eventually expire, and the odds suggest that it will probably involve a substantial amount of extreme discomfort. Given that, why not take the easy way out? But humans don't like to think about the highly probable outcomes, and it's a good thing. Having a bunch of morose, overly intelligent beings around would be a major mistake for the planet. Humans with that sort of tendency, fortunately, tend not to breed. Consequently, evolution has left us with a species that is relatively polyannish. (And I like it this way.) Funny thing about a dying company. Each moment that the stock price decreases, someone has to own the stock, and therefore lose money. The crux of the question is who will that loser be. -- Carl