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I, John Q. Businessman, own 1000 shares of Tesla, worth $400 per share. I'd like to have some of that money in cash so I can pay off some bills or something. However, I don't want to sell my stock, because I don't want to risk missing out on Tesla becoming $800 a share any day now. So I take out a loan against my stock. My broker doesn't sell 100 (say) shares of stock; instead, give me a loan, $40,000, to be paid back at some specified time, and backed by the stock. If I am right, and Tesla hits $800/share, I now sell only 50 shares of stock, get back the $40,000, pay the broker back, and my net worth has gone up a lot based on the 900 shares I never sold, plus the 50 that I avoided selling by taking out a loan against my stock. The broker has, of course, taken a cut on all of this. However. Same process exactly, but Tesla falls to $100. I still owe my broker $40,000, but the stock I borrowed against is now worth $10,000. The broker isn't happy, and is going to force me to somehow cough up the extra $30,000. Some time during the fall of the stock, say $200/share, my broker issues me a "margin call": "you owe us $40,000, but the collateral you borrowed against is only worth $20,000. Pay us the cash in full, or sell your stock to make up for it." I have to scramble to come up with the cash elsewhere, or I have to sell 200 more shares of stock right drat now in order to pay back the broker. Now imagine that this is all happening with millions of dollars and hundreds of thousands of shares. If Elon took out a personal margin loan against Tesla at $400, that would force him to sell a lot of shares at $110 to fulfill his contract with the broker. That's a margin call. We know that a margin loan wasn't part of the official merger financing. We don't know whether Elon came up with some of his cash by borrowing against the stock. Arsenic Lupin fucked around with this message at 00:00 on Dec 30, 2022 |
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Dec 29, 2022 23:55
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Thanks a bunch folks! Especially Arsenic Lupin for the worked example, that helped a lot! 
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Dec 29, 2022 23:58
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Arsenic Lupin posted:I, John Q. Businessman, own 1000 shares of Tesla, worth $400 per share. I'd like to have some of that money in cash so I can pay off some bills or something. However, I don't want to sell my stock, because I don't want to risk missing out on Tesla becoming $800 a share any day now. Small addition/correction: this is very often used as a tax deferral technique. As in, if they sold the shares they would owe tax, but through the right estate planning their heirs will get a stepped up tax basis and poof! no tax owed. It's literally cheaper to pass on the loan/liability to their heirs so they can sell shares tax free to pay it off. This is increasingly being called "buy, borrow and die" and it's a very good tax strategy if you have the means.
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Dec 29, 2022 23:58
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Absurd Alhazred posted:Thanks a bunch folks! Especially Arsenic Lupin for the worked example, that helped a lot!
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Dec 29, 2022 23:59
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Arsenic Lupin posted:So I take out a loan against my stock. My broker doesn't sell 100 (say) shares of stock; instead, give me a loan, $40,000, to be paid back at some specified time, and backed by the stock. If I am right, and Tesla hits $800/share, I now sell only 50 shares of stock, get back the $40,000, pay the broker back, and my net worth has gone up a lot based on the 900 shares I never sold, plus the 50 that I avoided selling by taking out a loan against my stock. The broker has, of course, taken a cut on all of this. Excuse me, when your shares go up, you take out another loan against your stocks to cover the previous loan and raise new cash. If you're rich, you never cover a debt that you can roll over, because banks are strangely happy to give you good terms on loans.
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Dec 30, 2022 00:01
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Arsenic Lupin posted:Math is hard, and I had to edit three times; I hope the final version is accurate. Really appreciate the effort!
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Dec 30, 2022 00:06
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Absurd Alhazred posted:What does "being margin called" mean? I didn't quite manage to make sense of it. Musk might be a multi-billionaire, but most of that wealth is in assets (mainly Tesla stock), not cash. He can't actually spend most of that, and there's practical difficulties involved in just selling it In situations like that, a common way to turn those high-value assets into spendable money is to take a loan, using your assets as collateral. But when a volatile asset like stock is used as collateral, banks will attach some extra conditions to insulate themselves from risk. One of those conditions is that if the value of the collateral drops below a certain point, the bank can call you up and demand more collateral. This is a margin call. If you don't hand over more money, either in assets or cash, the lender can seize the collateral you've already provided and start selling it off. Margin calls tend to be substantially inconvenient. There's no good time for a bank to call you up and demand more money, but a particularly bad time to get that call is when you don't have a lot of liquid cash and the value of your assets has massively dropped.
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Dec 30, 2022 00:07
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I'm sure Elon will be fine, but in the meantime I will laugh at him.
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Dec 30, 2022 00:16
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Anno posted:The lender can demand to be paid back in part or force the lendee to put up additional collateral due to the drop in value of the collateral already placed. If the lendee doesn't then the lender may force a sale of the placed collateral to repay their loan. Aren't CEOs generally restricted from just selling stock w/o declaring it well in advance? How does this interact?
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Dec 30, 2022 00:26
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Main Paineframe posted:Margin calls tend to be substantially inconvenient. There's no good time for a bank to call you up and demand more money, but a particularly bad time to get that call is when you don't have a lot of liquid cash and the value of your assets has massively dropped. I just looked it up, and during August 5-9 2022, Musk sold "7.92 million shares of the electric vehicle manufacturer worth about $6.88 billion". That's going to depress the value of everybody else's shares.
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Dec 30, 2022 00:31
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Apparently 267 million of his 423 million Tesla shares are collateral for margin loans
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Dec 30, 2022 00:35
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Clarste posted:I'm sure Elon will be fine, but in the meantime I will laugh at him. "Fine" in the financial sense. But not fine at all because all he wants is to be the most special boy in the world and that has all come crashing down in a way the even he can't ignore anymore.
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Dec 30, 2022 00:35
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I've said it before in this thread, but when Musk's net worth surpassed Jeff Bezos's, Musk sent Bezos a trophy labelled "#2". He has a lot of self-worth tied up in "the richest man in the world".
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Dec 30, 2022 00:37
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OddObserver posted:Aren't CEOs generally restricted from just selling stock w/o declaring it well in advance? How does this interact? IANAL, but my understanding has always been that you don’t have to declare it in advance of selling stock, just shortly after. Like a day or two. I think people tend to declare it ahead of time, often on some kind of schedule, so as not to spook stock holders that they suddenly dumped a bunch of stock, like Elon recently did.
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Dec 30, 2022 00:39
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Reporting laws vary and I don't remember how they work. You do have to file in advance for any mass sale of stock as the CEO.
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Dec 30, 2022 00:45
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Kwyndig posted:Reporting laws vary and I don't remember how they work. You do have to file in advance for any mass sale of stock as the CEO. Maybe over certain dollar/% values? Idk. But when Elon last sold TSLA it was certainly reported as retrospective news. https://www.cnbc.com/amp/2022/12/15/elon-musk-sells-another-huge-chunk-of-tesla-shares-.html
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Dec 30, 2022 00:48
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Arsenic Lupin posted:I've said it before in this thread, but when Musk's net worth surpassed Jeff Bezos's, Musk sent Bezos a trophy labelled "#2". He has a lot of self-worth tied up in "the richest man in the world". It is shocking just what a fragile, insecure little wuss Musk is. Imagine how much better things would be for everyone involved if he'd found some way to realize inner inner self confidence and worth in a healthy way at literally any point in his life to date.
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Dec 30, 2022 00:49
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Kwyndig posted:Reporting laws vary and I don't remember how they work. You do have to file in advance for any mass sale of stock as the CEO. https://www.sec.gov/files/forms-3-4-5.pdf This isn't a mystery. It's all well documented. In the entire united states you are looking at form 4 requirements for this current topic of conversation.
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Dec 30, 2022 00:56
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Arsenic Lupin posted:I've said it before in this thread, but when Musk's net worth surpassed Jeff Bezos's, Musk sent Bezos a trophy labelled "#2". He has a lot of self-worth tied up in "the richest man in the world". They are both poorer than Putin, anyway, who owns an entire country (though Putin may have some ...difficulties... spending money these days).
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Dec 30, 2022 01:01
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OddObserver posted:Aren't CEOs generally restricted from just selling stock w/o declaring it well in advance? How does this interact? CEOs can set up a plan which only gives them the ability to sell predetermined amounts of stock at predetermined times. These plans have to be set up well in advance. CEOs don't have to do this, but many do anyway because it provides some level of cover against insider trading allegations.
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Dec 30, 2022 01:03
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Arsenic Lupin posted:I've said it before in this thread, but when Musk's net worth surpassed Jeff Bezos's, Musk sent Bezos a trophy labelled "#2". He has a lot of self-worth tied up in "the richest man in the world". Bezos should mail it back, or maybe mail back an actual good metal trophy and not just a pos plastic one with a metallic silver paint finish because Musky is tooo cheap to commission a quality item. like look at his red demon leather halloween outfit.
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Dec 30, 2022 02:11
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Who actually is the broker in Musk/Twitter case? Goldman Sachs or such?nachos posted:Apparently 267 million of his 423 million Tesla shares are collateral for margin loans Does anything determine how much stock/shares a company can offer, or can a company have theoretically infinite stock? 423 million shares seems like a lot. Then again, Amazon probably has way more
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Dec 30, 2022 02:36
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A company can issue as much stock as it wants. The only limit is how much the public is willing to buy. There's a practical limit though.
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Dec 30, 2022 02:43
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Surely there may be practical issues if your share costs less than a cent?
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Dec 30, 2022 02:48
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OddObserver posted:Surely there may be practical issues if your share costs less than a cent? If a stock gets that low it could be involuntarily delisted, which happens regularly with penny stocks. There are a few steps before something like that would happen though.
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Dec 30, 2022 03:07
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PhazonLink posted:Bezos should mail it back, or maybe mail back an actual good metal trophy and not just a pos plastic one with a metallic silver paint finish because Musky is tooo cheap to commission a quality item.
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Dec 30, 2022 04:11
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Actually, Amazon got a great rep early on by having a very generous return policy. It’s only in recent years that they started winding it back.
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Dec 30, 2022 04:19
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Amazon nowadays unless it's a $50< item your refund will take months normally lol
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Dec 30, 2022 04:25
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Arsenic Lupin posted:However. Same process exactly, but Tesla falls to $100. I still owe my broker $40,000, but the stock I borrowed against is now worth $10,000. The broker isn't happy, and is going to force me to somehow cough up the extra $30,000. Some time during the fall of the stock, say $200/share, my broker issues me a "margin call": "you owe us $40,000, but the collateral you borrowed against is only worth $20,000. Pay us the cash in full, or sell your stock to make up for it." I have to scramble to come up with the cash elsewhere, or I have to sell 200 more shares of stock right drat now in order to pay back the broker. The collateral value is normally much bigger than the loan amount. If the collateral value starts dropping and getting closer to the loan value, the margin call is "Immediately give us more collateral/pay off loan principle, or we're seizing and selling enough of your existing collateral to pay down the loan and get the loan:collateral ratio back down". The triggering ratio is much smaller than 1:1 so that even if the collateral keeps dropping during that process or the sale crashes it further, the lender is still likely to get paid in full. For Musk, it's a $12.5 billion loan secured with a pile of Tesla stock that was originally worth $62.5 billion (20:100). When the stock value dropped enough to the ratio 35:100 (the same pile is now worth only ~$35.7 billion), he has to either add more shares to the pile or pay down the loan debt to get it back to 25:100, or the bank will seize shares from the pile, sell them, and use that to pay down the loan themselves. He doesn't actually have to sell stock, he can just commit additional shares to the collateral (until he runs out of other valuable stuff to offer) For an ordinary person analogy, it's like taking out a home equity loan. The bank will foreclose on the house long before the loan is actually underwater.
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Dec 30, 2022 04:40
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Foxfire_ posted:[cool stuff]
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Dec 30, 2022 04:50
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I just took the numbers from the article posted earlier. The $12.5 billion I've read other places too
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Dec 30, 2022 05:06
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Celexi posted:Amazon nowadays unless it's a $50< item your refund will take months normally lol Nahh, it takes AMEX longer to process the refund than it takes to convince Amazon to issue it. I've done it for quality issues and returned the items, and they take me at my word when I say something never showed up.
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Dec 30, 2022 05:25
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Motronic posted:Small addition/correction: this is very often used as a tax deferral technique. As in, if they sold the shares they would owe tax, but through the right estate planning their heirs will get a stepped up tax basis and poof! no tax owed. Wish it could be changed to just die.
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Dec 30, 2022 07:39
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Volmarias posted:Funny thing about that idea is that banking comes with a LOT of regulation and scrutiny. Seeing as how they seem to be YOLOing the existing consent decree, I could see that one actually causing direct, personal damage to Musk since the "gently caress around" was clearly acknowledged as being past. If you want an idea of what any sort of Twitter Banking would end up like, look at the Paypal credit card Musk pushed back during his brief tenure there.
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Dec 30, 2022 07:44
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mllaneza posted:Nahh, it takes AMEX longer to process the refund than it takes to convince Amazon to issue it. I've done it for quality issues and returned the items, and they take me at my word when I say something never showed up. There's an entire sub-industry based around buying Amazon returns in bulk and reselling them, with the assumption that some amount of the stuff is functional. I've personally gotten a load of moderately expensive, useful stuff at fractions of retail doing this, and none of it would be possible if Amazon didn't rubber stamp pretty much anything anyone tried to return. The stores that sell these things are full of boxes of obviously heavily used car parts, electronics, appliances, etc. People just buy a replacement for a broken thing, then return the broken one to Amazon. Nobody cares.
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Dec 30, 2022 07:52
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I've recently started receiving a big wave of spam on primary email address and have no idea what triggered it. I use burner email accounts for online ordering and poo poo and haven't signed up for anything new that might get me on a list. Is there any kind of blanket approach I could take or some sort of Do Not Mail list similar to the do not call list? Ideas what triggered this?
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Dec 30, 2022 15:22
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BiggerBoat posted:Ideas what triggered this? With that said, check your primary on haveibeenpwned (and set up notifications) if you haven't yet. Your email may have been in a breach. I've certainly noticed an uptick in illegitimate cruft when leaked datasets go publicish.
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Dec 30, 2022 15:29
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Have any email addresses not been pwned at this point? If you've used the internet on any regular basis in the past 10 years I think you'd have been a part of at least 5-10 major breeches.
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Dec 30, 2022 15:33
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feedmyleg posted:Have any email addresses not been pwned at this point? If you've used the internet on any regular basis in the past 10 years I think you'd have been a part of at least 5-10 major breeches. I've never had much trouble with my primary one unless I'm job hunting and, even then, that's usually recruiters and MLM peddlers. I swear to god, is there anything on this earth that hasn't been or is incapable of being ruined by aggressive garbage advertising? Traditional mail, websites, email, TV, Youtube...texting is brushing up against it. I could argue Tech has only made this poo poo worse. AS was pointed out, if you participate in society and commerce to any degree whatsoever, it's almost impossible to avoid being inundated with targeted ads. For years, I attempted to limit commercial and professional interactions online or giving my phone number to too many people but eventually I was forced to cave because you essentially can't do ANYTHING without surrendering this information. ... BiggerBoat fucked around with this message at 16:29 on Dec 30, 2022 |
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Dec 30, 2022 15:49
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similarly, have any major sites not been breached? amazon is the only one that comes to mind. i guess banks haven't been for the most part?
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