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Are we connecting the dots?
The ones that lead to our - and our children’s - financial ruin?
Front page of yesterday’s Wall Street Journal was news of Richard Branson’s financial duress and his pledging of his beloved Necker Island in the Caribbean to try and save his business. As you may know Branson is the flamboyant British billionaire who built the Virgin businesses - a recording label, airlines, cruise ships and more.
But google the island..
I’ve never been there, but it looks fabulous. Branson is now 69, but he acquired it when he was 29. The place of forty years of memories with family and friends may go up in smoke and be taken by the banks.
Why?
Because of what a professor taught me on the last day of a finance class in business school. On that day he folded the text book and asked us to forget everything we had learned in the semester on the ideal weighting of debt to equity in a business. He said nearly all the businesses that went the distance never got their debt models right, they instead had little to no debt - and it was key to their survival when things got tough.
Same was said for countries years ago by a professor from Harvard and the University of Maryland in their book, “This time it’s different.” They chronicled the last 800 years of financial history as it relates to governments and found that the seeds of a civilization’s undoing came in too much debt.
Now connect the dots.
The Senate on Tuesday approved round three of COVID-19 relief. It’s half a trillion dollars. They say round four is coming in May. Though, for instance, the money for hospitals in round three does not match with the reality that hospitals are still awaiting $70 billion of the $100 billion approved in round two passed in March. Policy makers are literally throwing money at the problem without a close look at how it's being spent or whether or not the last round has even been ingested. And there is absolutely no talk of cutting in other areas to afford COVID-19 relief.
Which will leave us with a mountain of debt and the very pressures Sir Richard is now struggling with as he tries to maintain the very businesses that have been his life’s work. All of us have got to make our voices heard in this panic. Yes, COVID-19 is here..and yes, we have to deal with it...but let’s not forget financial reality in the process.
Sincerely,
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