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Microsoft's $40 Billion On Hand
eMilkshake writes "CNN/Money magazine report here that Microsoft has more liquid reserves than 'Ford, ExxonMobil and Wal-Mart have combined' and 'enough to buy the entire airline industry -- twice. Or all the gold in Fort Knox, four times over. It is enough to buy 23 space shuttles or every major professional baseball, basketball, football and hockey team in America.' This is thanks to (according to WinInfo Update) the fact that 'Microsoft handles its investments with an inhouse software application called--seriously--the Catastrophe Hedging Program 2.5.' I wonder what I would do with $40 billion?"
Breaking News!!!! Extra Extra!!
Microsoft Rich! Really Rich.
Who'd have thunk it..
So close and yet so far from the world's perfect ID number
Man, if I had that kind of cash sitting around I'd be tempted to buy the DOJ. Oh, wait....
There is no reasonable defense against an idiot with an agenda
:wq
So M$ DOES get a nickel for everytime Windows crashes...
Karma whorin' since 1999
Did you know that it is illegal for a public company to have that much on hand and not pay dividends to shareholders?
Apparently there is some murkiness to get around this for Microsoft. The reason they don't want to pay dividends are the huge tax implications for those that are own massive amounts of stock (read: Bill Gates, Steve Balmer...)
> Four US stealth fighters, or 40 stealth bombers.
Oh, oh... don't give bill any ideas now...
Don't think about the billions they have now, think about the billions they are losing because of those greedy poor grade schools who are allegedly not using properly licensed donated PCs.
So how long will it be until we see a Microsoft sponsered sporting team? Oh boy, I cant wait to see the Colorado Avalanch taking on the Redmond Blue Screens of Death.
If it won't boot, Fsck it!
Q: How are all these liquid assets held? Gold? Deposit accounts?
A: Mostly greenbacks, some gold and other precious metals. It's all held in a gargantuan bin, several city blocks on a side, with a giant dollar sign on the front. Bill likes to swim in it.
Q: The bin, I assume, is heavily secured.
A: Surprisingly, no. MS Security is quite porous, considering the massive resources available to it, and is often compromised by sub-literate ex-cons and bored underachieving teenagers (including, purportedly, Mr. Gates' own nephews.)
Q: Isn't he afraid it might be stolen?
A: Occasionally, as mentioned, thuggish dog-faced brutes will attempt to break into the bin. However, what Bill really worries about is that some practitioner of the dark arts might infiltrate his mansion and steal the first dime he ever earned - the magical powers of which are the only thing that keeps MS successful in spite of the low quality of their primary product.
The good and new comes from no quarter where it is looked for, and is always something different from what is expected.
It's not even close to tax evasion. Ta evasion is illegal. Tax avoidance through compliance with the code and regulations is just being smart.
Companies are pretty much free to retain their earnings for reinvestment. There are some limitations on this general rule, but generally it is kosher (there's an old case - Dodge v. Ford Motor Co. - 204 Mich. 459, 170 N.W. 668 (1919))- in which the Dodge brothers sued Henry Ford for, among other things, retaining too much cash and not paying dividends).
There are also a number of tax cases where C corporations (whose dividends are taxable if distributed to shareholders) have been nagged by the IRS to declare dividends. The theory is that the retention of the cash has no real business purpose and it is being done solely for the avoidance of taxes. This is one way the Service can enforce what is called the "business purpose" doctrine.
Microsoft has answered claims such as you raised before, and it is a non-issue now. Especially in today's world of hyper-leveraged balance sheets collapsing, there is no way that Microsoft's war chest will be questioned by the IRS.
Lots of petrified grits
Catastrophe (Hedging) Program
:)
I though this was the code name of their last OS!
Nope, their last OS was called Catastrophe Generating Program.
I pledge allegiance to the flag...
of the Corporate States of America...
I said it before, and now this confirms it, Gates really can make More money than Jesus at a promisekeeper's convention.
It's a pity that Microsoft doesn't do a little more with their money than sell shit at top dollar. But, perhaps it's a Geffen Good, type thing. No fucking joke: start selling Linux at $99 for an install, and maybe the fucker will skyrocket.
Oh, for the days when huge corporations like Michelin did nice things. Says a French citizen, who grew up in Clermont-Ferrand (home of Michelin): "They subsidized the schools, busses, gave their workers bicycles, and helped fund the hospitals." But that was a long fucking time ago, and now it's all about fucking money. Ye, gods, though. How much fucking money does a place need? That's just irresponsible. Maybe I'm just some fucking yahoo, which is most likely the case, but it seems like one has a fucking obligation to be less of an asshole when one has the money to rule the world.
Everyone else has been funny, so I'll bite on the question:
If I had $40 billion in CASH, an infallibility complex, and a slowly-dawning-realization that a) I'm not going to be able to take it with me and b) everyone doesn't love me as much as I think they do I'd sure use that money for something significant.
I don't mean "feeding the poor" significant. They'll forget it tomorrow. I mean like building the first moon base, or a space elevator, mine the first asteroid or some such thing. Be the person that really sparked civilian development in space, and you will be remembered forever (besides doing a good turn for humanity in the really-long-view).
My $0.02, so that leaves room for another 39,999,999,999.98 more good ideas.
-Styopa
They're not using MS Money for that?
Uh oh... we all know no Microsoft product is usable until version 3.0.
Or feed all the hungry on this planet...
And what do you do the next day once the money's gone? Oh my god! The hungry are still there!
When you realize that the reason people are hungry is not lack of food, you will be Enlightened.
The reason people are hungry is not unequal distribution of wealth, it's because of unequal distribution of capitalism and freedom. Lack of food and money is a symptom, not a root cause.
Sometimes it's best to just let stupid people be stupid.
I guess I don't see how not paying taxes you don't owe (your "legally avoiding taxes") is "screwing over the American public". The rules were set by representatives YOU (not MSFT) elected, and if you don't like the rules, lobby to get them changed ... but don't accuse the people and corporations who actually follow the rules of being tax cheats.
Let me put this another way: Do YOU give the government more tax revenue than you are required to do by law? If not, you hardly have a right to complain about others doing exactly what you are doing....
Let's look at this company for a short second...it certainly didn't have any where NEAR $40B in the bank in 1995, just prior to Win95 being released. Win 3.1 pretty much ruled the roost; and IBM was desperately trying to released the stranglehold that MS had over them due to the (favorable) DOS licensing. Microsoft was very powerful, but at that time Office hadn't yet driven EVERY OTHER competitor out of the market, and the Internet wars hadn't even kicked up yet. But there is one indisputable fact: the trend had been well established in the American (nee World) consumer mind that Intel/Microsoft was a standard and compatibility with that system was absolutely mandatory.
So, 7 years later, Microsoft made Bill Gates the richest guy around, had TONS of cash sitting in banks, runs competitors into the dirt, and basically laughed off US Gov't legal action--several times! This has to be about as clear as it gets that Capitalism as we understand it is an incomplete model. Previously in history, mega-wealth like this was built on the backs of slaves--the railroads, for instance. But not Gates'. There were no slaves...merely consumers. One could argue that this is truly "Capitalism at its best!" for certainly it was Capitalism that provided Gates with such wealth. Only that is a short sighted thought, considering it is Capitalism that ALSO states that in such a market competitors should have been clamoring to compete! And I REFUSE to believe that DOS/Win3.1/Win32 was absolutely the best, most marketable product during that period...okay, it may have been the best, but was it "97% of the market" best? I just don't believe so--I mean look how quickly Linux has stormed the scene. Are we to assume that NO ONE else but Microsoft was so astute at making operating systems until some kid sat down at his PC? Something just DOESN'T make sense here.
So what dynamic about Capitalism are we missing? What overlooked problem could explain a seemingly complete breakdown of basic competition? Or, can it be explained with what we already know? Personally, I look at Microsoft's accounting tactics. But of course they really didn't start until AFTER a pretty good amount of money had been made. I then look at the role of the US Government in making Billy G. a gazillionaire...after all, think of all those government agencies sending YOUR tax dollars to Redmond. Of course the relationship doesn't end there--military contractors would conform their systems to the Gov'ts, and state and local gov'ts would do the same. It is nearly like a viral chain of Microsoft infection. And all the while, we were supporting government research that could have/should have been capable of creating an open source operating system.
So is it the infamous Keynesian "invisible hand" run amok that created this? Does any one have a GOOD idea as to how much money Microsoft has profited (taking into account the top-down, hierarchial spread of influence) off the US Government since 1990?
Given my newfound respect for the dynamism and aggressiveness of true Capitalism, I refuse to call Bill Gates a Capitalistic success story...to do so would be to forever sully the greatness of the fair-market system.
Scott
"Hokey religions and ancient weapons are no match for a good blaster at your side, kid."
Ralph Nader pointed out that the money is a sort of a n "illegal tax shelter" for very rich people such as Billie Boy, Paul Allen, and Steve Ballmer.
/., Microsoft can do no right, so perhaps I should be unsurprised by this story. Rather than bashing them, why not download the CLR and C# source for FreeBSD and have a play with that?
Honestly, you Slashbots. One the one hand, Enron are bad because they used accounting tricks and pretended to have billions of dollars that they didn't. Microsoft, perhaps surprisingly, eschew fancy creative accounting, and have real cash money, which they invest in, among other things, T-bills, just like Grandma.
Let's put $40B into perspective. That's about a quarter of the shareholder value lost by Vodafone since it's peak. That's less than the value that Juniper or AOL/TW lost in a year. That's less than Marconi were forced to write off. It's a fraction of what Cisco or GE are worth. In other words, in an industry as volatile as high tech, it's only prudent to keep a lot of hard cash on hand - it's called "Catastrophe Hedging" for a reason.
If it were illegal, the Govt. would have busted them. The name Arthur Andersen was impeccable, far more so than Microsoft, but when the broke the rules, they were taken out in short order.
On
representatives YOU (not MSFT) elected
This is a joke right. It's gotta be. You can't possibly think for a second that you have more of a voice in government than Microsoft (any large corp actually).
I'm the big fish in the big pond bitch.
You are either a 1) liberal that believes in a finite amount of money. 2) Never taken econ classes. The latter is forgivable, the former isn't. :)
MS has to have their 40b deposited in banks. Those banks don't just pay interest for fun; they take that 40b and loan it to others (you, me, etc.) and we use that money to build houses, buy cars, and do other things that stimulate the economy and create more wealth. The banks take the interest we pay, take their cut, and pay interest to those that have deposited their money with the banks (MS, IBM, you and me, etc.).
It's all a nice little system called capitalism and banks allow wealth to be PRODUCED, not confiscated by a single individual or company.
Don't worry; MS really ought to pay dividends with that money, but they're not hurting you or me by doing it. In fact, they're making more money available that banks can loan us to buy cars and houses.
All companies have to pay out dividends eventually, otherwise the price of the share would be zero (since the price of the share is basically the net present value of the the stream of expected dividends).
The value of a share of stock is whatever people will pay for it, same as everything else. There are a lot of factors going into that, but I think anyone who follows the stock market would agree that the prime determinant of a share price is far more random than the one you suggest. The amount someone will pay for stocks today is related to how likely they think it will be that the stock will be worth more tomorrow. (i.e., I'm paying $15 a share because I think I will be able to sell it for at least $16 a share sometime in the future.)
It has little or nothing to do with dividends or anything else related to how much money the company has on hand, or even whether it's turning a profit. If it had much at all to do with those factors, there would be no way to explain the share prices that dot.coms were hitting during the last decade. I don't think it was exactly a big secret that most internet firms are considered fiscally fit if they succeed in having a net profit somewhere in the area of zero.
Comment removed based on user account deletion
MS has to have their 40b deposited in banks. Those banks don't just pay interest for fun; they take that 40b and loan it to others...
You're more correct than you say. They actually loan out the money many times. The very act of MS depositing $40B in the bank probably actually creates (and I do mean creates, yes) an additional $160B over the original $40B.
C//
The classic example of wealth is a man stranded on an island. He must attend to his basic needs (hunting/foraging mostly) for most of his day, but can set aside a little spare food. In this most primitive scenario, the stored food (we'll pretend for the moment that it won't rot) is his wealth.
He can consume his wealth unproductively (by taking a day off) or by saving up food and then using the time he would be hunting to, say, make a better spear. If he invests his spare time into productivity, he can hunt faster, and generate more 'wealth'. Once he has stored up enough food to, say, not hunt for a month... maybe he can build a farm and increase his productivity again. Note that currency is not involved here in any way.
In a more complex example, you have a barter system, where each citizen specializes into something. People working exclusively on one job become better at it than generalists. This allows the society to create more goods per hour worked (productivity again). People can trade their goods for other goods. In very general terms, the cobbler can work a week on shoes, and then sell those shoes for enough food to eat for two weeks. The farmer who buys the shoes can focus on farming and can, in a week, generate enough food to feed himself and, say, three other people. He can trade his food for the goods they produce. The overall standard of living rises sharply.
The next development is some sort of currency. In the Austrian school of economics (which seems much more intelligent than other sorts I've looked into), money is simply the most marketable commodity... the one thing that people, in general, will be most likely to accept. On our world, that happened to be gold and silver. This was a HUGE advancement because it allowed the storage of wealth in a way that did not decompose. If someone worked for a long time, they could store up enough money to invest into large things that made big changes in productivity. This also made the process of trade itself much faster, because people didn't have to spend time finding someone who wanted their chicken in exchange for shoes.
The next major development was 'token' money, where gold and silver were stored in a vault someplace (which is convenient, because they are heavy) and lighter, smaller coins, or pieces of paper, were issued to indicate ownership of a portion of the gold.
This is where things start to get complex. The use of tokens to represent gold allowed the issuers of tokens to play games they had never been able to do before. Someone must have thought... 'gee, I have 1000 ounces of gold in my treasury, I could probably issue 1100 tokens, because they're not going to want to withdraw all their money at once.' This was a VERY BIG DEAL, because for the first time, 'currency' (tokens) became DIFFERENT FROM wealth (the most marketable commodity).
Over time, the amount of gold held in reserve became less and less. This resulted in huge multipliers in the amount of currency circulating. If you have a 10% reserve ratio, for every ounce of gold you take in, you can issue tokens for 10 ounces of gold. Our banks presently are required to hold something like 3% reserves, which means that currency is multiplied by 33 1/3 times.
Now we're getting into an area where I understand less, and where even experts disagree, so take what I say from here as partially fact and partially opinion. The above is pretty much all solid fact, but it gets murky from here.
The rise of fractional reserve banking was a huge change in economics, but it has been a mixed blessing. It allows the economy to expand at a much faster rate in good times, but when things go bad, it appears to make contractions much worse. When bankers see that the sun is shining, they tend to lend more, thus creating more currency (and the APPEARANCE OF WEALTH), but they *do not* create wealth in so doing. In essence, they themselves are borrowing against future production. By issuing new debt, they allow things to be built that otherwise could not have been afforded. This devalues the currency to some degree, and also tends to encourage the building of things that are marginally profitable. The bigger the boom, the more demand is magnified, and the more things are built that cannot be sustained in lean times. (malinvestment)
Eventually, either due to the malinvestment or due to other outside shocks (wars, for instance), times start to get harder. The banks become worried and lend less. The lowered availability of money removes currency from the market, making it more precious. This tends to make people spend less, and increases the risk of defaults on other loans, which in turn reduces the money supply even more. Thus, just like the boom was magnified, so is the bust. Businesses that would be perfectly profitable in 'normal' times can and do fail in 'busts', which destroys yet more wealth.
Eventually things start to look rosy again, the bankers do more lending, and another boom cycle ensues. The overall heights of the booms and busts are limited, primarily by the percentages required in fractional reserve banking. The commodity underneath the tokens restrains the worst of the potential excess; it keeps the economy on relatively honest footing.
Overall, it appears that fractional reserve banking seems to have more benefits than drawbacks. It also makes the bankers one hell of a lot of money (wealth, not currency!), so they have pushed hard for the practice to continue.
However, there has been a major change, quite recently by economic standards:
In 1971, Nixon took us off the gold standard. This set off a confidence crisis in the dollar, and the 1970s were a very unpleasant time. It is probably no coincidence that personal income peaked in the early 1970s, and has been on a steady slide downhill ever since.
What replaced gold? Nothing. Literally. The Federal Reserve could now create bank reserves by waving their hands. There was no limit on the amount of currency they could create; there was no fundamental check-and-balance there. The 1970s were a very un-fun time in the economy.
Starting in about 1980, Volcker restored confidence in the dollar by restoring the Fed to fiscal prudence. He did this by reducing the money supply growth rates to reasonable figures and by jacking up interest rates to the moon. Throughout the 80s, we had a pretty stable currency.
However, starting in the early 90s, the Greenspan Fed has been wildly profuse in its generation of currency. Anytime we have had a problem, it has just opened the spigots and let the money flow. Note that this is not related in ANY WAY WHATOSOEVER to actual wealth. It is just currency.
Because we were globalizing for the first time, there was an endless appetite for dollars overseas. This let Greenspan print money like mad without seeing many signs of inflation. (which is generally considered to be consumer prices going up, but this is a bad definition.) Instead of CPI gains, the inflation went into the stock market and, now, into real estate. This kind of inflation is seductive and terrible; it does enormous damage to an economy, while everyone LOVES IT and wants it to CONTINUE.
In essence, by taking us off the gold standard, Nixon has removed one of the fundamental checks on the power of the banks. As a result, the boom we had was titanic, extraordinary -- the biggest boom in the history of the world.
Likely outcome of the bust left as an exercise for the reader.
There are approximately 5 million dead of famine during Russian Civil War (1917-1922), plus 30-50 million dead (excluding WW2 casualties) in Stalin's Russia, and 30 million dead of famine in Mao's "Great Leap Forward" who might beg to differ with you.
(Actually, Stalin's count may have "only" been another 5-10 million from famine. The other 40 million were executed in purges or worked to death in labor camps. So I suppose you were right - not as many people starved, per se, under Stalin.)
I'll take my changes with Capitalism, if you don't mind.