Picture taken from their Twitter
Yeah, inflation rate is high, so central banks are trying to counteract that by basically slowing down the economy, so that our normally scheduled inflation countermeasures kick in appropriately. Well, and the usual way to slow down the economy is to make it more costly to loan money, i.e. increase interest rates. Which means investors can’t just pump money into any company anymore, they want that money to actually pay out to cover those interest rates. And that means companies need to actually be profitable to get money to finance their operation.
So does that mean all these businesses were always doomed to fail anyways, just living on borrowed money/time, and now the bill comes due, they’re all fucked?
Eh. Most of these companies were profitable. Just not seeing the exponential growth that the stock market dictates when interest rates are high. Unity, not so much, but its revenue was always fine, its just a really poorly run company. Who knows where they piss the kind of money they are pulling in to.
A lot of the wealth created by venture capital and the service economy were only ever possible with the help of what is essentially free money. With the increase in interest rates and the collapse of a major venture capital bank, those corporations dependent on low interest payments are going to collapse as well.
As interest rates climb and venture capital dries up, the companies who were just scraping by, or dependent on debt loading during development have had their runway cut short.
We are getting to the point where companies aren’t going to be utilize fronting a huge amount of debt as a strategy for long term growth.
Unity looks to be one of the companies who wanted to utilize the slow boil tactic perfected by the likes of Google or Amazon. Where they front the cost of tons of free and convenient services, hoping that companies become dependent on them, slowly creating fees over time until they become profitable.
If I were a guessing guy, they’ve hit the end of their run way, and have failed to secure a new injection of capital sufficient enough to make the payments on their loans. Likely their options have come to find a way to make your payments, or you’ll be giving your entire operation to a bank.
I’d guess that companies that failed to turn profit when money was cheap are most likely doomed. However not all of the hype companies are like that. Some could be barely profitable, but shareholder pressure might push them to heavier monetization practices.
I find it interesting how common it is to blame executive greed/stupidity, as if we all merely got super unlucky when companies were picking their CEOs. Every CEO is different, yet the outcome is almost universally the same: when company longevity and quarterly profits come into conflict, profits win.
The CEO of the modern public corporation embodies that conflict of interest, which is perhaps why they are so hateable – the job is inherently two-faced – but at the end of the day they’re just a face, a name, and a bundle of core competencies. No matter how many CEOs we go through, there will never be one who could satisfy the unending hunger of the public stock market. You will never find one who is not ultimately enthralled. The fundamental concept of know-nothings owning everything is just outright broken.
I don’t know if I think we should burn it all down, but one thing I’m sure of is that the problems won’t stop until we bring the people with investment money into close alignment with the long-term interests of the corporations they own (and/or oust/eat them)
This would make sense if Unity increased their fees, but it doesn’t make sense to invent a new revenue stream based on a metric you can’t even accurately measure. That’s profit-seeking.
I’m guessing it’s their last ditch effort to remain in good solvency. A board member making trades before a big change is almost always a sign of the rats abandoning the ship.
Why can’t they remain solvent by adjusting their fee schedule though? It’s the same boilerplate terms other engines seem to make ends meet with. There are many different ways to correct course in the scenario presented, but the action taken doesn’t suggest that’s the scenario they’re in. Corporate profit-seeking is the primary driver of the inflation in the global economy - I think the above commenter has put the cart before the horse.
And it’s most costly to increase interest rates not because those directly affect the investors, but because those interest rates affect the borrowers since the borrowers will need to make more and more money to be able to pay back the initial injection + interest.
If borrowers don’t think they can pay back, then they probably won’t borrow in the first place. If they do borrow but don’t make enough to pay back those loans + interest, then the investor loses out.
And if borrowers don’t borrow in the first place, then investors sit on their money when they could theoretically inject it into other businesses so they can earn on what they own, and not just let their assets stagnate (or decay). To investors, this might also be perceived as a loss.
Do I have that right?
In principle, yes, although two things to note:
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Borrowing isn’t always the active part. When a company is listed on the Stock Exchange, then investors play the active role by buying or selling their stock.
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Most investors don’t just have tons of money laying around. They have property, which they can list as security when borrowing money from banks. And then they lend that borrowed money to companies seeking(/allowing) investment. That means:
a) With high interest rates, investors do have a need for their lent money to pay out, too. As do the banks, because they borrowed it from the central bank.
b) Ultimately, lots of money will be given back to the central bank. The money is effectively removed from the economy then. If you’ve ever heard that inflation comes from too much money being in circulation, that’s how that ties back in.
I’m no expert either, though. I’m just summarizing what makes sense to me and what I’ve learnt from making this post a few weeks ago: https://feddit.de/post/2514573
Oh I see, so it’s like a merry-go-round, and everyone wants to have their money returned with more than they borrowed so that not only can they have some left over for themselves, but to also pay back those they themselves borrowed money from in order to lend in the first place. Recursive lending/borrowing up until the central banks, like you said.
Risky stuff. If any single entity along that lending/borrowing chain/network flops, it can send shockwaves to everyone else, all the way back to the central bank.
Thanks for the 2 cents.
