> If companies do go under, that means that there WILL be long-term problems with the economy because we're lowering LONG-RUN supply.
This is a false narrative. If a company goes under, chances are the long-run supply will not be affected much, if at all.
When a company goes under, its assets are not burned, and its employees are not killed. If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off.
A government bailout only makes sense if you own a company being bailed out, and you want to stay rich. A government bailout is bad for every other American, because it introduces an incentive to making poor decisions and not planning for market downturns. We should not be rewarding bad corporate behavior with a bailout, we should be punishing it by letting the companies go under so fresh blood can have a try.
We shouldn't be living in a feudal society of fiefdoms that are propped up by the federal government. Let the market run its course.
> When a company goes under, its assets are not burned, and its employees are not killed. If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off.
But all this requires us to re-assemble these things into a new functioning company. A company isn't just a pile of people next to a pile of assets, it has internal and external relationships and processes and culture and on and on happening to make it do the stuff it needs to do. This all takes time and effort to create. To let it all burn down when we need it again in a few months is utterly pointless. What we want to do instead is freeze it for a little bit so we can thaw it out later.
In a free market, companies have little problem assembling and de-assembling themselves via mergers, buyouts, spinoffs, startups, etc. Bailing out companies is an implicit endorsement of the current structure of that industry, which, 11 years into a bull market, may be far from its natural or optimal state. For example, bailing out US airlines implicitly endorses the 3-major system, as opposed to 6 (Continental, US Airways, Northwest) from a decade or so ago -- a time which didn't include $200 change fees, 10-wide 777's, "basic economy", etc.
Why should the gov't reward fiscal irresponsibility (stock buybacks) AND a terrible airline product (and thirdly, maintain airlines' negotiating power over employees), as opposed to a "new normal" which might include some fresh ideas?
I wouldn't oppose intentionally restructuring or regulating any of these industries. That is not what we were talking about, however. We were talking about simply letting those businesses fail, and seeing what happens on the other side of this. That could result in something better, or it could result in something worse. Given the situation, I think it's likely it would result in greater concentration. I do not think let it burn down and the chips fall where they may is a good strategy.
Shouldn't the government, at the very least, wait a little while to see which companies or industries are actually close to failing, before committing $2+ trillion? American Airlines had 3.8 billion cash as of 12/31/19. Its total OpEx + Interest was about $8.2 billion in 2019. So it had nearly a half-year of expenses covered, before any cutbacks or preservation methods. I'm not an airline accountant, perhaps some obligatory expenses are hidden in COGS which increases their burn rate. But it would appear that AA could survive about 5 months even if it did nothing to reduce expenses -- if they cut back appropriately, perhaps they could extend that to a year. There's also equity and debt markets available if AA needs cash now.
I just don't see why the government felt it was necessary to immediately reassure companies they would be protected, or why, one month in, you are discussing "letting those businesses fail," as if it's a foregone conclusion. In fact, it seems highly likely they would survive intact. Poorer, but probably not bankrupt.
> There's also equity and debt markets available if AA needs cash now.
this is exactly how it should have been. If stock buybacks (or dividends, i don't think they are different) during good times, then equity raising during bad times is the counter balance.
No gov't bailout necessary. There will be a price that they can raise cash at. It's not gonna be nice for the current equity holders, but they knew what they bought when they buy equity.
And if the company fails, the gov't bailout should be for the unemployed in the form of social security and healthcare. Not for business continuity.
It's called bankruptcy protection. Companies can still operate under bankruptcy protection, while the ownership issues are sorted out. Yes it's disruptive, but it doesn't blow up the company like you're implying.
Have you jumped into a large old codebase with no access to its previous authors or maintainers? The idea that selling for parts a company is going to lead to a similarly healthy company filling the niche under new management is... extreme.
We do need creative destruction and to prevent moral hazards.
We also need to prevent mass unemployment and chaos. Nationalizing and re-privatizing can do this, but not as efficiently as just giving 0 interest loans to patch over a temporary “pause” in the flow of money.
> Have you jumped into a large old codebase with no access to its previous authors or maintainers?
Written by juniors, who doesn't really understand their codebase and writing ugly hacks all over the code? With code regularly failing at critical moments?
And you are suggesting to hire a bunch of new juniors who would finally fix this mess? I would rather fire half of the developers and hire new seniors instead who will refactor the codebase.
> If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off.
This makes the assumption that at least one of the following is true:
1. There are wealthy investors to fund the purchase
2. There are wealthy investors who realize there is a long term profit to be made
3. That wealthy investors care about long term profit
> A government bailout is bad for every other American, because it introduces an incentive to making poor decisions and not planning for market downturns.
There are events which no company can plan for, either because they are once in a several lifetime events or because they are so cataclysmic that they shake the foundations of a global economy.
> 1. There are wealthy investors to fund the purchase 2. There are wealthy investors who realize there is a long term profit to be made 3. That wealthy investors care about long term profit
all of those are true. Not just one.
> no company can plan for
and yet, in the filings for american arline, they have mentioned pandemics as one of the risks. No company wanted to plan for this, because they perceive the cost to not be commensurate with the reward - perhaps because they, after seeing 2008, know that the gov't bailout is a possibility, and that's cheaper for them than to save for a rainy day.
What would "planning for a pandemic" look like for an airline? And if they did that, would they have survived for decades competing with airlines that did "riskier" planning for a pandemic?
This is a false narrative. If a company goes under, chances are the long-run supply will not be affected much, if at all.
When a company goes under, its assets are not burned, and its employees are not killed. If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off.
A government bailout only makes sense if you own a company being bailed out, and you want to stay rich. A government bailout is bad for every other American, because it introduces an incentive to making poor decisions and not planning for market downturns. We should not be rewarding bad corporate behavior with a bailout, we should be punishing it by letting the companies go under so fresh blood can have a try.
We shouldn't be living in a feudal society of fiefdoms that are propped up by the federal government. Let the market run its course.