With this kind of mindset, I'm about to say fuck it, let's not bail these companies out. Let's let capitalism take its natural course.
Weak companies (such as the airlines during the COVID-19 outbreak) need to be allowed to die. If we rescue these poorly managed companies, they will continue to be poorly managed and will need to be rescued again. If they die, they will be replaced by new, better managed companies who won't make the same mistake (because nobody will want to own their stock otherwise).
This virus will likely turn out to be a 2-3 quarter demand shock, something that any well-managed company should be prepared to survive.
Is there much evidence to support this?
I'm not saying I've studied the data, but just thinking about what has happened over time it seems reasonable to suspect there are companies that have gone bust, only to be replaced by new companies that then also go bust. This is true of natural selection too: it doesn't necessarily produce organisms that are immune to unexpected shocks.
Edit: I also want to add: if the airline hadn't done the share buy back, wouldn't it still be suffering from the unexpected economic shock?
So yeah, a "stronger" company will emerge from the ashes. But only because other people took a bath.
It's like if the bank forecloses on your house. You owe $200k, but they sell it at auction for $50k. The above argument is like saying the new owners who bought your house will be a much stronger financial situation. This is true, but it ignores the fact that majority of involved parties are worse off (you & the bank).
Say you're a business that has razor thing margins but huge turnover, like airlines for example.
Do you need to save for 14 rainy days, or 1400? When your war chest is exhausted do you then go looking for bailouts?
I suppose one answer is to allow government bureaucrats and industry interests to nut out some regulations, but that's different to what you're suggesting.
The reason people are angry is because individual citizens are left to figure it out on their own when a downturn happens, but corporation's are allowed to be flagrantly irresponsible and then still get massive subsidies or bailouts when in trouble.
For everyone here coming up with excuses about how this is a good thing to bailout these companies, please answer me this.
Why do the leaders of companies in a recession always end up with more money from bonuses funded by the government bailouts, while individuals have to tighten their belts?
The average person doesn't believe your arguments when it boils down to "heads I win, tails you lose" everytime we have economic turmoil as a result of greedy actions by corporations
Will it also be accompanied by a sudden and unexpected shock like a global pandemic?
I agree with your point about executives being paid too much while the company and staff suffer, but that's a separate issue.
My point I was trying to make is that we are treating individuals with the cold hard truth of full boned capitalism, but when it comes to corporations we suddenly have all these excuses and help for them.
If we are fully capitalist then the only answer to the right sized war chest is one large enough for the next recession. Whether or not its difficult or impossible to determine what that size is, if you don't have one big enough your company will go into bankruptcy.
If that sounds like a ridiculous burden to put onto companies, _then why do we put it onto individual citizens?_
Yep, generally agree.
A strong social safety net seems important to me. Here in Australia we do have social security and a healthcare benefits program. So there's that.
its not like someone can just do an airline startup and flights are mandatory for a modern economy.
we're in a big ol' interconnected world, where the way things are going a fairly large sector (tourism/travel/food industry is a little less than 15% of GDP [or was 2017]) is likely going to get decimated. 1 in 100 of those firms will not be able to survive for 3 months the way things are going, much less 9. that's no fault of their own, it's just that most businesses can't be expected to plan for disaster-level events within their wheelhouse - a great many have trouble hitting payroll every 2 weeks.
Btw this sort of state-run "capitalism" isn't really socialism either, to me it is more reminescent of the 1930s in Southern Europe.
https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#...
Airlines spending every spare penny they had, and in some cases taking out debt, to gamble on the market and keeping nothing in the bank as a safety net is one such side-effect.
On my next tshirt
For the record, I would bail these fuckers out, but it would come with some hefty costs. Loans at 12%, reserve requirements, no ability to carry forward losses, more leg room, emissions requirements, and no more share buy backs. You want to return money to investors, you do it through dividends.
Leveraged stock buybacks are essentially a bet that the company will fail as it maximizes investor ROI to fail with as much debt as possible. That destabilizes the economy and should be flat out illegal due to moral hazard.
It’s really simple. If companies can’t issue buybacks or dividends with outstanding debt or unfounded pension liabilities society is simply better off. Compromising to say cash on hand + 1/2 the value of physical property > debt is probably fine. Notice how neither of them would change the theoretical stock price of a company and thus invested returns, yet it’s a significant difference in reality.
This is just the sort of fun financial engineering challenge that will not end the way the rulemaker intended...