A board/council of nationally elected representatives should manage whatever share of these companies the government owns.
It's time the citizens started getting a return on their tax dollars if they're being used for private investment.
I want voting shares issued directly to me in an amount equal to my financial contribution (tax dollars / currency devaluation) towards their bailout.
The latter problem is also the argument against index funds (which I’m in favor if, but I appreciate the argument)
Yes but it would still provide a considerably larger number of controllers (and with more diverse interests) than our current system.
> In practice this is both hard to do (denominator issue) ...
Excellent point here. It would be incredibly difficult.
Here's a thought though ...
Warning! I'm about to talk about cryptocurrency. Everyone might want to put on their futurism hats and keep their downvoting finger at bay, at least until I finish.
This problem wouldn't be very hard at all to solve in a world where the bailout currency has similar properties to blockchain based cryptocurrencies. Company shares could be issued as an "airdropped" token to everyone holding the currency at the block height during which the bailout is agreed upon. Those tokens could be used directly to vote on shareholder matters and in a way that is fully fair and transparent.
Yes I know. We are still many decades (and maybe centuries) out from a world in which cryptocurrency actually works how it's meant to. One day though...it's gonna be glorious.
Alright, I'm done. Downvote away.
> want voting shares issued directly to me
Um... what are you going to do with your voting shares if not vote for elected representatives (the board, the CEO) that you'll have to trust to represent your interests?!
The picture to me is that the country does not consider itself as in the same boat.
If the people are going to bail them out, the people should get an ownership stake.
https://www.mcgill.ca/iasl/files/iasl/ASPL614-Five-Reasons-A...
My first point was that doing a share buyback is essentially the same thing as paying a dividend from a profit-allocation perspective. They’re both just different ways to use profits to return value to shareholders. The outrage over using that particular instrument is mostly just based on ignorance.
The outrage over these companies deciding to return that value to shareholders, rather than using it to prepare for ups and downs (in a notoriously unstable industry) is mostly justified. However it is entirely misplaced. It’s not just that they can win by doing the wrong thing, but due to the nature of historical bailouts, they risk massively losing out by doing the right thing.
There is no system of economics that can survive by rewarding failure. Failure must always be a possible outcome when taking a risk. These companies are simply taking advantage of a government provided incentive to fail. You have every right to get mad at them for making the rational decision, but that is just getting mad for the sake of getting mad.
I don’t agree with your claim that the companies are incentivized to be insolvent so they get nice bailouts or they’ll get left behind. Looking at the auto industry in 2008, GM desperately needed a bailout and got $18 billion and the government ended up taking over the company, going bankrupt, and then the assets were sold off cheaply to make a new company. How is that advantageous for the shareholders (who lost everything!) compared to the other auto companies like Ford which did not need a bailout and were simply forced to take a smaller amount of money (~$5 billion) to boost their coffers and build investor confidence during the crisis. Ford never needed the cash (except arguably as a confidence buffer) and never went bankrupt so the shareholders made out better.
Great business plan though. I want in on it (after the crisis / losses)!
People are not responsible, the government who could've mandated such measures aren't responsible but the airlines are?
And yes, the airlines played their part in it too, not disinfecting, not requiring masks, not caring a single bit about the safety of their passengers. Now they want a bailout because they couldn't manage their cash properly and decided to increase their stock price with stock buybacks instead of saving cash for a rainy day like this one. Absurd.
“American Airlines has been rather irresponsible with its capital allocation in recent years. As shown in the tables above, it spent the highest proportion of its operating cash flow (52%) on dividends and buybacks, despite also spending more on capex than any of its peers.”
“American paid for most of this capex by issuing debt and entering sale-leaseback transactions. Meanwhile, it returned a little more than half of its operating cash flow to shareholders over this period, mainly through buybacks.”
https://www.fool.com/investing/2020/03/25/american-airlines-...
This article tries to make the point that not all airlines were equally bad but let’s face it American was the first one to need a bailout and they definitely squandered their financial position.
Globalization facilitated the global spread of the virus, anyone with an international supply chain is not exactly innocent bystanders.
Social activity facilitated the global spread of the virus. Meetup.com is not exactly an innocent bystander.
etc...
Cars are not commercial entities that profit from spreading the virus. Rideshare and taxi services would be a different story, but even then they do so in a much more localized manner. Similarly if meetup didn't shut down its services soon enough the yes it did facilitate the spread for profit.
Economic globalization (movement of goods) on the other hand can work without moving people around as much.
The same criticisms can be applied to any businesses within these industries initially looking to be given billions in monetary grants without equity in return.
Trains and cars facilitate national spread.
Planes and ships facilitate global spread.
Each of these has adjutant consequences of increasing severity. With planes and ships imparting the most severe consequences. Difference between planes and ships being that ships have medical staff, and you can quarantine them in port if necessary. Which we did mostly. (Of course, we probably should have done the same with airliners but hindsight is always 20/20).
OK. Fine.
But now we get a cut. You don't just externalize all the costs for dealing with the virus off onto us and then also have us pay to ensure your profits don't take a dip to boot. That would be the most insane deal American taxpayers could ever make.
Of course we should get a fair cut of the airlines dependent on the size and structure of the bailout. Anyone saying otherwise has just not thought the whole thing through.
The one comparable I can think of in the US is Amtrak, which is functional although not exactly wildly successful.
The real question is, “Why were the airlines so poorly equipped to handle a cataclysmic event when the last one was only 19 years ago?”
The answer is short term profitability.
And the follow up question is, “Why would ANYONE bail any for-profit company out to the benefit of the shareholders only, ever?”
If you want to be competitive on the market you need to lower costs and cut down on margins. You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"
(And then the hard trick is ensuring the next folks in office won't dismantle that legislation to make some cash on the side.)
Yes, exactly. There are certain businesses that should not be subject to market forces: essential services that have tiny margins.
> You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"
Then you get nationalized ¯\_(ツ)_/¯. If you want to be privatized again, make enough money to do buybacks.
Banks and corporations are requiring their employees and the government to do this for them, while simultaneously claiming to be profitable.
then the remaining market participants will figure out how to better account for such risks, which can no longer be considered rare (if they ever should have been).
That's what insurance is for.
If an airline can't afford to buy adequate insurance, then it isn't actually a profitable businesses.
If market pressures make it impossible for airlines to run operations in a financially responsible way, then that may illustrate the fact that markets don't always create the best outcomes.
There are no insurance companies that can afford that or that would back it, including Berkshire Hathaway (and they're among the only ones that could even attempt it).
If you tried it, you'd just take down the entire insurance industry again as they suddenly might have to eat $100 billion in losses across the segment in one year, paying out epic cash that nobody outside of Apple, Microsoft and Google have to pay out.
This is exactly the scenario where you should socialize losses across the giant government with the Fed's printing press and balance sheet, and simultaneously also ensure the government and its taxpayers get a fair deal (the airlines have to pay it back, and or taxpayers get the equity which can be sold off and receive dividends over time; all the US airlines were worth maybe $90 billion prior to the crash, producing like $18b in operating profit per year).
Most likely, the price of flights would be an order of magnitude greater if airlines weren't (through various direct and indirect means) publicly subsidised.
You can. Keep it in some liquid investment vehicle so you can withdraw it at anytime. If you don’t want to do that, then go under and shut your business. Don’t ask tax payers to bail you out. I’m not sure why this notion of responsibility is so difficult.
Or, maybe such a business model isn't (and shouldn't) be supported by the current rules of the free market. I would say "you can't just toss in billions on average every few years" and call that a legit business model for a for-profit private corporation.
We should try to get the shareholders to pay for as much of it as possible though, whilst allowing the industry to stay solvent. This seems like some of the intention of making bailouts in the form of low-to-zero-interest loans (not sure if that's the form the bailout ended up taking).
This is the industry actively sending out planes for repair and refurb to sketchy offshore repair centers, in order to maximize profits for shareholders.
This is the industry that lobbies against more strict pilot fatigue rules, in order to maximize profits for shareholders.
This is the industry that spent the last decade investing heavily in stock buybacks instead of improving passenger experience, maintenance of their planes and employee well being, in order to maximize profits for their shareholders.
Seems maintaining shareholder profitability is its own safety issue.
Edit: Maybe not "go under", but at least try and bail themselves out. We need to fund alternatives.
Clearly that won't happen. Income taxes will rise to pay for the stockholder protection act. Tax the productive to subsidize the wealthy.
It wasn't about cars, it was about jet engines. The original Rolls-Royce produced both cars and airplane engines and was nationalize in 1971. The automobile part of the business was sold by the government two years later in 1973 as Rolls-Royce Motors while Rolls-Royce Limited produced jet engines and remained nationalized for 18 years.
Today Rolls-Royce is the second largest manufacturer of jet engines, after GE.
https://www.reuters.com/article/us-autos-gm-treasury/u-s-gov...
https://www.nytimes.com/2014/12/20/business/us-signals-end-o...
> In all, through TARP and other efforts, taxpayers injected $426.35 billion into banks and auto companies. The sale of stock and interest payments brought in $441.7 billion.
Alternative, nationalize it? Now that's a real disaster, having the US Government in the auto manufacturing business.
Regardless it's extremely low on risk in fact. That's partially magic printed fun dollars paid for via the Fed's obese balance sheet.
And that's exactly where the latest monster stimulus is going to come from. We most certainly are not paying down any of that debt, it only rolls one direction for the past ~18 years. We'll plop trillions more onto the Federal debt, push interest debt yields lower over time to compensate, and wake up tomorrow to a bright sunny day like it never happened (rinse and repeat until some day, 20 or 30 years into the future, when we can't keep doing it).
Getting a 3.5% return over that time period didn't account for the risk that they took. They should have ended up at least doubling their money at the cost of the shareholders/equityholders that remained.
We aren’t big enough to put “saved the economy” in the pros column.
It blows my mind this country of anti socialism whose media was comparing my native country (Denmark) to Venezuela is so much against the common man but when it comes to the wealthy elites, it’s like your poor people have been taught to voluntarily empty out their pockets.
Socialism == bad somehow until it’s time to bail out corporate America, and even then, your people are against nationalizing these companies. So what lesson do their corporate boards learn? Nothing other than the American population whose already been robbed will foot the bill.
I'm all for a critique of the American attitude that "socialism" is automatically bad, but TARP etc. isn't a great example of that attitude.
and as others have noted, the return to citizens of such companies goes beyond its profits, so it's wise not to get to focused just on distributing those profits.
beyond that, let's make sure the shareholders and executives feel the pain of their decisions, so they can adjust for risk in the future. let shareholders take a serious haircut (you can cram them down by creating a large pool of new, unallocated stock) and for execs, take back all incentives beyond a reasonable salary for the past 5 years. you can take that reclaimed incentive and form forward-going incentives the execs can work for again.
US citizens have already seen massive return on their 2008 bailout. These bailouts aren't free money, they're just loans that get paid back, with interest.
This has succeeded practically zero times in the history of nationalisation. Transitioning a culture from private ownership to public is highly value destroying. And putting electeds in charge of companies goes about as one would expect in terms of venality and competence.
The better strategy is to have a board appointed by elected representatives with a finite term and mandate to return the assets to private ownership.
You know what else is value-destroying? Giving money to failed companies for free. Everyone's a capitalist until something bad happens, then they go running to Free Money Center to pick up their welfare check.
> And putting electeds in charge of companies goes about as one would expect in terms of venality and competence.
Yes, failing companies are a paragon of competence.
We agree on this. I think companies should be allowed to fail. If we can’t afford that, their shareholders (and managements’ parachutes) should be wiped out, and the public should get economic upside. Bailouts should be a painful last resort.
But the public should not get control. Particularly not open-ended control by a board of politicians.
That's not what bailouts are.
Is there an example of nationalized company that operates in free market and still manages to turn a profit for the investors(citizens).
I wouldn't make an investment in usps or amtrak as a citizen with profit motive as a tax payer.
There is a good reason why Norway doesn't lead the world in very many things industrially, a reason why there are not plentiful other examples out of Norway of this model working.
In case you didn't notice, these companies are already failed, and we're bailing them out. You're not "investing in them with a profit motive", you are forcibly having your tax dollars transferred to them. It's ridiculous that we would do so without any upside on the recovery. This is corporate welfare plain and simple. The really shocking thing is how our corporate oligarchs in American have turned "nationalize" into such a dirty word that regular people reflexively dismiss it as if it were Stalinist communism.
Maybe gp meant different, i don't know.