Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout?
Edit: Why don't companies raise money by issuing more stock? Isn't that what the stock matket is for?
Bailing a company out is just a euphemism for making a very high risk investment that the market is unwilling to do. Putting aside whether that is the correct thing to do or not, the option would likely (in a recession) be mass unemployment, so there's an incentive from the state, that likely wishes to avoid that scenario, that doesn't exist in the same way for "regular" investors.
That said, it makes sense that if you pull the emergency lever and request a state bailout, you should pay future dividends back to the state for at least a decent amount of time since they basically gave you a loan that no-one else would.
Buying new shares from the company in exchange for bailout money dilutes the value of existing shares (not necessarily a bad thing, the investors bet on a company that wasn't prepared for such a downturn). Of course companies that have done stock buybacks could sell stock on the open market with roughly the same effect.
Buying debt from a company likely means future dividends will be lower, share prices are also likely to go down.
Plain bailing out a company with no payback is essentially an investment in jobs and a healthy economy, I can't see any reason why at the very least it shouldn't be exchanged for equity.
Of course in all these cases it's all of us who are doing this collectively (very socialist!) we should expect that companies that are bailed out by the taxpayers repay their bailouts eventually, from that point of view investing in companies that don't pay their fair share of taxes (by playing accounting games, moving profits offshore etc) are particularly poor investments
"Very" seems like a generous adjective since actual socialism would require the company to be run by the employees. It's more like "almost" socialism.
That depends on the particular form of bailout, which can anything from equity/debt financing as you describe, to a one-off form of bankruptcy, to an outright gift of funds, and often combines elements of all three.
This sounds like it should be a similar mechanism as startups' liquidation preference schemes. Investors that provided capital when others wouldn't are in a position to request that they get paid back in priority. For startups, it's (usually) if it fails. For mature companies, it could be a tweaked form like dividend priority or payback priority. Basically a mechanism to balance out the risk.
Here businesses that may otherwise be perfectly sane are temporarily prevented (or limited) by the state from operating for the public good.
It's analogous to the state paying for the property they seize under eminent domain.
The way shares work is a way for a publicly traded company to obtain a loan. It does this by issuing shares which can be bought by investors. Shareholders are not liable except for their initial investment.
After selling shares, these can be traded i.e. on NASDAQ, but any price on the shares there only reflects the public perception of value of any given company. It's a high risk lottery.
This is also the reason that companies pay out large dividends to shareholders. They're obligated by law to payout dividends. Think of it as interest on a loan.
It disincentivizes responsible financial management. Why not spend 95% of profits on buybacks if the government is ready to catch you?
The only thing that makes it a question at all in my view are the potential social consequences of a bunch of huge companies failing at the same time. If it wasn't for that, I'd say let them fail and let the investors pay for it in negative ROI.
By "cost more" I mean not just in sheer money, but also counting the overall impact on the population.
Bailing out is privatizing the benefits but mutualizing the risks.
It's taking what favors you from both capitalism and socialism, call that a free market, and pretend it's for the common good. You always win.
People says communism didn't work looking at Russia and China. But the ruling class will abuse any system to the point it doesn't look like the original idea at all, if not kept in check. It's true for capitalism as well, as we can see.
To me, being able to do this is proof we are still not in a democracy.
We enjoy a lot of freedoms, so we are not in a dictature. But we are still not in power. We're just told we are.
One difference between them is that a dangerous concentration of power is inherent to communism. It's intentional. In capitalism, it's an unintended consequence that can be mitigated by regulations (anti-trust laws, subsidies to startups, etc.)
You mean in opposition to a system that promotes the concentration of capital, which is power ?
Or do you think non capitalist systems don't have laws and a group of dictators must be at the top?
Empirically, for 100% of the sample size, socialist systems always turned into dictatorships after a few years at most.
Capitalism + regulation + social safety net != socialism.
So that doesn't say anything about how it's unintentional, if anything it just underlines it.
Radical economic egalitarianism implies a (strong) governmental system. If capital can be sold/transferred, capitalism (i.e. concentrated control of the means of production) will naturally recur. If capital cannot be sold/transferred, someone has to decide how it's distributed, and the only body that can do that is a (governmental) central planning authority. That gives the government enormous power, whether it's a dictatorship or not.
> You can have a dictatorial communist system. You can have a democratic communist system.
This is unrelated to what I wrote. The US is essentially an oligopoly, but it's also a democratic republic.
A governmental system is affected by the dynamics of the economic system. After many generations, the governmental system may be utterly different from what was originally established or intended (as is the case in the US).
Please define "naturally", because I don't see anything natural to that. For me, it's a tautology to say that in a capitalist culture and education environment, capitalism will "naturally" occur. That doesn't convince me that the same human genetic pool (which I guess is the natural part ?) in another environment would behave the same way.
[1]https://en.wikipedia.org/wiki/Dictatorship_of_the_proletaria...