yes, at least these 3 things:
* remove the tax advantage of debt over equity (currently debt payments reduce tax burdens).
* remove the tax advantage of capital gains over ordinary income.
* on any bailout, massively cram down the equity holding of the PE firm(s) and all executives by issuing new shares to every other stakeholder besides them, including other shareholders (if there are any, typically not), employees, suppliers, and debtholders, mitigating the too-big-to-fail moral hazard.
IMO that's a step to far, and is a totally uneven punishment depending on how shares are held. Just make them give the government equity (or options) as part of the bailout that would dilute all existing shareholders.
Executives aren't the only ones responsible, they are hired by the shareholders.
governments taking equity positions in corporations can be bad because of the risk of corruption, self-dealing, and regulatory capture, not the principal-agent and subsequent sunk-cost risks you mention, imho.
unlike other shareholders, governments aren't strongly motivated by attaining the largest return for themselves, particularly since taxes and bonds are much easier revenue sources. and in crisis, the government has the negotiating leverage to stipulate stricter conditions upfront that aren't normally part of non-crisis investments.
If you count index funds sure
> I'm also guessing that you have never voted at the shareholder meeting of most or all of those companies.
I generally don't vote, but that isn't because I don't believe in the efficacy of shareholder voting. Just because MY (insignificant) vote wouldn't matter doesn't mean shareholder votes in general don't matter, or that shareholders as a whole don't have control over the company.
"This is still true in most young companies, which need capital to get going, and in many small ones anyhow. But in most successful American concerns which have grown to maturity, and especially in the very big ones which between them do a very large proportion of American business, the stockholders are no longer in control in any real sense: they are subordinate in authority and importance to the management... ...Suppose a stockholder doesn’t like the way the corporation is being run? Only if he is eccentric, or a special sort of crusader, or a politician (union or otherwise) trying to make a stir, does he try to oppose the management of a really big company. What he does, instead, is to sell his stock and get out... ...Looking at this segment of American business, we would almost find it appropriate to call our present economic system “managementism” rather than “capitalism.”." - Frederick Lewis Allen in "The Big Change: America Transforms itself 1900 - 1950"
Yes there is -- let them fail if they cannot service debt. If you bail them out, it only fosters the behavior further.
To me, letting an over-leveraged worker 'fail' (starve, die, become homeless, whatever it is) is categorically different than letting an over-leveraged business fail.
To put this in perspective, consider the monthly carry on rent+COBRA+food+honda (+ student loans). A one-time $1200 check wont go far.
Those who leased or bought BMWs arent really the subject of the conversation here, if they are relying on a $1200 check to get thru this, they are going under regardless (and possibly rightfully so if they got a luxury car rather than store a reserve/emergency fund.)
However, the issue is employees are also hurt, not just equity and debt holders.
Edit: I don't see how you can disagree with this statement. Literally the only job of a PE firm is retain and create value for investors. They would be out of business if they did not do that. Hence, they care about preserving capital. With the caveat that this is in aggregate across the portfolio.
I don't disagree, however, that there needs to be significant regulation and social safety support for workers. I believe there needs to be significant changes to ensure we protect worker rights.
There are massive financial incentives to lever to the hilt. Back in the day social pressures restrained it. In the 1980s that all went out the window.
https://www.gsb.stanford.edu/faculty-research/working-papers...
This might be the headline intent for the public, but in practice has often not been the primary intent. PE firms often extract massive fees from the companies to recover their initial investment -- long before they realize equity based gains. I'd say VCs are more aligned on this matter, not PE.
Interest fees now encompassed 97% of operating profits.
PE firm only paid about 1.3% of the equity for the leveraged buyout, Toys contributed the rest (hence the increased debt load).
KKR and Bain stated that management fees, transaction fees and interest entirely covered, and more, the losses from the deal. $128M in transaction fees, $800M in management fees, and so on.
The Toys R Us deal had a whole bunch of issues, and the business may very well have been over-levered. I do think we should bring back stricter leveraged lending guidelines, in some form.
Those fees, however, don't cover the losses the way that you think (sometimes they cover the amount contributed from the fund itself, not from its investors). I think there were only received $180M in management fees over the nearly 10 year hold paid to the 3 firms involved.
I am arguing for worker protection. Not protection of equity value. You inherently take on risk by deploying it, and should accept the realities of that risk.
Why not simply fund unemployment checks, direct cash, food stamps, student loan deferrals, or more direct means of worker protection than handing the money to PE Firms (which by the way operate by design to squeeze workers) and hoping they protect workers?
We've seen this in 2009-2010 -- giving the money to banks doesn't magically make the money trickle down to workers. Perhaps some of it does, but why not make all of it trickle down by skipping the middlemen? What are the odds the middlemen will conveniently issue a giant dividend to themselves or do a stock buy-back or any other number of tricks that will achieve nothing for the workers.
... that would be a fine incentive if we don't bail them out. Otherwise...
Same with PE companies. They leverage up to the highest possible values, and then a bit more. They knew the risks of doing so, but the risks were worth it because they would make so much money if they paid off. But they didn't paid off. Why should we bail them out?
In fact, is there something we can do to PREVENT these colossal leverage figures? Banks don't care, regulators can't do much about it, PE companies don't care, the companies being bought out don't have a say, and neither consumers.