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.
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?
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.
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.
Yes, that is what happens in a capitalist society. If we are no longer a capitalist society, well... we should probably state that up front.
probably wouldn’t be much of a problem (letting the market run its course) if we had sufficient social safety nets in place for workers
but as we all probably know by now, the govt is mostly working for those with moneyed interests so, they get front and center
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.
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.
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.
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.
AKA, moral hazard. It needs to stop.
if the other riskier airline didn't get a bailout, they would've bankrupted today.
So in good times, the riskier airline returns more money to shareholders. But those shareholders should know that it's taking a bigger risk.
And the difference isn't so much that an airline will be pushed out of the market by not returning 100% of the earnings to shareholders.
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.