Why (or why not) should the US federal government bailout various industries? So far I'm hearing airlines, cruiseliners, restaurants, hospitality/travel, and retail. More I'm sure. Business isn't supposed to be risk free.
You can't blame the coronavirus on people/groups being irresponsible like with the financial crisis. Survival of the fittest. Corporate America has been binging on debt, now the bill is coming due. Instead of buying back stock, airliners should've kept enough capital in reserve to weather something like this. Many of the major cruiseliners aren't even domiciled in the US. Why the heck should we use taxpayer dollars in that case?
If you bail out some industries, but not others, how is that fair? Cruises are a luxury, so there better be a bailout for luxury car makers as well, right?
Also, just because companies file bankruptcy doesn't mean they'll cease to exist. Most cases would be Chapter 11-- equity holders get wiped out, lenders take a haircut, and I guess many lawyers would become billionaires.
While I am not a fan of bailouts, the only thing I have to say (since it would get into a very long post) is that any bailout comes contingent on two things. The first is on Compensation. Senior and Executive comp is capped and reduced. Outright, no questions. Doesn't matter if it's paid in equity or cash, it's capped. I'd also require that no bonuses can be paid to employees over a certain level. Pay out the junior guys their bonuses, that's fine. But the more senior you are, you don't get a bonus. Where performance bonuses are paid out, they are capped significantly at an agreed upon percentage across the industry. For example, if traders have a performance bonus in their contract, it's capped at 20% of what the full award would be. That said, I would require the inclusion of language preventing stock buybacks for 5 years after bailout is fully paid back with interest. Violating either clause comes with a penalty of the greater of three times the value of the bailout or three times the average bailout across the industry helped, is not wiped out in bankruptcy, and sits above the capital structure for repayment. Treble damages should be standard here.
If you want to bailout companies, put strings on the companies that are being bailed out. After seeing what happend post-08, it's the only way I could consider going along with a bailout unless these strings were included.
Agree, except if you cap compensation, wouldn’t it make it harder to recruit quality talent?
If I were a qualified exec, why work for a company where my upside is limited?
The reason why I'm willing to cap compensation to punish the shortmindedness of the executives who were willing to put their company in that place in the first place. It's also to not reinforce negative behavior does not get rewarded. I mean, it can be amended a bit to reflect what the cash needs to be used for (ie to help minimize layoffs of junior level employees) to prevent mass layoffs and ensure orderly business operations. Plus, the salary cap would only be for the duration of the bailout period. The prevention of stock buybacks would extend to 5 years beyond the payment period.
No. Gov should let the markets do their thing. Unfortunately our gov continues to get bigger and bigger.
A true free market would create new opportunities.
Almost everyone here believes in free markets but if you do not bail out some of these industries, the unemployment rate might skyrocket to levels seen at the the time of the great depression.
If domestic airlines fail, the impact to the employees, the country, and the future of domestic travel would be catastrophic. Keeping them afloat keeps people employed, routes functional, and allows the country to better recover after the crisis with a faster return to normalcy.
Keeping them afloat doesn't make the government "bigger" either.
If airlines file BK, doesn't mean they won't operational anymore. Most likely Chapter 11, so equity holders get wiped out. Lenders take a haircut.
If equity holders want upside, they should have to stick around for the down side as well. Would also help to prevent moral hazard in the future.
There is a public policy case for bailing out industries particularly affected by this to prevent further second order effects. That being said, equity should be wiped out (sorry shareholders, you got your capital returned through buybacks, now you need to share in the downside) and management comp should be severely restricted until the US Gov sells down / out.
I’m pretty anti-bailout because of the moral hazard it creates, but in the case I’m for it.
This was a totally random event that was not created by the businesses being bailed out. The outrage over the 2008 bailouts was because it was the financial institutions who created the situation in the first place.
Obviously airlines would’ve been wise to not do share buybacks, but this thing is an act of god. If government can help the situation they should.
This is more like 9/11 or an earthquake than it’s like 2008.
Yeah agree here. I started another thread on US Airlines bailout and it occurred from the comments that the share buybacks, though part of the financial problem and prudence, was not the cause of the crisis. Nothing like the behavior of banks in 08.
I mean, this is true, but it also rewards selfish behavior.
And as others have said, executive compensation should be permanently capped in these industries. After all, isn't the point of superlative leadership that one can avoid a crisis like this? It doesn't take a genius CEO to take a giant tax break and plow it into share buybacks. If the airline industry was sitting on 10 billion in cash reserves right now, I doubt there would be as much angst.
Or make these companies issue stock to the government in return for cash. Not a loan. Who cares if the stock price plummets - gov't should be (maybe) in the business of making sure planes still run and employees still get paid, not propping up share value. Or if you don't want the federal government owning stock in a corporation, have it placed in trust for the employees (not necessarily the union) so that rank and file has permanent representation on the board going forward.
Any corporate entity that receives bailout money should be required to pay every cent of that to non-executive pay. If we could make it so that every stock bonus paid out over the last 3 years could be clawed back, that would be great too.
Yeah I think most people would support having strings attached to a bailout like this. Also don’t think the companies would have any leverage to push back.
What the fuck did you just fucking say about me, you little libertarian ancap SIMP? I’ll have you know I graduated top of my class in the Keynesian school of Economics, and I’ve been involved in numerous secret economic recoveries on Western Civilization, and I have over 300 confirmed Trillions in debt piled on across the globe.
I am trained in monetary policy warfare and I’m the top inflator in the entire US economic forces. You are nothing to me but just another government handout. I will wipe you the fuck out with recession the likes of which has never been seen before on this Earth, mark my fucking words.
You think you can get away with saying that libertarian shit to me over the Internet? Think again, fucker. As we speak I am contacting my globalist crony-capitalist network of one-world-govt supporters across the USA and your credit lines are being traced right now so you better prepare for the bailout, maggot. The bailout that wipes out the pathetic little thing you call your stock. You’re fucking nationalized, executive. I can"recover" the economy anywhere, anytime, and I can regulate you in over seven hundred thousand ways, and that’s just with my executive branch.
Not only am I extensively trained in economic combat, but I have access to the entire arsenal of the United States Treasury and I will use it to its full extent to wipe your miserable ass off the face of the stock exchange, you little shit SMID-cap. If only you could have known what unholy retribution your little “clever” comment was about to bring down upon you, maybe you would have held your fucking tongue.
But you couldn’t, you didn’t, and now you’re paying the price, you goddamn idiot. I will shit bailouts all over you and you will drown in it.
You’re fucking owned worse than if you crawled to Buffet, kiddo.
Yes, but with strict regulations and guidelines. Bailed out companies should be forced to maintain payrolls until the money is returned, executive bonuses should be delayed, and share repurchases should be banned.
Yes, but only with the goal of saving consumers who rely on their products/services, supply chains to prevent contagions, and low to mid level employees. Shareholders and executives should be wiped out. No more privatized gains and socialized losses.
Good thread, I was wondering the same. I'm quite libertarian and I'm not exactly fond of bailouts. 2008 bailouts were a disaster and cause of many of the problems we have today.
The risk today however is that the entire economy drowns, not just airlines. It's not just a single sector. You can't even set up a temporary credit line to bypass the financial industry. You end up with 30% unemployment and a society ready for civil war (it kinda is already).
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