4 ms·

> 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, inc

> 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 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.

pnutjam 7y ago
The whole point of shareholders is to dilute the investment so much that nobody really has a voice. Pick up some of the books by Frederick Lewis Allen, he wrote some great financial history books.
- thebean11 7y ago
  I haven't read any of his work..but surely there is some aggregate voice made up of the shareholders right? Do you think the shareholder votes are meaningless?
  - freeopinion 7y ago
    I don't think you and I know each other, but I'm going to guess that you own shares in hundreds of companies. I'm also guessing that you have never voted at the shareholder meeting of most or all of those companies. Again, just guessing, but I'm guessing that the same is true for most of the people who read this site. And this is YC--all about founders and funders.
    - thebean11 7y ago
      > but I'm going to guess that you own shares in hundreds of companies 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.
      - pnutjam 7y ago
        Exactly, most of the votes don't matter. There may be a big shareholder whose vote does matter, but it's probably the management, look at Google and Facebook. They sold the company and kept all the ownership. "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"
        thebean11 7y ago
        Each vote matters equally but bigger shareholders get more votes. By the same token, bigger shareholders get punished more by dilution.
solarkraft 7y ago
This is exactly the type of bailout Germany is considering. Maybe it's better than giving a loan (certainly better than handing out free money), but also creates an incentive for the government to invest a lot of money and political good will into the company afterwards so its shares won't become worthless, which can be dangerous if others are still calling the shots, because those are suddenly motivated to take way higher risks, knowing the government probably won't let them fail.
- clairity 7y ago
  germany is certainly more advanced than the US in regard to responsible corporate governance. 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.

pnutjam 7y ago

The whole point of shareholders is to dilute the investment so much that nobody really has a voice. Pick up some of the books by Frederick Lewis Allen, he wrote some great financial history books.

thebean11 7y ago
I haven't read any of his work..but surely there is some aggregate voice made up of the shareholders right? Do you think the shareholder votes are meaningless?
- freeopinion 7y ago
  I don't think you and I know each other, but I'm going to guess that you own shares in hundreds of companies. I'm also guessing that you have never voted at the shareholder meeting of most or all of those companies. Again, just guessing, but I'm guessing that the same is true for most of the people who read this site. And this is YC--all about founders and funders.
  - thebean11 7y ago
    > but I'm going to guess that you own shares in hundreds of companies 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.
    - pnutjam 7y ago
      Exactly, most of the votes don't matter. There may be a big shareholder whose vote does matter, but it's probably the management, look at Google and Facebook. They sold the company and kept all the ownership. "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"
      - thebean11 7y ago
        Each vote matters equally but bigger shareholders get more votes. By the same token, bigger shareholders get punished more by dilution.

solarkraft 7y ago

This is exactly the type of bailout Germany is considering. Maybe it's better than giving a loan (certainly better than handing out free money), but also creates an incentive for the government to invest a lot of money and political good will into the company afterwards so its shares won't become worthless, which can be dangerous if others are still calling the shots, because those are suddenly motivated to take way higher risks, knowing the government probably won't let them fail.

clairity 7y ago
germany is certainly more advanced than the US in regard to responsible corporate governance. 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.