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It is precisely because of the predictable government response to corona that many of these firms are viable at all. That is, many know that they can enter into
by themagician 7y ago
It is precisely because of the predictable government response to corona that many of these firms are viable at all. That is, many know that they can enter into what is essentially a "bad faith" debt obligation because they know a bailout will likley be available.
There hasn't been any real incentive to save or be fiscally responsible since the 90's. Spend as much as possible. Take on as much debt as you can. If things get bad you can either abandon ship and do it all over again or wait for a bailout which is almost ingrained in the system at this point.
In fact the more debt you have the less you have to worry.
- dillonmckay 7y agoQuite the moral hazard.
- LatteLazy 7y agoOnly if the industry being bailed out can somehow profit from causing the next plague...
- LatteLazy 7y agoCan you give me an example of companies entering into bad faith obligations over coronavirus? I can see how (especially now) banks take excess risks because they're too big to fail. But I don't think (say) airlines have taken any excess risks or could have reasonable forseen a "once in a century" pandemic... Also, it seems a bit arbitrary that some under capitalised businesses will be left to fail, while others will make a fortune (hospitals say or toilet paper manufacturing). I wouldn't want to pick winners in normal times. But these are not normal times...