5 ms·

> 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 c

by notJim 7y ago

> 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. 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.

darkerside 7y ago
Seems like a better way would be to purchase the actual companies at above market rates, prop them up temporarily, and then offload them to buyers.
- notJim 7y ago
  Or hang on to them and reap the profits and benefits of ownership in perpetuity. But letting them die makes no sense to me.
  - darkerside 7y ago
    Yeah, if I recall, we actually made a profit on the GM "bailout".
    - lonelappde 7y ago
      Only if you ignore inflation.
listenallyall 7y ago
In a free market, companies have little problem assembling and de-assembling themselves via mergers, buyouts, spinoffs, startups, etc. Bailing out companies is an implicit endorsement of the current structure of that industry, which, 11 years into a bull market, may be far from its natural or optimal state. For example, bailing out US airlines implicitly endorses the 3-major system, as opposed to 6 (Continental, US Airways, Northwest) from a decade or so ago -- a time which didn't include $200 change fees, 10-wide 777's, "basic economy", etc. 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?
- notJim 7y ago
  I wouldn't oppose intentionally restructuring or regulating any of these industries. That is not what we were talking about, however. We were talking about simply letting those businesses fail, and seeing what happens on the other side of this. That could result in something better, or it could result in something worse. Given the situation, I think it's likely it would result in greater concentration. I do not think let it burn down and the chips fall where they may is a good strategy.
  - listenallyall 7y ago
    >> letting those businesses fail 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. https://finance.yahoo.com/quote/AAL/financials?p=AAL https://finance.yahoo.com/quote/AAL/financials?p=AAL
    - chii 7y ago
      > There's also equity and debt markets available if AA needs cash now. 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.
jkhdigital 7y ago
It's called bankruptcy protection. Companies can still operate under bankruptcy protection, while the ownership issues are sorted out. Yes it's disruptive, but it doesn't blow up the company like you're implying.

by notJim 7y ago

darkerside 7y ago

Seems like a better way would be to purchase the actual companies at above market rates, prop them up temporarily, and then offload them to buyers.

notJim 7y ago
Or hang on to them and reap the profits and benefits of ownership in perpetuity. But letting them die makes no sense to me.
- darkerside 7y ago
  Yeah, if I recall, we actually made a profit on the GM "bailout".
  - lonelappde 7y ago
    Only if you ignore inflation.

listenallyall 7y ago

In a free market, companies have little problem assembling and de-assembling themselves via mergers, buyouts, spinoffs, startups, etc. Bailing out companies is an implicit endorsement of the current structure of that industry, which, 11 years into a bull market, may be far from its natural or optimal state. For example, bailing out US airlines implicitly endorses the 3-major system, as opposed to 6 (Continental, US Airways, Northwest) from a decade or so ago -- a time which didn't include $200 change fees, 10-wide 777's, "basic economy", etc. 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?

notJim 7y ago
I wouldn't oppose intentionally restructuring or regulating any of these industries. That is not what we were talking about, however. We were talking about simply letting those businesses fail, and seeing what happens on the other side of this. That could result in something better, or it could result in something worse. Given the situation, I think it's likely it would result in greater concentration. I do not think let it burn down and the chips fall where they may is a good strategy.
- listenallyall 7y ago
  >> letting those businesses fail 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. https://finance.yahoo.com/quote/AAL/financials?p=AAL https://finance.yahoo.com/quote/AAL/financials?p=AAL
  - chii 7y ago
    > There's also equity and debt markets available if AA needs cash now. 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.

jkhdigital 7y ago

It's called bankruptcy protection. Companies can still operate under bankruptcy protection, while the ownership issues are sorted out. Yes it's disruptive, but it doesn't blow up the company like you're implying.