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He's spot on. Equity risk is for people who want risk. Even risks they hadn't thought of like a virus shutting down the economy. Corporate bankruptcy is a reas

He's spot on. Equity risk is for people who want risk. Even risks they hadn't thought of like a virus shutting down the economy. Corporate bankruptcy is a reasonable way to redistribute claims, and we should use it. Not even every business in trouble will go under, a lot will simply be bought by someone wanting to take over the risk at a sensible price. No jobs need to be lost. I'm all in favour of bailing out real people though.

mrosett 7y ago
He's spot on that equity risk should actually have downside. But the idea that a whole bunch of massive corporations can fail and no jobs would be lost seems like a real stretch to me. In fact, it's strange to think that a company wouldn't have fewer employees coming out of bankruptcy if one of the causes was being overextended.
- lordnacho 7y ago
  Fair enough, but at any given company it's not the case that all the employees must lose their jobs. I worded that badly. Even so, the collapse is a signal that should not be ignored that the economy ought to be organised differently, basically some people should be doing other things than previously thought.
- chickenpotpie 7y ago
  Counterpoint, companies will learn not to overextend and we won't have to worry about job loss or bailouts the next time this happens
  - mewpmewp2 7y ago
    Counterpoint. We will have less innovation and tech advancement if companies will have to spend more to prepare for disasters like this virus. If new businesses have to do that then we will have a lot tougher barrier entry meaning old fish will prevail.
    - chickenpotpie 7y ago
      But don't they already have to spend more to prepare in the form of taxes?
      - mewpmewp2 7y ago
        Then it is like insurance which makes more sense than requiring companies to hold certain amount of money in reserves.
    - 93po 7y ago
      I have happy with less innovation if it means people don't go homeless and starve every time the economy tanks
  - dllthomas 7y ago
    Companies can't "learn not to overextend" for things this rare. If they spend a bunch of resources making sure they can weather sufficiently infrequent storms, they'll be out competed in the shorter term by companies that refuse to. If we need companies to prepare for this kind of thing, we need to somehow test their readiness more frequently.
    - jonlucc 7y ago
      More frequently than every 10 years?
      - dllthomas 7y ago
        I don't recall multiple month suspension of broad categories of business in the last 20 years. But yes, probably even more frequently than every 10 years - it's too easy to cut corners, so someone will, and the businesses behaving "correctly" need to compete against that. That's if we want companies to be prepared for this.
    - deleted 7y ago
      [deleted]
    - Ericson2314 7y ago
      Companies should just plan on failing, and everyone moves on to the next thing. Not everything has to last for ever.
      - dllthomas 7y ago
        Yeah, my point was just that "make them hurt so they learn" doesn't really make sense here. There may be plenty of reasons to allow companies to fail, in particular instances or in general.
  - joosters 7y ago
    They've had generations to learn that, why do you think they will suddenly get clever now?
- totalZero 7y ago
  You should be more concerned about the workers than you are about the jobs. Give 60k to every family in America, and let the corporations that mis-managed their assets bite the dust. When there's demand for the services those corporations provided, someone will step up, buy the equipment and other assets, and do it better next time. I see no wisdom in resisting the nature of our economy, its booms and busts pruning away the bad growth so that better ones have room to develop.
klmadfejno 7y ago
I think this is a very dangerous sentiment. Incumbents often have an advantage that keeps them alive from foreign companies and leaner tech players. If you're in a stable, single country then I would agree that letting companies fail is likely the healthiest option. But in a global world, you might find that bailing out companies is a prisoners dilemma. If you let your companies die, but your neighbor doesn't, your neighbor's companies might soon capture your market and cost your community a lot of economic activity in the long term. Or, you let your companies die, and they get replaced by a new, smarter business that employs 10% of the original workforce to get the same amount of work done. There's upsides to both (perhaps net positive even) but the problems are potentially significant. I think framing the survival of companies as merely a favor to wealthy people's portfolios is naive.
darkerside 7y ago
The downside risk here is that nobody wants to take any of these businesses over because it doesn't make financial sense anymore in the post COVID era, and then the economy spirals and we're all screwed. The economy is built on aspirations, and right now, there aren't a whole lot beyond a short term cash infusion from the Fed.
- chickenpotpie 7y ago
  If the businesses don't make sense in the post COVID era, how is bailing them out to keep them alive any better?
  - darkerside 7y ago
    Because the alternative is worse. Not for the business owners, but for consumers and everyone else.
- totalZero 7y ago
  If nobody wants to buy those businesses, what does that tell you about them and the professional investors who chose to own hundreds of billions of dollars of their equity? What does it tell you about the executives who chose to buy back shares rather than paying down debt? What does it tell you about the idea that cash and other liquid assets on the balance sheet are detrimental to a company's value because of their impact on fundamental ratios? I dispute your assertion, though. Boeing will be Boeing no matter what. GE will be GE no matter what. They build technology that would have been viewed as miraculous not too long ago. Southwest Airlines, on the other hand, is just a bus company.
  - darkerside 7y ago
    So all these businesses should go bankrupt on principle? Even if that ends up being most businesses in America? That's going to have an even worse impact on everyday people than not being able to make rent or pay bills, as hard as that is to imagine.

mrosett 7y ago

He's spot on that equity risk should actually have downside. But the idea that a whole bunch of massive corporations can fail and no jobs would be lost seems like a real stretch to me. In fact, it's strange to think that a company wouldn't have fewer employees coming out of bankruptcy if one of the causes was being overextended.

lordnacho 7y ago
Fair enough, but at any given company it's not the case that all the employees must lose their jobs. I worded that badly. Even so, the collapse is a signal that should not be ignored that the economy ought to be organised differently, basically some people should be doing other things than previously thought.
chickenpotpie 7y ago
Counterpoint, companies will learn not to overextend and we won't have to worry about job loss or bailouts the next time this happens
- mewpmewp2 7y ago
  Counterpoint. We will have less innovation and tech advancement if companies will have to spend more to prepare for disasters like this virus. If new businesses have to do that then we will have a lot tougher barrier entry meaning old fish will prevail.
  - chickenpotpie 7y ago
    But don't they already have to spend more to prepare in the form of taxes?
    - mewpmewp2 7y ago
      Then it is like insurance which makes more sense than requiring companies to hold certain amount of money in reserves.
  - 93po 7y ago
    I have happy with less innovation if it means people don't go homeless and starve every time the economy tanks
- dllthomas 7y ago
  Companies can't "learn not to overextend" for things this rare. If they spend a bunch of resources making sure they can weather sufficiently infrequent storms, they'll be out competed in the shorter term by companies that refuse to. If we need companies to prepare for this kind of thing, we need to somehow test their readiness more frequently.
  - jonlucc 7y ago
    More frequently than every 10 years?
    - dllthomas 7y ago
      I don't recall multiple month suspension of broad categories of business in the last 20 years. But yes, probably even more frequently than every 10 years - it's too easy to cut corners, so someone will, and the businesses behaving "correctly" need to compete against that. That's if we want companies to be prepared for this.
  - deleted 7y ago
    [deleted]
  - Ericson2314 7y ago
    Companies should just plan on failing, and everyone moves on to the next thing. Not everything has to last for ever.
    - dllthomas 7y ago
      Yeah, my point was just that "make them hurt so they learn" doesn't really make sense here. There may be plenty of reasons to allow companies to fail, in particular instances or in general.
- joosters 7y ago
  They've had generations to learn that, why do you think they will suddenly get clever now?
totalZero 7y ago
You should be more concerned about the workers than you are about the jobs. Give 60k to every family in America, and let the corporations that mis-managed their assets bite the dust. When there's demand for the services those corporations provided, someone will step up, buy the equipment and other assets, and do it better next time. I see no wisdom in resisting the nature of our economy, its booms and busts pruning away the bad growth so that better ones have room to develop.

klmadfejno 7y ago

I think this is a very dangerous sentiment. Incumbents often have an advantage that keeps them alive from foreign companies and leaner tech players. If you're in a stable, single country then I would agree that letting companies fail is likely the healthiest option. But in a global world, you might find that bailing out companies is a prisoners dilemma. If you let your companies die, but your neighbor doesn't, your neighbor's companies might soon capture your market and cost your community a lot of economic activity in the long term. Or, you let your companies die, and they get replaced by a new, smarter business that employs 10% of the original workforce to get the same amount of work done. There's upsides to both (perhaps net positive even) but the problems are potentially significant. I think framing the survival of companies as merely a favor to wealthy people's portfolios is naive.

darkerside 7y ago

The downside risk here is that nobody wants to take any of these businesses over because it doesn't make financial sense anymore in the post COVID era, and then the economy spirals and we're all screwed. The economy is built on aspirations, and right now, there aren't a whole lot beyond a short term cash infusion from the Fed.

chickenpotpie 7y ago
If the businesses don't make sense in the post COVID era, how is bailing them out to keep them alive any better?
- darkerside 7y ago
  Because the alternative is worse. Not for the business owners, but for consumers and everyone else.
totalZero 7y ago
If nobody wants to buy those businesses, what does that tell you about them and the professional investors who chose to own hundreds of billions of dollars of their equity? What does it tell you about the executives who chose to buy back shares rather than paying down debt? What does it tell you about the idea that cash and other liquid assets on the balance sheet are detrimental to a company's value because of their impact on fundamental ratios? I dispute your assertion, though. Boeing will be Boeing no matter what. GE will be GE no matter what. They build technology that would have been viewed as miraculous not too long ago. Southwest Airlines, on the other hand, is just a bus company.
- darkerside 7y ago
  So all these businesses should go bankrupt on principle? Even if that ends up being most businesses in America? That's going to have an even worse impact on everyday people than not being able to make rent or pay bills, as hard as that is to imagine.