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This is the side of privatisation that gets ignored. When private companies screw up, who gets left with the bill? Private companies have no incentive to be rea

This is the side of privatisation that gets ignored. When private companies screw up, who gets left with the bill? Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Privatise the profit, socialise the losses.

blake1 6y ago
For your first question: in the TX power market, power producing companies contribute to a fund which will cover for losses if any participant defaults. Even with that little detail, the rest of your comment seems spot-on. These power producers did not have enough incentive to deal with big problems, because the short term profits mattered more than potential future losses. That’s explicitly at the philosophical core of the TX power market, which is opposed to mandates, and relied on desire for profits and pressure from peers (peers that don’t want to pay extra into that fund) to encourage good behavior. It’s unclear if that fund will be sufficient to cover all the losses. May yet need a bailout, which is indeed socialization of the losses.
dan-robertson 6y ago
When a politician enacts a policy that ignores some big tail risk, they won’t be in office when it eventually blows up. Who foots the bill in that case? Certainly the politician and maybe their party won’t suffer election losses from it.
- jonplackett 6y ago
  I think this is the reason politicians all around the world have been so ill-equipped to deal with Covid - they are used to their decisions having 10 / 20 year repercussions, by which time they're well out of the blame-zone.
  - simonh 6y ago
    This is one reason why having well managed, capable institutions matters so much. Don't get me wrong, democracy is vital to ensure accountability, but it often worries me when elected politicians interfere in the management of specialist institutions unless they are clearly mismanaged. These things can take generations to develop but only a few months years to cripple.
  - IgorPartola 6y ago
    The thing that I find surprising about the US government is that everything is a bill/law. Like instead of the transportation agency deciding to build a bridge, Congress has to pass a law to build a bridge. Does anyone know exactly why it’s set up this way?
    - jonsen 6y ago
      In my country I think it is so when the agency will need some kind of financial backing from the government.
    - tssva 6y ago
      The short answer is your idea of how things work in the US is incorrect. Building a bridge certainly doesn't require an act of Congress. Explaining transportation funding in the US is complicated because the responsibility for road building is mostly a state and local government issue and there is a variety of systems from state to state. Federal funding to help states usually involves two methods. The first is transportation block grants where the federal government gives states money to use towards transportation at their discretion within certain constraints. The other is funding for specific projects. This funding generally involves the state applying to the federal department of transportation for funds toward a specific project. The department of transportation provides these funds out of a pool of money allocated by Congress each year. Congress plays no formal role in how these funds are disbursed. The department of transportation decides using defined set of criteria. In the past Congress would sometimes earmark funds toward specific projects. This is rare these days as most earmarking of funds is against current congressional rules.
    - curryst 6y ago
      It's funding. If the transportation agency had money in their budget, they could just build it as far as I'm aware. Most transportation agencies don't have enough slush money to randomly build a bridge. Taxes are unpopular, people don't want to spend that much. It also means the cost is localized, so the tax increase would be higher since it's over fewer people. The way I rationalize it is that despite the fact that it might be a bridge in Nowhere, West Virginia, it will likely have wide-reaching impacts. More trucking routes helps almost everything. If I'm a visitor, I'm going to use the bridge, so I should pay some part of that.
- croes 6y ago
  You are ignoring the profit part. Public company = maybe profits, maybe losses for the taxpayer Private company = maybe losses, never the profits for the taxpayer. Is 2008 already forgotten?
  - simonh 6y ago
    Private companies pay taxes, which profits other tax payers.
    - croes 6y ago
      "After two straight years of paying $0 in U.S. federal income tax, Amazon was on the hook for a $162 million bill in 2019" "$162 million is still just a fraction of the $13.9 billion in pre-tax income Amazon reported for 2019 — roughly 1.2%" How much is your income tax rate?
      - imtringued 6y ago
        Corporate income tax is too easy to game. I wish it was replaced by an enhanced income tax. Here is an article with a nice chart: https://www.taxpolicycenter.org/briefing-book/how-does-corporate-income-tax-work https://www.taxpolicycenter.org/briefing-book/how-does-corpo...
      - simonh 6y ago
        Does the fact that some people game their personal income tax make your income tax contributions worthless or irrelevant? I'm not clear what point you're making. Corporate income tax is the third highest source of tax revenue in the US, at $230bn in 2019. Shareholders also pay capital gains taxes, and companies pay other taxes as well or collect taxes for the government as well like sales taxes.
        croes 6y ago
        State expenses have to be paid and if the wealthy don't pay, who is? I guess the one who can't afford an account in places like the Caimans. And of course Corporate income tax is a hight source of tax money. The larger the share in profits, the higher the share in tax revenue. The question is why isn't it the highest source of tax income?
hurril 6y ago
Who foots the bill with non-private companies? If anything, _that_ is what's ignored.
- croon 6y ago
  The same people, without losing the profits.
  - jonplackett 6y ago
    Exactly!
  - hurril 6y ago
    What do you mean by "without losing the profits"? A tax-funded electric firm would surely not share its profits with anyone, and even if it did it would still be at a net loss to the tax payers. (Since _all_ the funding would come from the tax bill - so its entire turnover is socialised.) A private firm would actually contribute _more_ to our common because it would be a net tax payer.
    - croon 6y ago
      The profits in this case is any value that goes into infrastructure instead of investor pockets. Yes, it would not be a net tax payer (on paper), but it would be less of a community drain, and not siphon money out of the common.
refurb 6y ago
Private investors get left with the bill. If it was a public utility it would be tax payers. That would be socializing losses. Edit: people really don’t know how bankruptcy works? Equity holds get wiped out first followed by bond holders.
- cies 6y ago
  Nope. They file bankruptcy. And the bill is left on the table. Only profits (divident) go to investors. If a company becomes insolvable the investors are shielded. Similar to when a company operated against the law: profits were taken by investors, now they can sink the shop when the law suits start. > If it was a public utility it would be tax payers. That would be socializing losses. No-one is arguing against that! In both cases the tax payers pay. Just in the privatized case the investors got the profits out year after year, and now threaten to sink the shop in order to get bailed out: that's what sets privatization apart from operating as a public company.
  - leoedin 6y ago
    Yes, but many investors will have bought their share in the company, and that is worthless. Whether they had enough money paid out through dividends in the run-up to that point or not is situation dependent - the company could not pay dividends at all.
    - cies 6y ago
      > many investors will have bought their share in the company, and that is worthless. That's just part of the risk. We're now talking about the bill that is still on the table. If the "investors" were fully responsible for their "investments" they would not have worthless shares, but they would have to pay up for what the company still owes. That their risk stops at "shares being worthless" is exactly what I mean by them being shielded. I learned the energy firm was a coop: they have no shareholders. But the discussion is still interesting, well at least to me :)
      - 6y ago
Dma54rhs 6y ago
But it is, or was, or cooperative, what investors are you talking about? Stop spreading disinformation for heavens sake.
baxtr 6y ago
> Privatise the profit, socialise the losses. I always wondered about that. Maybe because I don’t understand what it’s trying to say. I mean profits of companies benefit many, don’t they? Through jobs, taxes, dividends in case it’s a public company and so on. What am I getting wrong here?
- aljp 6y ago
  One of the most egregious examples of this that I like to use is in natural resource extraction, mining, deforestation, etc. When mining companies start a project to dig a quarry (in Australia), they are meant to set aside funds for rehabilitation of the environment when they are done, this should come out of the profits from the endeavor. I consider destruction of the environment a socialised cost. Unfortunately, quite often, these companies will avoid rehabilitating the environment and misappropriate those funds, and then pay out massive bonuses to the few executives that could make it happen. Some of these areas will not be habitable for native wildlife for decades because the process is destructive and leaves the area toxic. The Flint water crisis is a specific example of this in America that really is affecting people. While I think you are technically correct, I don't think you considered the scope of the issue of privatizing profits and socialising losses.
  - tjalfi 6y ago
    The book Game of Mates[0] has some detailed examples of this behavior. [0] https://gameofmates.com/ https://gameofmates.com/
- Ensorceled 6y ago
  All of those jobs would have still existed in a public utility. How many dividends do you think the average Texan got from the various power companies in Texas? How do you think the taxes paid by those private utilities will stack up against the massive harm caused by those utilities trying to preserve profits and reduce liability in a crisis? How much do you think it will cost Texan tax payers to dig themselves out of this hole?
- heresie-dabord 6y ago
lawnchair_larry 6y ago
There is no profit. It’s a 501(c)(12).
- rocqua 6y ago
  I think that means there is still profit, just that profits are not payed out to investors. Hence they have to be re-invested or kept as savings. Salary leaves a bit of a loophole, not sure how that is regulated.
  - clcaev 6y ago
    Unlike many private universities, rural electric cooperatives are controlled democratically by member-owners. In this case, it was a nested structure: the members were a dozen of local distribution cooperatives. Those distribution cooperatives have households for their member-owners. So, the power to regulate executive salary by households was there.
volta83 6y ago
> . When private companies screw up, who gets left with the bill? The share holders (which often includes the leadership). Their shares drop relatively quickly to close zero. I think, however, that this is not enough. Share holders of a company should be liable as individuals for the damages the company causes in case the company cannot pay. This would strongly encourage share holders to pressure the CEO (which is also usually a share holder) to run the company in a sustainable way. Also if the CEO does "gross mismanagement", share holders should be able to sue them as individuals, but from the point of customers, share holders should pay. The only reason "stonks can only go down to zero" is because we have put in rules in the system to make it that way. When a company fills for bankrupcy, the risk for share holders is limited (to their original investment). If we change the rules and make share holders accountable, then stonks will definetly be able to go way below zero and share holders will need to foot a bill here, potentionally leaving them all bankrupt. Once that happens, then customers might still be left in debt. IMO at that point employees of the company should start footing the bill. Many employees look away at wrong business practices because there is nothing in for them in trying to push for change and doing the right thing. If everyone involved with the company would be personally liable, most companies would be run very differently.
- lordnacho 6y ago
  I get what you're saying, but limited liability has been a thing for quite a while now. It would be hard to find a few billion dollars to make a new car plant if you could lose more than you put in. But also there are already "piercing the veil" laws where you actually are liable for your business if you commit fraud. Perhaps it's worth a rethink, as it's been a while since the 1800s when capital was scarce.
- meepmorp 6y ago
  Do we prosecute the janitors, too? What about the admin staff? I'm fine with burning HR at the stake, but some fairer minded folks might point out their general lack of involvement in business decisions that affect the public, as a reason to spare them. The kindest thing I could think to call your idea is naive and poorly conceived.
phire 6y ago
> . When private companies screw up, who gets left with the bill? In theory, the company is meant to declare bankruptcy (or seek more investment from shareholders) as soon as their books say they are insolvent. A company is Insolvent when it's liabilities are higher than it's assets, even by a single dollar. The theory is that because the company is required to declare bankruptcy as soon as possible, it should only be slightly insolvent and should be able to repay creditors 80-95 cents on the dollar after liquidation. Owners or shareholders might even put a company into bankruptcy while it's still solvent (if they predict a future insolvency, or just want to wrap the company up). Creditors might get the full 100 cents on the dollar. Any money beyond that is paid as dividends to the owners/shareholders. In theory, if a company had incompetent or fraudulent accounting practices and didn't know it was insolvent, or it deliberately traded while insolvent, then the liability of the company is pierced and the owner can find themselves on the hook to the creditors. Companies are only meant to be liability shields if they are run correctly. In reality, sometimes events cause a company to lose a whole lot of value overnight. A company could be 100% solvent one month and 20% solvent the next. But as long as the company was following best accounting practices, it's legal. Sometimes the assets of a company can lose value after bankruptcy, or due to the bankruptcy. Especially when the company has put a lot of "good will" or "brand recognition" as assets on their books. In reality, liquidators (who are also private companies) often don't go after owners responsible for fraudulent accounting or mismanagement. They let it slide. Perhaps because they didn't detect it, or it was too minor to worry about. Perhaps they didn't want to waste their time trying to prosecute. Perhaps they decided their creditors would get more cents on the dollar by not prosecuting, especially if the owner has very little of their own assets. I also suspect there is a reputation factor. Owners get to select which liquidator handles their bankruptcy (unless it was court ordered) and if one liquidator gets a reputation for going after the owners for every mistake, then they might get less business.
- jonsen 6y ago
  Thank You! Very informative.
- enkid 6y ago
  I've never heard this interpretation of bankruptcy. What I have heard is it's used when an entity can't repay their debts. This is not equivalent to liabilities being one dollar larger than their assets. Normally, bankruptcy doesn't dissolve the entity, it just restructures the debt. Dissolving the company can be done without bankruptcy and I believe is the process you are talking about when a company is fully solvent, but is wrapped up.
snidane 6y ago
It's actually well understood that privatisation for platform industries is bad, privatisation for businesses running on top of platforms is good. Networks and infrastructure = little to no competition. Eg. networks naturally settle in a optimal geographical location and utilize economy of scale then. Can't compete with that. So don't privatise platforms. Rather - make them monopolistic and make them share the revenue with public using a monopoly tax. AT&T model. Translated to programmer speak: society's OS (law,defence,policing,roads,energy,networks,sewers,etc.) should be uniform and near monopolistic to maximize economy of scale. Society's Apps (businesses) running in the ecosystem of the OS should be private, numerous and competitive as much as possible. Occassionally you stumble upon a private business which develops a new network model and after some time it should be refactored from being an App to be part of the OS (eg. twitter).
- eqvinox 6y ago
  Road networks are a great example. Just assume the hypothetical position of a competitor. Where are you gonna build a competing road in, say, NYC? Each block only has 4 sides, and each of them already has a street. You could maybe compete on interstate highways or other long-area bits. Maybe. That's stretching it. Build a competing water supply network to each house? Another set of sewers? Electricity distribution? Hell no. IMHO all of these things should be communal property & development. The preconditions for free market are not met, it's not possible to compete; so the whole market equation falls apart. Hand the operation & maintenance out to some company or whatever, there it's possible to compete. But not the actual physical infrastructure.
  - ethanbond 6y ago
    What about housing itself? There is only one building that can exist at 100 1st Ave, and its location is entirely unique/entirely monopolized.
    - snidane 6y ago
      That's actually land monopoly problem. Ie. whoever came first to claim the land has exclusive use rights on it forever, or as long as his descendants go. It's yet another monopoly problem even though it doesn't look like it at first glance. Each house basically sits on a piece of mlonopoly for the parcel below it, preventing others from use. It's not much of a big deal in general, but in congested big cities, it is a problem. It's the cause of high rents (by Ricardo's law od rent). The solution is also a kind of monopoly tax - land value tax (LVT). You pay yearly percentage of the market value. Achieving almost optimal allocation instead of current hereditary one.
hahahahe 6y ago
And the same management team stays in place coming out of bankruptcy. Capitalism is a complete joke. But we got ten varieties of Cheerios so there’s that.
mschuster91 6y ago
> Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Generally speaking I'm on your side - but here? No. This case is an incentive for future shareholders of electric utility ops to keep their company accountable for disaster preparation, so that the shareholders don't lose their investment.
snarf21 6y ago
“We all too often have socialism for the rich and rugged free market capitalism for the poor.” -MLK
undefined1 6y ago
when private companies screw up, they usually go bankrupt and die. you never hear from them again, if you even did in the first place (mostly not). unless they are "too big to fail" and effectively part of the government. in that case yes, we all pay for their losses.
8note 6y ago
I'm not clear why shareholders aren't on the hook for these cases, on a per share basis. The individual owners can declare bankruptcy instead of the business
- deleted 6y ago
  [deleted]
- cardiffspaceman 6y ago
  There are lots of ways to structure a firm. Some of them involve the sort of partnership that would effectively make the debts of the firm into shared debts of the partners. But others the debts of the firm are just that, and the only thing a debt of the firm can do to a shareholder is make the shareholder's share worthless. In the first case the partner might have to sell their Berkshire Hathaway shares to help the firm pay a debt. In the second case the shareholder doesn't have to sell off the BRK-B, or their house.
Apofis 6y ago
What's your point? It's a risk safety net the our society is clearly okay with.

blake1 6y ago

For your first question: in the TX power market, power producing companies contribute to a fund which will cover for losses if any participant defaults. Even with that little detail, the rest of your comment seems spot-on. These power producers did not have enough incentive to deal with big problems, because the short term profits mattered more than potential future losses. That’s explicitly at the philosophical core of the TX power market, which is opposed to mandates, and relied on desire for profits and pressure from peers (peers that don’t want to pay extra into that fund) to encourage good behavior. It’s unclear if that fund will be sufficient to cover all the losses. May yet need a bailout, which is indeed socialization of the losses.

dan-robertson 6y ago

When a politician enacts a policy that ignores some big tail risk, they won’t be in office when it eventually blows up. Who foots the bill in that case? Certainly the politician and maybe their party won’t suffer election losses from it.

jonplackett 6y ago
I think this is the reason politicians all around the world have been so ill-equipped to deal with Covid - they are used to their decisions having 10 / 20 year repercussions, by which time they're well out of the blame-zone.
- simonh 6y ago
  This is one reason why having well managed, capable institutions matters so much. Don't get me wrong, democracy is vital to ensure accountability, but it often worries me when elected politicians interfere in the management of specialist institutions unless they are clearly mismanaged. These things can take generations to develop but only a few months years to cripple.
- IgorPartola 6y ago
  The thing that I find surprising about the US government is that everything is a bill/law. Like instead of the transportation agency deciding to build a bridge, Congress has to pass a law to build a bridge. Does anyone know exactly why it’s set up this way?
  - jonsen 6y ago
    In my country I think it is so when the agency will need some kind of financial backing from the government.
  - tssva 6y ago
    The short answer is your idea of how things work in the US is incorrect. Building a bridge certainly doesn't require an act of Congress. Explaining transportation funding in the US is complicated because the responsibility for road building is mostly a state and local government issue and there is a variety of systems from state to state. Federal funding to help states usually involves two methods. The first is transportation block grants where the federal government gives states money to use towards transportation at their discretion within certain constraints. The other is funding for specific projects. This funding generally involves the state applying to the federal department of transportation for funds toward a specific project. The department of transportation provides these funds out of a pool of money allocated by Congress each year. Congress plays no formal role in how these funds are disbursed. The department of transportation decides using defined set of criteria. In the past Congress would sometimes earmark funds toward specific projects. This is rare these days as most earmarking of funds is against current congressional rules.
  - curryst 6y ago
    It's funding. If the transportation agency had money in their budget, they could just build it as far as I'm aware. Most transportation agencies don't have enough slush money to randomly build a bridge. Taxes are unpopular, people don't want to spend that much. It also means the cost is localized, so the tax increase would be higher since it's over fewer people. The way I rationalize it is that despite the fact that it might be a bridge in Nowhere, West Virginia, it will likely have wide-reaching impacts. More trucking routes helps almost everything. If I'm a visitor, I'm going to use the bridge, so I should pay some part of that.
croes 6y ago
You are ignoring the profit part. Public company = maybe profits, maybe losses for the taxpayer Private company = maybe losses, never the profits for the taxpayer. Is 2008 already forgotten?
- simonh 6y ago
  Private companies pay taxes, which profits other tax payers.
  - croes 6y ago
    "After two straight years of paying $0 in U.S. federal income tax, Amazon was on the hook for a $162 million bill in 2019" "$162 million is still just a fraction of the $13.9 billion in pre-tax income Amazon reported for 2019 — roughly 1.2%" How much is your income tax rate?
    - imtringued 6y ago
      Corporate income tax is too easy to game. I wish it was replaced by an enhanced income tax. Here is an article with a nice chart: https://www.taxpolicycenter.org/briefing-book/how-does-corporate-income-tax-work https://www.taxpolicycenter.org/briefing-book/how-does-corpo...
    - simonh 6y ago
      Does the fact that some people game their personal income tax make your income tax contributions worthless or irrelevant? I'm not clear what point you're making. Corporate income tax is the third highest source of tax revenue in the US, at $230bn in 2019. Shareholders also pay capital gains taxes, and companies pay other taxes as well or collect taxes for the government as well like sales taxes.
      - croes 6y ago
        State expenses have to be paid and if the wealthy don't pay, who is? I guess the one who can't afford an account in places like the Caimans. And of course Corporate income tax is a hight source of tax money. The larger the share in profits, the higher the share in tax revenue. The question is why isn't it the highest source of tax income?

hurril 6y ago

Who foots the bill with non-private companies? If anything, _that_ is what's ignored.

croon 6y ago
The same people, without losing the profits.
- jonplackett 6y ago
  Exactly!
- hurril 6y ago
  What do you mean by "without losing the profits"? A tax-funded electric firm would surely not share its profits with anyone, and even if it did it would still be at a net loss to the tax payers. (Since _all_ the funding would come from the tax bill - so its entire turnover is socialised.) A private firm would actually contribute _more_ to our common because it would be a net tax payer.
  - croon 6y ago
    The profits in this case is any value that goes into infrastructure instead of investor pockets. Yes, it would not be a net tax payer (on paper), but it would be less of a community drain, and not siphon money out of the common.

refurb 6y ago

Private investors get left with the bill. If it was a public utility it would be tax payers. That would be socializing losses. Edit: people really don’t know how bankruptcy works? Equity holds get wiped out first followed by bond holders.

cies 6y ago
Nope. They file bankruptcy. And the bill is left on the table. Only profits (divident) go to investors. If a company becomes insolvable the investors are shielded. Similar to when a company operated against the law: profits were taken by investors, now they can sink the shop when the law suits start. > If it was a public utility it would be tax payers. That would be socializing losses. No-one is arguing against that! In both cases the tax payers pay. Just in the privatized case the investors got the profits out year after year, and now threaten to sink the shop in order to get bailed out: that's what sets privatization apart from operating as a public company.
- leoedin 6y ago
  Yes, but many investors will have bought their share in the company, and that is worthless. Whether they had enough money paid out through dividends in the run-up to that point or not is situation dependent - the company could not pay dividends at all.
  - cies 6y ago
    > many investors will have bought their share in the company, and that is worthless. That's just part of the risk. We're now talking about the bill that is still on the table. If the "investors" were fully responsible for their "investments" they would not have worthless shares, but they would have to pay up for what the company still owes. That their risk stops at "shares being worthless" is exactly what I mean by them being shielded. I learned the energy firm was a coop: they have no shareholders. But the discussion is still interesting, well at least to me :)
    - 6y ago

Dma54rhs 6y ago

But it is, or was, or cooperative, what investors are you talking about? Stop spreading disinformation for heavens sake.

baxtr 6y ago

> Privatise the profit, socialise the losses. I always wondered about that. Maybe because I don’t understand what it’s trying to say. I mean profits of companies benefit many, don’t they? Through jobs, taxes, dividends in case it’s a public company and so on. What am I getting wrong here?

aljp 6y ago
One of the most egregious examples of this that I like to use is in natural resource extraction, mining, deforestation, etc. When mining companies start a project to dig a quarry (in Australia), they are meant to set aside funds for rehabilitation of the environment when they are done, this should come out of the profits from the endeavor. I consider destruction of the environment a socialised cost. Unfortunately, quite often, these companies will avoid rehabilitating the environment and misappropriate those funds, and then pay out massive bonuses to the few executives that could make it happen. Some of these areas will not be habitable for native wildlife for decades because the process is destructive and leaves the area toxic. The Flint water crisis is a specific example of this in America that really is affecting people. While I think you are technically correct, I don't think you considered the scope of the issue of privatizing profits and socialising losses.
- tjalfi 6y ago
  The book Game of Mates[0] has some detailed examples of this behavior. [0] https://gameofmates.com/ https://gameofmates.com/
Ensorceled 6y ago
All of those jobs would have still existed in a public utility. How many dividends do you think the average Texan got from the various power companies in Texas? How do you think the taxes paid by those private utilities will stack up against the massive harm caused by those utilities trying to preserve profits and reduce liability in a crisis? How much do you think it will cost Texan tax payers to dig themselves out of this hole?
heresie-dabord 6y ago

lawnchair_larry 6y ago

There is no profit. It’s a 501(c)(12).

rocqua 6y ago
I think that means there is still profit, just that profits are not payed out to investors. Hence they have to be re-invested or kept as savings. Salary leaves a bit of a loophole, not sure how that is regulated.
- clcaev 6y ago
  Unlike many private universities, rural electric cooperatives are controlled democratically by member-owners. In this case, it was a nested structure: the members were a dozen of local distribution cooperatives. Those distribution cooperatives have households for their member-owners. So, the power to regulate executive salary by households was there.

volta83 6y ago

> . When private companies screw up, who gets left with the bill? The share holders (which often includes the leadership). Their shares drop relatively quickly to close zero. I think, however, that this is not enough. Share holders of a company should be liable as individuals for the damages the company causes in case the company cannot pay. This would strongly encourage share holders to pressure the CEO (which is also usually a share holder) to run the company in a sustainable way. Also if the CEO does "gross mismanagement", share holders should be able to sue them as individuals, but from the point of customers, share holders should pay. The only reason "stonks can only go down to zero" is because we have put in rules in the system to make it that way. When a company fills for bankrupcy, the risk for share holders is limited (to their original investment). If we change the rules and make share holders accountable, then stonks will definetly be able to go way below zero and share holders will need to foot a bill here, potentionally leaving them all bankrupt. Once that happens, then customers might still be left in debt. IMO at that point employees of the company should start footing the bill. Many employees look away at wrong business practices because there is nothing in for them in trying to push for change and doing the right thing. If everyone involved with the company would be personally liable, most companies would be run very differently.

lordnacho 6y ago
I get what you're saying, but limited liability has been a thing for quite a while now. It would be hard to find a few billion dollars to make a new car plant if you could lose more than you put in. But also there are already "piercing the veil" laws where you actually are liable for your business if you commit fraud. Perhaps it's worth a rethink, as it's been a while since the 1800s when capital was scarce.
meepmorp 6y ago
Do we prosecute the janitors, too? What about the admin staff? I'm fine with burning HR at the stake, but some fairer minded folks might point out their general lack of involvement in business decisions that affect the public, as a reason to spare them. The kindest thing I could think to call your idea is naive and poorly conceived.

phire 6y ago

> . When private companies screw up, who gets left with the bill? In theory, the company is meant to declare bankruptcy (or seek more investment from shareholders) as soon as their books say they are insolvent. A company is Insolvent when it's liabilities are higher than it's assets, even by a single dollar. The theory is that because the company is required to declare bankruptcy as soon as possible, it should only be slightly insolvent and should be able to repay creditors 80-95 cents on the dollar after liquidation. Owners or shareholders might even put a company into bankruptcy while it's still solvent (if they predict a future insolvency, or just want to wrap the company up). Creditors might get the full 100 cents on the dollar. Any money beyond that is paid as dividends to the owners/shareholders. In theory, if a company had incompetent or fraudulent accounting practices and didn't know it was insolvent, or it deliberately traded while insolvent, then the liability of the company is pierced and the owner can find themselves on the hook to the creditors. Companies are only meant to be liability shields if they are run correctly. In reality, sometimes events cause a company to lose a whole lot of value overnight. A company could be 100% solvent one month and 20% solvent the next. But as long as the company was following best accounting practices, it's legal. Sometimes the assets of a company can lose value after bankruptcy, or due to the bankruptcy. Especially when the company has put a lot of "good will" or "brand recognition" as assets on their books. In reality, liquidators (who are also private companies) often don't go after owners responsible for fraudulent accounting or mismanagement. They let it slide. Perhaps because they didn't detect it, or it was too minor to worry about. Perhaps they didn't want to waste their time trying to prosecute. Perhaps they decided their creditors would get more cents on the dollar by not prosecuting, especially if the owner has very little of their own assets. I also suspect there is a reputation factor. Owners get to select which liquidator handles their bankruptcy (unless it was court ordered) and if one liquidator gets a reputation for going after the owners for every mistake, then they might get less business.

jonsen 6y ago
Thank You! Very informative.
enkid 6y ago
I've never heard this interpretation of bankruptcy. What I have heard is it's used when an entity can't repay their debts. This is not equivalent to liabilities being one dollar larger than their assets. Normally, bankruptcy doesn't dissolve the entity, it just restructures the debt. Dissolving the company can be done without bankruptcy and I believe is the process you are talking about when a company is fully solvent, but is wrapped up.

snidane 6y ago

It's actually well understood that privatisation for platform industries is bad, privatisation for businesses running on top of platforms is good. Networks and infrastructure = little to no competition. Eg. networks naturally settle in a optimal geographical location and utilize economy of scale then. Can't compete with that. So don't privatise platforms. Rather - make them monopolistic and make them share the revenue with public using a monopoly tax. AT&T model. Translated to programmer speak: society's OS (law,defence,policing,roads,energy,networks,sewers,etc.) should be uniform and near monopolistic to maximize economy of scale. Society's Apps (businesses) running in the ecosystem of the OS should be private, numerous and competitive as much as possible. Occassionally you stumble upon a private business which develops a new network model and after some time it should be refactored from being an App to be part of the OS (eg. twitter).

eqvinox 6y ago
Road networks are a great example. Just assume the hypothetical position of a competitor. Where are you gonna build a competing road in, say, NYC? Each block only has 4 sides, and each of them already has a street. You could maybe compete on interstate highways or other long-area bits. Maybe. That's stretching it. Build a competing water supply network to each house? Another set of sewers? Electricity distribution? Hell no. IMHO all of these things should be communal property & development. The preconditions for free market are not met, it's not possible to compete; so the whole market equation falls apart. Hand the operation & maintenance out to some company or whatever, there it's possible to compete. But not the actual physical infrastructure.
- ethanbond 6y ago
  What about housing itself? There is only one building that can exist at 100 1st Ave, and its location is entirely unique/entirely monopolized.
  - snidane 6y ago
    That's actually land monopoly problem. Ie. whoever came first to claim the land has exclusive use rights on it forever, or as long as his descendants go. It's yet another monopoly problem even though it doesn't look like it at first glance. Each house basically sits on a piece of mlonopoly for the parcel below it, preventing others from use. It's not much of a big deal in general, but in congested big cities, it is a problem. It's the cause of high rents (by Ricardo's law od rent). The solution is also a kind of monopoly tax - land value tax (LVT). You pay yearly percentage of the market value. Achieving almost optimal allocation instead of current hereditary one.

hahahahe 6y ago

And the same management team stays in place coming out of bankruptcy. Capitalism is a complete joke. But we got ten varieties of Cheerios so there’s that.

mschuster91 6y ago

> Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Generally speaking I'm on your side - but here? No. This case is an incentive for future shareholders of electric utility ops to keep their company accountable for disaster preparation, so that the shareholders don't lose their investment.

snarf21 6y ago

“We all too often have socialism for the rich and rugged free market capitalism for the poor.” -MLK

undefined1 6y ago

when private companies screw up, they usually go bankrupt and die. you never hear from them again, if you even did in the first place (mostly not). unless they are "too big to fail" and effectively part of the government. in that case yes, we all pay for their losses.

8note 6y ago

I'm not clear why shareholders aren't on the hook for these cases, on a per share basis. The individual owners can declare bankruptcy instead of the business

deleted 6y ago
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cardiffspaceman 6y ago
There are lots of ways to structure a firm. Some of them involve the sort of partnership that would effectively make the debts of the firm into shared debts of the partners. But others the debts of the firm are just that, and the only thing a debt of the firm can do to a shareholder is make the shareholder's share worthless. In the first case the partner might have to sell their Berkshire Hathaway shares to help the firm pay a debt. In the second case the shareholder doesn't have to sell off the BRK-B, or their house.

Apofis 6y ago

What's your point? It's a risk safety net the our society is clearly okay with.