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The counterpoint is what's the point of reducing losses on bankruptcy if it makes the entire business climate worse? By trying to protect creditors you just mak

The counterpoint is what's the point of reducing losses on bankruptcy if it makes the entire business climate worse? By trying to protect creditors you just make everyone poorer.

KyeRussell 4y ago
This is an ideological take, and an American one at that. Not necessarily a fact.
- AuthorizedCust 4y ago
  It reflects a system where that shields creditors from fewer risks. Nothing wrong with that per se.
- Kamq 4y ago
  I mean, fair, but when even the Americans are saying to let the investors lose their shirts, you might want to at least think about it.
  - mpweiher 4y ago
    This isn't about investors, it's about creditors.
    - DANmode 4y ago
      Investors and/or startup loans, depending on structure, are generally right at the top of the list of creditors.
      - anonymouskimmer 4y ago
        https://www.investopedia.com/ask/answers/09/corporate-liquidation-unpaid-taxes-wages.asp https://www.investopedia.com/ask/answers/09/corporate-liquid... > Shareholders are often last in line to receive proceeds with preferred stock shareholders getting better treatment than common stock shareholders. Loans aren't shares; not even early loans. Else they'd get much better returns from the successful businesses.
    - Kamq 4y ago
      Also fair, I used the wrong word there. Though, I don't think the distinction really matters within the context of my point. Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent in the future and having extra money to either pay back debts or pay out dividends. My point is that America tends to get a lot of flak for rigging the system in favor of those with excess money (some of it is even fair). My point is that if you want to structure your system past what we're willing to do, you may want to stop and think for a second about if that's what you really want. Now, if you want to protect the money of people with extra money to lend out, that's absolutely fine. It's a completely internally consistent position. But my understanding is that it's not that popular of a position, so I'm surprised the system is set up this way.
      - mpweiher 4y ago
        > Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent Nope, that's still just investors. Creditors are not people who made bets on the company's future profits. Creditors are people who the company made legally binding contracts with to pay them. For example people who provided products and services who are getting stiffed. Also: taxes due. Even a bank loan is not a bet on the company's future profits. A bank loan is a contract that says you will repay the money lent, with interest. Irrespective of profitability. Which is why a limited liability company usually can't get credit unless it is also guaranteed by someone else. Because with no outside guarantees, it would be a bet. (Yes, convertible bonds exist, but different topic).
        Kamq 4y ago
        I think you misinterpreted my statement here. The future profit I'm talking about is the profit of the creditor (or investor). That being said, I completely disagree with this part: > Creditors are not people who made bets on the company's future profits. Nope, that's not how reality works. If the company doesn't have the money (including their assets), you aren't getting paid. Extending credit is fundamentally a risk. That's one of the reasons credit card companies charge interest.
bcrosby95 4y ago
Who says it makes it worse? Limited liability is a privilege not a right, as such it can be taken away from you if you can't act responsibly.
- AuthorizedCust 4y ago
  Just because the government claims something to be a mere privilege does not justify bad policy.
  - avianlyric 4y ago
    We could go back to bad old days, where business owners were directly exposed to their creditors. Business fails, say goodbye to home, car, personal savings. If that’s not enough, off to the debtors prison with you, you can work till you’ve repaid your business debts.
wongarsu 4y ago
Does it? You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. VCs invest instead of lending and aren't owed anything if you shut the company down.
- AbrahamParangi 4y ago
  Well, you’re basically taking something (cost of capital) that could be priced (via interest rates and collateral requirements) and turning it into a regulatory barrier. Personally I doubt that that is better, and I think the general consensus is that it is quite a bit harder to do business in those places with these regulations.
- mlyle 4y ago
  > You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. Banks can take into account the borrowing history of the executive teams already. > And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. Being unable to make payments on leases, etc, is pretty likely for startups that fail.
anonymouskimmer 4y ago
Screwing over the bond market by screwing over owners of your company's bonds make the entire investing and general retirement and pension climates worse. Retirements and pensions are often guaranteed in part by the government, with tax funds. Tax increases and retirement deficits directly hit consumers in their ability to consume, and at least a few years back consumers were responsible for about 2/3rds of GDP (in the US, at least), so a bit more important than the business climate itself. And that's without even factoring in the effect of bankruptcy on consumers employed by the bankrupt company. Employees of a bankrupt company are considered the highest level of unsecured creditors, but they still come behind secured creditors. So bankruptcy can not only result in an employee (who is also a consumer in the more general economy) losing their job, but losing their last paycheck and benefits coverage. Which has a consequent effect not only on consumption, but on utilization of public, tax- or fee-supported services. --- If a person bankrupts a company, they could probably use 5 years to let all of the lessons that they should have learned sink in. If you fail out of school you have to retake your classes in order to graduate.
avianlyric 4y ago
Does it? For most companies their creditors are other businesses that they’re sourcing supplies from. What makes you think those businesses can afford to take the hit? Ultimately most of the real creditors to small and medium businesses are other small and medium businesses. So if you offer no protection to them at all, you either get extremely risk adverse companies that refuse to offer any sort of credit (such as 30 day invoices), or a single business failure ends up causing a cascade of failures all of their suppliers take the hit, and also go out of business. Ultimately increasing the trust between businesses, so they’re able to extend thing like 30 day invoices as standard, substantially improves the business climate. It reduces the barrier and risk of everyday business transactions, makes it easier for businesses to manage their cashflow, and ultimately allows businesses to grow faster and in more robust manner. None of this is about protecting lenders like banks, or investors. Most of the time they screwed anyway, it’s about protecting other businesses who’s primary function isn’t financial risk management.

The counterpoint is what's the point of reducing losses on bankruptcy if it makes the entire business climate worse? By trying to protect creditors you just make everyone poorer.

KyeRussell 4y ago

This is an ideological take, and an American one at that. Not necessarily a fact.

AuthorizedCust 4y ago
It reflects a system where that shields creditors from fewer risks. Nothing wrong with that per se.
Kamq 4y ago
I mean, fair, but when even the Americans are saying to let the investors lose their shirts, you might want to at least think about it.
- mpweiher 4y ago
  This isn't about investors, it's about creditors.
  - DANmode 4y ago
    Investors and/or startup loans, depending on structure, are generally right at the top of the list of creditors.
    - anonymouskimmer 4y ago
      https://www.investopedia.com/ask/answers/09/corporate-liquidation-unpaid-taxes-wages.asp https://www.investopedia.com/ask/answers/09/corporate-liquid... > Shareholders are often last in line to receive proceeds with preferred stock shareholders getting better treatment than common stock shareholders. Loans aren't shares; not even early loans. Else they'd get much better returns from the successful businesses.
  - Kamq 4y ago
    Also fair, I used the wrong word there. Though, I don't think the distinction really matters within the context of my point. Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent in the future and having extra money to either pay back debts or pay out dividends. My point is that America tends to get a lot of flak for rigging the system in favor of those with excess money (some of it is even fair). My point is that if you want to structure your system past what we're willing to do, you may want to stop and think for a second about if that's what you really want. Now, if you want to protect the money of people with extra money to lend out, that's absolutely fine. It's a completely internally consistent position. But my understanding is that it's not that popular of a position, so I'm surprised the system is set up this way.
    - mpweiher 4y ago
      > Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent Nope, that's still just investors. Creditors are not people who made bets on the company's future profits. Creditors are people who the company made legally binding contracts with to pay them. For example people who provided products and services who are getting stiffed. Also: taxes due. Even a bank loan is not a bet on the company's future profits. A bank loan is a contract that says you will repay the money lent, with interest. Irrespective of profitability. Which is why a limited liability company usually can't get credit unless it is also guaranteed by someone else. Because with no outside guarantees, it would be a bet. (Yes, convertible bonds exist, but different topic).
      - Kamq 4y ago
        I think you misinterpreted my statement here. The future profit I'm talking about is the profit of the creditor (or investor). That being said, I completely disagree with this part: > Creditors are not people who made bets on the company's future profits. Nope, that's not how reality works. If the company doesn't have the money (including their assets), you aren't getting paid. Extending credit is fundamentally a risk. That's one of the reasons credit card companies charge interest.

bcrosby95 4y ago

Who says it makes it worse? Limited liability is a privilege not a right, as such it can be taken away from you if you can't act responsibly.

AuthorizedCust 4y ago
Just because the government claims something to be a mere privilege does not justify bad policy.
- avianlyric 4y ago
  We could go back to bad old days, where business owners were directly exposed to their creditors. Business fails, say goodbye to home, car, personal savings. If that’s not enough, off to the debtors prison with you, you can work till you’ve repaid your business debts.

wongarsu 4y ago

Does it? You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. VCs invest instead of lending and aren't owed anything if you shut the company down.

AbrahamParangi 4y ago
Well, you’re basically taking something (cost of capital) that could be priced (via interest rates and collateral requirements) and turning it into a regulatory barrier. Personally I doubt that that is better, and I think the general consensus is that it is quite a bit harder to do business in those places with these regulations.
mlyle 4y ago
> You could equally well argue that punishing CEOs for bankruptcy makes banks more willing to lend money, improving the business climate. Banks can take into account the borrowing history of the executive teams already. > And of course for startups in the early years it's not that relevant anyways, since nobody will lend you anything until you have revenue. Being unable to make payments on leases, etc, is pretty likely for startups that fail.

anonymouskimmer 4y ago

Screwing over the bond market by screwing over owners of your company's bonds make the entire investing and general retirement and pension climates worse. Retirements and pensions are often guaranteed in part by the government, with tax funds. Tax increases and retirement deficits directly hit consumers in their ability to consume, and at least a few years back consumers were responsible for about 2/3rds of GDP (in the US, at least), so a bit more important than the business climate itself. And that's without even factoring in the effect of bankruptcy on consumers employed by the bankrupt company. Employees of a bankrupt company are considered the highest level of unsecured creditors, but they still come behind secured creditors. So bankruptcy can not only result in an employee (who is also a consumer in the more general economy) losing their job, but losing their last paycheck and benefits coverage. Which has a consequent effect not only on consumption, but on utilization of public, tax- or fee-supported services. --- If a person bankrupts a company, they could probably use 5 years to let all of the lessons that they should have learned sink in. If you fail out of school you have to retake your classes in order to graduate.

avianlyric 4y ago

Does it? For most companies their creditors are other businesses that they’re sourcing supplies from. What makes you think those businesses can afford to take the hit? Ultimately most of the real creditors to small and medium businesses are other small and medium businesses. So if you offer no protection to them at all, you either get extremely risk adverse companies that refuse to offer any sort of credit (such as 30 day invoices), or a single business failure ends up causing a cascade of failures all of their suppliers take the hit, and also go out of business. Ultimately increasing the trust between businesses, so they’re able to extend thing like 30 day invoices as standard, substantially improves the business climate. It reduces the barrier and risk of everyday business transactions, makes it easier for businesses to manage their cashflow, and ultimately allows businesses to grow faster and in more robust manner. None of this is about protecting lenders like banks, or investors. Most of the time they screwed anyway, it’s about protecting other businesses who’s primary function isn’t financial risk management.