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Corporate bailouts

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http://arstechnica.com/gadgets/2014/07/bla...tangular-world/ got me wondering, as per the title: what is the most appropriate way to deal with large companies failing?

 

The common options of the last decade or so, I guess, seem to be throwing money at them because them failing will do very bad things to the economy (sometimes with, sometimes without expectations on how the money will be spent attached), or letting them fail and letting the market pick up the pieces.

 

The article suggests nationalising the company or at least seeing the bailout money as a major stock investment leading to partial ownership.

 

I don't know if the company has to necessarily stay nationalised, but as long as enough return is made to cover risk and etc, what's actually the downside of that kind of total/partial renationalisation?

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It really is a difficult question. I am strongly against the bailout method and think it would be worth the short-term hit on employment to just let companies leave the market if they can't stay afloat. If anything, they should be encouraged to leave the market before they become insolvent so that they can still liquidate their assets among the separation wages.

 

In my opinion, only natural monopolies like utility companies should ever be nationalized. A major world exporter is still just another business and bailing them out to keep the national budget in balance (GDP = C + I + G +Xn) may sound like a prudent move, but it only forces the natural hand of the global free market. The obvious downside of nationalizing companies is the increased government spending and the deincentivizing effect on other corporations to stay independent in the private sector. If we're talking about one business that helps other businesses grow and strengthen economic infrastructure but at a cost to itself (very difficult to prove this is the case), I believe it should be down to awareness that the loss of a major provider of infrastructure will hurt other businesses, and if those companies that are benefitting from the externality can afford to pay the bailout without going into a deficit of their own then of course they should be willing and encouraged to do it.

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Let them fail. If they are offering something that society needs then the market will resurrect them, hopefully under better management.

 

Nationalising is also a bad idea, if a company can't make a profit under private ownership then what hope has a government got of doing it? I'm sure there would be a benefit to 'someone' in having their company nationalised though but if Govcorp was interested in privatising for the national good then why are they so hellbent on selling all of our current assets?

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Let them fail. If they are offering something that society needs then the market will resurrect them, hopefully under better management.

 

Nationalising is also a bad idea, if a company can't make a profit under private ownership then what hope has a government got of doing it? I'm sure there would be a benefit to 'someone' in having their company nationalised though but if Govcorp was interested in privatising for the national good then why are they so hellbent on selling all of our current assets?

Banks make more profits than they know what to do with. The problem is that enough is never enough, and they end up doing things which are extremely high-risk in pursuit of one more cent.

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Let them fail. If they are offering something that society needs then the market will resurrect them, hopefully under better management.

 

Nationalising is also a bad idea, if a company can't make a profit under private ownership then what hope has a government got of doing it? I'm sure there would be a benefit to 'someone' in having their company nationalised though but if Govcorp was interested in privatising for the national good then why are they so hellbent on selling all of our current assets?

Banks make more profits than they know what to do with. The problem is that enough is never enough, and they end up doing things which are extremely high-risk in pursuit of one more cent.

 

 

Yes. hence the call for Glass-Steagal to be re enacted, it's gathering a lot of steam apparently but as usual the MSM aren't saying a thing about it.

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Its very circumstantial. And at a guess, seems to be focused around service vs product going under.

 

For services;

If you just 'let them fail' imagine it was someone like apple? or google?

Their cloud goes down overnight; sure other cloud providers will pop up in their place, but what about your documents?

 

On the flip, Someone like Samsung, providing mainly product, not service; will be swallowed by other businesses wanting to do phones and Tvs.

 

tough one!

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1) bail it out, give the shares to the workers

 

2) let it fail but freeze enough cash to cushion the workers

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Wouldn't that be something.

 

A bailout that consists of the govt purchasing stock from 'the board' at inflated prices to get them out of trouble, but taking power away from the board that got them in that position in the first place.

 

Interesting idea. Wouldn't work. But entertaining none-the-less.

 

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Let them fail

If a business knows there is no safetynet then they will operate in a more ccautious manner

 

I don't pay taxes to help billion dollars companies

 

How many millions has the Australian tax payer given Alcoa, Ford , Kodak, GMH?

Yet at the end of the day corporate head office has turned around ad told Australia to GF'd

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How many millions has the Australian tax payer given Alcoa, Ford , Kodak, GMH?

Not as much as we've 'given' (lols) to to-big-to-fail European banks...last I checked that figure was around 7-8 BILLION. Which is also kinda funny as the idiot politicians would have had to borrow that money FROM banks in order to donate it back to them, with interest, which you pay for with your taxes.

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I don't get the fuss made over Europe

Sure, many Australians have ties to the old country, but the Greek economy is have that of Victoria

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I don't get the fuss made over Europe

Sure, many Australians have ties to the old country, but the Greek economy is have that of Victoria

 

Either way, what obligation do WE have to bail out the failed banking corporations of other countries?

 

NONE.

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I don't get the fuss made over Europe

Sure, many Australians have ties to the old country, but the Greek economy is have that of Victoria

 

Either way, what obligation do WE have to bail out the failed banking corporations of other countries?

 

NONE.

 

It's called enlightened self interest, D. Sure, it cost us billions; the fallout from the collapse would have been worse. (Or, so was the thinking of the economists at the time. I am not an economist, but nor am I a climatologist yet I trust they know what they're on about a lot more than 'Lord' Monkton or Tony Abbott.)

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I don't get the fuss made over Europe

Sure, many Australians have ties to the old country, but the Greek economy is have that of Victoria

 

Either way, what obligation do WE have to bail out the failed banking corporations of other countries?

 

NONE.

 

It's called enlightened self interest, D. Sure, it cost us billions; the fallout from the collapse would have been worse. (Or, so was the thinking of the economists at the time. I am not an economist, but nor am I a climatologist yet I trust they know what they're on about a lot more than 'Lord' Monkton or Tony Abbott.)

 

And as we havecseen , countries can become welfare Dependant, and not bother to fix the issues that caused the problem in the first place

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If our government does a corporate bailout it should take ownership of a good portion of the company and put it on the market to sell to another investor.

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That investor would probably be a corporate raider who makes their money selling off anything that isn't bolted to the floor before liquidating the company.

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That investor would probably be a corporate raider who makes their money selling off anything that isn't bolted to the floor before liquidating the company.

As long as the government/tax payer gets their money back its worth the risk, the alternative is the company liquidates itself anyway because of no bailout

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I don't get the fuss made over Europe

Sure, many Australians have ties to the old country, but the Greek economy is have that of Victoria

 

Either way, what obligation do WE have to bail out the failed banking corporations of other countries?

 

NONE.

 

It's called enlightened self interest, D. Sure, it cost us billions; the fallout from the collapse would have been worse.

 

Only for the worlds scumbags, they weren't ready for a total collapse but they will be shortly. Nothing has changed since the GFC except that thing are now a LOT worse than they were in 2007.

 

http://www.washingtonsblog.com/2014/07/hea...may-coming.html

 

Though given the stockmarkets are totally and completely controlled by the same crooks you have to wonder what their game is. Same as the depression I guess, cause a collapse and then be ready to buy up big at reduced prices. Only this time they'll be using all the money they steal from our bank accounts thanks to the bail in. Talk about bank robbery......

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Don't let companies become "too big to fail" in the first place.

 

Banks, e.g., don't generally grow organically - that's too slow for them. They gobble up smaller banks to get bigger. So far, the government and the ACCC have decided that Australia only needs 4 banks to maintain healthy competition. Mergers between them are not allowed, but they are allowed to buy up every other bank in the country.

 

The Big 4 are now "too big to fail". This is bullshit IMHO. Now they KNOW they are too big to fail, and will always be bailed out, they can take whatever risks they like, and ruin the economy, and never care or face the consequences themselves.

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Don't let companies become "too big to fail" in the first place.

 

Banks, e.g., don't generally grow organically - that's too slow for them. They gobble up smaller banks to get bigger. So far, the government and the ACCC have decided that Australia only needs 4 banks to maintain healthy competition. Mergers between them are not allowed, but they are allowed to buy up every other bank in the country.

 

The Big 4 are now "too big to fail". This is bullshit IMHO. Now they KNOW they are too big to fail, and will always be bailed out, they can take whatever risks they like, and ruin the economy, and never care or face the consequences themselves.

They can't take whatever risks they like at all.

 

One of the reasons our banks did so well during the financial crisis was because they have to abide by more stringent financial regulations than many of the OS banks (depending on the country your mileage may vary). Why are our regulations more stringent? A lot of it has to do with our banking history.

 

Up until the early 1900s Australian banks were failing on a regular basis. To fix this the 'people's bank' was formed, The Commonwealth Bank, backed by the wealth of the country. At the time the Commonwealth Bank was a bank and the regulator, with those powers going to the newly created Reserve Bank. A new problem emerged - while the banks were regulated by the RBA, finance companies weren't. In the drive for greater profits, regulated banks started speculating in finance companies, merchant banks, etc. From the early 70s some of this speculative investments started to collapse - a number of finance companies needed to be bailed out by their parent banks (Bank of Adelaide for example, which was then bailed out/bought by ANZ) showing that regulating just the banks wasn't enough.

 

Those "collapses" of state banks, finance companies, etc lead to a raft of legislative changes, reporting transparency, financial watchdogs, etc.

 

In effect, we went through our GFC over a long period of time which meant that when the real GFC came along, our major financial institutions were in a stronger position than many.

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Don't let companies become "too big to fail" in the first place.

 

Banks, e.g., don't generally grow organically - that's too slow for them. They gobble up smaller banks to get bigger. So far, the government and the ACCC have decided that Australia only needs 4 banks to maintain healthy competition. Mergers between them are not allowed, but they are allowed to buy up every other bank in the country.

 

The Big 4 are now "too big to fail". This is bullshit IMHO. Now they KNOW they are too big to fail, and will always be bailed out, they can take whatever risks they like, and ruin the economy, and never care or face the consequences themselves.

They can't take whatever risks they like at all.

 

One of the reasons our banks did so well during the financial crisis was because they have to abide by more stringent financial regulations than many of the OS banks (depending on the country your mileage may vary). Why are our regulations more stringent? A lot of it has to do with our banking history.

 

Up until the early 1900s Australian banks were failing on a regular basis. To fix this the 'people's bank' was formed, The Commonwealth Bank, backed by the wealth of the country. At the time the Commonwealth Bank was a bank and the regulator, with those powers going to the newly created Reserve Bank. A new problem emerged - while the banks were regulated by the RBA, finance companies weren't. In the drive for greater profits, regulated banks started speculating in finance companies, merchant banks, etc. From the early 70s some of this speculative investments started to collapse - a number of finance companies needed to be bailed out by their parent banks (Bank of Adelaide for example, which was then bailed out/bought by ANZ) showing that regulating just the banks wasn't enough.

 

Those "collapses" of state banks, finance companies, etc lead to a raft of legislative changes, reporting transparency, financial watchdogs, etc.

 

In effect, we went through our GFC over a long period of time which meant that when the real GFC came along, our major financial institutions were in a stronger position than many.

 

Thanks for the info, I didn't know any of that. I was aware that we had some more stringent banking rules than most countries, but I thought for some reason Australians were just more naturally prudent (which is an idiotically simplistic assumption to make).

 

I suppose then, that it's okay to have near-monopolistic industries that are too big to fail, as long as you regulate them pretty tightly? (which the USA used to do but decided to stop doing).

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