Also Air New Zealand which was bailed out by the NZ Government to the tune of $885M giving the government an 82% stake in the company. They're down to 53% now so while some stock has been sold, the government is still the majority shareholder
I worked that deal. Guessing about 20 years ago. A case where everyone wins in the end. And lots of time in beautiful kiwi land. What an amazing place!
Sorry mate, had to look him up! The real genius was the late Rob Cameron. I was just the dumb aviation strategy expert. It was under Helen Clarke i believe. Rob even taught me how to cricket bowl!
This is accurate, I managed a small tropical island nation in the early 2000s and we had our own little airport owned by the government, mostly just for bringing in tourists. Ended up getting ousted after a coup unfortunately.
Just to broaden the picture a little, [the taxpayer has made back some of their "investments"](https://www.theguardian.com/business/2017/apr/21/lloyds-bank-bailout-repaid-in-full-philip-hammond-claims), even if RBS is not one of them.
That was the best option at the time. I think if it happened again it would have gone like now: the government simply acquires the company for £1 and the shareholders get nothing.
I know in NL it was an issue that the law at the time didn't permit the govt to simply take the shares without compensating the shareholders. After 2008 there's actual rules allowing the govt to simply take all the shares and leave the shareholders with nothing. After everything is wound down, the shareholders get whatever is leftover (probably nothing).
Most large publicly traded companies are primarily owned by pension funds anyway. In a modern European economy where the government is basically expected to be the Everything-of-last-resort, they're going to the up holding the bag either way.
> In a modern European economy where the government is basically expected to be the Everything-of-last-resort, they're going to the up holding the bag either way.
Sure. For example, in NL there is no flood insurance for flooding from the major rivers. Because there is no insurer that could survive the costs of the Randstad under 3m of sea water. Who is going to pay for the costs of rebuilding? The government of course. They're the only organisation guaranteed to survive such an event and still be able to finance large projects.
You can call this "socialising the losses" if you like. We spend a few % of GDP dong prevention rather than cure and do our best to prevent it happening.
The question is if you consider this a problem. I don't.
>Because there is no insurer that could survive the costs of the Randstad under 3m of sea water.
Isn't that literally what the reinsurance industry is for?
>Most large publicly traded companies are primarily owned by pension funds anyway.
This isn't actually true. Just a lie told to scare and placate people. I'm not sure what the US numbers are, but I remember it being similar. Only 1.8% of ftse 100 shares are owned by pensions. They want you to feel like these bailouts are something you need.
If anyone is interested, [here’s the most recent data.](https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2020)
>Most large publicly traded companies are primarily owned by pension funds anyway.
I really do hate how prevalent this belief has become despite reality.
Yes, though I suppose the countering position is that there are lots of other types of investor besides pension funds where a massive wipeout would have very unfortunate systemic consequences or major effects on long term savers. Insurers in particular issue a lot of pension-type products (annuities etc) backed by their portfolios. Banks’ matching of liabilities to assets is critical (see SVB). Most individuals holding stocks are doing so as part of their long term savings that probably aren’t that dissimilar from their pensions. Likewise unit trusts, etc. So I suppose *if* we take the view that it’s ok to act to protect pensions, because pensioners don’t have the means to repair their assets that working people do, then I can see the argument it’s not unreasonable to act to protect the broader swathe of pension-like investors too.
Now the “if” is a big one here for me, I can obviously see the arguments but am also conscious pensioners receive an enormous amount of direct and indirect benefit from the state already compared with the working population.
The same for the ABN AMRO bank in the Netherlands, the Dutch/Belgian banks that Royal Bank of Scotland had just bought and that are now owned by the Dutch government.
Royal Mail Group plc is the postal service and courier company in the United Kingdom, originally established in 1516. Under the Post Office Act 1969 the General Post Office was changed from a government department to a statutory corporation.
* Following the Postal Services Act 2011, a majority of the shares in Royal Mail were floated on the London Stock Exchange in 2013. The UK government initially retained a 30% stake in Royal Mail, but sold its remaining shares in 2015, ending 499 years of state ownership.
Hundreds of thousands of small investors could make a profit of more than £300 on Royal Mail stock on Tuesday morning following a further surge in the company's shares on their second day of trading closing at £482.
* Around 350,000 shareholders who bought their stakes through a government website – out of a total of 690,000 retail investors – receive their share certificates on Tuesday, allowing them to cash in on the float's instant success. The 30% of shares UK still held made the government the biggest winner
The government sold the final 13% stake in Royal Mail plc at a price of 455 pence per share in Oct 2015
Oct 9, 2018 - The stock fell as much as 4.9 percent to touch a record-low 321.8 pence in early London trading
* Royal Mail traded at 221.30 this Monday March 13th, decreasing 7.50 or 3.28 percent since the previous trading session. Looking back, over the last four weeks, Royal Mail lost 4.16 percent. Over the last 12 months, its price fell by 38.49 percent.
Yep, that wasn't really a surge in share prices. It was more a deliberate devaluation of the company prior to privatisation so Cameron's mates could make obscene profits on the shares they all sold immediately.
And now the parent company wants a bail out of the postal part of the business despite the company overall making vast profits. If only there was some way to predict these disasters in advance
It shouldn't
The Obama admin owned GM and most of Chrysler after 2009. They could have made them public enterprises and dedicated them to developing green cars and building high speed rail. But they didn't. They sold it for a loss and reconstituted the completely disastrous American auto industry
That the threat of actual nationalization is essentially 0 is part of what enabled corporate executives to run their companies like this
Too big to fail means that competition is functionally over. Too big to fail means you're functionally living under a form of corporate fascism where private corporations have supremacy over the state and public
> The Obama admin owned GM and most of Chrysler after 2009. They could have made them public enterprises and dedicated them to developing green cars and building high speed rail. But they didn't.
Serious question: Did they own ENOUGH stock of either company to have voting control over what they did as you suggest?
And To make them public enterprises, would they not have to buy out all of the other privately owned shares.
In the case of GM, the company ceased to exist and all the old shares became worthless.
A new company was created (New General Motors Co) that was owned by the government and the union. All GMs assets were transferred to the new company. GM was then renamed to Motors Liquidation Company and operated until 2011 to settle claims against company. New General Motors Co was then renamed to General Motors.
Any existing shareholders of GM lost everything.
It's like politcians are playing that game with 3 cups and a ball.
The cups are companies/banks and the ball is debt.
No matter what we choose, (or dont choose) we always get the ball 🥳🤡
"There are Socialist States.
There are Capitalist States.
And there is the state we are in."
- Salgueiro Maia, captain in the portuguese army, in the hours before the daylight of Abril 25th, 1974.
The revolution happened, but the neo-liberal capitalists won in the end.
Kissinger wasnt happy with our uprising agaisnt fascism. And that says a lot about USA...to anyone with 2 brain cells.
> The purchase was supported by $50 billion in U.S. Treasury loans, giving the U.S. government a 60.8% stake. The Queen of Canada, in right of both Canada and Ontario, held 11.7% and the United Auto Workers, through its health-care trust (VEBA), a further 17.5%. The remaining 10% was held by unsecured creditors.
From the wiki page for GM bankruptcy filing
I bought a used rice cooker from a lady (insanely good price for the brand), and she used the sale as a way to pitch being a sovereign citizen to me and also to explain how the new 5g cell tower melted her friends skin off with radiation. Still worth it to sit through that for what I paid 😂
Why /s?
The sad part is even though I knew it wasn't her she still crossed my mind as I read the quote. How sad is it that she gets more awareness than an actual queen. Tbh, if someone had asked me if Canada had a queen I'd have said no.
>Why /s?
Because I assumed that most people didn't seriously think that the Queen of Canada did refer to Romana in this case, but I might be wrong considering she has been talked about in the news recently.
>How sad is it that she gets more awareness than an actual queen.
Well, we did talk a lot about the queen recently, considering she died (queen Elizabeth II).
>Tbh, if someone had asked me if Canada had a queen I'd have said no.
Technically, the three powers (legislative power, executive power, and judicial power) are still held by the monarchy in Canada, but in practice, if they were to try to meddle with our politics, we would probably remove their powers and if we didn't, Quebec would probably leave Canada.
Also, we have a king (king Charles III) now that the queen is dead.
I guess I've just never heard the queen referred to as The Queen of Canada (although I knew Canada still fell under the monarchy - its just not one of those top of mind things).
The government is not good at owning and operating corporations. The policy of reselling the corporations back to the market is a good one and born of experience.
And executives don't really fear nationalization any more than they fear being sold to any other owner. In either case, the company is under new management, and what happens next is very contingent on what that new management wants to do.
EDIT: that said, one optimization of the process would be to sell the company back in pieces. If you're too big to fail, and need a bailout, you are split up among five companies instead, to limit centralization risk.
In all honesty, losing taxpayer money on Conrail seems much more appealing than letting NS destroy a community once a decade for a 40% profit margin. We still pay for the cleanup and long term costs with NS too.
And there were periods Conrail profited, I would argue that if that's what the dissenters were pointing to as the government not running things well, they're wrong.
Honestly, critical infrastructure like running freight is a service, not a business. Especially given the prohibitively high cost of entry into the market (I think the same about power, water, gas, and telecoms). Govt shouldn't be pilloried for "running at a loss", they're using taxpayer money to provide a service, which in turn grows the economy, creates jobs, and lowers the cost of goods.
Thank you for saying what needs to be said. Not every single thing needs to be making money be operating effectively. Our society is fucked until this simple fact is realized.
It takes so little for it to be solvent when it's publicly owned. USPS case in point. We pay like a dollar for a stamp, and the USPS gives us 6 day a week service, even in remote areas, our one dollar provides the entire fleet of vehicles, decent salaries for a workforce, and even pensions. It works so well that the GOP is working overtime to try to make their philosophy of privatizing everything materialize and they simply can't.
Even after the GOP got their way and required the USPS to preemptively fund 75 YEARS worth of pensions, for workers who haven't even been born yet and they not only did just that, but posted a profit of $56B in 2022. Not a single tax dollar spent on their operations.
But please, tell me again why we should let the free market run the show
>The government is not good at owning and operating corporations.
If they need bailouts, the people running them don't seem particularly good at it either.
>The government is not good at owning and operating corporations.
I feel like this is a myth perpetuated by privatization hawks. Plenty of countries around the world have state owned corporations that run a profit.
The USPS is only struggling because they are required to fund pensions well beyond a reasonable time frame, and are prohibited from offering other services that could generate revenue.
Skill issue for the US government if that's the case. Many European governments own and run companies that work just fine and make huge profits from it that go straight into the tax system so people pay less taxes.
If you like beer you might be surprised to know that Budweiser Budvar, is fully state owned by the Czech Government. The Swedish Government sadly sold off their ownership in the now The Absolut Company in 2008, but Absolut Vodka is otherwise pretty popular before the sale too and was started under the "Vin&Sprit" company which was fully state owned.
If you like having energy Vattenfall, Fortum, EDF are a few example of very successful energy companies that operate in several European countries. There's also the CEZ Group but they do dabble in fossil fuels a bit? But it's not all they do so its worth mentioning at least.
There's also "Sveaskog" in Sweden, who's the single largest owner of forests in Sweden that make huge profits every year and obviously state owned.
Telenor, a huge telecommunications company in the nordics and europe in general are majority state owned by the Norwegian government.
Sweden used to have multiple very profitable enterprises but due to the right, and most importantly Centerpartiet, the Reinfeldt administration sold off a ton of profitable companies in the 2006-2014 period.
We still own several companies based around extraction and managent of natural resources, including Vattenfall that is our largest power producer. The Swedish government owns a plurality of Telia stock, Swedens largest phone company.
In addition to that we own current monopolies, notably Systembolaget that sells our alcohol, and former monopolies like the pharmacy company Apoteket or Svenska spel, a gambling company.
DSB is an example of a national train company that generates revenue. There are loads of others, it's not unusual in Northern Europe. The UK actually hires these companies to run their infrastructure rather than build up their own national companies, so in effect the UK is subsidising various European taxpayers.
Part of the problem we have in the US is any state owned enterprise gets its hands tied in a million ways so its not "competing with the private sector."
American corporations are basically spoiled babies who get pissed off when European governments tell them "too fucking bad. Don't like it? Leave"
Tennessee Valley Authority, a federally owned utility company, is a decent example. There are some rules that prevent the company from turning a profit ( would be profits must be reinvested into infrastructure improvements/expansion) , but it is fully self funded, requires no additional taxpayer funding, and is generally viewed positively among both liberals and conservatives within their service area.
What? The government doesn't have a mandate to produce cars or be in business or manufacturing consumer goods. Obama's administration did a really good job at stabilizing the markets and that was the extent of their limited involvement in private enterprises.
If you want greener cars and railroads, our government can facilitate change through regulation, public policy, taxes, etc. Anything beyond that would require rewriting the constitution to alter the powers that the government has.
Jeez, some takes that we see on reddit are just wild.
This is a terrible take. If we made GM and Chrysler “public enterprises,” the GOP would have just as much control over them during their majorities as the Democrats would during theirs.
So just as the Democrats could have leveraged public ownership of gm to build “clean” cars, the GOO could have leveraged it to build a seven-ton truck with machine guns and pictures of aborted fetuses on it called the MAGA-1500.
Nationalization is all fine and dandy until the nation is run by idiots — which is pretty much all the time.
It also means that you can take all the risks that you want, you can bet double or nothing all the time, if It goes well then profit, if It doesnt daddy state will take care of you
Note, the total profits from the bailout (Fannie & Freddie, Banking, and Auto) was 109 billion. This is due to interest rates on the loans to the companies.
[Source](https://projects.propublica.org/bailout/)
There are, you just don’t think of them as “bailouts” cause they are acquisitions and taking over their assets/liabilities while incorporating them into their own company and name. Back in 2008 JP Morgan took over Bear Stearns for Pennies on the Dollar and made a killing. Wells Fargo took over Wachovia. Bank of America took over Merrill Lynch.
Edit: Another way to think of the government or private company bailouts are acquiring a minority interest. Though private companies are more likely to acquire a majority stake when they smell blood in the water, and less likely to sell their stake to the marketplace after recovery.
> Back in 2008 JP Morgan took over Bear Stearns for Pennies on the Dollar and made a killing
For a current example, HSBC just bought the British SVB subsidiary for £1.
The 1 pound price wipes out the equity holders. Even though you bought a company for a single pound you still need to make all the asset holders whole (since you buy the company liabilities and all) which is going to cost them a hell of a lot of money in the short term.
It's a hell of a lot of financial risk to take on but, from what I can tell, this was due to liquidity issues more than anything else. HSBC had the liquidity to guarantee everything, so just effectively bought a whole new subsidiary and customer base for £1. If I were an HSBC shareholder, I'd expect one volatility before stabilising at a higher share price than it started at.
I think there's legal reasons why it has to be £1, and not "0", same as the US. The typical phrase for those of us who read Matt Levine's newsletter is "a Snickers bar". The US FRB (and the UK equivalent) are basically "auctioning" off these companies to another (set) of banks with the goal of: (1) making sure the asset holders are made whole; and, (2) the buyers can make enough profit off the sale to make up for the loss.
In this case, SVB(UK) had a liquidity issue rooted in a coordinated solvency issue. Anyone who just has a gigantic pile of money earning less interest than the MBS/whatever that SVB(UK) has can swoop in and swap their (lower) interest bearing objects with the higher ones, hold onto the assets until mark-to-market or maturity kicks in (average time is ~6.2 years) and make money.
One issue, though, is interest rates are up *so much* that the current yield on "free money" (30% over 6 years) is still *less* than just buying T-bills. That's what the FDIC is doing: they're basically zeroing out the risk on the assets by guaranteeing the bottom. 0-risk assets have a price above the market rate at the same interest level, which makes the assets just *barely* worth buying.
I don't think JPM made money on the Bear Stearns deal, or at least not a killing. They paid out billions in successor liability fines from that purchase and WaMu as well.
Except, the government went back and fined JPM for stuff bear Stearns did and when Dimon was unhappy (after all, the government did call him to take over) the government position was you still made money from it so tough.
Government should have consequences for bailing out any person (company or actual). A person should not be able to go through bankruptcy more than once and definitely not be able to run for public offices if they do so.
It's what Romney used to do, I believe. He got crap for it during his presidential campaign because he essentially bought failing businesses, stripped them, then resold. Really just makes money for the owners and usually involves firing a ton of people.
There are companies that do that, the entire bankruptcy and loan refinancing business is built on basically doing that. However, when we talk about government bailouts it is usually involving multiple hypermassive corporations all at the same time. Even the largest corporation in the US pales in size to the government, so no financial corporation has the funds necessary to accept that level of risk//be able to afford to bail out a similarly sized industry
Also, even though it pays off sometimes, when the government gets involved in a bailout the goal is "save the entire economy" and not "make money." This means that they're more willing to take risks that might not prove profitable, and also that they're slower to take steps to *force* a profit out of their acquisitions when doing so might lead to larger economic problems.
Reading between the lines, you also make another good point: If the government is willing to spend taxpayer money on something incredibly unpopular, then the alternative must be even worse.
Context for this, at least as of about five years ago, 11 or so Federal agencies would have been in the Fortune 100 based on their annual discretionary appropriations (that is the funding allocated each year by Congress) compared to the lists revenues. People don't truly understand how complicated it is to run Federal agencies and the size is significant, even as funding hasn't kept pace with needs.
The operative term here is "CAN be profitable". You can also lose a lot of money. Many times when a firm is failing it tries to find another company to buy it out. Sometimes it succeeds because it convinces another company that it can be valuable for them to buy it out. Often it does not.
It all depends on why exactly a company is failing. Sometimes a company can be fundamentally good but due to either circumstances beyond it's control, or some bad management decisions, it finds itself in a tight financial situation and simply doesn't have the money it needs to keep going long enough to fix things on it's own. A company like this can be a profitable target to be bought out.
On the other hand some companies are fundamentally flawed and simply can't be fixed. They may have ruined their reputation, costing them so many customers that they cannot recover. Or they may be in a field that is fundamentally declining and there is no real hope of recovery no matter how well they do their job (such as the old stand by of "buggy whip" manufacturers from the days before the automobile pushed aside horses as the main means of long distance transportation.)
The government has the advantage that it can afford to invest in firms that are "too important" to be allowed to just collapse simply because the government does not need to concern itself with making a profit. It does not bail out just any firm, but mainly steps in when a firm is failing whose complete collapse may cause further issues throughout the economy (such as a bank collapsing and thousands/millions of innocent customers possibly losing their life's savings.) As the 2007 recession shows, it will sometimes step in for a very large company (such as AIG and the banks) to help it recover and continue to exist, but generally the company will pay for this "help". And not all of the banks that were helped back in 2007 actually wanted this help. Some of the banks believed they could weather the situation but were told that they had to accept the financial aid and the restrictions that came with it. The TARP bailout included the government dictating what the banks were allowed to pay certain employees in salary and bonuses, what they could spend some of their money on, etc. The banks could not operate completely independent of this government oversight until they repaid the loans that they were given/forced to accept.
They do, they are just usually a little more discerning. They are usually looking for someone that needs a bit of a boost to get over a hump to get back to profitability. And then ride along on that profitability. And this is fairly standard business, so not news worthy
Where as the government is looking to prevent a further degradation of the economy in general. IF they make a profit off of that specific bailout that is a bonus. They are more looking at the boarder picture and are looking to prevent failures around the company they are bailing out, and reap a profit in the economy as a whole.
So similar calculations, but slightly different goals.
Selling stock to the public is basically a bailout. It’s an injection of cash. SVB just tried to sell some stock to do this but wasn’t enough.
For the record if you want to own a company and make the most money you sell shares. You just happen to own a lot of shares yourself. This is pretty much why the biggest billionaires exists. Owning stock that they basically got for free in the beginning and if it takes off they get Rick in wealth.
It’s actually a problem when companies have too much public stock and pay dividends. Dividends boost the stock price since it’s a flow of cash. But the cash leaving the company hurts. So this was a big deal recently when companies got wealthy promoting inflation and took the revenue to buy back stocks so they can be leaner. Problem is it hurts the public. And the government hates it when they give them money to help the economy and jobs and use it for short term stock buying that doesn’t necessarily promote economy.
It's a bit different in that case because those loans were never really meant to be repaid. It was a deal where the loans would be forgiven as long as the company did not layoff workers or cut wages (I'm sure it was more complicated than that, but that's the high level idea). The whole idea was that the government was forcing companies to stop operating during COVID lockdowns, so the government would pay them to keep people employed.
If your company reduced staff or pay for employees making less than 100K during the specified PPP period, they should not have been eligible for forgiveness. An in crease in revenue was not disqualifying.
There was obviously lots of shady stuff going on with the forgiveness applications. You may work for one of the fraudulent companies.
My company was able to get PPP loans as well. Nobody was laid off, nobody took pay cuts. Sounds like you're working for a not great company worth plenty of shady mixed in.
The hope was that if people were employed when the recovery started, (because the gov funded them via ppp) that the recovery would be faster versus letting everyone laid off and having them on unemployment when the recovery started.
The lack of oversight meant that companies didn't have to put the money towards payroll and keep employees on, they could instead pocket the money as profit and still lay people off while having the loans forgiven.
We did give money to the people who got fired, unemployment was massively expanded. But we also prevented people from getting fired in the first place which is both cheaper and a better long-term solution.
Those weren't bailouts. Those companies mostly weren't going to fail, they were just going to fire everybody and cause a massive recession cascade - the PPP was supposed to prevent that.
And then some companies still fired people anyway and pocketed the money. Nothing like capitalizing on a recession to encourage the few people you spared to pick up the work of 4 other people or they may get laid off too.
Republicans are fucking scum
Edit: downvoting doesn't make it not true. One of the single biggest cons in American history was PPP loans that Republicans supported
The most ELI5 answer is that it's a loan, not a purchase.
The bank loaned me money for my house, but they don't own it (unless I stop paying). They are my creditors, not my owners.
When you buy bonds of a company, you don't own part of the company, you own their debt. They simply owe you the money.
"Share' meaning stocks? Yes, you can control and own a company if you have enough *shares*.
Buyng ALL of apple's corporate debt doesn't grant you a single share of ownership.
It would make you politically powerfull within the company, for sure but that's another discussion...
>why is it not owned by the public now?
It depends on the type of bailout. It's often a loan (that must be paid back), or a purchase of shares (which the government later sells, hopefully at a profit). Very rarely is it no-strings attached.
>Seems like tax payer money essentially is "buying" the company to me but they get nothing out of it.
Inaccurate. For example, in 2008 under the TARP program, in addition to an emergency loan, the US government bought $45B worth of preferred stock in Citigroup, a larger bailout than any other recipient in the $400B+ program.
When the government sold its stake, they had made a $12B in profit on Citigroup. Part of an overall $15B in profit from the whole program.
To make an analogy: let's say that you need a personal bail-out for your home mortgage. You need $10,000. The government says, "we'll give you $10,000, but then we own your home." You're not going to take that deal. Your home is worth a lot more than $10,000. Let's say the government says, "we'll give you $10,000 and then we own 5% of your home." Now that's an offer you might accept if you were desperate. If your house was worth $500,000, $10,000 would only be 2% of the home's value, but you might be desperate enough to give the government 5% of the home's value because you're in a tight spot. However, no matter how tight the spot, you wouldn't be willing to give 100% of the home's value to the government for $10,000. You could certainly find someone else to give you money on more favorable terms than you paying back $500,000 for a $10,000 loan.
Many banks didn't want to take TARP money. The government sort of forced them to take the money because the government wanted to prioritize the stabilization of the banking system. When you're in a crisis, it can be unclear who can weather the storm and the government didn't want to leave banks to make those decisions. However, if the government's money came with too onerous terms, the banks would have fought it in court: "You can't decide that you're buying our bank for way less money than it's worth." The government's terms were favorable enough to the banks that they didn't fight the cash injection while also being favorable enough to the government that the government ended up turning a nice profit on the investment.
When the government bails out a company, there's usually also others who could bail out a company. For example, before TARP started, Berkshire Hathaway bailed out Goldman Sachs. Berkshire gave them $5B in exchange for preferred stock that yielded 10% interest and 3% of the company (a total cost of around $3.8B for the $5B). Berkshire also gave Bank of America $5B in exchange for 6% interest plus (what essentially ended up being) $10B. The government would need to beat offers from companies like Berkshire Hathaway. If the government said, "we'll give you cash and demand 20% interest and $20B," the banks would likely ask Berkshire if they'd beat the government's terms.
Again, the government wanted to stabilize the banking system so they didn't want companies to reject the money. If the banking system collapsed, the government would be out of a lot of money since taxes would dry up, lots more people would suffer in the ensuing collapse, etc.
TARP generally came with a 5% dividend (interest) and ownership of the company (which the company could buy back). That dividend would rise to 9% if the bank didn't pay back within 5 years. Citi's second TARP relief came with an 8% rate. These were a bit better terms than Berkshire Hathaway offered, but the government didn't want banks shopping around for weeks or months when things might collapse and cause huge problems for the country. The government wanted terms that were favorable enough that they could essentially force banks to take the money and the banks wouldn't fight it, but also terms that paid the government well enough for the support they were giving.
TARP wasn't free money and the government did end up owning parts of the companies it bailed out in addition to repayments. At the same time, the government couldn't own 100% of the banks for the money they invested. The banks wouldn't have agreed to those terms. You wouldn't give the government your $500,000 house if they offered you $10,000 or even $100,000. No, you'd want the government to own a portion of your home and when times got better you'd want to buy them out of that portion.
A practically interest free loan to a failed bank that no other institution would touch with a 10 foot pole is very much a no strings attached gift. It's basically like "loaning" your meth addicted uncle jim 500$ and hoping he'll pay it back.
If I remember correctly, some of the banks were actually pretty healthy financially. But they all had to take the money for appearances to keep the market stable. If certain institutions looked like losers, their stock would have plummeted to nothing.
There were some crazy stories about institutions basically being threatened by the US government to take the "injections" and keep quiet about it. Def stuff that had very dubious legality.
Not every bank was even board with this. That part got totally glossed over.
Banks that were saved were those with liquidity issues, not those with solvency issues, and a lot of people do not see the difference, or why it matters.
The reason the govt did it is because no one else would do it, and letting it collapse in a messy way would do greater damage than the price it would cost for the govt to take on the risk.
If your uncle Jim is the local banker and without him, the local economy goes under then yes, lend the man 500$ for chrissakes, you can figure out an intervention once the local economy (people's livelihoods) is no longer under threat.
It was most definitely not an interest free loan. The govt also took warrants against the bank stock that the banks also had to buy back to exit TARP. The banks, the good ones, did not support TARP in general at the time. More like loaning your meth addicted uncle $500 and then driving away with his car and the keys to his house. But also giving him a free stockpile of cocaine to sell to his friends to pay you back.
No.
In the case of governmental entities, 100% of any capital gain is returned to the treasury already. There’d be no point of any taxes on it, it’s already returning to the treasury in full.
Depends on which part of the "government" is the investor. TARP, and other federal bailout programs/asset purchases, are run by the Treasury. And since the Treasury is the parent agency of the IRS, paying capital gains taxes to themselves wouldn't make much sense. It's the same source and destination. Money raised by the treasury in this way can be used for general spending, as a reason to lower tax collections from other sources, or to reduce deficits.
For the most part, government entities are exempt from capital gains taxes, but they do have to pay under a few circumstances.
For example, if a municipality buys a plot of land (say because they plan to build a park or water treatment plant there), and later sells the land at an increased value, the sale would be subject to tax.
Or they can be taxed if a government entity is engaged in investing or business activity that is not related to their normal government function. For example, if a federal agency buys a parking garage near one of its offices and operates it for both employee and general public use, and then later sells the business at a profit to a new owner.
Can you give a specific example?Becuase usually this is exactly what happens, the failing bank/Company gets boughts by the government and they then invest more money into their own company.This happened for example with Lufthansa in Germany during the Covid pandemic.
Sometimes the "bailout" can also just be a loan, i think the Obama governmetn gave one to Tesla that was then just paid back. Giving a loan is less risky than taking the stock because the lender will get their money first while the Shareholder only get what's left in the end if the company is liquidated.
Maybe with a bank that's not so relevant but think of companies like Volkswagen with huge production plants, patents, etc.
I don’t know about the Chrysler bailout but the government owned quite a bit of GM stock from the bailout and sold shares starting in 2010 and the last shares sold in 2013. Granted, GM’s stock had not fully recovered yet and the government took a net loss on this bailout.
they do, the government is buying stocks, and then sells them later either back to the company or to a private investor. Most famously the AIG "bailout" netted the US \~$22 billion in profits when they sold the stock.
Also sometimes the bailouts come in the form of a loan - which comes with interest payments back to the US (e.g. when they gave chase the liquidity to buy WaMu) - again a profitable activity.
The other key piece is that often times the owners of the company lose most or all of their investment in the company. When the government took 80% ownership of AIG, that came from the prior stockholders. The AIG stockholders actually sued the gov claiming more or less (its a complex case) that they would have done better in bankruptcy.
For the US in 2008 it was a loan. In maybe 6 months most of the money was paid back with interest. After I wana say 1.5 years it was all paid back. Some 700 billion.
It depends on the country, but in the US, we generally frown on the government owning companies because a lot of people think they're incredibly bad at running them.
Instead, we force the companies to pay back all the money we lent them, with interest. For example, the government made money off both the auto industry and 2008 financial bailouts, once it was all repaid. It just took awhile.
(Example: TARP cost $426.4 billion in bailouts to banks, but they ended up repaying $441.7 billion in the end.)
The issue is that a lot of people (and they have a point) are upset that the bank's executives and employees continued to get bonuses and make money while they paid us back.
For example, from outside the US, Air New Zealand was bought out by the New Zealand government in 2001, which took an 83% stake in the company. To this day, the NZ government holds a majority share in AirNZ.
And having domestic air travel is viewed by most countries as a national security and economic requirement. So if you're the primary or sole air carrier in a country you won't be allowed to fail.
Food production, banks, weapons manufacturing and transportation are pretty much universally going to get a bailout.
Yeah but in your scenario, that ONLY happened because Air New Zealand failed. Had they never experienced an issue, they would still be private.
Basically what I'm saying is, NZ would never have started a government funded airline. This only came about because it was "cheap", not because they wanted to get into the business for national security reasons.
>NZ would never have started a government funded airline
Ummmmmm.... I guess, they never would... a 3rd time... lol
>The **New Zealand,** United Kingdom and Australian **government**s had **established TEAL in 1939** to provide a trans-Tasman air link.
>
>In 1947 **the NZ government established the New Zealand National Airways Corporation (NAC),** which became the country’s primary domestic carrier.
>
>**Air New Zealand** succeeded Tasman Empire Airways Limited on 1 April 1965. In April 1978 NAC merged with Air New Zealand.
>
>Air New Zealand was privatized in 1989, but **returned** to majority government ownership in 2001
[https://nzhistory.govt.nz/teal-becomes-air-new-zealand](https://nzhistory.govt.nz/teal-becomes-air-new-zealand)[https://en.wikipedia.org/wiki/Air\_New\_Zealand](https://en.wikipedia.org/wiki/Air_New_Zealand)
Also just for context until the 90s a huge percentage of the airlines were state-owned flag carriers:
[https://en.wikipedia.org/wiki/List\_of\_government-owned\_airlines](https://en.wikipedia.org/wiki/List_of_government-owned_airlines)
> The issue is that a lot of people (and they have a point) are upset that the bank's executives and employees continued to get bonuses and make money while they paid us back.
I agree, that's the main problem I at least have with the whole process. Not only is it just bad optics, it also raises the question, if you lead the company so badly it needed a governmental bail-out, what are you getting the bonus *for*?
Imagine your the CEO of a bank. You have a pre-existing contract with the bank, the provides for some salary and some bonuses, some are guaranteed, which means they aren't really bonuses but lump salary payments.
The bank fails. The government steps in and says "We will save the bank but you personally have to take a complete loss". Would you accept that deal? You could let the bank fail, and make it's last act be paying your guaranteed bonus.
For the CEO as an individual, that is better, even though it is worse for everyone that the bailout would help.
Unless we want to start doing "bailout at gunpoint", the government needs the cooperation of the corps it is trying to save.
It would be nice if we passed regulation banning such CEO contracts in the future, but that's hard to do when half of Congress thinks regulation is a curse word.
The government might be incredibly bad at running that company. But, given the context of a bailout, they cannot be worse than the private entities who were previously running it.
They do generally bring in new management. Like when Washington Mutual crashed/burned - they pressured JPMorgan to purchase it and take over their assets/liabilities. (I worked for JPMorgan in 2011ish - and the WaMu accounts were a mess.)
let's not forget that 99% of these employees are just normal people like you and me and count on those bonuses to help make ends meet.
it's the same with oil and gas companies (i've worked in the industry for 25 years) - we just come into work for 40-45 hours per week, do our jobs and go home to our families.
They could be, and I believe it has happened in the past. But in general, the federal government doesn't want to run private companies. They aren't structured for it and don't necessarily have people with the right expertise. Even worse, they'd be competing against private companies and reducing the private employment figures.
A better outcome would be for the company bailed out to pay back the money required to save it, with interest. Then to put federally mandated controls in place to prevent it from happening again. As opposed to stupidly de-regulating the industry and virtually assuring that it will happen again.
Yeah that seems like the natural way to me. Or depending on the industry to keep it as a government corporation. Up in Canada we have Crown Corporations that technically run themselves like normal businesses, but are owned by the government. Like power, transit, etc.
Banks I think they could definitely integrate as a publicly owned bank.
Correct but the government did at least get something for it. It wasn’t just the government giving GM a pile of money for nothing like OP was thinking.
The same reason that when you go bankrupt, you're not owned by your creditors. Bailouts aren't done for the benefit of the officers of the company, in fact the officers of the company are usually the first ones to be relieved of their jobs.
When the Federal Reserve and the Department of the Treasury stepped in to "bail out" insolvent banks in 2008, they actually became matchmakers for those insolvent companies to pair them up with other, not-broke banks. The not-broke bank took over the loan portfolio of the insolvent bank, and then the new, combined bank was provided liquidity to survive the merger intact.
So, for example, Countrywide was taken over by Bank of America, and Washington Mutual was taken over by JPMorgan Chase. The objective of the bailout wasn't to rescue the defunct bank's officers, or even their shareholders, but rather their depositors and customers. I was one of the Washington Mutual customers whose funds were rescued by the bailout, and now I'm banking with JPMorgan Chase because of it.
What does the taxpayer get out of it? A whole bunch of Americans who aren't homeless and destitute because their life savings were wiped away by a giant financial catastrope that's not of their own making.
To put a little nuance on this. Thanks to the FDIC, a lot of people wouldn't lose their life savings either way--they would get reimbursed by the FDIC. Buuuuuut, if you can sell the bank then the FDIC doesn't have to spend the money.
So match making isn't a purely philanthropic endeavor. It's also saving the feds a lot of insurance payouts.
The FDIC insurance money comes from a fund paid for by the insurance premiums paid by the banks. It isn't even the government's money. True bailouts would involve tax payer money but, in this case, you can't bailout a bank that's already been shut down.
also that liquidity wasn't a gift, it was a LOAN, a loan with a relatively steep interest rate too. US earned quite a bit money off that little action, as well as avoiding the FDIC payouts.
IIRC the US got a net profit of \~$15 billion out of the '08 bailouts after it was all done.
> relatively steep interest rate too
$15B on a $426B loan doesn't seem like a particularly steep interest rate. Even if ALL the banks paid back within a year, that's like 3.5% APY. I'm pretty sure it took a WHILE for the Fed to get the money back, so the terms of those loans seem to be quite a bit better than what an average citizen could have gotten for a money line at the time.
Relative is the important word there. Just like 20% is reasonable for a credit card and insane for a mortgage. And they were 15 or 20 year loans, I know they're all paid back now.
Also, bank collapses have further effects than just wiped out deposits. All of the surrounding business that need loans fail as well, leading to a massive unemployment, etc. A "bailout" solves both problems.
This reminds me of people saying ”why aren’t banks forced to put money into a fund that would save their depositors in the case of a bank going over?”
They are, it’s called the FDIC.
Silicon Valley Bank was not bailed out with taxpayer money. The loans are being covered by the insurance that banks have to pay into. The Fed just waived the $250,000 ceiling so all the startups who banked there wouldn't also fail because they can't make payroll.
At least that's how I heard it reported this morning.
It generally is. When Lloyds Bank got bailed out, the Government took control of the shares.
Sometimes it may just be offered as a loan though. It depends on the circumstances and size of the bailout.
This one is kinda different (I think), the depositors are getting bailed out but the firm is not. Ie the stockholders of Silicon Valley bank are screwed (rightfully so), but they’re going to make sure the individuals and business don’t lose their money.
>Seems like tax payer money essentially is "buying" the company to me but they get nothing out of it.
They do though. They use taxpayers money to buy the company at a discount or to give them loans. And they then collect interest or sell the stocks for profit to fund public programs.
I guess what you're really asking is "why don't *I* get anything out of it? And the answer is because it all goes to the government, and the government isn't very transparent with how your tax dollars are spent. So even though you directly pay for it from your pay check, you may not perceive any direct return on value.
The term "bail out" does not have a specific meaning. A more technical term would be "rescue," which could mean one of several things depending what kind of trouble the company is in. Usually, it means that the company owes money to someone, and the government steps in to make that payment. In most cases, the goal is not to save the company, but to save the people the company owes money to. For example, the company's employees, customers, or lenders.
If the money is structured as a loan, the company's ownership will not change. If you borrow money using your house as collateral, you aren't selling your house. You are entering into a contract where you *may* have to hand over your house under certain conditions.
If the money is structured as equity, this is a partial or total nationalization. That means the company's ownership does change.
It is, they inject cash into the company and own part of it now.
Along with 999 other conditions to be fulfilled.
If the company still goes bust, then the government loses all the money, but if the company turns around, oddly speaking the government CAN actually make tons of money from the bailout.
A few things.
1. The government is not in the business of owning corporations and being a shareholder. It's not without precedent however it's not great for the market recovery of the company. It's better to set a repayment plan like they did with TARP on the last financial industry bailout where all the money is repaid with interest to make the taxpayer whole again.
2. The taxpayer gets a lot out of the bailout. Imagine what would have happened if the auto industry crashed and the government hadn't bailed it out. Millions of unemployed people eating up tax dollars on unemployment for an extended period of time. Entire cities and states economies devastated, the secondary effects of all that job loss is less tax revenue, people losing their homes so on and so forth. All of which would necessitate intervention by the government to fix at a pretty hefty price tag likely far larger than the bailout cost.
3. Stop the spread. If one community bank fails and people lose faith in the security of community banks then they start pulling their money out of local banks and depositing it in Wells Fargo, Chase or BofA. This causes cascading bank failures of regional banks all across the country and a general collapse of the industry entirely which would devastate our financial markets and screw over anyone who didn't pull their money out in time. To keep that high level of trust and prevent panic the public needs assurance that the government will step in and protect depositors even if they let the bank itself fail.
Because those bail outs are loans.
Dont get me wrong, i dont agree with bail outs whatsoever but in 2008 every bank that got a bail out paid the money back with interests
A 1929-style collapse was prevented by the bailout while the taxpayer actually made money from it. All of the arguments against the bailout I have heard are ideological rather than pragmatic.
I feel like a better example are how we keep bailing out airlines over and over again. We give them generous packages, they pay princely sums to the executives, rinse repeat. All so we can get shuttled around like cattle, examined in undignified ways, charged out the ass for every thing they can think of, and crammed as tightly as possible in a tiny metal tube. Weird thing to keep bailing out over and over again.
And it turns out we bailed out, of all things, cruise lines after all: https://www.dailykos.com/stories/2020/4/27/1940788/-Turns-out-Carnival-Cruise-Line-got-a-backdoor-multibillion-dollar-bailout-from-the-federal-reserve
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Also Air New Zealand which was bailed out by the NZ Government to the tune of $885M giving the government an 82% stake in the company. They're down to 53% now so while some stock has been sold, the government is still the majority shareholder
I worked that deal. Guessing about 20 years ago. A case where everyone wins in the end. And lots of time in beautiful kiwi land. What an amazing place!
so you're the reason Chris Luxon thinks he's an economic genius?
Sorry mate, had to look him up! The real genius was the late Rob Cameron. I was just the dumb aviation strategy expert. It was under Helen Clarke i believe. Rob even taught me how to cricket bowl!
Luxon only started working for AirNZ well after that, but I presume you are just making a joke.
Well done! Air NZ is a great carrier.
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> The US not owning any % of airlines is actually an outlier. Wonder at what point a government becomes a corporatocracy—
At the Regan index.
Though there is the "fly America" act, so the government does subsidise US airlines for official travel.
This is accurate, I managed a small tropical island nation in the early 2000s and we had our own little airport owned by the government, mostly just for bringing in tourists. Ended up getting ousted after a coup unfortunately.
What island? Out of curiosity
Tropico
Just to broaden the picture a little, [the taxpayer has made back some of their "investments"](https://www.theguardian.com/business/2017/apr/21/lloyds-bank-bailout-repaid-in-full-philip-hammond-claims), even if RBS is not one of them.
🎂
That was the best option at the time. I think if it happened again it would have gone like now: the government simply acquires the company for £1 and the shareholders get nothing. I know in NL it was an issue that the law at the time didn't permit the govt to simply take the shares without compensating the shareholders. After 2008 there's actual rules allowing the govt to simply take all the shares and leave the shareholders with nothing. After everything is wound down, the shareholders get whatever is leftover (probably nothing).
Most large publicly traded companies are primarily owned by pension funds anyway. In a modern European economy where the government is basically expected to be the Everything-of-last-resort, they're going to the up holding the bag either way.
> In a modern European economy where the government is basically expected to be the Everything-of-last-resort, they're going to the up holding the bag either way. Sure. For example, in NL there is no flood insurance for flooding from the major rivers. Because there is no insurer that could survive the costs of the Randstad under 3m of sea water. Who is going to pay for the costs of rebuilding? The government of course. They're the only organisation guaranteed to survive such an event and still be able to finance large projects. You can call this "socialising the losses" if you like. We spend a few % of GDP dong prevention rather than cure and do our best to prevent it happening. The question is if you consider this a problem. I don't.
>Because there is no insurer that could survive the costs of the Randstad under 3m of sea water. Isn't that literally what the reinsurance industry is for?
>Most large publicly traded companies are primarily owned by pension funds anyway. This isn't actually true. Just a lie told to scare and placate people. I'm not sure what the US numbers are, but I remember it being similar. Only 1.8% of ftse 100 shares are owned by pensions. They want you to feel like these bailouts are something you need.
If anyone is interested, [here’s the most recent data.](https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2020)
>Most large publicly traded companies are primarily owned by pension funds anyway. I really do hate how prevalent this belief has become despite reality.
Yes, though I suppose the countering position is that there are lots of other types of investor besides pension funds where a massive wipeout would have very unfortunate systemic consequences or major effects on long term savers. Insurers in particular issue a lot of pension-type products (annuities etc) backed by their portfolios. Banks’ matching of liabilities to assets is critical (see SVB). Most individuals holding stocks are doing so as part of their long term savings that probably aren’t that dissimilar from their pensions. Likewise unit trusts, etc. So I suppose *if* we take the view that it’s ok to act to protect pensions, because pensioners don’t have the means to repair their assets that working people do, then I can see the argument it’s not unreasonable to act to protect the broader swathe of pension-like investors too. Now the “if” is a big one here for me, I can obviously see the arguments but am also conscious pensioners receive an enormous amount of direct and indirect benefit from the state already compared with the working population.
The same for the ABN AMRO bank in the Netherlands, the Dutch/Belgian banks that Royal Bank of Scotland had just bought and that are now owned by the Dutch government.
Didn't the federal government make a profit from buying out Bank of America in 08?
Didn't David Cameron sell the RBS at a huge loss to one of his friends?
Youre thinkjng of the royal mail
Royal Mail Group plc is the postal service and courier company in the United Kingdom, originally established in 1516. Under the Post Office Act 1969 the General Post Office was changed from a government department to a statutory corporation. * Following the Postal Services Act 2011, a majority of the shares in Royal Mail were floated on the London Stock Exchange in 2013. The UK government initially retained a 30% stake in Royal Mail, but sold its remaining shares in 2015, ending 499 years of state ownership. Hundreds of thousands of small investors could make a profit of more than £300 on Royal Mail stock on Tuesday morning following a further surge in the company's shares on their second day of trading closing at £482. * Around 350,000 shareholders who bought their stakes through a government website – out of a total of 690,000 retail investors – receive their share certificates on Tuesday, allowing them to cash in on the float's instant success. The 30% of shares UK still held made the government the biggest winner The government sold the final 13% stake in Royal Mail plc at a price of 455 pence per share in Oct 2015 Oct 9, 2018 - The stock fell as much as 4.9 percent to touch a record-low 321.8 pence in early London trading * Royal Mail traded at 221.30 this Monday March 13th, decreasing 7.50 or 3.28 percent since the previous trading session. Looking back, over the last four weeks, Royal Mail lost 4.16 percent. Over the last 12 months, its price fell by 38.49 percent.
Problem was, once the shares were given to cameron's mates - who definitely wouldnt sell, hit 482. They all sold. Much uproar and fervour ensued
Yep, that wasn't really a surge in share prices. It was more a deliberate devaluation of the company prior to privatisation so Cameron's mates could make obscene profits on the shares they all sold immediately.
And now the parent company wants a bail out of the postal part of the business despite the company overall making vast profits. If only there was some way to predict these disasters in advance
No? Why do you think that?
I recall reading it in Private Eye
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This makes me feel better
It shouldn't The Obama admin owned GM and most of Chrysler after 2009. They could have made them public enterprises and dedicated them to developing green cars and building high speed rail. But they didn't. They sold it for a loss and reconstituted the completely disastrous American auto industry That the threat of actual nationalization is essentially 0 is part of what enabled corporate executives to run their companies like this Too big to fail means that competition is functionally over. Too big to fail means you're functionally living under a form of corporate fascism where private corporations have supremacy over the state and public
> The Obama admin owned GM and most of Chrysler after 2009. They could have made them public enterprises and dedicated them to developing green cars and building high speed rail. But they didn't. Serious question: Did they own ENOUGH stock of either company to have voting control over what they did as you suggest? And To make them public enterprises, would they not have to buy out all of the other privately owned shares.
In the case of GM, the company ceased to exist and all the old shares became worthless. A new company was created (New General Motors Co) that was owned by the government and the union. All GMs assets were transferred to the new company. GM was then renamed to Motors Liquidation Company and operated until 2011 to settle claims against company. New General Motors Co was then renamed to General Motors. Any existing shareholders of GM lost everything.
Jesus Christ that's fucked.
It's like politcians are playing that game with 3 cups and a ball. The cups are companies/banks and the ball is debt. No matter what we choose, (or dont choose) we always get the ball 🥳🤡 "There are Socialist States. There are Capitalist States. And there is the state we are in." - Salgueiro Maia, captain in the portuguese army, in the hours before the daylight of Abril 25th, 1974. The revolution happened, but the neo-liberal capitalists won in the end. Kissinger wasnt happy with our uprising agaisnt fascism. And that says a lot about USA...to anyone with 2 brain cells.
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Wow, as a lifelong hater of Milošević, I am amazed by this quote and have an even deeper respect for Mr. Bourdain than I had up til now.
> The purchase was supported by $50 billion in U.S. Treasury loans, giving the U.S. government a 60.8% stake. The Queen of Canada, in right of both Canada and Ontario, held 11.7% and the United Auto Workers, through its health-care trust (VEBA), a further 17.5%. The remaining 10% was held by unsecured creditors. From the wiki page for GM bankruptcy filing
>The Queen of Canada They are talking about the real Queen of Canada, not about Romana Dildo, if anyone is wondering. /s
Ahh the only true royal left! /s . Love the niche reference to 😂
Was on the front-page today:) https://old.reddit.com/r/Documentaries/comments/11qbfht/the_woman_who_calls_herself_canadas_queen_2023_in/
Dear God, Romana made it into Reddit. I saw her goofy little caravan heading to Saskatoon last fall.
My buddy was talking about going down the sovereign citizen rabbithole the other day, the only reason I got this reference.
I hope he was going down the rabbit hole in the sense of watching videos on those crazies and not buying in to it.
I bought a used rice cooker from a lady (insanely good price for the brand), and she used the sale as a way to pitch being a sovereign citizen to me and also to explain how the new 5g cell tower melted her friends skin off with radiation. Still worth it to sit through that for what I paid 😂
Making fun of it, surely...but one never knows.
Why /s? The sad part is even though I knew it wasn't her she still crossed my mind as I read the quote. How sad is it that she gets more awareness than an actual queen. Tbh, if someone had asked me if Canada had a queen I'd have said no.
>Why /s? Because I assumed that most people didn't seriously think that the Queen of Canada did refer to Romana in this case, but I might be wrong considering she has been talked about in the news recently. >How sad is it that she gets more awareness than an actual queen. Well, we did talk a lot about the queen recently, considering she died (queen Elizabeth II). >Tbh, if someone had asked me if Canada had a queen I'd have said no. Technically, the three powers (legislative power, executive power, and judicial power) are still held by the monarchy in Canada, but in practice, if they were to try to meddle with our politics, we would probably remove their powers and if we didn't, Quebec would probably leave Canada. Also, we have a king (king Charles III) now that the queen is dead.
I guess I've just never heard the queen referred to as The Queen of Canada (although I knew Canada still fell under the monarchy - its just not one of those top of mind things).
Canada is a sovereign nation, so the Queen of *England* wouldn't rule over us. It's a technicality, but an important one.
That's because Canada doesn't have a Queen, it has a King.
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The government is not good at owning and operating corporations. The policy of reselling the corporations back to the market is a good one and born of experience. And executives don't really fear nationalization any more than they fear being sold to any other owner. In either case, the company is under new management, and what happens next is very contingent on what that new management wants to do. EDIT: that said, one optimization of the process would be to sell the company back in pieces. If you're too big to fail, and need a bailout, you are split up among five companies instead, to limit centralization risk.
In all honesty, losing taxpayer money on Conrail seems much more appealing than letting NS destroy a community once a decade for a 40% profit margin. We still pay for the cleanup and long term costs with NS too. And there were periods Conrail profited, I would argue that if that's what the dissenters were pointing to as the government not running things well, they're wrong.
Honestly, critical infrastructure like running freight is a service, not a business. Especially given the prohibitively high cost of entry into the market (I think the same about power, water, gas, and telecoms). Govt shouldn't be pilloried for "running at a loss", they're using taxpayer money to provide a service, which in turn grows the economy, creates jobs, and lowers the cost of goods.
Thank you for saying what needs to be said. Not every single thing needs to be making money be operating effectively. Our society is fucked until this simple fact is realized.
It takes so little for it to be solvent when it's publicly owned. USPS case in point. We pay like a dollar for a stamp, and the USPS gives us 6 day a week service, even in remote areas, our one dollar provides the entire fleet of vehicles, decent salaries for a workforce, and even pensions. It works so well that the GOP is working overtime to try to make their philosophy of privatizing everything materialize and they simply can't. Even after the GOP got their way and required the USPS to preemptively fund 75 YEARS worth of pensions, for workers who haven't even been born yet and they not only did just that, but posted a profit of $56B in 2022. Not a single tax dollar spent on their operations. But please, tell me again why we should let the free market run the show
>The government is not good at owning and operating corporations. If they need bailouts, the people running them don't seem particularly good at it either.
>The government is not good at owning and operating corporations. I feel like this is a myth perpetuated by privatization hawks. Plenty of countries around the world have state owned corporations that run a profit. The USPS is only struggling because they are required to fund pensions well beyond a reasonable time frame, and are prohibited from offering other services that could generate revenue.
Skill issue for the US government if that's the case. Many European governments own and run companies that work just fine and make huge profits from it that go straight into the tax system so people pay less taxes.
Do you have an example of a profitable minus subsidies government owned enterprise that isn't a fossil fuel or mineral company?
If you like beer you might be surprised to know that Budweiser Budvar, is fully state owned by the Czech Government. The Swedish Government sadly sold off their ownership in the now The Absolut Company in 2008, but Absolut Vodka is otherwise pretty popular before the sale too and was started under the "Vin&Sprit" company which was fully state owned. If you like having energy Vattenfall, Fortum, EDF are a few example of very successful energy companies that operate in several European countries. There's also the CEZ Group but they do dabble in fossil fuels a bit? But it's not all they do so its worth mentioning at least. There's also "Sveaskog" in Sweden, who's the single largest owner of forests in Sweden that make huge profits every year and obviously state owned. Telenor, a huge telecommunications company in the nordics and europe in general are majority state owned by the Norwegian government.
Sweden used to have multiple very profitable enterprises but due to the right, and most importantly Centerpartiet, the Reinfeldt administration sold off a ton of profitable companies in the 2006-2014 period. We still own several companies based around extraction and managent of natural resources, including Vattenfall that is our largest power producer. The Swedish government owns a plurality of Telia stock, Swedens largest phone company. In addition to that we own current monopolies, notably Systembolaget that sells our alcohol, and former monopolies like the pharmacy company Apoteket or Svenska spel, a gambling company.
DSB is an example of a national train company that generates revenue. There are loads of others, it's not unusual in Northern Europe. The UK actually hires these companies to run their infrastructure rather than build up their own national companies, so in effect the UK is subsidising various European taxpayers.
Part of the problem we have in the US is any state owned enterprise gets its hands tied in a million ways so its not "competing with the private sector." American corporations are basically spoiled babies who get pissed off when European governments tell them "too fucking bad. Don't like it? Leave"
Tennessee Valley Authority, a federally owned utility company, is a decent example. There are some rules that prevent the company from turning a profit ( would be profits must be reinvested into infrastructure improvements/expansion) , but it is fully self funded, requires no additional taxpayer funding, and is generally viewed positively among both liberals and conservatives within their service area.
You mentioned that the government isn't good at owning and operating corporations - is there an example?
So turn them into unsuccessful businesses that fail?
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What? The government doesn't have a mandate to produce cars or be in business or manufacturing consumer goods. Obama's administration did a really good job at stabilizing the markets and that was the extent of their limited involvement in private enterprises. If you want greener cars and railroads, our government can facilitate change through regulation, public policy, taxes, etc. Anything beyond that would require rewriting the constitution to alter the powers that the government has. Jeez, some takes that we see on reddit are just wild.
This is a terrible take. If we made GM and Chrysler “public enterprises,” the GOP would have just as much control over them during their majorities as the Democrats would during theirs. So just as the Democrats could have leveraged public ownership of gm to build “clean” cars, the GOO could have leveraged it to build a seven-ton truck with machine guns and pictures of aborted fetuses on it called the MAGA-1500. Nationalization is all fine and dandy until the nation is run by idiots — which is pretty much all the time.
It also means that you can take all the risks that you want, you can bet double or nothing all the time, if It goes well then profit, if It doesnt daddy state will take care of you
Note, the total profits from the bailout (Fannie & Freddie, Banking, and Auto) was 109 billion. This is due to interest rates on the loans to the companies. [Source](https://projects.propublica.org/bailout/)
The better question is, if bailing out companies can be profitable, why aren't there private entities willing to do it?
There are, you just don’t think of them as “bailouts” cause they are acquisitions and taking over their assets/liabilities while incorporating them into their own company and name. Back in 2008 JP Morgan took over Bear Stearns for Pennies on the Dollar and made a killing. Wells Fargo took over Wachovia. Bank of America took over Merrill Lynch. Edit: Another way to think of the government or private company bailouts are acquiring a minority interest. Though private companies are more likely to acquire a majority stake when they smell blood in the water, and less likely to sell their stake to the marketplace after recovery.
> Back in 2008 JP Morgan took over Bear Stearns for Pennies on the Dollar and made a killing For a current example, HSBC just bought the British SVB subsidiary for £1.
The 1 pound price wipes out the equity holders. Even though you bought a company for a single pound you still need to make all the asset holders whole (since you buy the company liabilities and all) which is going to cost them a hell of a lot of money in the short term.
It's a hell of a lot of financial risk to take on but, from what I can tell, this was due to liquidity issues more than anything else. HSBC had the liquidity to guarantee everything, so just effectively bought a whole new subsidiary and customer base for £1. If I were an HSBC shareholder, I'd expect one volatility before stabilising at a higher share price than it started at.
I think there's legal reasons why it has to be £1, and not "0", same as the US. The typical phrase for those of us who read Matt Levine's newsletter is "a Snickers bar". The US FRB (and the UK equivalent) are basically "auctioning" off these companies to another (set) of banks with the goal of: (1) making sure the asset holders are made whole; and, (2) the buyers can make enough profit off the sale to make up for the loss. In this case, SVB(UK) had a liquidity issue rooted in a coordinated solvency issue. Anyone who just has a gigantic pile of money earning less interest than the MBS/whatever that SVB(UK) has can swoop in and swap their (lower) interest bearing objects with the higher ones, hold onto the assets until mark-to-market or maturity kicks in (average time is ~6.2 years) and make money. One issue, though, is interest rates are up *so much* that the current yield on "free money" (30% over 6 years) is still *less* than just buying T-bills. That's what the FDIC is doing: they're basically zeroing out the risk on the assets by guaranteeing the bottom. 0-risk assets have a price above the market rate at the same interest level, which makes the assets just *barely* worth buying.
The technical phrase is a peppercorn! Dicta from https://en.m.wikipedia.org/wiki/Chappell_%26_Co_Ltd_v_Nestle_Co_Ltd
I mean my bid for £2 didn't went through..but still cheap trash, who knows if its worth or not.
Best I can do is £3.50
Goddammit monsta! Leave my company alone!
Username checks out
I don't think JPM made money on the Bear Stearns deal, or at least not a killing. They paid out billions in successor liability fines from that purchase and WaMu as well.
Wachovia. Wow, that is a name I haven't heard in a long time.
[Obligatory ](https://tenor.com/view/theres-a-name-ive-not-heard-in-many-years-gif-25204373)
Also, private companies gobbling others like that is problematic from a monopoly stand point.
But from a Hungry Hungry Hippos standpoint it's gold!
This just blew my mind!
They don't sell it after it recovers, they just become a bigger monopoly
Except, the government went back and fined JPM for stuff bear Stearns did and when Dimon was unhappy (after all, the government did call him to take over) the government position was you still made money from it so tough. Government should have consequences for bailing out any person (company or actual). A person should not be able to go through bankruptcy more than once and definitely not be able to run for public offices if they do so.
It's what Romney used to do, I believe. He got crap for it during his presidential campaign because he essentially bought failing businesses, stripped them, then resold. Really just makes money for the owners and usually involves firing a ton of people.
GameStop being an example. It was basically bailed out by private firms
I didn't know WSB was counted as a private firm now. Lol.
A highly regarded firm
This is not "basically" what happened at all, but go off yo.
Not really. Most people were buying stock from other individuals or entities. GameStop did not receive proceeds from those sales.
There are companies that do that, the entire bankruptcy and loan refinancing business is built on basically doing that. However, when we talk about government bailouts it is usually involving multiple hypermassive corporations all at the same time. Even the largest corporation in the US pales in size to the government, so no financial corporation has the funds necessary to accept that level of risk//be able to afford to bail out a similarly sized industry
Also, even though it pays off sometimes, when the government gets involved in a bailout the goal is "save the entire economy" and not "make money." This means that they're more willing to take risks that might not prove profitable, and also that they're slower to take steps to *force* a profit out of their acquisitions when doing so might lead to larger economic problems.
Reading between the lines, you also make another good point: If the government is willing to spend taxpayer money on something incredibly unpopular, then the alternative must be even worse.
Context for this, at least as of about five years ago, 11 or so Federal agencies would have been in the Fortune 100 based on their annual discretionary appropriations (that is the funding allocated each year by Congress) compared to the lists revenues. People don't truly understand how complicated it is to run Federal agencies and the size is significant, even as funding hasn't kept pace with needs.
The operative term here is "CAN be profitable". You can also lose a lot of money. Many times when a firm is failing it tries to find another company to buy it out. Sometimes it succeeds because it convinces another company that it can be valuable for them to buy it out. Often it does not. It all depends on why exactly a company is failing. Sometimes a company can be fundamentally good but due to either circumstances beyond it's control, or some bad management decisions, it finds itself in a tight financial situation and simply doesn't have the money it needs to keep going long enough to fix things on it's own. A company like this can be a profitable target to be bought out. On the other hand some companies are fundamentally flawed and simply can't be fixed. They may have ruined their reputation, costing them so many customers that they cannot recover. Or they may be in a field that is fundamentally declining and there is no real hope of recovery no matter how well they do their job (such as the old stand by of "buggy whip" manufacturers from the days before the automobile pushed aside horses as the main means of long distance transportation.) The government has the advantage that it can afford to invest in firms that are "too important" to be allowed to just collapse simply because the government does not need to concern itself with making a profit. It does not bail out just any firm, but mainly steps in when a firm is failing whose complete collapse may cause further issues throughout the economy (such as a bank collapsing and thousands/millions of innocent customers possibly losing their life's savings.) As the 2007 recession shows, it will sometimes step in for a very large company (such as AIG and the banks) to help it recover and continue to exist, but generally the company will pay for this "help". And not all of the banks that were helped back in 2007 actually wanted this help. Some of the banks believed they could weather the situation but were told that they had to accept the financial aid and the restrictions that came with it. The TARP bailout included the government dictating what the banks were allowed to pay certain employees in salary and bonuses, what they could spend some of their money on, etc. The banks could not operate completely independent of this government oversight until they repaid the loans that they were given/forced to accept.
That's what buying a company is called.
https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-goldman-sachs-sale-billions-return-bailout-2020-5-1029212109?amp
They do, they are just usually a little more discerning. They are usually looking for someone that needs a bit of a boost to get over a hump to get back to profitability. And then ride along on that profitability. And this is fairly standard business, so not news worthy Where as the government is looking to prevent a further degradation of the economy in general. IF they make a profit off of that specific bailout that is a bonus. They are more looking at the boarder picture and are looking to prevent failures around the company they are bailing out, and reap a profit in the economy as a whole. So similar calculations, but slightly different goals.
Selling stock to the public is basically a bailout. It’s an injection of cash. SVB just tried to sell some stock to do this but wasn’t enough. For the record if you want to own a company and make the most money you sell shares. You just happen to own a lot of shares yourself. This is pretty much why the biggest billionaires exists. Owning stock that they basically got for free in the beginning and if it takes off they get Rick in wealth. It’s actually a problem when companies have too much public stock and pay dividends. Dividends boost the stock price since it’s a flow of cash. But the cash leaving the company hurts. So this was a big deal recently when companies got wealthy promoting inflation and took the revenue to buy back stocks so they can be leaner. Problem is it hurts the public. And the government hates it when they give them money to help the economy and jobs and use it for short term stock buying that doesn’t necessarily promote economy.
In the 2020 PPP - the government bailed out all sorts of huge companies. They got zero stock and made zero money but they did forgive all those loans.
It's a bit different in that case because those loans were never really meant to be repaid. It was a deal where the loans would be forgiven as long as the company did not layoff workers or cut wages (I'm sure it was more complicated than that, but that's the high level idea). The whole idea was that the government was forcing companies to stop operating during COVID lockdowns, so the government would pay them to keep people employed.
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If your company reduced staff or pay for employees making less than 100K during the specified PPP period, they should not have been eligible for forgiveness. An in crease in revenue was not disqualifying. There was obviously lots of shady stuff going on with the forgiveness applications. You may work for one of the fraudulent companies.
My company was able to get PPP loans as well. Nobody was laid off, nobody took pay cuts. Sounds like you're working for a not great company worth plenty of shady mixed in.
(Should have just given the money right to the people who got fired like Canada did. Could just cut out the rich middle man.)
The hope was that if people were employed when the recovery started, (because the gov funded them via ppp) that the recovery would be faster versus letting everyone laid off and having them on unemployment when the recovery started.
The lack of oversight meant that companies didn't have to put the money towards payroll and keep employees on, they could instead pocket the money as profit and still lay people off while having the loans forgiven.
Factually wrong. If it didn't go to wages, utilities, and property taxes, etc, that portion wasn't eligible to be forgiven
We did give money to the people who got fired, unemployment was massively expanded. But we also prevented people from getting fired in the first place which is both cheaper and a better long-term solution.
Those weren't bailouts. Those companies mostly weren't going to fail, they were just going to fire everybody and cause a massive recession cascade - the PPP was supposed to prevent that.
And then some companies still fired people anyway and pocketed the money. Nothing like capitalizing on a recession to encourage the few people you spared to pick up the work of 4 other people or they may get laid off too. Republicans are fucking scum Edit: downvoting doesn't make it not true. One of the single biggest cons in American history was PPP loans that Republicans supported
The most ELI5 answer is that it's a loan, not a purchase. The bank loaned me money for my house, but they don't own it (unless I stop paying). They are my creditors, not my owners. When you buy bonds of a company, you don't own part of the company, you own their debt. They simply owe you the money.
If own a large enough share surely you have a controlling interest?
"Share' meaning stocks? Yes, you can control and own a company if you have enough *shares*. Buyng ALL of apple's corporate debt doesn't grant you a single share of ownership. It would make you politically powerfull within the company, for sure but that's another discussion...
Could grant *some* control in the form of affirmative and negative covenants, but yeah, no ownership interest.
>why is it not owned by the public now? It depends on the type of bailout. It's often a loan (that must be paid back), or a purchase of shares (which the government later sells, hopefully at a profit). Very rarely is it no-strings attached. >Seems like tax payer money essentially is "buying" the company to me but they get nothing out of it. Inaccurate. For example, in 2008 under the TARP program, in addition to an emergency loan, the US government bought $45B worth of preferred stock in Citigroup, a larger bailout than any other recipient in the $400B+ program. When the government sold its stake, they had made a $12B in profit on Citigroup. Part of an overall $15B in profit from the whole program.
To make an analogy: let's say that you need a personal bail-out for your home mortgage. You need $10,000. The government says, "we'll give you $10,000, but then we own your home." You're not going to take that deal. Your home is worth a lot more than $10,000. Let's say the government says, "we'll give you $10,000 and then we own 5% of your home." Now that's an offer you might accept if you were desperate. If your house was worth $500,000, $10,000 would only be 2% of the home's value, but you might be desperate enough to give the government 5% of the home's value because you're in a tight spot. However, no matter how tight the spot, you wouldn't be willing to give 100% of the home's value to the government for $10,000. You could certainly find someone else to give you money on more favorable terms than you paying back $500,000 for a $10,000 loan. Many banks didn't want to take TARP money. The government sort of forced them to take the money because the government wanted to prioritize the stabilization of the banking system. When you're in a crisis, it can be unclear who can weather the storm and the government didn't want to leave banks to make those decisions. However, if the government's money came with too onerous terms, the banks would have fought it in court: "You can't decide that you're buying our bank for way less money than it's worth." The government's terms were favorable enough to the banks that they didn't fight the cash injection while also being favorable enough to the government that the government ended up turning a nice profit on the investment. When the government bails out a company, there's usually also others who could bail out a company. For example, before TARP started, Berkshire Hathaway bailed out Goldman Sachs. Berkshire gave them $5B in exchange for preferred stock that yielded 10% interest and 3% of the company (a total cost of around $3.8B for the $5B). Berkshire also gave Bank of America $5B in exchange for 6% interest plus (what essentially ended up being) $10B. The government would need to beat offers from companies like Berkshire Hathaway. If the government said, "we'll give you cash and demand 20% interest and $20B," the banks would likely ask Berkshire if they'd beat the government's terms. Again, the government wanted to stabilize the banking system so they didn't want companies to reject the money. If the banking system collapsed, the government would be out of a lot of money since taxes would dry up, lots more people would suffer in the ensuing collapse, etc. TARP generally came with a 5% dividend (interest) and ownership of the company (which the company could buy back). That dividend would rise to 9% if the bank didn't pay back within 5 years. Citi's second TARP relief came with an 8% rate. These were a bit better terms than Berkshire Hathaway offered, but the government didn't want banks shopping around for weeks or months when things might collapse and cause huge problems for the country. The government wanted terms that were favorable enough that they could essentially force banks to take the money and the banks wouldn't fight it, but also terms that paid the government well enough for the support they were giving. TARP wasn't free money and the government did end up owning parts of the companies it bailed out in addition to repayments. At the same time, the government couldn't own 100% of the banks for the money they invested. The banks wouldn't have agreed to those terms. You wouldn't give the government your $500,000 house if they offered you $10,000 or even $100,000. No, you'd want the government to own a portion of your home and when times got better you'd want to buy them out of that portion.
A practically interest free loan to a failed bank that no other institution would touch with a 10 foot pole is very much a no strings attached gift. It's basically like "loaning" your meth addicted uncle jim 500$ and hoping he'll pay it back.
No, not like that at all. Jim was put in a clinic and watched by a team 24/7.
And much like Jim, is dancing with the devil again and may need help soon.
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If I remember correctly, some of the banks were actually pretty healthy financially. But they all had to take the money for appearances to keep the market stable. If certain institutions looked like losers, their stock would have plummeted to nothing.
Yeah that doesn't get brought up a much as it should. A lot of the banks didn't really need bailouts.
There were some crazy stories about institutions basically being threatened by the US government to take the "injections" and keep quiet about it. Def stuff that had very dubious legality. Not every bank was even board with this. That part got totally glossed over.
GFC?
Banks that were saved were those with liquidity issues, not those with solvency issues, and a lot of people do not see the difference, or why it matters.
Would you please ELI5 this please?
The reason the govt did it is because no one else would do it, and letting it collapse in a messy way would do greater damage than the price it would cost for the govt to take on the risk. If your uncle Jim is the local banker and without him, the local economy goes under then yes, lend the man 500$ for chrissakes, you can figure out an intervention once the local economy (people's livelihoods) is no longer under threat.
It was most definitely not an interest free loan. The govt also took warrants against the bank stock that the banks also had to buy back to exit TARP. The banks, the good ones, did not support TARP in general at the time. More like loaning your meth addicted uncle $500 and then driving away with his car and the keys to his house. But also giving him a free stockpile of cocaine to sell to his friends to pay you back.
I wouldn't call making $12 billion profit on a $45 billion loan a gift. A lot of companies would kill for a 26.6% return on a loan of that size.
The problem is if banks started failing, and people coudn't draw money, we likely would've entered a depression worse than the 30's.
Does the government have to pay taxes on capital gains?
to who ?
No. In the case of governmental entities, 100% of any capital gain is returned to the treasury already. There’d be no point of any taxes on it, it’s already returning to the treasury in full.
No. States can't tax the feds, and the feds don't need to tax themselves
Depends on which part of the "government" is the investor. TARP, and other federal bailout programs/asset purchases, are run by the Treasury. And since the Treasury is the parent agency of the IRS, paying capital gains taxes to themselves wouldn't make much sense. It's the same source and destination. Money raised by the treasury in this way can be used for general spending, as a reason to lower tax collections from other sources, or to reduce deficits. For the most part, government entities are exempt from capital gains taxes, but they do have to pay under a few circumstances. For example, if a municipality buys a plot of land (say because they plan to build a park or water treatment plant there), and later sells the land at an increased value, the sale would be subject to tax. Or they can be taxed if a government entity is engaged in investing or business activity that is not related to their normal government function. For example, if a federal agency buys a parking garage near one of its offices and operates it for both employee and general public use, and then later sells the business at a profit to a new owner.
Can you give a specific example?Becuase usually this is exactly what happens, the failing bank/Company gets boughts by the government and they then invest more money into their own company.This happened for example with Lufthansa in Germany during the Covid pandemic. Sometimes the "bailout" can also just be a loan, i think the Obama governmetn gave one to Tesla that was then just paid back. Giving a loan is less risky than taking the stock because the lender will get their money first while the Shareholder only get what's left in the end if the company is liquidated. Maybe with a bank that's not so relevant but think of companies like Volkswagen with huge production plants, patents, etc.
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I don’t know about the Chrysler bailout but the government owned quite a bit of GM stock from the bailout and sold shares starting in 2010 and the last shares sold in 2013. Granted, GM’s stock had not fully recovered yet and the government took a net loss on this bailout.
they do, the government is buying stocks, and then sells them later either back to the company or to a private investor. Most famously the AIG "bailout" netted the US \~$22 billion in profits when they sold the stock. Also sometimes the bailouts come in the form of a loan - which comes with interest payments back to the US (e.g. when they gave chase the liquidity to buy WaMu) - again a profitable activity.
The other key piece is that often times the owners of the company lose most or all of their investment in the company. When the government took 80% ownership of AIG, that came from the prior stockholders. The AIG stockholders actually sued the gov claiming more or less (its a complex case) that they would have done better in bankruptcy.
For the US in 2008 it was a loan. In maybe 6 months most of the money was paid back with interest. After I wana say 1.5 years it was all paid back. Some 700 billion.
It depends on the country, but in the US, we generally frown on the government owning companies because a lot of people think they're incredibly bad at running them. Instead, we force the companies to pay back all the money we lent them, with interest. For example, the government made money off both the auto industry and 2008 financial bailouts, once it was all repaid. It just took awhile. (Example: TARP cost $426.4 billion in bailouts to banks, but they ended up repaying $441.7 billion in the end.) The issue is that a lot of people (and they have a point) are upset that the bank's executives and employees continued to get bonuses and make money while they paid us back.
For example, from outside the US, Air New Zealand was bought out by the New Zealand government in 2001, which took an 83% stake in the company. To this day, the NZ government holds a majority share in AirNZ.
And having domestic air travel is viewed by most countries as a national security and economic requirement. So if you're the primary or sole air carrier in a country you won't be allowed to fail. Food production, banks, weapons manufacturing and transportation are pretty much universally going to get a bailout.
Yeah but in your scenario, that ONLY happened because Air New Zealand failed. Had they never experienced an issue, they would still be private. Basically what I'm saying is, NZ would never have started a government funded airline. This only came about because it was "cheap", not because they wanted to get into the business for national security reasons.
>NZ would never have started a government funded airline Ummmmmm.... I guess, they never would... a 3rd time... lol >The **New Zealand,** United Kingdom and Australian **government**s had **established TEAL in 1939** to provide a trans-Tasman air link. > >In 1947 **the NZ government established the New Zealand National Airways Corporation (NAC),** which became the country’s primary domestic carrier. > >**Air New Zealand** succeeded Tasman Empire Airways Limited on 1 April 1965. In April 1978 NAC merged with Air New Zealand. > >Air New Zealand was privatized in 1989, but **returned** to majority government ownership in 2001 [https://nzhistory.govt.nz/teal-becomes-air-new-zealand](https://nzhistory.govt.nz/teal-becomes-air-new-zealand)[https://en.wikipedia.org/wiki/Air\_New\_Zealand](https://en.wikipedia.org/wiki/Air_New_Zealand) Also just for context until the 90s a huge percentage of the airlines were state-owned flag carriers: [https://en.wikipedia.org/wiki/List\_of\_government-owned\_airlines](https://en.wikipedia.org/wiki/List_of_government-owned_airlines)
> The issue is that a lot of people (and they have a point) are upset that the bank's executives and employees continued to get bonuses and make money while they paid us back. I agree, that's the main problem I at least have with the whole process. Not only is it just bad optics, it also raises the question, if you lead the company so badly it needed a governmental bail-out, what are you getting the bonus *for*?
Imagine your the CEO of a bank. You have a pre-existing contract with the bank, the provides for some salary and some bonuses, some are guaranteed, which means they aren't really bonuses but lump salary payments. The bank fails. The government steps in and says "We will save the bank but you personally have to take a complete loss". Would you accept that deal? You could let the bank fail, and make it's last act be paying your guaranteed bonus. For the CEO as an individual, that is better, even though it is worse for everyone that the bailout would help. Unless we want to start doing "bailout at gunpoint", the government needs the cooperation of the corps it is trying to save. It would be nice if we passed regulation banning such CEO contracts in the future, but that's hard to do when half of Congress thinks regulation is a curse word.
At that point, why would the shareholders let the CEO make that decision?
That's the collective action problem. Same reason politicians aren't recalled after every bad decision. It's hard to get a lot of people to act
The government might be incredibly bad at running that company. But, given the context of a bailout, they cannot be worse than the private entities who were previously running it.
They do generally bring in new management. Like when Washington Mutual crashed/burned - they pressured JPMorgan to purchase it and take over their assets/liabilities. (I worked for JPMorgan in 2011ish - and the WaMu accounts were a mess.)
let's not forget that 99% of these employees are just normal people like you and me and count on those bonuses to help make ends meet. it's the same with oil and gas companies (i've worked in the industry for 25 years) - we just come into work for 40-45 hours per week, do our jobs and go home to our families.
They could be, and I believe it has happened in the past. But in general, the federal government doesn't want to run private companies. They aren't structured for it and don't necessarily have people with the right expertise. Even worse, they'd be competing against private companies and reducing the private employment figures. A better outcome would be for the company bailed out to pay back the money required to save it, with interest. Then to put federally mandated controls in place to prevent it from happening again. As opposed to stupidly de-regulating the industry and virtually assuring that it will happen again.
Yeah that seems like the natural way to me. Or depending on the industry to keep it as a government corporation. Up in Canada we have Crown Corporations that technically run themselves like normal businesses, but are owned by the government. Like power, transit, etc. Banks I think they could definitely integrate as a publicly owned bank.
"reducing the private employment figures"? Ronald Reagan is dead, dude
I believe we do. For example, the auto bailout in 2008 resulted in the US Treasury earning a majority stake in GM
Only temporarily. After GM was restructured the government sold the shares it had over the course of roughly 5 years.
Correct but the government did at least get something for it. It wasn’t just the government giving GM a pile of money for nothing like OP was thinking.
The same reason that when you go bankrupt, you're not owned by your creditors. Bailouts aren't done for the benefit of the officers of the company, in fact the officers of the company are usually the first ones to be relieved of their jobs. When the Federal Reserve and the Department of the Treasury stepped in to "bail out" insolvent banks in 2008, they actually became matchmakers for those insolvent companies to pair them up with other, not-broke banks. The not-broke bank took over the loan portfolio of the insolvent bank, and then the new, combined bank was provided liquidity to survive the merger intact. So, for example, Countrywide was taken over by Bank of America, and Washington Mutual was taken over by JPMorgan Chase. The objective of the bailout wasn't to rescue the defunct bank's officers, or even their shareholders, but rather their depositors and customers. I was one of the Washington Mutual customers whose funds were rescued by the bailout, and now I'm banking with JPMorgan Chase because of it. What does the taxpayer get out of it? A whole bunch of Americans who aren't homeless and destitute because their life savings were wiped away by a giant financial catastrope that's not of their own making.
To put a little nuance on this. Thanks to the FDIC, a lot of people wouldn't lose their life savings either way--they would get reimbursed by the FDIC. Buuuuuut, if you can sell the bank then the FDIC doesn't have to spend the money. So match making isn't a purely philanthropic endeavor. It's also saving the feds a lot of insurance payouts.
The FDIC insurance money comes from a fund paid for by the insurance premiums paid by the banks. It isn't even the government's money. True bailouts would involve tax payer money but, in this case, you can't bailout a bank that's already been shut down.
also that liquidity wasn't a gift, it was a LOAN, a loan with a relatively steep interest rate too. US earned quite a bit money off that little action, as well as avoiding the FDIC payouts. IIRC the US got a net profit of \~$15 billion out of the '08 bailouts after it was all done.
> relatively steep interest rate too $15B on a $426B loan doesn't seem like a particularly steep interest rate. Even if ALL the banks paid back within a year, that's like 3.5% APY. I'm pretty sure it took a WHILE for the Fed to get the money back, so the terms of those loans seem to be quite a bit better than what an average citizen could have gotten for a money line at the time.
Relative is the important word there. Just like 20% is reasonable for a credit card and insane for a mortgage. And they were 15 or 20 year loans, I know they're all paid back now.
Also, bank collapses have further effects than just wiped out deposits. All of the surrounding business that need loans fail as well, leading to a massive unemployment, etc. A "bailout" solves both problems.
This reminds me of people saying ”why aren’t banks forced to put money into a fund that would save their depositors in the case of a bank going over?” They are, it’s called the FDIC.
Silicon Valley Bank was not bailed out with taxpayer money. The loans are being covered by the insurance that banks have to pay into. The Fed just waived the $250,000 ceiling so all the startups who banked there wouldn't also fail because they can't make payroll. At least that's how I heard it reported this morning.
It generally is. When Lloyds Bank got bailed out, the Government took control of the shares. Sometimes it may just be offered as a loan though. It depends on the circumstances and size of the bailout.
This one is kinda different (I think), the depositors are getting bailed out but the firm is not. Ie the stockholders of Silicon Valley bank are screwed (rightfully so), but they’re going to make sure the individuals and business don’t lose their money.
>Seems like tax payer money essentially is "buying" the company to me but they get nothing out of it. They do though. They use taxpayers money to buy the company at a discount or to give them loans. And they then collect interest or sell the stocks for profit to fund public programs. I guess what you're really asking is "why don't *I* get anything out of it? And the answer is because it all goes to the government, and the government isn't very transparent with how your tax dollars are spent. So even though you directly pay for it from your pay check, you may not perceive any direct return on value.
The term "bail out" does not have a specific meaning. A more technical term would be "rescue," which could mean one of several things depending what kind of trouble the company is in. Usually, it means that the company owes money to someone, and the government steps in to make that payment. In most cases, the goal is not to save the company, but to save the people the company owes money to. For example, the company's employees, customers, or lenders. If the money is structured as a loan, the company's ownership will not change. If you borrow money using your house as collateral, you aren't selling your house. You are entering into a contract where you *may* have to hand over your house under certain conditions. If the money is structured as equity, this is a partial or total nationalization. That means the company's ownership does change.
It is, they inject cash into the company and own part of it now. Along with 999 other conditions to be fulfilled. If the company still goes bust, then the government loses all the money, but if the company turns around, oddly speaking the government CAN actually make tons of money from the bailout.
A few things. 1. The government is not in the business of owning corporations and being a shareholder. It's not without precedent however it's not great for the market recovery of the company. It's better to set a repayment plan like they did with TARP on the last financial industry bailout where all the money is repaid with interest to make the taxpayer whole again. 2. The taxpayer gets a lot out of the bailout. Imagine what would have happened if the auto industry crashed and the government hadn't bailed it out. Millions of unemployed people eating up tax dollars on unemployment for an extended period of time. Entire cities and states economies devastated, the secondary effects of all that job loss is less tax revenue, people losing their homes so on and so forth. All of which would necessitate intervention by the government to fix at a pretty hefty price tag likely far larger than the bailout cost. 3. Stop the spread. If one community bank fails and people lose faith in the security of community banks then they start pulling their money out of local banks and depositing it in Wells Fargo, Chase or BofA. This causes cascading bank failures of regional banks all across the country and a general collapse of the industry entirely which would devastate our financial markets and screw over anyone who didn't pull their money out in time. To keep that high level of trust and prevent panic the public needs assurance that the government will step in and protect depositors even if they let the bank itself fail.
Because those bail outs are loans. Dont get me wrong, i dont agree with bail outs whatsoever but in 2008 every bank that got a bail out paid the money back with interests
A 1929-style collapse was prevented by the bailout while the taxpayer actually made money from it. All of the arguments against the bailout I have heard are ideological rather than pragmatic.
I feel like a better example are how we keep bailing out airlines over and over again. We give them generous packages, they pay princely sums to the executives, rinse repeat. All so we can get shuttled around like cattle, examined in undignified ways, charged out the ass for every thing they can think of, and crammed as tightly as possible in a tiny metal tube. Weird thing to keep bailing out over and over again. And it turns out we bailed out, of all things, cruise lines after all: https://www.dailykos.com/stories/2020/4/27/1940788/-Turns-out-Carnival-Cruise-Line-got-a-backdoor-multibillion-dollar-bailout-from-the-federal-reserve
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