I’m so excited: the mainstream news (Bloomberg, no less!) is finally calling for an end to free corporate bailouts.
I know; slow down; breathe.
This is a drum that I, and many others on this side of the political spectrum, have been banging on for decades; every time the government steps in to rescue a big company.
After talking so much about the ills of socializing risk in an environment where profits are privatized, I was amazed to see that exact terminology being used (and explained) by Bloomberg.
This is a perfect time for this discussion, too.
As the feds are preparing what will almost certainly become the biggest corporate bailout in history, getting in now with the demand that any corporate rescue can only come in exchange for the State taking equity in the rescued companies is really important.
This can be really simple, too.
All the State has to do is buy newly-issued shares in any company.
The company gets cash flow, the State gets a reasonable value in equity and the pre-existing shareholders get their ownerships diluted appropriately.
Hell, be generous and buy these new shares at their market price on the date the National Emergency was declared, rather than what their price would be now. (That’d be really generous.)
Then, when the company can stand alone again, it can re-absorb that extended equity by reverse-splitting its stock and the State can trickle its shares back onto the market to allow private capital to re-take full control of the company.
All the legal mechanisms for this already exist, and are regularly used by normal investors.
It can also be a bit more complicated too.
If we want it to be a better solution, we could:
- spawn a new department of the Executive to manage the program as a long-term safety net
- have that department vote the shares appropriately
- have the priorities for that voting set by polling the federal electorate
We should also make sure that access to this program is open to every business, but comes with some restrictions like that all new cash must be used to maintain payroll.
I’m sure we could come up with a way that a socialized corporate rescue system could be a really good thing to have around for the long term.
But only if we do it right.
‘Cause just throwing more money at the folks who already have most of the money and who are the ones who stripped the cash reserves off most of these big companies in the first place would just be wrong.