[roenxi]

If they go under the aircraft will still be there. Just new owners. Ban foreign buyouts then let them go bankrupt and be sold to the highest bidders.

We're about due for different owners of capital; the situation has been far too static. The bailouts in '08 kept a bunch of very poor managers in charge. 100% wipe-outs were appropriate in '08, and they will be appropriate again this time. Of all the people we need to feel sorry for, capitalists are the last. And I say that as an ardent capitalist. The social contract there is very clear and literally written down in many cases.

[dougweltman]

1) Where will the money come from to buy the aircraft? Are you saying this with any sense of how long it will take to start a new airline like AA or Delta or whatever? Agency costs under a liquidation are absolutely massive.

2) Nobody is suggesting that protecting shareholders be a policy consideration, and that was true in '08 as well when the banks effectively went bankrupt (well, 90% of the way at least). The shareholders got wiped out when banks had to hand over 90% of their shares to the government in return for equity. When before you might have owned 10%, you then own 1%. That's the point of being a shareholder: you're last in line and take on that risk.

3. Instead, the concern is over the broader economic disruption of airlines suddenly no longer operating when other businesses rely on travellers: hotels, restaurants, stores, etc.

4. I get your point that it might be better to wipe the slate clean: iirc, some airlines are running software that's 40+ years old. Under normal circumstances, if that's a real problem, those airlines will have a disadvantage against newcomers, of which there are many. The difference here is when these businesses are failing not to an operational shortcoming, but something much larger.

You're talking about Chapter 11 liquidation as if it's nothing. There are massive agency costs there and assets stop operating until they can be sold. Chapter 9 is less disruptive (owners get wiped out, creditors own the business and the business finds new creditors to put in some money), and if there's a risk of wide-scale economic disruption, better still is something a little short of Ch. 9: a "bailout" where the government basically wipes out most of the equity and can put in some capital in return.

[roenxi]

(1) Hold an auction. If the only person who turns up is a homeless bum with a dollar then the aircraft now costs a dollar and we have a homeless industrialist on our hands.

Ditto (4) for the software; it doesn't get deleted because the ownership changes.

(2) A sibling comment to yours suggested exactly that. We aren't protecting the business (nobody wants to fly at the moment, that is why they are about to go broke). So we can't be protecting consumers; the capital itself can't catch COVID-19 so isn't under much threat so logically a bailout is either protecting shareholders or workers.

And my position, radical as the free marketer that I am, is we should protect the workers during the process, but sack the shareholders and provide crisis support to the vulnerable insofar as they used to be shareholders.

(3) Yeah; but bailing out the airlines doesn't actually help that when you inspect it. Nobody is using the airlines; they need to be mothballed ASAP and maintained on a skeleton crew for 6 months.

A bailout of the airlines under these conditions isn't the worst idea; the bank bailouts in '08 were substantially worse because they went to the people who caused the crisis. But it is much more dangerous than it seems making decisions in a crisis, from outside the company, saying 'it can't possibly be their fault; lets give hem a boost!'. The view from the outside might be misleading and we might be rewarding reckless behavior. We have this company concept precisely because it contains the damage to a sacrificial legal entity that we can kill off.

[dougweltman]

On 2 & 4, we seem to disagree on the central claim that new airlines can be spun up quickly in time for their liquidation not to jeopardize the travel sector in the future once this outbreak abates.

This requires two conditions, neither of which hold: a) properly functioning capital markets to launch these assets and build the operations around them (not the case -- asset prices are falling across the board and there's tons of forced selling), and b) the ability to spin up an airline quickly from a cold start.

And if we apply the thinking you've offered around (1), it might be just a tad more to the public benefit to have the government step in and buy on the cheap a majority of the business (massively diluting existing shareholders), keep the engine warm, and not have to deal with a cold start in 6, 9, 12 months. Then, just as with the banks, they'll unload the stock as the price recovers and the crisis has passed. Those gains go straight back to the treasury, as they did following the recaps in 2010.

What would less reckless behavior look like? How much money should the airlines hold on their balance sheets in order to cover catastrophic losses due to a pandemic (derided as "hoarding money" in some circles). Many businesses are a few bad weeks away from bankruptcy, and the airline industry, while indispensable, is famously brutal.

[tomp]

Just don't forget that a lot of "capitalists" are pensioners, college endowments, etc.

[roenxi]

So we decide that we are going to give them government money. Plan A is to filter the money through a corporation first. I prefer plan B, which is give the money straight to the people involved - like pensioners or endowments - and be honest about what is happening.

Lets not let charity get mixed up in running a business. We have a no-fault system in free market capitalism - if you go broke you don't run the business. Doesn't matter if it is your fault or not. And almost magically, that aligns incentives to get the best outcomes.

[EarthIsHome]

Pensioners and wage earners are not capitalists. They depend on wages to live. Calling yourself a capitalist doesn't make you have capital.

True capitalists are those who do not need wages (e.g. CEOs of airliners, billionaires, etc.).

[yyy888sss]

In Australia we have Superannuation (compulsory contributions retirement fund) so actually pensioners are expected to live partly off capital gains/sale of shares. Of course their portfolios usually get more defensive (less stock more bonds) the older they get.

[EarthIsHome]

That is very similar to what we have in the US; we have 401(k)s, 403(b)s, 457(b)s etc. that tie our retirement to the stock market. In many cases, employers force their employees to enroll in them.

Think about these retirement accounts this way: capitalists take our money now under the presumption we will get it back when we're 60+. In the mean time, while we're working for a living wage, the capitalists get to profit off our labor now. They get to continue destroying the planet and exploiting other wage earners. They don't need a wage to live.

1) While employees have these retirement accounts, we are forced to contribute to them. We are forced into ensuring the well-being of capitalism.

2) Being forced to contribute to these accounts is diametrically opposed to the interests of our class. It makes us wish well for the stock market because our retirement is tied to it. But a more profitable stock market leads to more exploitation of the labor of my class. For these profits to exist, either you keep labor costs low, or increase prices.

I would prefer to extricate our retirement from the stock market and capitalism.