[jsanford9292]

I am sorry to say that I agree and, to be effective, capitalism needs to work much like natural selection.

Weak companies (such as the airlines during the COVID-19 outbreak) need to be allowed to die. If we rescue these poorly managed companies, they will continue to be poorly managed and will need to be rescued again. If they die, they will be replaced by new, better managed companies who won't make the same mistake (because nobody will want to own their stock otherwise).

This virus will likely turn out to be a 2-3 quarter demand shock, something that any well-managed company should be prepared to survive.

[TheSpiceIsLife]

> If they die, they will be replaced by new, better managed companies who won't make the same mistake (because nobody will want to own their stock otherwise).

Is there much evidence to support this?

I'm not saying I've studied the data, but just thinking about what has happened over time it seems reasonable to suspect there are companies that have gone bust, only to be replaced by new companies that then also go bust. This is true of natural selection too: it doesn't necessarily produce organisms that are immune to unexpected shocks.

Edit: I also want to add: if the airline hadn't done the share buy back, wouldn't it still be suffering from the unexpected economic shock?

[mywittyname]

Anymore, corporate "death" means that stock & bond holders lose their wealth. Depending on the type of bankruptcy, the assets get purchased for pennies on the dollar by a large firm, or the existing debt is restructured.

So yeah, a "stronger" company will emerge from the ashes. But only because other people took a bath.

It's like if the bank forecloses on your house. You owe $200k, but they sell it at auction for $50k. The above argument is like saying the new owners who bought your house will be a much stronger financial situation. This is true, but it ignores the fact that majority of involved parties are worse off (you & the bank).

[tracker1]

And that bath isn't necessarily a bad thing... poorly managed companies should be allowed to fail... and investors should hold more responsibility in holding management accountable for their actions without always handing out golden parachutes so to speak.

[sixQuarks]

The reason is the new company knows they will not be bailed out if they encounter a similar situation in the future, thus the expectation is they would be more careful in managing cashflow and saving for a rainy day.

[TheSpiceIsLife]

What is an appropriately sized war chest?

Say you're a business that has razor thing margins but huge turnover, like airlines for example.

Do you need to save for 14 rainy days, or 1400? When your war chest is exhausted do you then go looking for bailouts?

I suppose one answer is to allow government bureaucrats and industry interests to nut out some regulations, but that's different to what you're suggesting.

[lovich]

An appropriately sized war chest is one that lets you live through the next recession.

The reason people are angry is because individual citizens are left to figure it out on their own when a downturn happens, but corporation's are allowed to be flagrantly irresponsible and then still get massive subsidies or bailouts when in trouble.

For everyone here coming up with excuses about how this is a good thing to bailout these companies, please answer me this.

Why do the leaders of companies in a recession always end up with more money from bonuses funded by the government bailouts, while individuals have to tighten their belts?

The average person doesn't believe your arguments when it boils down to "heads I win, tails you lose" everytime we have economic turmoil as a result of greedy actions by corporations

[TheSpiceIsLife]

How long and how severe will the next recession be?

Will it also be accompanied by a sudden and unexpected shock like a global pandemic?

I agree with your point about executives being paid too much while the company and staff suffer, but that's a separate issue.

[lovich]

Those are all good questions.

My point I was trying to make is that we are treating individuals with the cold hard truth of full boned capitalism, but when it comes to corporations we suddenly have all these excuses and help for them.

If we are fully capitalist then the only answer to the right sized war chest is one large enough for the next recession. Whether or not its difficult or impossible to determine what that size is, if you don't have one big enough your company will go into bankruptcy.

If that sounds like a ridiculous burden to put onto companies, _then why do we put it onto individual citizens?_

[autokad]

> "Weak companies (such as the airlines during the COVID-19 outbreak) need to be allowed to die"

its not like someone can just do an airline startup and flights are mandatory for a modern economy.

[dlp211]

Maybe if a bunch of these airliners go into bankruptcy, it would let people who could finally get past the huge barriers to entry.

[Reelin]

I'm frequently an opponent of (what I see as excessive) regulation, but in this case - would you really want to fly in a low barrier to entry situation? The vast majority of the barriers here seem to be related to ensuring safety.

[dlp211]

The barrier to entry is the massive amount of capital to enter the market. If I can buy an airliner for pennies on the dollar, it does not mean that I have to be against or ignore safety regulations. The cost of safety regulations is minor compared to the cost of airplanes, pilots, airport fees and other infrastructure costs.

[maximente]

if by survive you mean remain solvent by RIFing most of their staff, i guess i'm with you. however i don't think that's how it's going to shake out.

we're in a big ol' interconnected world, where the way things are going a fairly large sector (tourism/travel/food industry is a little less than 15% of GDP [or was 2017]) is likely going to get decimated. 1 in 100 of those firms will not be able to survive for 3 months the way things are going, much less 9. that's no fault of their own, it's just that most businesses can't be expected to plan for disaster-level events within their wheelhouse - a great many have trouble hitting payroll every 2 weeks.