[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?_

[TheSpiceIsLife]

Ah, yep, fair enough.

Yep, generally agree.

A strong social safety net seems important to me. Here in Australia we do have social security and a healthcare benefits program. So there's that.