[mulm]

I don’t think we should bail out any bigger industry without requiring them to create buffers for the next crisis. We bailed them out in 2008, that’s fair, but if they sent all their profit to their shareholders instead of preparing for the next crisis then let their share holders bail them out.

I’m European though, so I may be more of a social democrat than most Americans.

[beojan]

Bailing them out is OK, but it should be through the government buying equity in those companies (essentially partial or complete nationalization).

[nordsieck]

> Bailing them out is OK, but it should be through the government buying equity in those companies (essentially partial or complete nationalization).

Additionally, I think the government should be buying equity at a steep discount - something reasonable but not disastrous like 67%.

[chii]

> buying equity at a steep discount

the gov't "loans" should be the same as the amount of equity obtained. For example, if the book value of the company is $100 , and the debt is $80 (so they need a loan of $80 to cover their debts), then the bailout will dilute all existing shareholders 80%.

[beojan]

If the company is on the brink of bankruptcy, its stock is going to be close to worthless anyway.

[pas]

There are different kinds of bail outs.

The US bail outs that bought the bad stuff from the banks and slowly sold them off as the market allowed made a nominal profit.

(TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation.)

The other kind is what the central bank does, basically quantitative easing, just providing low interest loans to financial institutions - and basically to the government too (by buying US Treasury bonds on the open market). And then it becomes the banks' job to determine who to give loans to, and if they make bad calls eventually they will lose a lot of equity, so there market forces usually help separating the worse from the less bad.

[vidarh]

The other option is to have the bank in question issue more equity for the state to buy.

The Norwegian government for example still owns more than a third of the biggest Norwegian bank as a holdover from a much earlier financial crisis (1990), and decided not to sell down further as a strategic decision to prevent future meltdowns.

The UK similarly bought a lot of bank assets during the 2008 crisis.