[NotAnEconomist]

Why would they?

They're not going to have to re-issue shares at a lower price; they're going to get bailed out by the taxpayers.

The conditions for government money should be:

1. All current debt is converted into shares, erasing payback preferences and on-going payments to creditors.

2. Companies must issue new shares as collateral to the government at current market rate, in exchange for the money.

3. Rather than repayment, the government will sell the shares on the open market in years 2-6 (a 5 year window).

4. All share buybacks at the company are banned for a period of 10 years.

It's okay to nationally support critical businesses, but make the shareholders take it in the wallet for their reckless business practices leading up to this.

They took a gamble by buying shares instead of saving -- let them take the hit for losing.

[pdonis]

> make the shareholders take it in the wallet for their reckless business practices

The problem is that those business practices weren't decided by the shareholders. The shareholders in most cases are mutual funds holding millions of people's retirement savings. Those people had no say in the business decisions made by the companies; they don't even control which individual stocks the mutual funds invest in. Their retirement savings are not what should be taking the hit.

[jddj]

So where is the accountability, then? Does it fall on whatever % of owners who are active investors? Or are they shielded by the fact that there's a mutual fund present who pledges to simply vote with the board on every decision?

Doesn't saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value create perverse incentives and remove all of the responsibility from.. everyone involved?

Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period, and now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control? Or some people were in control, but there were also some who weren't?

Something is missing here if a company having passive shareholders means it should do well, business-practices-be-damned.

[pdonis]

> So where is the accountability, then?

There isn't any real accountability as far as shareholders being able to hold corporate executives and boards of directors accountable. That is a huge breakage in corporate governance that won't be easily fixed.

> saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value

Who said that?

All I said is that, since the shareholders weren't the ones that made the questionable business decisions, they shouldn't be the ones that are shafted because everyone wants a scapegoat.

> perverse incentives

There are certainly perverse incentives for corporate executives and boards of directors, but they aren't of the form you describe. It's simpler than that: it's just what I said above, that there is no practical way for shareholders to hold them accountable.

> Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period

And now they are taking the hit from the market tanking. My 401k is down quite a bit.

> now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control?

I'm not saying that. I'm just saying that (a) the shareholders weren't the ones that made the bad decisions, and (b) the shareholders are already taking a hit anyway.

If you really want the government to Do Something, it should fix the perverse incentives that corporate executives and boards of directors face. Having real criminal penalties for breaches of fiduciary responsibility, and stricter rules for what companies that take any investment from retirement funds can do, would be a good start.

[joe_the_user]

Yeah, I'm not fan of "the corporations" but the decisions that would made by various corporations to leverage to the hilt came from the overall market conditions rather than individual enterprise decisions.

(not that I think much of the parent's idiosyncratic money-scheme but still).

[8bitsrule]

An alternative path: The bailees issue preferred stocks to US taxpayers. In case of failure, the taxpayer collects first. In case of success, they get repaid for their investment.