Bankruptcy is a wonderfully American institution. It allows people to have a second chance and closed the debtor’s prisons. In the Old Days, lots of important people went bankrupt, Harry Truman and Sam Clemens spring to mind.
What would be so terrible if we let a big company like American Airlines, Hilton or Yum! go bankrupt? The way I see it is someone would buy the wreckage for pennies on the dollar, borrow against the assets at super-low rates and everything would continue as before. Few people would lose their jobs and services would hardly be more impacted than they are now.
The difference is that investors would lose their shirts. Of course most of us consider ourselves investors nowadays.
Would this really be more disastrous than printing money to keep Boeing and all the others in business?
Perhaps I am being stupid.
We had a warning that we really needed to fix “too Big To Fail” back in 2008-2009; there wasn’t the political will for it from either side and still there isn’t. Nobody wants to be The Man Who Lost Boeing. Or even just the Man Who Made You Lose Your Shirt. Sad part is that even with a multi-trillionaire bailout of the sectors, some of the “Bigs” are highly likely that *will *fail.
Also, part of the problem is that your sequence of events following bankruptcy is fine if someone is in a position to do what you propose. When every business in the sector is taking it in the 'nards, that’s harder to count on.
It would be bad if you were left holding the bag. Or you were connected with someone holding the bag.
As Gracie Allen said when she ran for president, “A chicken in every pot sounds like a wonderful idea, unless you happen to be a chicken.”
If you invest in a business, it is not all skittles and beer. If the business fails, you loose your money. It is not the end of the world. Seems to be a million acre-feet of wealth has been destroyed. The present system of making everyone whole simply papers over this with money.
Bankruptcies will surely hurt some people, investors, but won’t bailouts also hurt people, taxpayers?
Bankruptcy and bailout are not the only options.
Airlines are a good point. Nobody wants to see any go under. Especially their creditors. By the time a company is a serious airline they are listed, and have a huge number of institutional investors. Aka, retirement investments for the masses. Also, most airlines don’t own their aircraft. They lease them. Sometimes from themselves via a holding company, but usually from a large specialist international company specialising in this. So there is typically no fabulous wealth tied up in assets to be bought at pennies on the dollar. What there was was the ongoing business, its intangible assets, and maybe some real estate. Landing slots, which are worthless until travel picks up back to pre-virus levels. If the airline goes under there can be almost nothing left to see. The aircraft go back to their owner, the brand name is gone, and really all that is left is a memory.
Of course in the USA, there is bankruptcy and bankruptcy. Chapter 11 and Chapter 7. Chapter 11 is where many airlines operated for years. They have legal protection from being shut down by a creditor, and are allowed to continue to operate. Chapter 7 is when the locks get changed on the building. Chapter 7 is where things may be headed, simply because, if the creditors want, they can show there is no reasonable prospect that the company can trade. But it depends upon what they want.
There is probably a good reason that the shareholders would want to have serious conversations with all stakeholders. It is very unlikely that right now sending a large company under helps anyone. These are not normal times, and the economy is not operating under normal rules. Killing an ailing business, buying the skeleton and managing it back to a new dawn is great for everyone when the business was intrinsically sick. But we are talking about perfectly good businesses that are in acute trouble from external factors. There is no gain tearing these down to be rebuilt. That is just a net drag at a time when there is much serious rebuilding to be done.
The useful option is to structure things to freeze the company. This isn’t a cost free thing, but it isn’t a bailout either. So long as nobody is greedy, and some government support is injected into the system to keep things just afloat, which can mean ensuring that the aircraft leasing companies are not pushed under by their creditors etc, it an be held together.
It isn’t just a single company that is too big to fail.Or even a set of them. It is every single one of them. The world economy is too big to fail.
There will of course be unconscionable snouts in the trough. That is unavoidable. Hopefully it can be managed a bit better than just bailing out banks with massive handout of cash.