When a company gets bailed out with taxpayer money, why is it not owned by the public now?
In: Economics
Pretend you owned a restaurant during Covid. You’re you’re going bankrupt because the government won’t let you open.
If I lend you $100,000 to get your business through the lockdown do I own your business now?
Of course not. I’d be a creditor, at most you could say I have an interest in the business up to the value of what you owe me. When you pay me back we have zero connection remaining.
That’s the shape most corporate bailouts take to get them through a short-term crisis, especially in banking.
A company that needs money is like your friend who owns a home needing money. They can either sell you a part of the home itself, or they can use some of the furniture and junk in the basement as collateral for a loan. In the case of the home itself, you now own a part of the home, in the case of furniture & junk, you have a loan against those assets and can collect them if they don’t pay off the loan. That’s the same for businesses, they only want a loan on the questionable assets they own, they do not want to sell a part of the company to the government.
Public ownership of companies is considered evil socialism in Canada thanks to the Cold War. There’s a reason Brian Mulroney came in and sold off 23 profitable crown corps during the 1980s. That Reagan/Thatcher brain rot of “government isn’t the solution, it’s the problem” still infects conservatives and many liberals. So, naturally, despite private ownership being what caused these companies in question to go belly-up, the talking point remains that private ownership is more efficient and better for blah blah, so once the public sector bails out the private sector it’s only right and natural to hand back all power, control, and profit to the private sector.
You likewise saw it in 2009 after Obama bailed out the US auto sector. They basically bought the companies and then sold them back to private hands for peanuts just to save the companies from their own mismanagement.
often times it’s more desirable for the government to get money back in exchange, rather than owning a company that the government is now responsible for running
It depends. A bailout isn’t always just handing lots of money over to a failing company. For example, the US Government covered the toxic assets of Citigroup, Bank of America, and AIG through the TARP program.
These assets, if held by these companies, more than likely would’ve sunk all of them. They consisted of mortgage-backed securities and CDOs which were both tied to subprime mortgages. They become toxic after much of their mortgages defaulted
Because the goal is to have us all foot the penalty for the company taking all the risk. They win and they profit, they fail and we lose.
The goal isn’t to be fair. Those making the decisions profit from this – that’s why it is the way it is.
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