Corporate Socialism: The Government Is Bailing Out Investors And Managers Not You

The U.S. government is enacting measures to save the airlines, Boeing, and similarly affected corporations. While we clearly insist that these companies must be saved, there may be ethical, economic, and structural problems associated with the details of the execution. As a matter of fact, if you study the history of bailouts, there will be.

From our partners:

cyberpogo

The bailouts of 2008–9 saved the banks (but mostly the bankers), thanks to the execution by then-treasury secretary Timothy Geithner who fought for bank executives against both Congress and some other members of the Obama administration. Bankers who lost more money than ever earned in the history of banking, received the largest bonus pool in the history of banking less than two years later, in 2010. And, suspiciously, only a few years later, Geithner received a highly paid position in the finance industry.

That was a blatant case of corporate socialism and a reward to an industry whose managers are stopped out by the taxpayer. The asymmetry (moral hazard) and what we call optionality for the bankers can be expressed as follows: heads and the bankers win, tails and the taxpayer loses. Furthermore, this does not count the policy of quantitative easing that went to inflate asset values and increased inequality by benefiting the super rich. Remember that bailouts come with printed money, which effectively deflate the wages of the middle class in relation to asset values such as ultra-luxury apartments in New York City.

The Generalized Bob Rubin Trade: Keep the profits, transfer losses to taxpayers. Named after Bob Rubin who pocketed 120 million dollars from Citi but claimed uncertainty and kept past bonuses. This encourages anyone to never be insured for such eventualities since the government will pick up the tab.

If It’s Bailed Out, It’s a Utility

Saving an airline, therefore, should not equate to subsidizing their shareholders and highly compensated managers and promote additional moral hazard in society. For the very fact that we are saving airlines indicates their role as utility. And if as such they are necessary for society, then why do their managers have optionality? Are civil servants on a bonus scheme? The same argument must also be made, by extension, against indirectly bailing out the pools of capital, like hedge funds and endless investment strategies, that are so exposed to these assets; they have no honest risk mitigation strategy, other than a trained naïve reliance on bailouts or what’s called in the industry the “government put”.

LEARN MORE  Did The COVID-19 Pandemic Revive Nationalism?

Second, these corporations are lobbying for bailouts, which they will eventually get thanks to the pressure they can exert on the government via lobby units. But how about the small corner restaurant? The independent tour guide? The personal trainer? The massage professional? The barber? The hotdog vendor living from tourists near the Met Museum? These groups cannot afford lobbyists and will be ignored.

Buffers Not Debt

Not a Black Swan

LEARN MORE  How To Relieve Stress & Anxiety During The COVID-19 Pandemic

Written By

Nassim Nicholas Taleb

with Mark Spitznagel

Republished from Incerto.



For enquiries, product placements, sponsorships, and collaborations, connect with us at [email protected]. We'd love to hear from you!



Our humans need coffee too! Your support is highly appreciated, thank you!
Total
0
Shares
Previous Article

7 Most Watched Sports In The World

Next Article

Has The World Gone Far Enough In Women’s Rights?

Related Posts
Total
0
Share