Banker bonuses

[Darius871]

Nationalization is only done when the government feels it can make sufficient return off the company once things turn around. If they were truly insolvent, then they wouldn't be nationalized. Sooner or later, the government expects to get paid off.

No. I don't think proponent of nationalization here seriously expects it to be a net profit for the government. The point is for the Treasury to take a big hit by absorbing bad assets, as an alternative to the HUGE hit that it'd take by allowing a wider collapse of the banking system. Lesser evil and all that.

Yes, it's possible. It may not succeed, but if you changed the management and other things went well, you could save a company far into debt. It really depends on the situation.

Ok, maybe I should have been more clear. I don't just mean more debt than assets. I mean more present debt service costs and operating expenses than present income, i.e. more going out than coming in. And no outside creditors willing to fill that gap at feasible rates. That's what we're dealing with here.

No, they'd go into bankruptcy, and since creditors automatically have priority in either restructuring or liquidation, stockholders (whether voting or nonvoting) would be immediately wiped out. That's how it works.

That's a cost of doing business.

So on the one hand losing 100% of your investment to bankruptcy is the "cost of doing business," but on the other hand losing 100% of your investment to nationalization of a company that would have gone into that same bankruptcy had the nationalization not occurred is not the "cost of doing business"? What's the difference? Do you realize how hypocritical that is? Do you at least comprehend that it might look blatantly hypocritical to the eyes of individuals who are not you?

Share value of the TARP companies is not 0. They may have debts over their assets, and deficit greater then their cash flow, but that doesn't mean there isn't some value in the company. So long as it has some assets on hand, it has some value.

Sure there's value in them, because they're not being nationalized and they therefore have a chance at staying afloat with present TARP funds, future TARP funds, sensible lending practices, stimulus package effects, reliability in the eyes of their own lenders, etc. Their value, though small, is a reflection of that chance.

If it were known by the market today that they were going to file bankruptcy tomorrow, you'd better believe the market value would dip to almost zero if not zero. If it were known by the market today that they would be nationalized tomorrow, you'd better believe the market value would dip to precisely zero.

[Ben Kenobi]

It's like Ben thinks rich people have a right to be rich no matter what happens.

It's like Kid thinks poor people have a right to stay poor no matter what happens.

[Victor Galis]

Frankly, I don't think corporations should limit liability only to the amount invested by the shareholder. Rather, investors should share in the liability to the extent of their investment. Right now, you can only lose the amount you invested. Investors should be fair game as well.

I'm not sure there are words to describe how terrible an idea that is.

There are voting and non-voting shares. Non-voting shares have no control whatsoever.

Most of the small investors have voting shares. They also had the option to walk away by selling.

Not if the government takes over the business. I completely understand the problem with risk. If the business goes bankrupt then I lose the value of the share. If the government wants to take over the business, then they have to compensate me for the value of my property. They just can't take it.

We're talking about businesses whose value is negative. If they weren't, there's no compelling reason to nationalize. If there's a serious concern that the company might still be worth something, give the shareholders some of the illiquid assets that might one day have value again.

If I was part owner in a company and the company hurt someone, I'd be liable, up to everything I owned. Why should owning stock be different?

Because if you're a part owner in a small company, you may have actually been involved in the incident or had some control. The average shareholder does not and cannot know that much about the company he has stock in.

Why couldn't you get things done? Corporations would just have to be a lot more careful and ethical. The whole point of the joint stock corporation is to shield investors from the liabilities their investments cause. That's ****ed up.

Or they could just cease to exist because it's not worth the risk. I know which route I'd choose.

If they are insolvent and cannot be saved, why are they being nationalized?

Because we need banks and large banks don't spring up overnight.

Why bother nationalizing them if they are worthless? Obviously the businesses do have value, which is why changing the management makes them profitable again.

They're worthless financially because they have more liabilities than assets. They're worth keeping going because changing the management would make them profitable again and they provide necessary services. Part of the nationalisation would be taking some of their liabilities so that they become desirable to investors again.

[Darius871]

If it's done 'quietly and quickly', investors will lose trust in the government, and will treat the TARP label as "we will nationalize your ass", and get out.

So? As I've said, that's a risk of accepting money from a bailout that publicizes its recipients, and precisely why banks confident in their solvency would be insane to accept TARP money. If people sell it, they sell it. I thought it's warning that you wanted anyway.

Someone like JPMorgan, perhaps? Anyone who is "too big to fail" would love to buy up a company for less then the existing assets available, knowing that the feds have them backstopped.

Someone who's too big to fail, has every interest in getting bigger at the expense of the feds.

Uh, I thought you were operating under the assumption that nationalization would wipe out shareholders in the process. Now you believe that it would "backstop" existing shareholders, so long as it's a post-selloff bigwig like JPM? WTF?

So let me get this straight: you're suggesting that if the government nationalizes Bank X, owned by an array of mom & pop shops at $5 a share, it would burn them, but the very same day, as it nationalizes Bank Y, owned by JPM at $0.0000001 a share, it'd compensate JPM? Or do you mean the government would just temporarily manage the bank but still let JPM retain its % stake, which wouldn't technically be a nationalization? Is it a nationalization or not?

[Darius871]

We're talking about businesses whose value is negative. If they weren't, there's no compelling reason to nationalize.

Don't bother. Since he can't accept that simple beginning premise, all of the rest is pointless.

[Ben Kenobi]

No. I don't think proponent of nationalization here seriously expects it to be a net profit for the government. The point is for the Treasury to take a big hit by absorbing bad assets, as an alternative to the HUGE hit that it'd take by allowing a wider collapse of the banking system. Lesser evil and all that.

They have deeper pockets, and can afford lower debt servicing costs, not to mention the fact that they are huge compared to the individual banks.

They can afford to take the long wait, write off the bad assets, and let the good parts start to turn around. The thing I like about nationalization, other then porkulus, is that it gets rid of the corrupt company management. I would rather see nationalization then subsidy, because you have a different set in charge, provided that the stockholders get some compensation.

Ok, maybe I should have been more clear. I don't just mean more debt than assets. I mean more present debt service costs and operating expenses than present income, i.e. more going out than coming in. And no outside creditors willing to fill that gap at feasible rates. That's what we're dealing with here.

Well there are a couple of different approaches.

1. Sell off non-productive assets. This lowers your operating expenses. Keep the cash. Don't dump it into your debts straight away.

2. Increase revenue. Grow the pie. Anything that makes more money for you then it costs is where you should be putting cash on hand.

3. Layoffs/cutbacks/furloughs. Lower your operating costs by doing more with less. Make it clear that the choices are bankruptcy or a pay cut. Cut back on hours as your employees are more productive the less that they work.

4. Elimination of Unions. Make it clear that the choice is between a union or a job. Shut the whole works down, and hire non-union staff to break the union contract.

5. Elimination of perks/benefits. Most costs redirected to employee pockets.

6. Suspension of pension benefits. I'd raid the fund as a last resort, if there's no other way to save the business.

Lots of options there.

It all depends on the cost structure, business at hand, etc. There are lots of little things that can be done to improve the bottom line.

Sure there's value in them, because they're not being nationalized and they therefore have a chance at staying afloat with present TARP funds, future TARP funds, sensible lending practices, stimulus package effects, reliability in the eyes of their own lenders, etc. Their value, though small, is a reflection of that chance.

Exactly, which is my point as to why their shareholders should be compensated.

If it were known by the market today that they were going to file bankruptcy tomorrow, you'd better believe the market value would dip to almost zero if not zero. If it were known by the market today that they would be nationalized tomorrow, you'd better believe the market value would dip to precisely zero.

It would drop to the value of the assets on hand + cash on hand.

[Kuciwalker]

I warned you.

[Ben Kenobi]

Uh, I thought you were operating under the assumption that nationalization would wipe out shareholders in the process. Now you believe that it would "backstop" existing shareholders, so long as it's a post-selloff bigwig like JPM? WTF?

No, I'm referring to the bear sterns situation. The government would wipe out all the shareholders, and then sell to JP Morgan for a profit, after cancelling all the debts. JP Morgan gets the gold without the crap, and for less then he would have paid otherwise. The government gets immediate cash on hand, in exchange for some future liabilities.

[Darius871]

They have deeper pockets, and can afford lower debt servicing costs, not to mention the fact that they are huge compared to the individual banks.

They can afford to take the long wait, write off the bad assets, and let the good parts start to turn around. The thing I like about nationalization, other then porkulus, is that it gets rid of the corrupt company management. I would rather see nationalization then subsidy, because you have a different set in charge, provided that the stockholders get some compensation.



Well there are a couple of different approaches.

1. Sell off non-productive assets. This lowers your operating expenses. Keep the cash. Don't dump it into your debts straight away.

2. Increase revenue. Grow the pie. Anything that makes more money for you then it costs is where you should be putting cash on hand.

3. Layoffs/cutbacks/furloughs. Lower your operating costs by doing more with less. Make it clear that the choices are bankruptcy or a pay cut. Cut back on hours as your employees are more productive the less that they work.

4. Elimination of Unions. Make it clear that the choice is between a union or a job. Shut the whole works down, and hire non-union staff to break the union contract.

5. Elimination of perks/benefits. Most costs redirected to employee pockets.

6. Suspension of pension benefits. I'd raid the fund as a last resort, if there's no other way to save the business.

Lots of options there.

It all depends on the cost structure, business at hand, etc. There are lots of little things that can be done to improve the bottom line.



Exactly, which is my point as to why their shareholders should be compensated.



It would drop to the value of the assets on hand + cash on hand.

I officially give up. Enjoy your self-esteem boost Ben.

[Kidlicious]

It's like Kid thinks poor people have a right to stay poor no matter what happens.

1) That's not contradictory.

2) There's no basis to that statement.

3) It's no stupider than everything else you've said.

[Darius871]

I warned you.

When?

[Kuciwalker]

Guys, please just ignore Ben.

here

[Ben Kenobi]

Edit:

Finally! 10 year low.

Oct. 31 - 1997.

If it falls to 7440, that goes all the way back to June of 1997.

[Kidlicious]

Edit:

Finally! 10 year low.

Oct. 31 - 1997.

If it falls to 7440, that goes all the way back to June of 1997.

So?

[snoopy369]

Kuci, like the Cassandra, you are forever doomed to see the future accurately but never to be heeded