Michel Pireu Columnist

From Nassim Taleb and Mark Spitznagel at Incerto:

Bailing out individuals based on their needs is not the same as bailing out corporations based on our need for them. 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?

These corporations are lobbying for bailouts; which they will eventually get thanks to the pressure they can exert on the government. But how about the small corner restaurant? The personal trainer? The barber?

Companies need buffers to face uncertainty – not debt (an inverse buffer), but buffers. Mother nature gave us two kidneys when we only need a portion of a single one. Why? Because of contingency. We do not need to predict specific adverse events to know that a buffer is a must. Which brings us to the buyback problem. Why should we spend taxpayer money to bailout companies who spent their cash (and often even borrowed to generate that cash) to buy their own stock (so the CEO gets optionality), instead of building a rainy day buffer? Such bailouts punish those who acted conservatively and harms them in the long run, favouring the fool and the rent-seeker.

Some people claim that the pandemic is a "Black Swan", hence something unexpected so not planning for it is excusable. The book they commonly cite is The Black Swan. Had they read that book, they would have known that such a global pandemic is explicitly presented there as a white swan: something that would eventually take place with great certainty.


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