system
Given the following post, respond as if you're commenting on Reddit:
human
CMV: Companies should not be bailed out; they should be nationalized or go bankrupt

So it's likely we are gonna see another around of bailouts across the board. Maybe there in argument to be made this time around it makes sense cause it's by natural disaster. Ok so maybe this time it is ok. 

But I am gonna make a general comment about bailouts. 

In the past 40 years bailouts have become more common, as a result government services have been extensively cut back. 

I believe before a company is bailed out, it should first go through the bankruptcy process. 

If the company is sufficiently necessary to the wider society that it's failure would cause a cascading failures in the wider economy, then that company should be nationalized not bailed out.  

**Bankruptcy != Liquidation**

Before you say dead corporations, and lost jobs, you should realize this is not true in all bankruptcies. 

Bankruptcy is a process by which a company can restructure its debts, and move forward as a leaner and healthier company. 

Liquidation is where a company has failed.

Businesses go bankrupt all the time. Those businesses which still have a viable market can emerge stronger from the bankruptcy process. They'll have less bad debt and will have another opportunity to grow. 

Those which do not will go into liquidation, and they will either be replaced by its competitors or that market will disappear.

Businesses regularly recover from bankruptcy. 

During that short period where the company is struggling, sure employees suffer, but in the long run, employees are better off. 

For example if the company had a pension, the pension fund usually takes a greater stake in the company and as a result employees end up owning more equity in the company.

Equity trades can also be used in exchange for benefits or changes to the contract to reduce the corporation's operating expenses. 

While those that don't, yes they die out, but maybe they are meant to die out and create room for new companies to fill the void. 

What should be clear in a bankruptcy the parties which always loose are unsecured creditors. These are usually large institutional investors who take a risk in investing in the company. If the risk pays off the investors get rich, if it does not they loose their investment. 

**If a company is too big to fail then it should be a public utility not a private company**

The crux of my argument is this, public utilities work on a different social contract than private companies.

Public utilities run at a loss in exchange for the social benefit. The underlying premise being, the social benefit greatly outweighs the loss. 

Attempting to run the public utility profitably would destroy the social benefit and that's why public utilities are subsidized by the state. 

For example public transit the deal is it operates at a loss, but in exchange we get , less pollution, an effective means of transportation and less traffic. If we ran public transit profitably we might have to cut routes which are less profitable but still necessary for a functioning city.

When I hear the argument too big to fail, that makes me think that company should be run by the state. I mean if it's failure would cause bigger problems then it's effectively public utility. 

**Bailouts are destroying the social contract for private investors**

Private investors invest in large corporations and when they do, they sign onto a different social contract. 

The social contract is simple, we want you to take some risk, so that we can grow the business and create real meaningful value in the economy. 

In exchange for taking that risk, we have offered you certain benefits:

1. if the business does well, you get to keep the profits with favourable tax treatment; and
2. If the business does poorly, you are not personally liable for the outstanding debts of the corporation.

But it is understood you always loose what you invested in the company when the company fails. 

If we keep bailing out bad investments, we are actually destroying that social contract.

Now when the risk pays off the investor keeps a greater share of the profit and enjoys favourable tax treatment. But when the business fails the investor is bailed out. 

This is encouraging investors to make even worse investments. If the company is “big enough” it won’t be “allowed to fail” investors take more risks with the companies they run. If the the risk pays off the investor gets richer, but I'd it doesn't the investor is nailed out and is no poorer. 

It is also creating a set of zombie companies. Those companies are saddled with bad debt, and are constantly and are paying off that bad debt. As a result, few companies can afford to make investments in the company itself such as giving their employees higher wages or hire new employees.

As a result it's creating more wealth inequality between those who have money and those who do not. 

**Public services are suffering as a result of government bailouts**

As governments bail out more and more, government debt rises. As governments try to finance that government debut, public services start to suffer, which again affects those of us at the bottom the most.
gpt
What stops this from being artificially manipulated? The government could do something that it knows would specifically harm an industry, and then nationalize it. 


Also, the government doesn't lose with bailouts. Those are loans. The Obama bailouts actually made the government a profit.