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Being Too Big to Fail

In a libertarian world, any business that is forced into bankruptcy and cannot find an investor(s) to pay its bills deserves to be shut down. Liquidate the assets! Let competing businesses take over the failed business’s market share! Simple!

But in the real world, part of a CEO’s big salary is to convince the government that the company is just too big to fail: many workers would lose their jobs; suppliers would be disrupted; customers would not find equivalent products/services so easily, foreign businesses will move in, other jurisdictions will get the economic benefits. In essence, the failure of a big company would cause economic dislocation — and voters don’t like economic dislocations.

So our politicians have to listen when a CEO who had missteered their company and asks for a government bailout.

Rather than get into the morality of the bailouts, let’s just create a blanket piece of legislation for when a government bailout does happen. Here’s the basic rule:

If a company gets bailed out with government money, the government gets 75% of the equity of that company.

This is a good deal for all sides. The government is not seen as giving free money to bungling CEOs. The original investors still retain 25% of their value, which is better than 0%. Workers, suppliers, customers, and local economies are not disrupted. The government now owns 75% of the company, which it can sell or keep, depending on the ideology of political party in power.

This basic rule is so simple and practical that we have to wonder why something like this has not been implemented before. Would the corporate world preferring not to be accountable for its screwups be the reason?

It’s time for a new way of governing.

Published on Medium 2022

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