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For Each, According To Their Bid

You want to own GM? Here's your piece
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As the pace of nationalizations and quasi-nationalizations continues, one wonders why isn't the IPO or debt bid system sufficient to the capitalization needs of these companies.

In the last US election, for instance, about 62MM people voted for President Obama and the Democrats, and one has to assume they are largely sold on these policies. One must presume, given the President's popularity, that tens of millions of additional people are also sold on them, or are at least inclined to give them a chance.

In a type of "IPO", the President could propose bonds specifically designated to support a given week's corporate bailout -- just like there were bonds specifically designed to support a given war. So if 70MM to 100M people invest $1000 each, there's most of the pricetag for GM. Maybe it can even be done through a checkmark on the IRS form.

The President's supporters would then have a special chance to invest directly in the success of these policies, thus lightening the load for those who do not (who are otherwise obliged to participate through taxation or the traditional debt auctin system). The country would pursue the same policy regardless, given the balance of power -- but the true believers would be able to more directly put their money were their mouth is, and to disproportionally benefit from their inevitable success. This will also help finance these companies largely privately, without the need to resort to the country issuing additional debt.

theircompetitor, Jun 03 2009

Private Finance Initiative http://en.wikipedia..._Finance_Initiative
[theircompetitor] is this kind of what you're thinking of? [zen_tom, Jun 03 2009]

Web search for "PFI Failure" http://clusty.com/s...y=%22PFI+Failure%22
Plenty of examples to choose from. [DrBob, Jun 03 2009]

Somewhat related idea You_20Eat_20It_2c_20You_20Own_20It
[theircompetitor, Jun 05 2009]


       since when has MM been short for million?
xaviergisz, Jun 03 2009

       What's the difference between this and normal company (or government) issued bonds?   

       In the UK a few years ago, there was a thing called PFI (it's still around today, it's just not new anymore, so we hear less about it these days) which I think kind of achieves what you're talking about - you want to dilute the risk borne by the general populace by encouraging people who think it will work to involve themselves financially - a good thing since these people will then have an incentive to actually making it work, rather than sitting back and banking all the free money.
zen_tom, Jun 03 2009

       The problem with PFI, z_t, is that it does not dilute risk at all. With PFI, all the risk is still born by the public sector whilst the 'investors' gain all the rewards.
DrBob, Jun 03 2009

       Hmm, it's probably one reason we don't hear so much about it these days - still, if it worked as well in principle as it seems to in theory it would be a great thing.   

       Re your link, it finds 58 instances of "PFI Failure", I did the same Clusty search for "PFI Success" and got 101 hits - so PFI *must* be good!
zen_tom, Jun 03 2009

       PFI is a party political matter, so opinions on it are prone to vary accordingly.
Aristotle, Jun 03 2009

       OK (I try to avoid party politics) but only if you call it PFI - what if we call it Quantitative Risk Dilution?   

       Or to put it another way, isn't it reasonable to expect government to try to mitigate risk to the private sector where possible? (Which makes me wonder - can governments buy insurance against going over budget, or ending up with a rubbish project?)   

       I understand that there are always going to be situations where the government absolutely, positively has to step in when things go wrong - and that does not make for a "perfect market", which clouds the reasoning for getting the private sector involved - BUT - in cases where the govt can step away and can create an environment in which competition and all the other good stuff flourishes (or to put it another way: can make it work properly) then I don't see what politics has to do with it.
zen_tom, Jun 03 2009

       //(Which makes me wonder - can governments buy insurance against going over budget, or ending up with a rubbish project?)//   

       Governments are notorious hedgers. In fact you will find a lot of government's funds /treasury's funds in another government's bonds. You may even find a lot of these similar monies in another country's commoditsed debt/mortgage obligagtions, becuase of the higher returns.   

       The absolute criminal activity is that they are investing *you* (by way of your taxation revenues,which is their security/surety) into another country's liability. This all works very well when things are good. The only "insurance" is a trade surplus. The dumping pool to mitigate this double entry into the income expenditure is emerging markets. Someone has to have a trade deficit for all these trade surpluses.   

       When push comes to shove, however, someone is going to have to pay. And if they don't want to pay, they will have to fight.   

       As to insurance, everyone has it. Globally, no-one has it. The schema, as it exists now, is that of liability distance. Or exposure distance. I could underwrite 1 million suitably removed from the 10 billion debt, and for a suitably reduced income. This is fine when my exposure is localised. It is called the "law of large numbers" or similarly " the weak law of large numbers". As soon as the effect becomes global so does the distance between my liabilty and income reduce.   

       I have to demand more income for my liability, someone either pays or renages. This is the swivel we now sit upon.
4whom, Jun 03 2009

       //PFI is a party political matter, so opinions on it are prone to vary accordingly//

Not really, Aristotle. Politicians are elected to government in order to implement the policies that they outlined in their manifesto. Philosophically speaking, I don't see how they can 'sub-contract' those responsibilities. In effect, what they are saying is that they can't or don't want to actually afford to implement whatever it was that they were elected to do (assuming we are talking about an elected government obviously), so they will get someone else to do it and then pick up the pieces if it goes wrong. In effect, they write a blank cheque to the private investor whilst simultaneously losing control over the project outcomes. This doesn't seem to me to be a very responsible position to take. Alternatively, if they think that the service, project or whatever it is shouldn't be something that the government needs to be involved in then what on earth were they doing when they campaigned to be elected in the first place?

tc's idea about 'policy bonds' at least leaves control of the policy/project in the hands of those who are elected to carry it out and, if it fails, you know who is responsible. PFI does exactly the opposite.
DrBob, Jun 04 2009

       If I were to come over suddenly all Tory/Blairite, I would say that there are two great things about PFI, as it is commonly applied to the construction of public infrastructure (usu. schools and hospitals). The first is that the cost of the construction is largely borne by the private consortium, which frees up govt. money for less concrete, touchy feely policies such as, eh, free cuddles for toddlers. The second is that the private sector project manages the construction. This second point is a good thing not because the private sector is necessarily good at project management but because the public sector is cataclysmically bad at it (see the Scottish Parliament Corporate Body, which was to run the construction of the Scottish Parliament building but ended up doing nothing more than (a) adding to the spiraling costs and then (b) running around like a bunch of fuds looking for someone to blame). These good things, when brought together, result in the taxpayer getting to enjoy new schools and hospitals etc, which were (and still are) badly needed.   

       However, the problem with PFI is that, because the private sector is involved, there is the issue of return. For the public sector, the return is the production of well educated young normals and healthier old giffers. Which is teriffic. But being that banks and construction companies have to answer to their granite-hearted shareholders, the PFI scheme must include a means by which the private "partners" as we might term them, have to make cash money. Which is problematic, because, taking schools as the example, the only ways to make money appear to be:
(a) to grab each child by the ankles on their way in and, having turned them upside down, shake them until their dinner money falls to the ground;
(b) have the little toerags sew mailsacks; or
(c) pump the public sector coffers for a yearly fee for the privilege of running the school "project".

       Which is great because, as was shown by the NHS "Internal Market" reforms, fiddling about with the public sector by shoehorning in private sector capitalism is always a rip-roaring success (per DrBob, above).   

       All of which is pretty much non-propos of the idea posted here, which I am struggling to understand. Do the bonds pay, like War Stock, a fixed return? If they do, then they are largely independent of the GM buyout (to use the present example) except that that is the motivation for them and the ultimate destination of the revenue from the sale of the bonds. Or is the return on the bonds linked to the economic success of the GM bailout? If they are, then how are these bonds different from the government, as majority shareholder, going to the market to raise cash by way of a fresh issue of shares? Perhaps I am missing something. I usually am.
calum, Jun 05 2009

       //granite-hearted shareholders//

You obviously have more caring & enlightened investors north of the great wall than we have down here in the sagging underbelly of the stockbroker belt. Ours don't have any heart at all, not even a granite one.

Oh and I'll take options a) & b) please!

regarding tc's idea, I'm not clear how bailout specific bonds would reduce (or at least, not increase) national debt. Presumably if these are government bonds then they are underwritten by government funds. If not, then what distinguishes them from a normal issue of debentures by the corporation concerned?
DrBob, Jun 05 2009

       the idea is that individual investors would buy these stocks and bonds in lieu of the treasury doing so. Whatever amount was sold, even if t was relatively small, would then NOT applyto the national debt, though of course any coupon payments or dividends or other returns would be due these shareholders.   

       Literally, if the amount of bailout needed by GM was 100 million dollars, and 100 million people each sent in a $, each would become a shareholder for the amount he sent in -- rather than the government owning the company.   

       So it's a way for the government to encourage the citizens to finance an enterprise,without necessarily nationaizing it, or at the very least reducing the level of required govt. ownership.   

       Here's a slightly different, somewhat related idea (aso linked). Regardless of the economic situation, GM will likely sell on the order of 2million cars in the US this year. Presuming an average selling price of tens of thousands of dollars, take a thousand dollars of each purchase and convert it into GM shares -- now the government bailout bill has been lowered by 2 billion (thousand millions) dollars.   

       The end goal in either case is to avoid or reduce nationalization.
theircompetitor, Jun 05 2009

       So it's a govt.-forced capital-raising, on normal terms? On that basis, I think that in respect of the GM-bailout at least, the premise is flawed, for the reasons set out in my ramble about PFI: the reason for investing (eventual return on investment) is not in any way equivalent to the public sector reason for propping GM up (Too Big To Fail/public policy). And if we start applying the FE,ATTB system to other public works, we come dangerously close to replicating PFI (as everyone else said, above), with the same issues of lack/inappropriatness of return on investment. Perhaps it could be applied to space exploration, though, if coupled with some sort of mineral rights/warrants to piracy attached. Hmmm.   

       I think that we have reached the limits of the practicality of applying the corporate/capitalist structure to public policy. The irony is that the limit turns out to be applying capitalism for the public policy aim of propping up capitalism.
calum, Jun 05 2009


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