Bear Flag Blog

Get this:

RBS, worth £75 billion only two years ago, is now valued at £4.5 billion, even though it received £32 billion from taxpayers and shareholders less than three months ago.

(from the Times Online)

Now look. I have a degree in economics and an MBA from a prestigious university; I'm no wild-eyed communist. Private enterprise is both the greatest creator of wealth and human happiness and a positive moral endeavor.

But come on. When the government puts more money into an enterprise than it's worth, the enterprise should become property of the government. Previous shareholders need to be wiped out - entirely - because that's how capitalism works. If there's no risk there's no incentive to behave as shareholders must behave in order for the whole corporate-capitalist machine to function properly.

And to argue that the government can't run things well is facile (and flat-out wrong but that's another issue), given that it would not be possible to do worse than the previous management. Sure, as soon as feasible the government should sell the enterprise(s) off again into private hands. But if we the taxpayers are bailing out General Motors for more than the market value of General Motors, or bailing out AIG or staving off bankruptcy at Citibank or whatever - we should wind up owning the companies, 100%, and the previous shareholders and management should be out. Period. That's how capitalism works: if you fail, you go under.

You and I are pouring $700 billion into these financial titans and getting what, exactly? If these companies are necessary to prop up the current financial system, well then they can prop it up under our ownership.

I say again, prior owners/shareholder and prior management should be wiped out, taken off the board. A bailout ought to be a buyout. And then, in two or three years, the government can privatise the companies again, hopefully to shareholders with a little more interest in oversight.