tag:blogger.com,1999:blog-19649274.post779003372308566957..comments2024-03-29T12:03:50.891+05:30Comments on The Leap Blog: Governments riding in to rescue firmsAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-19649274.post-84266289660979209562010-11-23T18:36:40.030+05:302010-11-23T18:36:40.030+05:30Though it is not the job of a government to preven...Though it is not the job of a government to prevent companies that are dying but still, if we think of the 53000 employees and also the Satyam played as an It giant with 7300 firm. I feel the government has done the right job.<br /><br />And I totally agree with what Anonymous said...<br /><br />"GM fails this test and I think Satyam fails it also".Devi Sri Mariihttp://www.dsij.in/Interact/StockMarketChallenge.aspxnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-64393259695781022982010-11-21T00:10:45.365+05:302010-11-21T00:10:45.365+05:30In continuation of the previous comment, a 7th tes...In continuation of the previous comment, a 7th test should be: "Is the contractual negotiation of a rescue of the kind that a private equity fund would enter into?"<br /><br />GM fails this test and I think Satyam fails it also.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-5372331754122484772010-11-20T23:35:59.940+05:302010-11-20T23:35:59.940+05:30Ford, Toyota, Honda, Volkswagen, et al...have all ...Ford, Toyota, Honda, Volkswagen, et al...have all the reason to complain here. Unlike the financial firms which had cross-holdings of various toxic assets as a result of which any one of the large finance cos going down under would have threatened bankruptcy for others, there was no such problem affecting the global auto industry. <br /><br />Had GM gone down under, it would not have put Toyota and others out of the market. Infact there were huge market share gains to be had for the likes of Ford, Toyota, & Honda....really huge gains! <br /><br />Where GM was reckless with its expenses and investments, these companies made business decisions sensible enough for them to survive a scary downturn. <br /><br />And yet, ironically, post Govt intervention an inefficient company like GM comes out of bankruptcy, reports a large profit (thanks to a recovery, bankruptcy induced cuts, tax breaks, etc.) and trades at a market cap that is same as its nearest competitor - FORD.Ravi Purohithttps://www.blogger.com/profile/17616076999283569192noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-78828519409398618642010-11-20T10:51:04.105+05:302010-11-20T10:51:04.105+05:30Ajay,
You are overstating the joys of the GM inte...Ajay,<br /><br />You are overstating the joys of the GM intervention.<br /><br />The nutty benefits of workers of GM were not scaled back -- as they would have been by a private equity fund that might have done the deal -- since the Democratic administration is beholden to the unions.<br /><br />GM is not yet really viable - they can't compete with car production in India. There may well be another fatal accident.<br /><br />It's true, the government staved off the collapse and the government got its money back. But (a) If the government had done nothing, this would have reinforced market discipline - maybe the most important good thing that you can do for the US automobile ecosystem is a dose of creative destruction and (b) The government did not do as a private equity fund would have (though maybe it's unreasonable to ever ask a government to behave in a commercial setting with the brainpower and clarity of a private player).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-9171153059413467052010-11-20T09:58:44.908+05:302010-11-20T09:58:44.908+05:30Is there no sense of moral hazard here? And you ju...Is there no sense of moral hazard here? And you just speak of an instance where GM actually got back on its feet, but what of Chrysler which has been bailed twice (Reagan era and Obama era now), but yet it continues to be chronically ill and should have been finished a long time ago - so going by that count what is to stop GM from going the Chrysler way soon..also another thing, just mere financial wizardry can perhaps show the people that a company has recovered but the original direction of the company still remains the same - GM is headed to a cliff and until there is a drastic change in culture and management nothing really is going to change - watch this space...GM will go under once again.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-85387622690336995722010-11-19T20:51:46.035+05:302010-11-19T20:51:46.035+05:30The Satyam was an IT giant as a 7300 crore firm wi...The Satyam was an IT giant as a 7300 crore firm with 53000 employees at that time.The most important things were its reputation and clients.If it was not considered by government that time,the country's image will be suffering.The government took adorable steps which are paid off.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-5410083182748700692010-11-19T19:09:05.880+05:302010-11-19T19:09:05.880+05:30I don't think questions 2 and 6 can be answere...I don't think questions 2 and 6 can be answered favorably (as yet) for the GM case. <br /><br />GM has been allowed to get the benefit of old tax losses ($45B) contrary to bankruptcy law.<br /><br />While I do not know the details, the bankruptcy code for GM creditors was also messed with. There may well be a cost to pay for these in future, explicit and implicit.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-33064263484609596082010-11-19T18:19:01.103+05:302010-11-19T18:19:01.103+05:30@becreative. A government bailout of a business or...@becreative. A government bailout of a business or industry should only ever occur if failing to act would result in economic catastrophe, e.g a total and utter meltdown in the wider economy. Frankly even then as far as I concerned I am a little dubious of the notion.<br /><br />Governments should provide regulatory frameworks which encourage business to develop and grow, they should not be used as a means by which tax payer money is used to resuscitate and prop up dying business whose management made questionable decisions or perpetrated fraud. It sets a terrible precedent and sends all the wrong signals to managers, investors and employees and actually suggesting it is a viable option to maintain employment of a single company and its suppliers is anti-competitive and some what protectionist. If you look at Japanese or Korean auto makers in the General Motors example, none of those auto makers went to their governments seeking assistance (at least not that I know of, I may well be wrong), despite facing the same economic conditions in their largest markets.<br /><br />If a government engages in a policy of bailing out and resuscitating large company's whenever the need arises, it sends as a signal to a number of participants in the economy that excessive risk taking, or bad management and judgement is not an existential threat, so long as one's balance sheet and employment base is large enough.<br /><br />The success of the General Motors IPO, which is touted by Mr. Obama as a win for his economic policy, is really a symbol of a lack of consequences for very large company's, a luxury which is not afforded to smaller company's or individuals (welfare payments aside) granted the Americans bailed it out at a time when uncertainty was at its highest in recent memory, and it has to be said in general the Americans are fairly good about allowing large company's to fail, e.g. Enron.Sharatnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-61584686058586819832010-11-19T12:40:46.523+05:302010-11-19T12:40:46.523+05:30The Satyam bailout has not been smooth sailing by ...The Satyam bailout has not been smooth sailing by any means. The fact that it continues to exist as part of a merged entity belies the fact that there have indeed been customer defections (though the company says it has won much new business), and the company remains under sustained pricing pressure because perception of the company continues to be tainted. Which means it has had to offer its services at deep discounts to rivals such as infosys or TCS in order to retain clients, who seem to continually defer signing contracts until after the company reports results because of persistent worries that it is financially unstable.<br /><br />Clearly over time a lot of those problems will be overcome, many companies have recovered from financial scandal, but I am not so sure I agree with the notion that successful government bailouts which ultimately allow companies to recover from what was very bad decision making by management does anything but produce moral hazard.<br /><br />It reinforces the notion of too big to fail which will perpetuate poor risk taking. Frankly India would have survived fairly easily had Satyam been allowed to fail. A Stayam failure though perhaps relatively large in magnitude could hardly be defined as being an event which would have produced economic catastrophe, so I don't see why the government felt the need to get involved. As far as UTI is concerned, my perception is the entire banking industry in India is underwritten by the Indian government anyway. Indian banking operation of international banks included. I can't see any bank in India with a wide depositor base ever being allowed to fail, though smaller co-operatives have been allowed too, though that is just my perception.Sharatnoreply@blogger.com