I imagine there's a lot of 'invisible supply destruction' as well, as all those businesses that have let go around 17 million people over the past three weeks[a] are shutting down entire groups and divisions, canceling investment plans, walking away from leases, etc. Not pretty.
> shutting down entire groups and divisions, canceling investment plans, walking away from leases, etc.
Agree completely.
There's been this naive bit of internet "wisdom" running about assuming plants and planes are the only assets in the world. That after all is said and done, and bankruptcies re-assign that capital, the world can continue as before, with ownership only shuffled.
That isn't how modern economies work. Tremendous capital is in the intangible nature of firms. Apple, Tesla, SpaceX and your neighborhood restaurant are worth less in parts than as a whole.
> Apple, Tesla, SpaceX and your neighborhood restaurant are worth less in parts than as a whole.
Well, of course they are. If they weren’t, they could make more money by liquidating themselves, which means they most likely would liquidate themselves.
Are they? Do you have some magical economic clairvoyance about asset valuation?
See, the thing about a market economy is that the value of assets is difficult to ascertain but can be "discovered" through the actions of market participants. Sometimes, a whole bunch of assets are tied up in a company that seems to be using them well enough, and might even be generating a profit (on paper), but in fact those assets could be used even more profitably in some other productive capacity.
Note that this doesn't restrict assets to PPE (property, plant and equipment). I'm pretty sure anyone who has ever been an employee can attest that human capital can be just as unproductively employed as physical capital, but still show a profit on paper.
So no, you can't make some blanket statement that all companies are worth more than the sum of their parts. Some might be, but I believe the main reason we are a capitalist society is because allowing markets to freely discover the prices of assets results in a much more productive allocation of capital than the alternatives.
In fewer words, let the invisible hand of the market conduct economic darwinism and let the chips fall where they may.
I would agree with that - except that would also cause collateral damage to people's livelihoods.
if the gov't bailout is more a societal bailout - good unemployment benefits, good socialized healthcare, and effective tax collection of income - then they won't need to do any corporate bail outs, or inject liquidity.
The fact that loans can easily be had, means that a company's investment hurdle rate is artificially lowered. And companies take more risks. I believe japan's lost decade is a prime example, and the bank of japan has held all the assets as their purchase program failed to bring any real economic prosperity (https://www.reuters.com/article/us-japan-economy-boj/bank-of...). I sincerely hope the USA isn't gonna fall to that.
I think people are picturing chapter 11 bankruptcy, not 7 or 13. The firms stay intact, but the shareholders lose everything and the bond holders come to a new agreement.
I imagine there's a lot of 'invisible supply destruction' as well, as all those businesses that have let go around 17 million people over the past three weeks[a] are shutting down entire groups and divisions, canceling investment plans, walking away from leases, etc. Not pretty.
[a] https://www.wsj.com/articles/u-s-surge-in-unemployment-claim...