8. There are three ways to fix a troubled company
There are three ways of rescuing troubled companies so that these companies have odds in their favor that they can be made feasible going forward 1) Reorganize – i.e., recapitalize; 2) Liquidate – that is, convert assets to other uses and/or other ownership and/or other control; 3) Make capital infusions into the business entity.
Sometimes capital infusions are made by the private sector. Sometimes governments have to make the capital infusions because no funds are available from the private sector. This occurs at the all too frequent times when private markets freeze-up because these markets, for these purposes, are notoriously capricious and grossly inefficient. All sorts of businesses, especially most financial institutions, need continuous access to capital markets. Capital infusions are their lifeblood. Sometimes the infusions have to be supplied by governments.
To economists, capital infusions by governments are known pejoratively as bail-outs. It ain’t necessarily so. It certainly isn’t so if the government earns a reasonable profit from the capital infusion and/or otherwise obtains productive concessions from the entities which receive the capital infusion. To read Mr. Whitman’s full commentary, click here