This is not 2008.
A lot of countries, including Canada, have thankfully learned the lessons from 2008, publicly-traded corporations aren’t to be trusted with government bailouts.
During this pandemic, Ottawa is laser-focused on providing financial help directly to individuals, families and employees.
The rollout of the Emergency Wage Subsidy and the $40,000 interest-free loan facility for small, medium-sized companies and entrepreneurs is to maintain as many jobs as possible in every community, large and small.
In the 2008 financial crisis, the “too big to fail” were handed trillions of dollars worldwide. Governments did it to save jobs, but the Wall Street boys focussed on helping themselves.
Big employers in Canada, thankfully, are being treated differently in 2020. Through the Large Employer Emergency Financing Facility (LEEFF), corporations can get a loan-of-last-resort from the government. Companies convicted of tax evasion, those using tax havens or those shown to pursue ‘aggressive tax avoidance’ need not apply.
To prevent the worst excesses of capitalism as witnessed in 2008, large employers must open their financial books to government auditors. The provisions will not allow share buybacks and there are strict limits around dividends and executive compensation.
Further, these loans cannot be used as an escape from pre-existing insolvency or restructuring costs to stay afloat.
LEEFF also includes a provision that allows Ottawa to seek warrants from publicly traded companies, convertible to equity or cash equivalent, in the case of defaults. Great efforts are being made to ensure taxpayers are protected from the greed of Wall Street.
There may be some important industries, such as airlines, oil and gas, retail malls or airport authorities, where restructuring and laying off employees will not be enough for them to survive until demand for their goods or services rebuilds.
To protect the survival of important economic infrastructure and protect them from international vultures looking for a cheap takeover, the federal government will likely need to step in and provide additional liquidity.
These bailouts, however, need to be structured appropriately to protect taxpayers.
A small flashback to 2008 is worth remembering. Even after the governments of Ontario and Canada gave Chrysler and General Motors US$9.5 billion, General Motors, within a decade, shut down their large Oshawa operation and threw thousands out of work.
Corporate bailouts by the government must be tied to equity ownership, board representation and a buy back provision that includes an industry-acceptable rate of return on investment for taxpayers.
The risk-takers are the taxpayers and they ought to be rewarded appropriately.
Consider it a teaching moment for capitalists—if you don’t want governments sitting at your board table, build some resiliency into your operations and stop begging every time there’s a little trouble in the marketplace.
Our current federal government seems ‘done with’ privatizing profits and socializing corporate costs. That should come as no surprise given Finance Minister Bill Morneau is a Bay Street boy and knows all the slick tricks big corporations employ to channel much of the bailout to the top.
It’s been fascinating watching Morneau’s programs roll out as they continue to place emphasis on individuals and locally-owned businesses while delivering a not-so-subtle message to directors and executives of publicly traded corporations—this is not 2008.