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In exchange for that return on investments, investors bear risk. That risk has now come due, investors should be getting a haircut.

IMO the bailout should take the form of an equity investment from the government. Investors get diluted, but the company survives. Government gets a profit if things go well.

Privatizing profit and mutualizing risks is an insane moral hazard, we have to shake it off.

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Hmm.. maybe this is a chance to kickstart a US Sovereign Wealth fund. If all the bailouts are in the form of buying an equity stake, we simply put all that equity in a portfolio, and rebalance it when things stabilize. Presto, that's a sovereign wealth fund right there.

I really like this proposal. Is there a reason it’s not being seriously considered?

What you're describing is exactly how tarp bailouts of 2008 worked - government bought preferred stock. It was then promptly bought back over the next couple of years.

Truly getting rid of the mutualizing of risks would be letting the companies just collapse. But for various reasons (wanting banks, plane flights), we've decided to not do that.

I think if you severely dilute (or even wipe out) the shareholders you've gotten rid of the moral hazard. This happened with some of the car companies, and I don't think they're too eager to go through it again.

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