We’ve all been there: when you do well, someone else takes credit. When you mess up, you take the fall for it.
Some have criticized our society and government for doing the same thing, but with money. Privatizing profits and socializing losses refers to shareholders getting money when all is well, yet not paying any money when problems arise...those are paid by taxpayers.
It’s a normative economic term, meaning it’s ideological. No wonder it was born in an op-ed about a government bailout in the 1970s. From an economic perspective, this term is arguing that we should treat problems caused by firms like we treat pollution caused by firms: make them pay for it. In economics, that’s how we “internalize negative externalities.”
Take the Financial Crisis of 2008, for example. Bank shareholders were making big bucks off of banks…”privatizing profits.” Some of those juicy profits were from sketchy subprime mortgage packaging. Banks were “hiding” bad loans in pretty loan packages, grading them as AAA when it was really just a steamy pile of poo. Eventually, that caught up with them, leading to the Financial Crisis of 2008.
While shareholders may have “paid” in some sense for the crisis (taking a hit in profits), they didn’t actually pay to fix the problem. They just experienced the problem, like everyone else. The Fed decided to bail out the banks, using American taxpayer dollars to pay for the problems caused by reckless banking, i.e. “socializing losses.”
Over $400 billion in taxpayer money was used to rescue firms in trouble from the crisis...many of the same firms who caused the crisis in the first place, because it was profitable. At the same time that over 800,000 homes were foreclosed, some failing banks were giving their employees million-dollar bonuses.
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Finance: What is a Private Investment Co...3 Views
Finance a la shmoop what is a private investment company Shh we are hunting [Elmer Fudd appears from a bush]
profits okay people it's private yes private private means not subject to
the onerous rules of public investing and all that regulation that is when [Definition of a private investment company]
it's only wealthy big boys and girls putting in their dough the presumption [Wealthy people giving money to the market]
is that they have their own lawyers their own risk tolerances their own Ivy
League education and they can figure out the deal on their very own they don't
need mama government training wheels the way the public does in public offerings [The public riding a bike as the stabilisers are taken off]
with publicly traded securities and so on like private wealthy educated
investors get treated differently than Jo farmer who you know just graduated [Guy talking as Elmer Fudd keeps appearing in the background]
high school so who all does this apply to like what's a private investor what
investment vehicles are involved well hedge funds you know those go to private
wealthy investors private equity funds same deal and venture capital funds same
deal why because they go bankrupt all the time you can lose all your money in [Money going down the toilet]
these things all the time and it happens and Joe Q public needs to be protected
from that and there's good and bad because in these funds also you can make [The government saves the public from a fire breathing dragon]
like a hundred times your money if you happen to win the one lottery ticket [Guy next to pile of money from Amazon stock]
that goes up a whole lot and that's what people focus on when they sell them so
Joe Q public at least according to government is to be protected from such
a volatility and there's other investment vehicles beyond these three
that get private attention away from the public but they have vehicles we can't [Elmer Fudd whispering]
tell you about
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