Nassim Taleb: Why Are We Bailing Out Companies That Spent Their Cash And Took On Debt

Here’s a great short interview with Nassim Taleb on Bloomberg in which he discusses the Coronavirus as being a ‘White Swan’ not a ‘Black Swan’ event, as well as his thoughts on bailing out companies that spent their cash and took on debt over those that had a cautious attitude. Here’s an excerpt from the interview:

Okay, so bailouts by definition have a problem. The first one I’m gonna say it bluntly here. They’re not bailing you out Erik Schatzker. They’re not bailing out the listeners here. They’re bailing out investors and corporations. And who are they bailing out? Those who did not have a buffer. Not having a buffer is irresponsible whether you’re a corporation or an investor.

Now you gotta realize that nature, mother nature, or God or whatever in theology made us with two kidneys. This applies I guess even to Bloomberg employees that have two kidneys. Why two kidneys? We have huge extra capacity. Because you may need it one day. Because if you don’t have extra protection you may face difficulties. You may face something, you don’t have to predict the virus. It’s the equivalent of having cash on hand rather than debt.

So we favor the companies… the system favors the companies that spend their cash instead of keeping it in reserve. Spend their cash to buy their stock and furthermore borrow over those who had a cautious attitude and now we’re bailing out those who made that mistake.

We should bailout employees. We should bailout citizens not corporations who made these mistakes. That’s at the level of corporation.

You can watch the entire interview here: