Buried in the middle of this excellent piece by Allister Heath about the top ten causes of the banking crisis is a fascinating point (number 3) about transport (and also energy) infrastructure:
3) There was no bankruptcy code for failed multinational banking groups. Regulatory stupidity meant that they were treated like ordinary firms: the choice was either a disorganised collapse, or a bail-out. Other network industries – airports, nuclear plants – have long operated under special bankruptcy codes, ensuring an orderly wind-down and handover of assets. Unlike every other private businesses, big banks knew they would never be allowed to go bust. So they took too many risks and leveraged themselves to the hilt, to maximise returns on capital (and hence profit and pay); while lending criteria were slowly loosened.
I thought that was interesting when I read it. Antoine Clarke picked up on this point also. “I never knew that” says Antoine. Me neither.
So, what are those “special bankruptcy codes” that are in place for big airports (I’m guessing not for all airports), but not for big banks? Anybody know about that?
It’s an important issue, because the fact that airports, railway networks (and energy supplies) must be “protected” by the government - must, basically, be kept going no matter what - is one of the big arguments against the private ownership of such enterprises, with all the competitive benefits that this brings to customers. Maybe it isn’t true that such things “have to be kept going”. But almost everybody thinks it is true. So that opinion has somehow to be separated by libertarians like ourselves from the argument about private ownership. That hasn’t happened with banks, but has with airports. How?