I did forget to mention the loan guarantees. I believe they are in there, Bill, as part of the $15 billion. A lot of what the feds do now is guarantee loans; the aggregate numbers are quite striking. A young scholar in Yale's polisci department wrote a book on this a couple years ago. I need to take a look at that.
The airlines case seems pretty tough to me in some ways. A lot of my colleagues here support the feds compensating the airlines for having closed the airports for four days. All other losses would be normal business risk. Yet, I note that most investment banks have departments doing country risk analysis and predicting the risk of events like expropriation and lesser interventions like closing the airports. Should we assume that investors in domestic companies don't take account of that risk? If they do, the share price prior to September 11 reflected that risk and the government subsidy after September 11 is simply a windfall to the owners of the airlines. It's also hard to argue, I think, that the government had a more accurate view of the risk of flying after September 11 than the insurers did for the usual reasons one prefers private choice over collective choice in risk assessment. The clear implication of that,however, is that the airlines should and would have been shut down until some private firm was willing to offer $1.5 billion in insurance for each flight (they did return to the market last week but after the government bailout so we don't know what would have happened without the Congressional action). Another implication of this would be that by intervening and obstensibly reducing the costs of the events of September 11 (bankruptcies, reduced economic activity and so on), the feds have made it marginally more likely that something like September 11 will happen again. John Samples Cato Institute -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of William Dickens Sent: Wednesday, September 26, 2001 3:53 PM To: [EMAIL PROTECTED] Subject: RE: Airlines Hi John, Is this all there was to the bailout? At least at one point there was talk of loan guarantees. Did they not make it into the final package? - - Bill >>> [EMAIL PROTECTED] 09/26/01 02:37PM >>> As I understand it, the government intervened to provide insurance for the airlines. Prior to September 11, each plane was insured for $1.5 billion. After September 11, insurance companies were willing to offer only about one-third of that sum for each plane. The market for risk would have shut down the airlines had the government not provided the insurance. Some part of the $15 billion bailout is that insurance (which the government is still providing for next couple of weeks or so). The insurance companies now say annual premiums for airlines will go up in the range of $1.5 to 3 billion. Leaders of some of the companies are now arguing that the federal government should pay part of those premiums. Just after September 11, airline executives estimated that the government shutdown of airports cost them $300 million each day for four days. They initially requested $24 billion in public assistance and settled for $15 billion. The National Journal reported that even K Street types were astonished by their chutzpah. John Samples Cato Institute
