If there's one lesson we learned from the 2008 crash, it's that the instinct of the Wise Men of the Beltway is always to "socialize losses and privatize gains." So when Social Capital CEO and billionaire Chamath Palihapitiya says the opposite, he stunned Scott Wapner and created a social media sensation. Appearing yesterday on CNBC's Halftime Report, he rightly pointed out that speculators "deserve to get wiped out."
“When a company fails, it does not fire their employees, it goes through a packaged bankruptcy. If anything, what happens is the people who have the pensions inside the companies, the employees of these companies, end up owning more of the company. The people that get wiped out are the speculators that own the unsecured tranches of debt or the folks that own the equity. And by the way, those are the rules of the game," he pointed out.
"That’s right. These are the people that purport to be the most sophisticated investors in the world. They deserve to get wiped out.”
“Why does anybody ‘deserve,’ using your word, to get wiped out from a crisis created like this?” Wapner said.
“Just be clear, like, who are we talking about?” said Palihapitiya. “A hedge fund that serves a bunch of billionaire family offices? Who cares? Let ’em get wiped out. Who cares? They don’t get to summer in the Hamptons? Who cares?”
Wapner said it would be “immoral” to let any company get wiped out. Palihapitiya said people on Main Street were getting wiped out.
“And right now, rich CEOs are not, boards that had horrible governance are not, hedge funds are not. People are,” Palihapitiya said.
“Six million people just this week alone basically saying, ‘Holy mackerel, I don’t know how I’m going to make my own expenses for the next few weeks, days, months. So it’s happening today to individual Americans. And what we’ve done is disproportionately prop up and protect poor performing CEOs, companies, and boards. And you have to wash these people out.”
You can see why people were shocked. If only more politicians listened to guys like this. (And by the way, hedge funds are heavily invested in charter schools -- not because they care about education, but because they get a federal tax credit worth 300% of their investment over 10 years. That's a pretty sweet deal, so let's not cry for them.)
There was more. You can watch the entire segment here: