railtrack

Did the government steal the shares from railtrack owners by forcing the company out of business? I personally don’t think that they did. Certainly their dealings may not have been in the best interests of the shareholders (but when are they) and their actions may well have caused the collapse of railtrack, but in order for them to be at fault, then they would have to have done something to intentionally hurt the share holders. Railtrack was being kept afloat by government subsidies; this was because as a private enterprise it could not create enough business to survive. The shareholders of rail track were fully aware of the subsidies and had access to the audited accounts of the company; this was not an Enron situation where the true situation was covered up. When the government withdrew subsidies, the problems facing the company became all too real and they went into administration, this was of course unfortunate for the shareholders. The complaint that they are now bringing to court however asserts that the government withdrew subsidies in order to force the company out of business, it may well have done so, but do the shareholders have a right to compensation? I do not believe so. Had the government passed laws to restrict the business of railtrack, or through some other method actively harmed the business then this claim would be valid, however, the government did no such thing, the shareholders either bought shares in a company which survived on subsidies alone, or were holding them from a time when the company may well have been healthy, either way they had an investment that to any rational individual it would seem clear that the success of which hinged on railtrack making significant changes to the business to allow it to perform adequately to make a profit, it was a speculative investment in a company some people may have believed had turnaround potential, they were wrong, it didn’t make the necessary changes and the government (for whatever reason) removed the subsidies and the company collapsed. The only way to have kept the company afloat would be to have continued to subsidize the business; this would simply be propping up support for the shareholders indefinitely to make up for their mistake at the cost of the rest of the country, that would be unreasonable. Shareholders assume risk to gain exposure to potential reward, this time the risk was realized, for that they have nobody to blame other than themselves.

[As It says in my profile, I trade the capital markets, I assume these risks every day, occasionally they are realized and the trade loses money, that is part of the business and must be accepted, the trick is to employ careful money management, nobody can be right all the time. So when I say the shareholders can only blame themselves, I do not imply that they are stupid, certainly not, but merely that nobody else is at fault for a choice that they made. If the shares were bought for them as part of a fund, then the fund manager is responsible, again, not the government.]