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SUMMARY: Yes, under the circumstances, the government should extend lifelines to airlines, hotels, and other industries hammered by the crisis, rather than just let them go bankrupt. But the money should not be free. And the companies' stockholders should not be protected. They knew the risks and took them.

As the government doles out lifelines to US companies that have been hammered by the crisis, a debate is raging about who should be helped, how, and why.

One key question is whether stock-market investors should be protected against losses.

My answer to that one, respectfully, is no.

The government should help airlines, hotels, and other hard-hit companies, and, in so doing, preserve the services they provide and help their employees. But I don't think the government should protect their investors.

I say that as someone with a personal investment in the stock market, including — through index funds — the stocks of many companies whose businesses have been obliterated.

In the lifelines that the major US airlines agreed to on April 15, the government took a balanced approach. It saved the companies and their shareholders by providing grants (gifts) and low-interest loans. And it received the option to buy a very small percentage of the companies' stock over the next five years.

This serves the stated primary goal of the lifelines, which is to preserve the jobs of airline workers for at least a few more months. (The airlines agreed to not lay anyone off until September 30.) The lifelines also allow the companies to avoid going through the bankruptcy process, which would be a mess. It's a great deal for the airline shareholders — much too good, in my opinion — but at least taxpayers get something for it.

Why not just let the companies go bust?

The hardline argument on bailouts is that the government should do nothing to help companies in trouble and instead just let them file for bankruptcy.

Proponents of this view point to companies that go through the normal bankruptcy process and keep operating — and keep their employees — while their capital structures are reorganized.

In a normal environment, in which entire industries haven't been crushed and one big company goes bankrupt at a time, this is true. In this environment, however, in which dozens of big companies would likely file Chapter 11 bankruptcy all at once, it could create chaos. And it also would likely lead to millions of emergency pre-bankruptcy layoffs, as the shareholders of the companies tried to preserve the companies' cash and save some value for themselves.

(This was the "negotiating leverage" the airlines had in their discussions with the government. If the government refused to provide lifelines on acceptable terms, the airlines would have threatened to lay off hundreds of thousands of people immediately. For obvious reasons, the government didn't want that. In fact, no one should have wanted that.)

Airlines, hotel, and other companies provide real value to our country. They also provide employment to millions of dedicated employees. It's in our collective interest to preserve these services and jobs. But that doesn't mean we have to insure the losses of those who invested in them.

No risk, no reward

One of the core philosophical premises of capitalism — even capitalism with intelligent rules to make it fairer and more humane — is that the magnitude of financial rewards is related to the magnitude of risks.

So-called risk-free investments like Treasury bills and government-insured savings accounts pay little interest. In exchange for the near certainty of getting their money back, investors accept low returns.

The risk-and-return profile of riskier investments — such as corporate bonds — is higher. In exchange for a greater risk that the company will be unable to pay its debts, investors require higher interest payments.

Stocks have the highest risk-and-reward profile of the "big three" investment classes (stocks, bonds, and cash). Over long periods, stocks have returned an average of about 10% a year. That's a far higher return that the average for bonds (about 5%) and cash (about 3%). But the reward comes with higher risk. Equity investors can lose money even when the underlying companies do OK. And if a company goes bust, they can lose everything.

Equity investors — especially professional equity investors — know this. And they bought the stocks of the companies that have been clobbered by the crisis knowing the risks.

Lots of risks are beyond companies' control

One argument people make for why stockholders should be protected this time is that the current crisis is not companies' fault; they didn't do anything wrong.

That's true. But many risks that stock investors take are beyond the control of the companies they're investing in.

For example, economic risks: It's not a company's fault when the broader economy goes into a recession. Same with geopolitical risks, environmental risks, financial-crisis risks, and other systemic risks that affect wide swaths of the economy.

These systemic risks include the risk of a pandemic.

American Airlines, for example, explicitly warned investors about the risks that the "outbreak of a contagious disease" could have on its business.

Investors who own American's stock own it despite this risk — and 45 other explicitly described risks — many of which were far beyond the company's control.

For many years, these risks have been avoided, and airline stocks have performed well.

Just not this year.

But the government ordered the shutdown!

A final argument put forth for those who want the government to insure them against stock-market losses is that the losses have been caused by the government shutting the economy down.

The main problem with this argument is that it's just a technicality. The pandemic caused the shutdown, not the government. Even without a shutdown, the usage of airlines, hotels, restaurants, and other companies would still be radically lower than before the crisis. And if history of previous pandemics — such as the 1918 influenza pandemic — is a guide, the shutdowns will actually accelerate the recovery after the crisis ends.

If everyone really wants 'investor-loss insurance,' let's just make it official — and standard and fair

One sentiment that seems to be popular right now is that investors should be protected against any risks that they aren't directly responsible for. This sounds absurd to me. Investing is risky, and no one is forced to do it. No risk, no reward.

But if the government is going to step in and bail out some shareholders every time there's a crisis — as it is doing now, and as it did during the global financial crisis of 2007-08 — then I would suggest that we as a society should strive to make this process more standard and more fair.

In short:

Let companies pay "equity-investor bailout insurance" to the government in good times. Make the insurance available to all companies, so it's their choice about whether they do or don't want protection. Companies that choose to pay the insurance get access to bailout funds in the next crisis. Companies that don't, don't.

Thanks for reading, everyone! Please feel free to share your thoughts by writing to me at henry@insider.com.

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