How the Capital Markets Work
The contractor has never counted on the client’s word to settle outstanding payments. Their strategy is to leverage solid financial metrics—namely, accounts receivable from orders—to secure financing from capital markets, essentially courting institutional investors.
Investment firms know these debts are unlikely to be collected. What are they betting on? An IPO.
The client exploits these contractors—who are eager to win bids—to shoulder social responsibilities, leveraging small amounts of capital to drive massive projects. The contractors, in turn, use their won bids to raise funds from investors chasing projected returns. The investors simply plan to sell to retail traders in the end.
To regulate these private enterprises, the key is to choke them at the IPO stage.
The mantis stalks the cicada, unaware of the oriole behind. Contractors know they may never collect their payments, yet they happily front the costs for the client, precisely because investors are willing to fund them. Investors provide capital for the sake of an IPO, but when the IPO ultimately fails to materialize, the capital cries, the contractors (private firms) collapse, and the client rejoices in not having to pay. Of course, they may have known this day would come all along and never intended to pay, which is why the contracts were signed so readily.
And many of the projects once undertaken by those contractors (private firms) have ultimately benefited the public.