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Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

reuters.com

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Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#21
This was incredibly frustrating to read because, intentionally or not, it perpetuates and normalizes the actual moral hazard of this crisis. It conflates the correct notion that if the government is forcing people not to work, it should make sure they don't starve to death, with the false notion that, in a capitalist society, businesses who were so balance sheet reckless that they couldn't last a month without government loans ought to be bailed out simply because it's "not their fault" that an economic crisis exposed their irresponsible planning.

That's not how capitalism works; the weakest companies should be allowed to fail. The government can still lend to keep their workers alive, but what it's really doing in this crisis is keeping their stock price alive, which overwhelmingly benefits corporate insiders and rich people who own stocks. That's the opposite of how the corporate form is supposed to work—equityholders get all of the upside on a sunny day, so they're entitled to ZERO protection on a rainy day. It's risky to buy stock. Buy bonds if you don't want to shoulder risk.

The most frustrating thing to me is that the same companies who are asking for buyouts could have simply held excess cash, or raised their employees' wages, or invested in profitable assets—all things you expect companies to do under capitalism! But instead, they invested in stock buybacks, which means literally spending retained earnings on inflating their own stock price. Apple is a classic example: earnings has actually been flat since like 2015, but earnings per share has gone up because Apple has bought back $250B of its own stock in the last eight years or so. But at least Apple is solvent! The airlines, for example, are asking for a bailout in almost exactly the same amount that they have spent on stock buybacks in the last several years. It frustrates.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#22
post #13

The statement about the lack of inflation from QE and other stimulus programs from 2008 is pretty questionable. There's been little inflation as measured using usual consumer price indices, but the construction of those indices is typically fairly focused on consumer goods and underweights the assets that rich people tend to invest in (stocks, real estate, bonds, etc). The QE and stimulus programs from 2008 were sign…

We're about to find out what global QE to infinity does.

I'd expect more events like the recent boom in stock prices in spite of massive global unemployment and the wave of unrest nicknamed the Arab spring which came after 2008 and had origins in economic disruption. Revolutions often come after the unbearable has passed.

Even if we quickly overcome the virus the global economic impact of the lockdown and QE will be severe and long lasting. It's quite possible that due to QE/stimulus none of that will show up in stock prices and they will shoot up, boosting inequality again.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#23

Earlier quoted context omitted.

You're asking me,(general tax payer) to give you money to ride out the storm, but you get all the private gains in the future while I take the risk now. There is a much more fair way to do this. Firms simply issue new stock and sell it to the market. Firms get the capital they need, the general tax payer isn't holding the bag.

GP is making the point that in this case, the government caused the insolvency of these businesses in significant part through authoritarian closures, not through the irresponsibility of those running the business. Therefore the government (taxpayers) owe them recompense to make them whole.

I don’t agree with this perspective. The cost of keeping bars open, for instance, is much higher on society as a whole because of how it would lead to the virus spreading. I don’t see how that makes the public responsible to help these businesses.

When your business does well, you reap the benefits, not me. The belief is you’re entitled to it, because you’re the one who took the risk. So how is it now that we allow you to risk public safety or otherwise we take on the risk and give you grants or cheap loans?

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#24

Earlier quoted context omitted.

GP is making the point that in this case, the government caused the insolvency of these businesses in significant part through authoritarian closures, not through the irresponsibility of those running the business. Therefore the government (taxpayers) owe them recompense to make them whole.

A virus is no more the governments fault than an asteroid. The shutdown is consequence of the disaster, not a cause. Economic activity would decline substantially regardless of government action.

The shutdown is the government’s fault, period. The damage it is causing is far worse than what would have happened if the government had started taking action in January and ramped up testing capacity. Instead the government did close to nothing and now the lockdowns are the last resort.

Other countries handled this better. South Korea and Taiwan are good examples of countries that ramped up testing and did not need to shut down society.

Shutdowns are not inevitable. They are a result of government failure, and the government should compensate businesses that it orders to shut down.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#25

Earlier quoted context omitted.

GP is making the point that in this case, the government caused the insolvency of these businesses in significant part through authoritarian closures, not through the irresponsibility of those running the business. Therefore the government (taxpayers) owe them recompense to make them whole.

A virus is no more the governments fault than an asteroid. The shutdown is consequence of the disaster, not a cause. Economic activity would decline substantially regardless of government action.

The global shutdown is causing an economic disaster on a scale not seen since 1929.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#26
post #3

This article is no way reflects reality. There's a reason the "money printer go brrr" meme is blowing up. There is already significant outrage about the moral hazard of what's being done by the fed, and the sentiment is growing. This article reeks so badly of blantently trying to control the narrative to the advantage of the elite that it's disgusting. Rather than let companies that made shitty decisions die and let…

I was in the front row this week talking about the growing resistance to the US government.

That's the most powerful time in recent years, an hour. It's a "answer," people who have already died because they're paid don't die.

They put the lives of millions of other people on their books, and they're just taking their money to buy the goods.

My dad was a retired lawyer who spent the decade of 1995 caring for elderly retirees who need help. My mom, now 75, and her husband had their hearts broken out in the way as they tried to save a little money.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#27

Looks like these reporters have missed the entirety of reddit, there is plenty of criticism there, from what I’m assuming amounts to thousands or millions of people.

The article seems to be about how the political response from conservatives seems to be muted, making the point that all their talk about small government, no regulation, and the evils of socialism appear to vanish the moment the people who need government assistance are millionaires and not common folk.

It's always fun to imagine how partisan people would react if the other side was in power, said the same things and did the same things in the same situation. Their reaction would be very different.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#28

This was incredibly frustrating to read because, intentionally or not, it perpetuates and normalizes the actual moral hazard of this crisis. It conflates the correct notion that if the government is forcing people not to work, it should make sure they don't starve to death, with the false notion that, in a capitalist society, businesses who were so balance sheet reckless that they couldn't last a month without govern…

I don’t think the problem is “a month” of inactivity, although clearly there are no shortage of people and businesses who can’t survive even that.

The real problem is that we’re a month in and there’s no genuine end in sight, optimistic politicians notwithstanding. The actual end of the crisis could be two months away or two years.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#29
post #16

Well, not really: bailouts punish people and business who incurred costs to operate in a way that would allow them to pause their economic activity for months (cancellable supply/rent/employment contracts, cash reserves, etc.), and favors those who did not do so. In general, a society where it is possible to pause all economic activity at any time is going to be much more robust than one that doesn't, and is going to…

Businesses were never expected to be able to totally shut down for months at a time. It’s not reasonable to suggest that businesses who can’t handle that have been irresponsible or are less deserving of help.

To say that those who can't handle it are not less responsible, is to say that those in the same industry who can handle it are not more responsible.

I understand your point, that this is a major extreme that people don't tend to plan for, and for small businesses, I don't fault them at all.

There is less sympathy for larger organizations like airlines who have (or should have) at least one full time team of people who prepare for all kinds of logistical scenarios: War/hostilities between nations, fuel shortages, pandemics, a broken supply chain of repair parts, green new deal legislation, the list goes on.

So not only should larger organizations have been mindful that this kind of thing could happen, their cavalier use of cash on hand to inflate their imaginary value (stock price) should mean any help they get is tied to government stock in the company, a ban on stock buybacks, etc.

Re: Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

#30

This was incredibly frustrating to read because, intentionally or not, it perpetuates and normalizes the actual moral hazard of this crisis. It conflates the correct notion that if the government is forcing people not to work, it should make sure they don't starve to death, with the false notion that, in a capitalist society, businesses who were so balance sheet reckless that they couldn't last a month without govern…

I don’t think the problem is “a month” of inactivity, although clearly there are no shortage of people and businesses who can’t survive even that. The real problem is that we’re a month in and there’s no genuine end in sight, optimistic politicians notwithstanding. The actual end of the crisis could be two months away or two years.

That's a fair point. It doesn't make me feel any differently about the proposition that, in a society that preaches values like rugged individualism and fiscal responsibility to its poorest members, it's strange to me that 99% of the government's per capita expenditures are going to places other than the people. Literally 99%. And by blindly subsidizing every single business, including like hedge funds and other speculators who partially caused the liquidity crisis, the government in sowing the seeds for the next meltdown and disguising insolvent firms as economically viable ones. All of which is bad for society and the economy.
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