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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

#31

Post by vfclists »

The moral hazard overlooked here is the fact US govt policy being dictated by congressmen, hedge fund managers and "investment" bankers who see it terms how they can profit from a long bull run, and profits to made from shares in the companies who have quasi-monopolies on the the products that will eventually "save" us from coronavirus.

And the fact that you can't expect a health system run for profit to prepare properly for a pandemic which may never happen.

By the time the products ordered for the crisis have been delivered the crisis will be over, and whether they will be stored in preparation for another pandemic is questionable.

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

#32

Post by AnimalMuppet »

twblalock wrote: post #20
devit wrote: 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.

Not reasonable, and also not useful. That's probably 90% or 95% of businesses that were not able to pause like that. We're going to want a lot of those businesses.

And the ones that are able, some are by luck or circumstance rather than wise design. Should we reward the luck as well as the design?

"Don't help them" seems like throwing out ten babies with the bathwater.

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

#33

Post by chrisco255 »

davidxc wrote: 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…

QE never really worked, bailed out a bunch of corrupt and broken companies that should have gone bankrupt, and kicked the can down the road. They were supposed to unwind QE1 but they never did. And $4T in toxic QE1 assets sat on the Fed's balance sheet going into this mess. The Fed is propping up the bond market and toying with the idea of buying equities. We just had 17 million people file for unemployment in 3 weeks and the Dow went up a few hundred points. Our markets have been completely decoupled from economic reality because the Fed is faking demand and not letting the markets crash like they should. Our fiscal deficit is already $3 trillion this year and it's only April. This is a recipe for disaster. How much of corporate America will the Fed own when this all comes crashing down? Will we have a nationalized economy by default?

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

#34

Post by remarkEon »

devit wrote: 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…

I agree with the general principle here (that moral hazard is bad; that we should construct an economy in which it's possible to hit "pause" for any number of reasons), but that's not the economy we have. The one we have seems to reward financial engineering, cost-optimized supply chains that are highly vulnerable to even the most minor disruptions, and a general mindset that freaks out at the first sign of trouble.

So, how to we get out of this trap? Most obvious answer to me is more localism. I.e., relying on local supply chains for goods (both consumables and foods) instead of a global one. This lockdown has been pretty miserable for a lot of my friends, but my one hope for a silver lining here is that after we're out of it there might be a return to prioritizing your local community over the bottom line. You don't freak out in a Pandemic if you know that your supply chains for all of this stuff are local, and unaffected by problems on the other side of the planet.

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

#35

Post by option »

davidxc wrote: 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…

yes, basic consumer goods didn’t see much inflation. But what about housing, education, even stuff like cars and travel. Of course, other factors are at play too, but abundant “cheap” money certainly increase prices of those

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

#36

Post by twblalock »

remarkEon wrote: post #34
devit wrote: 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…

I agree with the general principle here (that moral hazard is bad; that we should construct an economy in which it's possible to hit "pause" for any number of reasons), but that's not the economy we have. The one we have seems to reward financial engineering, cost-optimized supply chains that are highly vulnerable to even the most minor disruptions, and a general mindset that freaks out at the first sign of trouble.…

Localism is the opposite of the right thing to do. Small, local businesses are the ones that are going under. Large, geographically distributed companies are the most able to survive long-term shutdowns.

What we need is more globalization and more redundancy of supply chains, not less. When the virus hits a region we need to be able to shift production of essential goods to other regions, so we need to have manufacturing capacity in many places.

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

#37

Post by HarryHirsch »

twblalock wrote: post #20
devit wrote: 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.

Wimbledon took out a pandemic policy year after year. Turns out they were stupid to do so, they could have invested the insurance premium in the stock market and waited for their bailout.

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

#38

Post by gerdesj »

unethical_ban wrote: post #29
twblalock wrote: post #20

Earlier quoted context omitted.

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 w…

Me and two others started a small business in 2000. After a year or two we developed a rule of keeping about three months of turn over in the bank at all times. It was designed to deal with say VAT and Corp tax turning up with payroll and no or late payments from a few big accounts in a perfect storm of cash flow fuck ups.

No we did not factor in a global pandemic in our plans but it seems that avoiding credit to bailout your cash flow is a strategy to consider for the future. With the measures like furlough etc in the UK we have a plan for six months that leaves money in the bank and all 20 employees still on the books.

I'll just be damn glad to get out the other side of this with my business and staff all in one piece. Losing the contents of the war chest for a while is the least of my worries if we are still solvent as a business and earning/paying personal incomes.

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

#39

Post by pirocks »

anonuser123456 wrote: post #12
pandesmos wrote: post #4

I don’t understand this stuff. Politicians have directly ordered closures. If your bottom falls out from under you because you were playing fast and loose that seems inherently different than being told from above “you just cease your main method of generating revenue until we tell you otherwise.”

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.

I find it interesting that this entire thread seems to be about fairness. Whether something is fair to corporations/people really shouldn't be the point. It should be about keeping people alive and having a functioning/prosperous economy. I'd much rather have that than a "fair" economy.

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

#40

Post by graeme »

anonuser123456 wrote: post #12
pandesmos wrote: post #4

I don’t understand this stuff. Politicians have directly ordered closures. If your bottom falls out from under you because you were playing fast and loose that seems inherently different than being told from above “you just cease your main method of generating revenue until we tell you otherwise.”

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.

If a business is in a liquidity crunch because they’re shut down and may go bankrupt, their stock is....basically worthless. I don’t think you’ve thought this one through.
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