Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

reuters.com

Post reply on HN
Print view View original

111–120 of 161 posts

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

#111

Post by KKKKkkkk1 »

People are undertaking sacrifices for the common good. We need to make them whole. To the extent we have the ability to make them whole we should be doing that as a society,” Powell said. “They didn’t cause this. Their business isn’t closed because of anything they did wrong. They didn’t lose their job because of anything they did wrong.”

Why is it important if anyone did anything wrong or not? The world is experiencing a massive calamity and a lot of wealth is being destroyed. It's not obvious that you can make everyone whole without causing unintended consequences.

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

#112

Post by AngrySkillzz »

clairity wrote: post #96
AngrySkillzz wrote: post #82

Earlier quoted context omitted.

Every HN thread on economics has a bunch of comments like these that are earnestly misinformed about economics. When commenting on something outside of your wheelhouse, please recall Socrates from the Apology: "I observed that even the good artisans fell into the same error as the poets; because they were good workmen they thought that they also knew all sorts of high matters, and this defect in them overshadowed the…

you can't make such a grandiose condemnation of "earnest misinformation" and then not make perfectly defensible arguemnts, lest you make the exact same mistake you condemn. p/e ratios at historical highs is a statement that they've disconnected from their fundamentals, i.e., the price of a share of a company is (often much) more than the expected present value of all future cash flow for that share. that there are no…

I don't understand what you're trying to say. You can't easily say that asset prices are "disconnected from their fundamentals" - the price is what people are willing to pay for the future earnings of those companies. People are willing to pay a higher premium for those earnings now than they have in the past. Instead of the comparison to historical highs, try looking at developing countries, with lower P/E's and higher interest rates. Yet investors are still willing to pay a premium for US stocks. If you're going to say that the price is wrong, you need to account for that discrepancy. It seems that the argument you want to make is that people buy overvalued US companies because they think everyone else will continue to buy overvalued US companies?

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

#113

Post by graeme »

anonuser123456 wrote: post #52
graeme wrote: post #40

Earlier quoted context omitted.

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.

>I don’t think you’ve thought this one through. Firms are priced based in the long term future profits. By injecting capital immediately, the firms liquidity problems are resolved. It sounds like you've never heard of convertible preferred shares. Or maybe you have and haven't thought this one though?

Actually you’re right, that should work for businesses with shares. If people are willing to invest. But how would this work in a liquidity crunch? That was the situation we were in. Everyone was moving to cash.

What about non-incorporated businesses? That’s the bulk of small business ordered to shut down.

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

#114

Post by luckylion »

bmelton wrote: post #85
luckylion wrote: post #56

Earlier quoted context omitted.

> So, how to we get out of this trap? Let it hurt. Unless investors feel it (and they only feel via the value of their investment), nothing will change, ever. Of course, you'll get plenty of people saying that it's unfair that this time they really have to live with the consequences of their risk management and that we should totally do that, starting tomorrow. But then you'll get the next cries next week when they'v…

I think that I agree with this ideologically, but the reason nobody lets that happen is because cumulatively, "retirement accounts" are the single largest "investor" on the stock markets. So in this case "screwing investors" basically amounts to destroying the life savings of the elderly.

I don't know whether they're also the most risk-seeking investors, but they'd likely be (strongly) affected, yeah.

I don't see an alternative short of massive regulation (that essentially removes them from the stock market completely and move them into a government service; that'll still be done when they've burned down), because I see it more like a slow moving infection that starts in a toe. We've missed the right moment to amputate and only lose that toe, we've missed the moments for all the other toes on that foot as well, and the whole foot is beyond saving now.

It sucks to lose a foot, but waiting and consuming massive amounts of pain killers to be able to hobble along just means that it's going to be the whole leg next year. The best time to interfere was on the first try to socialize the losses. The second best time is now.

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

#115

Post by wtvanhest »

jdm2212 wrote: post #81
wtvanhest wrote: post #10

The biggest moral hazard is in colleges. The boards of colleges justified higher expense structures in the name of trying to win a zero sum rankings game. The best case for them is a lot of people wondering why they are paying $30k a year to watch online lectures while inflation wipes out the debt. The worst case for schools is a total restructure due to lower revenue and donations due to students unwilling to overpa…

> The biggest moral hazard is in colleges. The boards of colleges justified higher expense structures in the name of trying to win a zero sum rankings game. That's not what "moral hazard" means.

For clarity:

“In economics, moral hazard occurs when an individual has an incentive to increase their exposure to risk because they do not bear the full costs of that risk”

In this case, the risk is the increased cost structure in order to get the benefit of accolades from winning the zero sum rankings game.

If it were their money instead of the universities’ money, they likely wouldn’t have increased the cost structure

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

#116

Post by vsareto »

grey-area wrote: post #22
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…

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…

Instead of "DJIA isn't a good representation of companies", it'll probably be "the whole stock market isn't a good representation of companies".

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

#117

Post by AngrySkillzz »

jariel wrote: post #88
AngrySkillzz wrote: post #82

Earlier quoted context omitted.

Every HN thread on economics has a bunch of comments like these that are earnestly misinformed about economics. When commenting on something outside of your wheelhouse, please recall Socrates from the Apology: "I observed that even the good artisans fell into the same error as the poets; because they were good workmen they thought that they also knew all sorts of high matters, and this defect in them overshadowed the…

"a bunch of comments like these that are earnestly misinformed about economics. " " savings outpaces investment opportunities for many reasons (aging populations, growth in countries with stronger saving cultures, etc.), which pushes up the premium on assets." The savings rate is not correlated with stock prices. [1] "All other developed economies have lower interest rates, more QE, and slower growth than the US. " N…

The argument is not that the US savings rate pushes up the value of financial assets in the US, I'm talking about globally (i.e. the global savings glut hypothesis). Countries like China, Saudi Arabia, and Germany have significant capital account surpluses which continue to get invested in assets in the US, particularly the stock market.

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

#118

Post by AngrySkillzz »

WalterBright wrote: post #105
AngrySkillzz wrote: post #82

Earlier quoted context omitted.

Every HN thread on economics has a bunch of comments like these that are earnestly misinformed about economics. When commenting on something outside of your wheelhouse, please recall Socrates from the Apology: "I observed that even the good artisans fell into the same error as the poets; because they were good workmen they thought that they also knew all sorts of high matters, and this defect in them overshadowed the…

> earnestly misinformed about economics Economics is a weird discipline where everyone becomes an expert on it at age 15. I've even seen people confidently expound on economics when it's clear they don't even understand the difference between revenue and profit. In contrast, nobody is willing to argue with a physicist unless they are at least as educated in physics as their counterpart is. It's really a shame that al…

This is basically my point. Didn't particularly mean to criticize davidxc, more the tendency for people on HN to assume that because they're good at programming they must also know a lot about economics, the stock market, and etc.

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

#119

Post by fountainofage »

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.

This is the solution. Have the firms issue stock and the government purchase the stock. Obviously make it ultra-preferred with no one else getting preference before the government gets paid.

If firms don't like that deal, they can either get their own funding from the private markets or go out of business.

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

#120

Post by NicoJuicy »

chrisco255 wrote: post #33
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 week…

The markets dropped because other countries already had similar issues.

The stock has it mostly priced in, but the rise of the stock is attributed to the fact that European countries are flattening, vaccines and ramped up testing in the US.

Post reply on HN