Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one • Hacker News Board

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

#131

Post by edoceo » Sun, Apr 12, 2020, 9:16 PM UTC

pepy wrote: post #99

jariel wrote: post #83

Earlier quoted context omitted.

QE1 worked well and the banks are not corrupt. It's in the later years, while stocks and the economy were on a tear, that the Fed at. al. refused to raise interest rates ... this perpetuated the housing bubble among other things, which is the #1 source of inequality (hint, it's not between the billionaires and the rest of us, it's between the propertied and the unpropertied).

of course banks are not corrupt, Wells Fargo especially

This comment is false and/or sarcastic.

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

#132

Post by duxup » Sun, Apr 12, 2020, 9:18 PM UTC

redis_mlc wrote: post #97

duxup wrote: post #75

Earlier quoted context omitted.

I wonder about cars. There are cheaper new cars...but people seem to choose cars with an ever inflating numbers of features.

It's American consumerism fueled by available credit. What's really fascinating is that what you said applies to McMansions, and ... private aircraft too. Cessna cancelled their basic $300,000 new 172 because people were only ordering the $400,000 glass panel model. The price is so high they took it off the website for the first time. (And older pilots were expecting it come in at $80,000. lol.) Cubcrafters makes com…

It's an interesting phenomenon.

It would seem that the inflation of these prices just don't bother people.

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

#133

Post by LatteLazy » Sun, Apr 12, 2020, 9:19 PM UTC

KKKKkkkk1 wrote: post #111

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 experienc…

It matters because after this crisis, in a few months time, we want them to go back to doing what they did before. You want people to go right back to opening businesses and getting jobs and buying houses, as quickly and enthusiastically as possible. More so if we can manage it. That's what prevents a crisis from becoming a depression.

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

#134

Post by yourapostasy » Sun, Apr 12, 2020, 9:30 PM UTC

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…

> For instance, if everyone stores several years worth of food and water at home, then even the most catastrophic events are much less likely to kill the vast majority of people in the world.

I see a lot of resistance to your suggestion based upon the supposed economic feasibility.

However, one angle I haven't seen discussed is: if vast swaths of the labor force did become functionally independent for up to 5 years for example, it would dramatically alter the extant leverage in the job market. Instead of a centralized union negotiating mechanism, a de-centralized negotiation mechanism runs. Wage earners decide on a case-by-case basis whether or not to accept a job offer, secure in that they can last for up to 5 years of nothing before they are in a "must-get-job" state. At scale, it might become a de-centralized lightweight form of UBI, unionizing, and general strike.

This doesn't even have to be prepper-style decentralization. If enough people work towards FIRE at the same time, then it functionally accomplishes exerting the same market pressures, except on an even longer timescale.

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

#135

Post by clairity » Sun, Apr 12, 2020, 9:38 PM UTC

WalterBright wrote: post #107

clairity wrote: post #96

Earlier quoted context omitted.

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…

> irrationally high for those assets Are you shorting those assets? Edit: is this not a fair question? Putting one's own money on the line is a reasonable test of what one's convictions are. For example, I'm optimistic about the market, and have put my money where my mouth is. Of course, that doesn't mean I'm right, but I have a level of confidence that I am.

that's mostly a gamble about timing, not the validity of the p/e ratio--that you can both get into and get out of a short position with sufficiently precise timing.

so no.

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

#136

Post by leetcrew » Sun, Apr 12, 2020, 9:47 PM UTC

WalterBright wrote: post #107

clairity wrote: post #96

Earlier quoted context omitted.

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…

> irrationally high for those assets Are you shorting those assets? Edit: is this not a fair question? Putting one's own money on the line is a reasonable test of what one's convictions are. For example, I'm optimistic about the market, and have put my money where my mouth is. Of course, that doesn't mean I'm right, but I have a level of confidence that I am.

I think your question is riding the edge of what might be considered too confrontational on HN.

the overall sentiment is reasonable, of course. you shouldn't listen to people who say the sky is about to fall while they continue buying $SPY every other friday.

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

#137

Post by clairity » Sun, Apr 12, 2020, 9:52 PM UTC

AngrySkillzz wrote: post #112

clairity wrote: post #96

Earlier quoted context omitted.

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 hig…

i'm saying the premium you mention is the additional willingness-to-pay for those equities being the best available, not something intrinsic to the underlying business. it's on top of the value of the cash flows.

in a hypothetical market with 2 relatively correlated (similar beta) stocks, one that historically returns 10% and one that returns 2% and an expectation that those returns continue in the near future, you'd put all your money on the first stock, regardless of the price and regardless of systemic conditions.

in that scenario, you'd expect to be making your most rational choice even if you overpay severely. in the case that the market crashes, you'd lose less money than the opposite scenario. the price says nothing about the value of the underlying cash flows (the fundamentals).

this is one way economic bubbles develop.

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

#138

Post by billylindeman » Sun, Apr 12, 2020, 9:55 PM UTC

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…

Agreed. The most sobering chart i've seen regarding what the fed is doing is the Caracas stock index: https://www.bloomberg.com/quote/IBVC:IND

Stocks going up doesn't indicate that the economy is fine.

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

#139

Post by jariel » Sun, Apr 12, 2020, 11:15 PM UTC

AngrySkillzz wrote: post #117

jariel wrote: post #88

Earlier quoted context omitted.

"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.

This is a fair point. But the Fed has been playing funny money during all this time, backing dollars with garbage real-estate, so I don't think it's fair to say this is just a regular 'new normal' as in asset prices were marked properly.

'New Funny Money Normal' - maybe, but the massive Fed balance sheet first enables those with assets, not those who don't i.e. 'the rich'.

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

#140

Post by bmelton » Sun, Apr 12, 2020, 11:49 PM UTC

luckylion wrote: post #114

bmelton wrote: post #85

Earlier quoted context omitted.

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…

Oh, I thought we were in search of a solution that obviates the need to socialize the losses. Socializing the losses is what we're doing now. I mean, sure, we could move them all to a government program, or we could just keep letting the government do what it's doing, as post-QE, the stock market basically is a federal program.

I guess my sincere question here would be whether or not you'd be opposed to bailing out social security if it were in the same boat for whatever reason.