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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

#141

Post by zbentley »

NicoJuicy wrote: post #120
chrisco255 wrote: post #33

Earlier quoted context omitted.

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.

To paraphrase Luke Skywalker in The Last Jedi, everything in that sentence is wrong--or at least seriously questionable.

> The stock has it mostly priced in

It does? I've seen about the same number of analyses indicating that companies are doing dubious things to bolster their earnings on paper (and haven't priced in the full cost of the crisis) as I've seen supporting your argument.

> but the rise of the stock is attributed to the fact

Explanations for this abound. From basically every corner, qualified, popular, neither, and both. Post-Black-Swan shockwaves are usually accompanied by a lot of confusion and after-the-fact pseudorationalization, and this situation is no different.

> European countries are flattening

Sort of (recorded clusters/outbreaks keep getting reported), partially (some countries are doing really well, some are not), and only according to really, really new data.

> vaccines

Presumably you mean vaccine research getting underway? This is happening, to be sure. Still has the attribution (after-the-fact potential for false correlation) problem mentioned above.

> ramped up testing in the US

There's not consensus on the effect of more testing on the markets either. Testing builds confidence/information on the one hand but, in many US states, it has revealed worse-than-expected (well, really worse-than-hoped) numbers of sick people on the other.

I guess the upshot of the above is: you make a very authoritative statement about why the markets have behaved in a certain way. That information isn't even beginning to be known, or, at this early phase, knowable, with any sort of confidence.

Edits: grammar.

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

#142

Post by skat20phys »

I'd argue that's in part because of the protection racket that's partially at the heart of the moral hazard: the poor regulation of healthcare services, at least in the US.

What this should be laying bare is the failure of federal regulation, how this got in the way at a critical moment, and when it was too late, things only got better when they got out of the way. Or what about a healthcare system oriented toward protecting the hospitals, those at the top of a hierarchy, the rent seeking, and so forth, rather than oriented toward public health? What about an artificial reduction in the number of providers to increase their salaries, a lack of competition in provider models and delivery of services?

There was a Slate article about how one side-effect of the pandemic is how much it has exposed bullshit everywhere, how easily so many rules are set aside when the cards are on the table. Some of this is happening now with healthcare, but few are asking what else could have been different, other than single payer care.

To me this all feels like some kind of abuser-victim relationship, where people are subject to some broken system, and then when things go wrong and are failed, they're made to be dependent on their broken system and start cheering it on.

I realize this all sounds bleak but to me there are so many things that could have been avoided, from the highest levels of the government all the way down, and there seems to be little introspection about this. Instead we just blame the virus, rather than what caused our systems to be so vulnerable in the first place.

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

#143

Post by skat20phys »

api wrote: post #49
grey-area wrote: post #22

Earlier quoted context omitted.

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…

Based on past experience post-dot-com-bust-bailout and post-2008-bailout: Prepare for the $1.5M starter home financed by an 0.08% interest 90 year no money down mortgage, $800k student loans at 0% interest, and business lines of credit at 2% to any business that has shown any revenue at all in the last month and that can produce one mammal capable of fogging glass. Any mammal with provable respiration will be able to…

At one time there was intrinsic cost to the lender in the form of risk. It seems not so anymore, or at least less than it should.

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

#144

Post by yamoriyamori »

chrisco255 wrote: post #89
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).

QE1 did not work at all. And the Fed's 0 percent interest rates have distorted capital markets causing corporate debt to skyrocket. That alone is propping up zombie companies and this overleverage is what will make the coming recession / depression even worse than 2008. Note: the Fed is violating the Federal Reserve Act by using BlackRock as a proxy for bond purchases. So please do not tell me they are not corrupt. T…

This. The 'race to the bottom', committed globally by central banks, to get to 0% interest rates, and keep them there for the sake of keeping the markets 'up', exacerbated by top level politicians' desires/directives. If there's no cost to borrow, why not keep borrowing? And keep borrowing? And lending? Until things really unwind in a recession/depression that will de-lever everything/everyone. The moral hazard? I try to maintain my own family finances, keep a budget, save for expensive things. And in the span of 3 weeks the US has spent $7,000 of every individual's future ($2T / 340M people).

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

#145

Post by yamoriyamori »

mrosett wrote: post #125
bobthepanda wrote: post #108

Earlier quoted context omitted.

> I also never made the claim that the counterfactual of no stimulus would have been better To be fair, that wasn't the only option. There was the debate in 2007/08 about how much of the stimulus should be monetary vs handouts directly to taxpayers vs infrastructure. There's some who believe that the "infrastructure" portion was too small of the pie, hence the stomach for things like "Infrastructure Week" from Trump…

In the abstract, I liked the idea of spending it on infrastructure, but over the ensuing decade I’ve become deeply skeptical of the ability of the US government to effectively spend more money. California high speed rail and the NY subway are exhibits a and b.

I agree with you (to your point) about California high speed rail: a solution looking for a problem. But NY subway is arguably something that could generate huge returns if the capex was committed to modernizing and automating the public transport of the biggest city in the USA and a major financial capital.

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

#146

Post by Proven »

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…

Correct.

The man premise of the article is there has been no moral hazard prior to this crisis. That's bollocks. Companies spent billions buying back shares counting on the Fed to save them, millennials gorged on student loans counting on debt forgiveness, etc. Virtually no one deleveraged from 2008.

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

#147

Post by lazerpants »

Apes wrote: post #86
crazygringo wrote: post #55

I see so much talk here on about how companies should be left to go bankrupt because of their "shitty decisions", that "the weakest companies should be allowed to fail", and "shareholders have to hold the bag" (all from comments here). This fundamentally misunderstands how businesses work. If your business has a 5% profit margin, and you're supposed to have enough savings to weather, say, six months of essentially fu…

I find your implied assumption that starting a company should in normal circumstances be seen as a get rich scheme that pays out in under 10 years as completely toxic, but that's an aside. The point is large companies shouldn't be hurting for money, they have two big options on the table to generate money right now: issue stock or bonds. However, there are a lot of really stupid large companies that decided to max ou…

Of course, the Fed is implicitly at fault here too for keeping interest rates too low for too long. They tacitly encouraged borrowing with low rates. If rates had been higher, companies would be thrilled about lowering rates due to covid and would start to issue bonds.

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

#148

Post by selimthegrim »

selimthegrim wrote: post #106
tathougies wrote: post #68

Earlier quoted context omitted.

Storage requires economic activity though. Storing frozen food requires an economy to generate electricity and maintain power lines. Storing dry goods requires electricity to process those goods into something useful or a fossil fuel supply chain or a wood cutting insustry. Also, food production requires year round economic activity. Pausing for one week would mean mass starvation even if everyone had food stores. Pe…

If the farm workers or the meat packers get corona or wildcat strike? If the braceros can’t get across the border?

https://www.nytimes.com/aponline/2020/04/12/business/bc-us-v...

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

#149

Post by NicoJuicy »

zbentley wrote: post #141
NicoJuicy wrote: post #120

Earlier quoted context omitted.

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.

To paraphrase Luke Skywalker in The Last Jedi, everything in that sentence is wrong--or at least seriously questionable. > The stock has it mostly priced in It does? I've seen about the same number of analyses indicating that companies are doing dubious things to bolster their earnings on paper (and haven't priced in the full cost of the crisis) as I've seen supporting your argument. > but the rise of the stock is at…

Europe is flattening, yes. It's also ramping up tests.

We know it is worse than thought in the US. The Outlook the markets check are 18 months.

You are still checking the next quarter, while I think it's a general consensus that eg. The summer will be lost.

It will improve in 2021 for sure.

+ That quarantine gets lifted probably with contact-tracing apps as it is in South Korea.

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

#150

Post by SergeAx »

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…

I am living outside US and have a hypothesis that there's also significant inflation in higher education sector. Can you confirm or disprove that?
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