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Federal Reserve pledges asset purchases with no limit to support markets

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Re: Federal Reserve pledges asset purchases with no limit to support markets

#201

Post by cryptica »

Danieru wrote: post #126

Lots of voices missing the mark: the fed is acting to keep the corporate bond market from seizing up. Corporations finance part of their borrowings through bonds. These bonds need to be paid in full + the interest when the bond matures. Corporations and banks typically repay some of these from cash, and some by issuing new bonds. Right now no one is getting to issue new bonds at all. Banks cannot lend because the ris…

The real problem is that these corporations are brittle. The Fed is bailing out innefficent corporations once again under the same pretext as last time. I recall that the government promised its citizens back in 2008 that it would be the last time and now look, only 10 years later, same story; more bailouts and all corporate executives get to keep their jobs too.

The US today is more communist than China. The US tends to make fun of China's government for still calling themselves 'communists', but now the tables have turned and I wouldn't be surprised if China starts to make fun of the US for calling themselves 'capitalists'.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#202

Post by trimbo »

tarsinge wrote: post #195
Danieru wrote: post #126

Lots of voices missing the mark: the fed is acting to keep the corporate bond market from seizing up. Corporations finance part of their borrowings through bonds. These bonds need to be paid in full + the interest when the bond matures. Corporations and banks typically repay some of these from cash, and some by issuing new bonds. Right now no one is getting to issue new bonds at all. Banks cannot lend because the ris…

But Japan did not let the banks and corporations fail, then they got zombie economy. Instead let entrepreneurs buy defaulting corporations with all their assets for $1 and see what can happen with fresh blood and creativity. No value is destroyed, assets and personnel stays, and hopefully consumer demand will go back after the pandemic. Edit: ah yes shareholders lose money but that's the game. Retirement pensions? If…

It's not just one or two companies. At minimum: all retail, all airlines, all hotels, all cruise ship companies are at risk.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#203

Post by [deleted] »

Danieru wrote: post #126

Lots of voices missing the mark: the fed is acting to keep the corporate bond market from seizing up. Corporations finance part of their borrowings through bonds. These bonds need to be paid in full + the interest when the bond matures. Corporations and banks typically repay some of these from cash, and some by issuing new bonds. Right now no one is getting to issue new bonds at all. Banks cannot lend because the ris…

[deleted]

Re: Federal Reserve pledges asset purchases with no limit to support markets

#204

Post by jrumbut »

nemo44x wrote: post #73
alexmingoia wrote: post #12

Earlier quoted context omitted.

Why can’t they survive by issuing corporate bonds? And as far as I know this Fed policy isn’t to buy failing stock it’s to inject cash overall through treasury bonds, since the Fed isn’t allowed to buy stock.

Have you looked at the credit market this month? It’s in shambles as yields are soaring. It’s not that higher yields is bad. But moving so quickly is dangerous. Bonds, etc are necessary to maintain supply lines, pay people, etc.

An environment of high yields should be the reward for people who made hay while the sun shined.

If we're gonna have socialism, let's have socialism for the poor and capitalism for the rich and not the other way around.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#205

Post by ianai »

JumpCrisscross wrote: post #176
derefr wrote: post #134

Earlier quoted context omitted.

> It is 110% not good to have any major corporation go into a technical default. Q: rather than going into debt, would it be possible for the government to just... suspend the activation of financial covenants generally for a while? Enact a law putting a temporary patch on how contract law works vis-a-vis financial instruments? Something like... any covenant with triggers written after date X would now be required to…

> would it be possible for the government to just... suspend the activation of financial covenants generally for a while Changing the rules of massive bilateral agreements to benefit one party over another tends to blow confidence in the system. Investors would start trying to guess which asset class will next be amended, thereby triggering runs across the market. (We see this when governments start expropriation pro…

So instead of bailing out the companies, why not focus on ensuring their customers have the money to demand their goods and services through direct stimulus?

Re: Federal Reserve pledges asset purchases with no limit to support markets

#206

Post by torpidor »

burroisolator wrote: post #145
JumpCrisscross wrote: post #107

Earlier quoted context omitted.

> Give everyone a check The Fed doesn’t have the legal authority to do this. That’s why the Congress is passing stimulus bills. The Fed is focussing on our liquidity problem. That keeps solvent companies from going under due to illiquidity. Congress, and helicopter money, are needed to solve the solvency problem prompted by demand destruction.

Why wouldn't helicopter money solve the liquidity problem? Imagine you're a rich investor and you get a check from the government. You see a Company X that is suffering from liquidity issues but otherwise is doing great. Company X's stock is now plummeting because of fears of its insolvency. You, along with other investors who also received checks from the government as part of this helicopter money policy, decide to…

I think the real answer to your question is politics. Helicopter money is a political question in a way that QE is not. The question of what social programs we have, and what they cost, who gets them, etc., has been a major issue already in the 2020 election, and people are already drawing parallels between cutting checks in this crisis and a UBI for example.

The Fed can do this at all right now because we created a body of subject-matter experts and deputized them to pull the trigger without having to check with anyone. This is a rare thing in a democratic government, and is possible mostly because we have given them boring powers that only wonky people bother to even read what they are. Even then, a few people read what they are and complain about them, so even that is a bit perilous.

If you wanted the Fed or a Fed-like mobilization for the helicopter money you first need to make the process of getting $1000 boring, or wonky, or at least politically uncontroversial so that people accept an unelected body of bureaucrats outside the government process doing it unilaterally in the middle of the night without telling the rest of the government. I would not rule out those conditions being the case at the end of this crisis, but they aren't the case at the beginning.

But the way we solve political problems (or, more recently, the way we don't solve them) is through Congress, which is an inherently slower approach.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#207

Post by Causality1 »

Danieru wrote: post #126

Lots of voices missing the mark: the fed is acting to keep the corporate bond market from seizing up. Corporations finance part of their borrowings through bonds. These bonds need to be paid in full + the interest when the bond matures. Corporations and banks typically repay some of these from cash, and some by issuing new bonds. Right now no one is getting to issue new bonds at all. Banks cannot lend because the ris…

Why is it legal for corporations to build financial houses of cards like that?

Re: Federal Reserve pledges asset purchases with no limit to support markets

#208

Post by KKKKkkkk1 »

Danieru wrote: post #126

Lots of voices missing the mark: the fed is acting to keep the corporate bond market from seizing up. Corporations finance part of their borrowings through bonds. These bonds need to be paid in full + the interest when the bond matures. Corporations and banks typically repay some of these from cash, and some by issuing new bonds. Right now no one is getting to issue new bonds at all. Banks cannot lend because the ris…

It is 110% not good to have any major corporation go into a technical default. We are talking about companies which have plenty of assets and strong businesses.

That's where the problem lies. Who is going to decide that? Traditionally we have debt markets for that.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#209

Post by bjourne »

derefr wrote: post #153
Danieru wrote: post #141

Earlier quoted context omitted.

Trying to "pause" commitments would take years to implement. It would be like trying to go through the world's internet and "suspending" all user requests and server processing. Instead the Fed and US government have a much simpler and near instant tool: act as the lender of last resort. A bonus feature of this implementation is it costs not much money. Big corporations have lots of assets and the government is sure…

> Trying to "pause" commitments would take years to implement. It would be like trying to go through the world's internet and "suspending" all user requests and server processing. I don't see the parallel. Covenants, ultimately, have to be enacted through the courts. (I mean, presuming debtors' legal departments get the message from the government that they don't have to worry about covenants during this period, what…

It's also about what signals it would send. That contracts are binding is not only the foundation of Capitalism but of all civilization since antiquity. Invalidating contracts by government decree would roughly be as disruptive as a Communist revolution. A global recession is preferable to changing 2,000+ year old legal principles.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#210

Post by vkou »

ianai wrote: post #205
JumpCrisscross wrote: post #176

Earlier quoted context omitted.

> would it be possible for the government to just... suspend the activation of financial covenants generally for a while Changing the rules of massive bilateral agreements to benefit one party over another tends to blow confidence in the system. Investors would start trying to guess which asset class will next be amended, thereby triggering runs across the market. (We see this when governments start expropriation pro…

So instead of bailing out the companies, why not focus on ensuring their customers have the money to demand their goods and services through direct stimulus?

Because it doesn't matter how much money you throw at customers right now, it's not going to produce cashflow in .
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