Federal Reserve pledges asset purchases with no limit to support markets • Hacker News Board

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

#251

Post by nocorpwelfare » Mon, Mar 23, 2020, 5:25 PM UTC

brenden2 wrote: post #95

burroisolator wrote: post #70

I fail to understand why any economist would prefer QE over helicopter money. Give everyone a check. If they need it to purchase everyday goods and services, great. If their everyday needs are fulfilled already, they will invest that money into stocks, bonds, treasuries, etc, adding the needed liquidity to the market. I understand if you're against the idea of giving people money. But this is just giving money to mos…

This is about making sure rich people don't lose money. It's not about helping people at the bottom.

And that, most of all, is what needs to stop.

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

#252

Post by OscarCunningham » Mon, Mar 23, 2020, 5:28 PM UTC

talentedcoin wrote: post #194

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…

Thank you for putting it so well. Keeping the corporate bond market going does not sound like a noble goal on its face but it's vital in so many respects. I appreciate (and indeed once shared) the knee-jerk libertarianism of the people saying "let them fail", but this view does not fully appreciate the consequences of allowing a violent deleveraging such as we're experiencing now to continue indefinitely.

I don't think its unlibertarian to support the Fed's action here. If the Fed was a private organisation, that convinced people to use dollars by promising to maintain steady 2% inflation, then it would be printing a lot of money right now. So the government not printing a lot of money right now would actually be a greater intervention away from what would naturally happen.

A libertarian purist would say that money creation shouldn't be government controlled; but given that it is they should at least do a good job of it.

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

#253

Post by driverdan » Mon, Mar 23, 2020, 5:30 PM UTC

kragen wrote: post #31

> Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor.[9] The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. > With the bankers' financial resource…

This is exactly how it should be done, by private industry and individuals, not the government.

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

#254

Post by lifty » Mon, Mar 23, 2020, 5:31 PM UTC

OscarCunningham wrote: post #236

lifty wrote: post #235

Earlier quoted context omitted.

There was great inflation in financial assets, for the whole decade leading up to the current crisis. So there is a good chance the same thing will happen again, now that the central banks have taken the big guns out. I keep hearing that the FED (and other CBs) our out of bullets, but I think they have unlimited bullets. If you inject enough liquidity even a dead horse will bounce back; and for an example of that, yo…

So you're making the opposite prediction to the person I originally replied to? Investments will gain value faster than the cost of living?

Inflation is a loaded term, so I replied to mention that asset inflation was high, even though that is not reflected in the reported inflation numbers. As for you second question, I think the answer is yes, because for now I see CBs injecting money through the financial system. If the CBs start handing out checks directly to people, then we might see the CPI going high as well, in a more correlated manner with investments.

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

#255

Post by mistermann » Mon, Mar 23, 2020, 5:33 PM UTC

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…

> We are talking about companies which have plenty of assets and strong businesses.

Technically true, but I would argue misleading (note: not implying intent on your behalf).

"We are talking about companies which have plenty of assets and fragile, taxpayer supported businesses" contains kind of the opposite message of your statement, yet this statement is also technically true.

> Thus the FED is acting as a lender of last resort directly to major corporations. Without this last resort said corporations would need to either fire-sale off assets to pay the principle on these bonds or face a technical default.

Again, technically true, under the circumstances we find ourselves in. But might the existence of the Fed, and its past policy responses to such events, have possibly creates an environment of moral hazard whereby events like this are practically guaranteed?

> Which is to say: these bailouts are going to happen. No one who understands what is at stack would choose to "let the house fall".

This seems like a bit of a false dichotomy to me, as if letting the house fail or bailing them out (once again) in this fashion are our only two options.

In a true capitalist system, the US government would receive equity in all the companies they bail out.

At some point I think it would be a good idea for us to admit to ourselves what kind of economic system we really have in the West, and try to determine if it is up to the task of competing with China and their economic system, which to my eye is clearly superior (based in part on observable relative performance in the last 20 years).

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

#256

Post by jkhdigital » Mon, Mar 23, 2020, 5:33 PM UTC

xyzzyz wrote: post #229

Causality1 wrote: post #207

Earlier quoted context omitted.

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

For the exact same reason why it’s legal for individuals to take 30 year mortgages. Would you prefer world where you first need to save up for decades before being able to stop renting? It’s the same with businesses: they take loans, because they allow them to make money now, and it works just fine in normal times without an actual pandemic and forced lockdown of everything.

Except that people didn't have to save for decades to afford houses before the advent of the 30-year mortgage.

Debt is risky, period. Someone has to pay for that risk when bad things happen and the debt cannot be repaid. Also, people respond to incentives. When individuals and companies are allowed to keep all the profits from their risky activities, but are shielded in whole or in part from the losses, they will respond by taking on more risk than they would otherwise. It's called moral hazard.

Some of this is inevitable, and desirable--risk-taking is the driver of all economic progress. But how much? How far do we take it? Are we actually creating a society worth living in when the "risk-takers" are all rich multinational corporations?

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

#257

Post by SilasX » Mon, Mar 23, 2020, 5:34 PM UTC

Danieru wrote: post #144

paulsutter wrote: post #140

Earlier quoted context omitted.

If the banks periodically need a bailout, shouldn't bankers be paid like civil servants? (because that's what they are, apparently)

No banks need a bailout. In fact that banks are now required to act so super safe is part of what is driving the rapid decline. As corporate bonds get more risky banks are not allowed to hold as much of them. Triggering sales, which increases the risk, and thus triggers more sales. Banks are fine, it is the corporations which need to re-issue bonds that are going to hit a wall.

Wait until the mortgage payments stop coming in and then tell me whether they need a bailout.

Edit: Why is this controversial? If people can't afford to make their mortgage payments, and political aid doesn't come through, many banks will definitely be in need of a bailout.

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

#258

Post by asn0 » Mon, Mar 23, 2020, 5:36 PM UTC

cs702 wrote: post #186

Every decade or so, with regularity, the world seems to go through a significant economic or financial crisis triggered by some or other "unexpected" shock: * The current crisis, starting now, in 2020; * The global financial crisis from 2008 to the early 2010's; * The dotcom, telecom, and tech bust of the early 2000's; * The Asian debt crisis of the late 1990's; * The Latin America debt crisis of the 1980's; * The oi…

What happened before fiat currency allowed governments to step in, in the way they do now?

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

#259

Post by xeromal » Mon, Mar 23, 2020, 5:38 PM UTC

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…

Entrepreneurs aren't going to buy up these companies. Other companies will. Amazon will buy out the entire market and now we're even more dependent on them

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

#260

Post by airstrike » Mon, Mar 23, 2020, 5:38 PM UTC

hamiltont wrote: post #215

airstrike wrote: post #158

Earlier quoted context omitted.

Also want to point out that if companies can't afford their expenses, they'll stop paying rent (usually a huge expense and one that is fairly easy to stop paying while still occupying the real estate) Then landlords can't pay their expenses, and will default on their own payments This trickles up all the way to the banks and could result in their insolvency, which is what the Fed is (rightfully) trying to prevent

In my industry (software), rent is typically peanuts compared to payroll

Indeed. Payroll will also be significantly affected even in "rent-heavy" industries

https://www.wsj.com/articles/ge-to-cut-aviation-workforce-as...