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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

#271

Post by pbourke »

ceejayoz wrote: post #115
CyanLite4 wrote: post #23

Earlier quoted context omitted.

It stops the stock market slide. Which is more valuable than political talking points. Eventually these bankers are going to start doing some math and see that with 0% interest rates and unlimited firepower on Treasuries, there’s going to be massive pent up demand after this medical crisis is solved. Money will be lent to everyone, including airlines and leisure companies because there’s simply no where else to put t…

> It stops the stock market slide. This doesn't seem like a huge public health issue, but it is. Stopping the market slide gives the public health officials like Dr. Fauci a bit of breathing room. Continued stock market slides will cause politicians to panic and demand lifting of restrictions, even if they're the only thing helping right now.

> Continued stock market slides will cause politicians to panic and demand lifting of restrictions, even if they're the only thing helping right now.

Or .. and hear me out .. we can ignore the fucking stock market and move to address the public health emergency as our sole concern. The stock market right now is tens of thousands of market participants running around wearing flaming underpants on their heads.

The bond/credit market - yeah, that has consequences. The Fed is already intervening there.

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

#272

Post by mistermann »

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…

> Changing the rules of massive bilateral agreements to benefit one party over another tends to blow confidence in the system.

I suspect "confidence" isn't an accurate word to describe the current aggregate sentiment of people towards 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 processes in previously-stable economies.)

We are already seeing this today. /r/WallStreetBets has plenty of content along these lines, and for good reason - that the government would be selectively bailing out corporations, once again, was fairly self-evident to anyone with half decent capabilities in logic and memory.

> It also does nothing for e.g. a company with good receivables that can't make payroll or interest payments because its good commercial paper isn't being purchased.

Fair enough, but lets not think in false dichotomies - there is in fact an extremely broad array of ways the fed could go about this. Unfortunately (and coincidentally), they seem to have once again miraculously chosen the way that benefits corporations at the expense of taxpayers.

Most people believe that we live in nations based on ~democracy, in both function and name. I for one would be very interested to know what the public's actual sentiments are on this matter, as opposed to what we are told are their sentiments (comically derived from a single vote, at one point in time). It's self-evidently silly behavior, and yet this seems to be the way the vast majority of people conceptualize the world.

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

#273

Post by jkhdigital »

koolba wrote: post #4

So the Federal Reserve is admitting to a Martingale strategy. Interestingly they’re the one entity on the planet that can pull it off at scale. https://en.wikipedia.org/wiki/Martingale_(betting_system)

Hadn't seen this language used to describe the everything bubble, but it fits. There's no gambler's ruin when you have an infinite supply of money.

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

#274

Post by rdtwo »

bjourne wrote: post #199
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…

> A bonus feature of this implementation is it costs not much money. Big corporations have lots of assets and the government is sure to be re-paid. Says who? The whole point of loans is that there is a possibility that they will not be repaid. Banks thinks it is risky to lend money at the current interest rates so American taxpayers instead have to shoulder the whole burden. The assets owned by corporations is mostly…

The government can offer loans where they are superior to other borrowers. This is similar to what private equity does to strip assets out from under other bond/debt holders but less evil

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

#275

Post by viklove »

johnvanommen wrote: post #234
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…

> rather than going into debt, would it be possible for the government to just... suspend the activation of financial covenants generally for a while? That's completely unfair to one side of the transaction. Here's an example: Let's say that in 2010, I bought a million in bonds from various sources. Let's say that in 2010, you sold me some bonds. Let's say that your proposal goes through, and the government just decl…

Just like a bailout punishes the average American citizen for VC benefit.

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

#276

Post by viklove »

nocorpwelfare wrote: post #241
tarsinge wrote: post #219

Earlier quoted context omitted.

Apart from paying people to stay at home during the pandemic what's the issue? Why would tourism disappear? Buy the failed airline/hotel, change the name, personnel returns to work, business as usual.

Because we're all about to be broke and there won't be any free cash to "go on vacation."

Good, then we should let the industries fail instead of keeping them around as zombies. Mail the employees checks for a year until they can find a new form of employment.

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

#277

Post by mistermann »

imtringued wrote: post #175
derefr wrote: post #153

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. 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…

You are completely skipping over the basics. If someone doesn't pay then someone else doesn't get paid. You merely shifted the problem to somewhere else. That somewhere else is usually something extremely critical such as the banking system.

This doesn't make sense to me at all. If you pause transactions temporarily and then resume them later once we've regained some stability, I don't understand how you see your points as being true? Who isn't getting paid? Where is the problem being shifted to? (Are you thinking the courts? That isn't being proposed, it is only mentioned as an illustration that that which is "impossible", is actually fairly routine, the difference is that in this case it would be done at massive scale.

Does this increase risk? I would think so, but I think people should have an obligation to provide at least some evidence or logical reasoning as to why we must accept the particular flavor of corporate socialism we practice. If an idea is sound, it should be defensible.

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

#278

Post by helen___keller »

jkhdigital wrote: post #265
helen___keller wrote: post #226

Earlier quoted context omitted.

I mean, actions by the Federal reserve and congress are both part of the system so it's a little unfair to say the system should work without government intervention. Particularly this time around, healthy and well run businesses following reasonable best practices are being decimated. And why shouldn't they? A large percentage of our economy was just shut off. Add in leverage - which isn't inherently a bad thing - a…

> healthy and well run businesses following reasonable best practices A business with zero debt financing would not go bankrupt during this crisis, but they would still have to lay off employees in the meantime, and those employees might "starve" without another source of income. I really, really don't understand the need to bail out companies here. If the problem is a loss of income for the employees, then strengthe…

> A business with zero debt financing would not go bankrupt during this crisis

There are fixed obligations that can exist outside of debt financing. Rent, for example, is one that everybody is familiar with.

Anyways, I generally agree that helping the employees is more important than saving the businesses. If a business does die, it hurts some current investor or proprietor and benefits some future investor or proprietor after the crisis is over, with some efficiency lost in between as assets are sold off and eventually bought back up (and probably you get a better off company in the long run as a personal opinion).

I'm just saying, it's not necessarily some moral fault that a business doesn't have the structure to survive the a pandemic. This is outside of normal recession-preparation.

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

#279

Post by mistermann »

trimbo wrote: post #232
tarsinge wrote: post #219

Earlier quoted context omitted.

Apart from paying people to stay at home during the pandemic what's the issue? Why would tourism disappear? Buy the failed airline/hotel, change the name, personnel returns to work, business as usual.

Who with cash is going to buy all of these businesses and take on their debt? Apple? Microsoft? Some PE firms? Or is your proposal to default on all the debt for those industries and buy the companies in a firesale? Tourism would actually disappear in that scenario...

They United Stats Government should do it. They have literally unlimited funds, and this approach would actually be the most consistent with our "capitalistic" economic model.

Not that we live in anything approaching a capitalist economy of course, but it would be funny if they were logically consistent for once.

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

#280

Post by mistermann »

DamnYuppie wrote: post #269
nocorpwelfare wrote: post #238

Earlier quoted context omitted.

This is acceptable as long as the billionaires all take big haircuts this time. In 2008, they paid themselves huge bonuses while Main St. got evicted. Not happening this time! Pitchforks, torches, and nooses if necessary.

Do you have some data to back up the theory that they all paid themselves huge bonuses? Most billionaires lost huge amounts of money as their wealth was in the market and in real estate so when that crashed so did their net worth. The ones who paid themselves bonuses were the wall street bankers who received bailouts from TARP. To be clear less then 20% of the worlds billionaires made their fortunes via finance.

https://www.nytimes.com/2009/07/31/business/31pay.html

> Thousands of top traders and bankers on Wall Street were awarded huge bonuses and pay packages last year, even as their employers were battered by the financial crisis.

> Nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008, according to a report released Thursday by Andrew M. Cuomo, the New York attorney general.

> At Goldman Sachs, for example, bonuses of more than $1 million went to 953 traders and bankers, and Morgan Stanley awarded seven-figure bonuses to 428 employees. Even at weaker banks like Citigroup and Bank of America, million-dollar awards were distributed to hundreds of workers.

The amount of economic waste involved in people having silly arguments over their perceptions of reality would likely be a horrifying large number if one was to see it.

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