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

#291

Post by edanm » Mon, Mar 23, 2020, 6:32 PM UTC

rtpg wrote: post #113

matthewdgreen wrote: post #40

Earlier quoted context omitted.

I think it's just as likely that the markets will simply stop performing any sort of useful price discovery function, leading to huge misallocations of productive resources -- resources we desperately need right now.

I mean it’s just digits in a database. Price discovery sounds useful until you realize that the important thing is to just make enough food and meds for everyone, and the rest are mostly details.

That is asbolutely wrong.

Price discovery is the thing that tells people to make food. It is the thing that tells people to make meds.

It's also the thing that tells people to continue making and doing things that people need and aren't meds and food - like keep cleaning the streets, keep up basic sanitation, continue making the electricity run, etc.

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

#292

Post by edanm » Mon, Mar 23, 2020, 6:33 PM UTC

gaogao wrote: post #49

matthewdgreen wrote: post #40

Earlier quoted context omitted.

I think it's just as likely that the markets will simply stop performing any sort of useful price discovery function, leading to huge misallocations of productive resources -- resources we desperately need right now.

That honestly happened a while back with the shift to longer periods of VC funding.

Whether true or false, VCs make up a tiny, tiny fraction of the market, so their influence is minuscule when we're talking on such a global scale.

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

#293

Post by Hokusai » Mon, Mar 23, 2020, 6:39 PM UTC

tylerhou wrote: post #288

jkhdigital wrote: post #243

Earlier quoted context omitted.

> We are talking about companies which have plenty of assets and strong businesses. We are also talking about companies that are leveraged to the tits to juice their return on equity. What is glossed over in all of these discussions about bailouts is that the managers of these corporations respond directly to financial incentives, and the existence of a "lender of last resort" such as the Fed ensures that corporation…

> Someone has to eat the losses, and in an actual free market there are two options: the equity holders, or the bondholders. The equity holders are eating the losses; have you seen the stock market? > Now, the Fed provides a third option: the holders of U.S. dollars, whose currency is devalued as money is printed to paper over the void which was opened up by the pandemic. And so the charade will continue. Money is be…

> The equity holders are eating the losses; have you seen the stock market?

This is a misconception. Loss or profit only happens when you sell your assets. Until then it is just economic potential. The trend of not paying dividends is at fault here. When you do not care about dividends but perceived future growth to earn money there is an incentive to over-commit and increase risk above any reasonable level.

Adding to that, if someone's "investments" last just a few days or weeks. Then that person is not investing, that person is just speculating. And, speculators should not be shielded of market readjustments. If anything they should fully pay to use the market as a casino.

But, back to the point, your assessment do not contradicts that companies are excessively leveraged and are not ready to survive though times. As the parent comment says, there is an incentive to leverage as much as possible and let the tax payers pay for the meltdown.

"American Airlines spent $13 billion on share buybacks for 10 years through 2019". They should have used that money more wisely. Why should the taxpayers give money away or lent money at close to zero interest when the companies had the money and dedicated it to artificially increase share prices?

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

#294

Post by JDiculous » Mon, Mar 23, 2020, 6:41 PM UTC

oflannabhra wrote: post #240

JDiculous wrote: post #218

Earlier quoted context omitted.

I don't disagree with this, but it's a shame we don't address the suffering of humans who've lost their jobs, or small businesses having to go bankrupt due to this crisis, with the same degree of urgency. I get that the Fed doesn't have the power to provide "liquidity" directly to the people right now, but they should. This is socialism/welfare for the rich, free markets for the poor.

If businesses go insolvent, what happens to _all_ of their employees? The Federal Reserve's job is to a) minimize unemployment and b) target inflation. From what I can tell, they are doing everything in their power to accomplish those goals. I agree that more needs to be done directly for folks who have already lost their jobs or will soon, but that type of stimulus would require an act of Congress, who apparently ca…

> that type of stimulus would require an act of Congress, who apparently can't get their collective heads out of their own asses at the moment.

Yes that is the problem. I believe that the Fed's powers should be expanded to allow giving that money directly to the people, instead of only to banks and financial markets.

If we really cared about minimizing unemployment beyond simply paying lip service to it, we'd institute a job guarantee.

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

#295

Post by duderific » Mon, Mar 23, 2020, 6:50 PM UTC

Dumblydorr wrote: post #196

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…

Why not use new cash to massively scale up healthcare resources and prevent such crises? Giving more money to leisure recreation companies is just kicking the can down the road, we must have strategic reserves of epidemic response. This should be higher priority than nukes, aircraft carriers, or enriching stock holders...when do actual citizens lives' matter above mere dollars and cents in rich people's accounts?

> Why not use new cash to massively scale up healthcare resources and prevent such crises?

This should be the job of the federal government, not private investors. At other times we've had better support for these functions of government; the current administration in the US is not so friendly to such silly things as disaster management agencies.

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

#296

Post by michaelyoshika » Mon, Mar 23, 2020, 6:50 PM UTC

Digory wrote: post #282

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…

The big problem is how this exports pain outside the US. Even if the US could allow US companies to default for a year without penalty, the Chinese companies expecting coupon payments wouldn't receive the funds they use to operate. They would then have to default on their Chinese obligations. If Chinese companies can't pay their debts in China, China faces huge pressure to devalue or inflate. They're unlikely to adop…

Benefits of being the only superpower and world treasure.

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

#297

Post by ceejayoz » Mon, Mar 23, 2020, 7:01 PM UTC

pbourke wrote: post #271

ceejayoz wrote: post #115

Earlier quoted context omitted.

> 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…

> we can ignore the fucking stock market and move to address the public health emergency as our sole concern

We can. Can Trump? Is he capable of that for more than a week or two?

A panicked President worried about reelection makes bad choices.

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

#298

Post by dcolkitt » Mon, Mar 23, 2020, 7:01 PM UTC

mindslight wrote: post #267

dcolkitt wrote: post #63

Earlier quoted context omitted.

> They're sacrificing our future in order to inflate stock prices now You're trivializing the issue. It's not just "inflating stock prices". Credit markets that are required for the basic functioning of the economy have completely frozen up. Companies that are completely solvent can't meet short-term obligations because the commercial paper market has frozen. Money market funds, which are basically savings accounts,…

> the commercial paper market has frozen This is similar to when companies continually complain about a "talent shortage" from not able to hire people, when the real reason is that they just don't want to pay market rates. There is an easy answer to obtaining business credit - pay the current interest rates, which have gone up due to uncertainty. Instead, the Fed is telling everyone that interest rates are even lower…

No, it's not. There's literally no bid on some issues of commercial paper and MBS. Literally nobody is offering to buy these securities at any price.

And we're not even talking about speculative assets here. We're talking about things like 30-day collateralized notes from Microsoft. Do you really think the market is "pricing" that Microsoft is likely to go bankrupt in the next 30 days? Or is it more likely that there's a huge shortage of money relative to the liquidity demands imposed by the dislocations.

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

#299

Post by mindslight » Mon, Mar 23, 2020, 7:03 PM UTC

dcolkitt wrote: post #298

mindslight wrote: post #267

Earlier quoted context omitted.

> the commercial paper market has frozen This is similar to when companies continually complain about a "talent shortage" from not able to hire people, when the real reason is that they just don't want to pay market rates. There is an easy answer to obtaining business credit - pay the current interest rates, which have gone up due to uncertainty. Instead, the Fed is telling everyone that interest rates are even lower…

No, it's not. There's literally no bid on some issues of commercial paper and MBS. Literally nobody is offering to buy these securities at any price . And we're not even talking about speculative assets here. We're talking about things like 30-day collateralized notes from Microsoft. Do you really think the market is "pricing" that Microsoft is likely to go bankrupt in the next 30 days? Or is it more likely that ther…

Despite their destructiveness in earlier decades, I'm willing to loan Microsoft cash for 30 days for double my money back. Where do I buy?

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

#300

Post by mistermann » Mon, Mar 23, 2020, 7:12 PM UTC

trimbo wrote: post #287

mistermann wrote: post #279

Earlier quoted context omitted.

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.

> They United Stats Government should do it That's what they're doing and what the article is about. [Edit: not buying the companies outright, but buying their debt] The person I was responding to was proposing something else about clever entrepreneurs buying up all of these industries in bankruptcy, or something.

They should get equity along with the debt, for those companies for whom this is not merely a liquidity issue.

Boeing is an example of such a company.