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Federal Reserve pledges asset purchases with no limit to support markets

cnbc.com

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

#301

Post by waterfowl »

elamje wrote: post #237
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…

There is a lot of popular sentiment that misses the mark of the Fed, largely due to most Americans not taking time to study and understand it, but just seeing this large entity that has first-order effects that seem to only benefit banks and investors. The parent here ^ seems to understand the nuance, that a lot of Fed decisions are for the CREDIT markets, not the stock markets. I highly recommend reading the Greensp…

"the Greenspan or Bernanke biographies"

Which ones would you recommend? The autobiographies?

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

#302

Post by bjourne »

rdtwo wrote: post #274
bjourne wrote: post #199

Earlier quoted context omitted.

> 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

If so, what's the point of having banks in the first place?

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

#303

Post by jariel »

helen___keller wrote: post #226
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…

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…

" actions by the Federal reserve and congress are both part of the system"

Normal actions by the Fed are not tantamount to bailouts.

The Fed exists just as much to bail out the rich as it does for anything else.

It's a massive and existential form of systematic inequality.

'We need the government to intervene' - ok, but then 'we' also need to take ownership of said companies and allow the feckless investors to eat dirt.

Then maybe they can price in risk more effectively, which is what recent market rallies indicate they won't do.

Imagine what stock prices would be without the looming guarantee of bailout ...

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

#304

Post by AsyncAwait »

dollar wrote: post #213
AsyncAwait wrote: post #181

I like how socialism's used to save capitalism, yet you'll still have people claiming capitalism its the only system that "works". Yes, it "works" because it has to, i.e. there's no defined scenario of it not working, apparently nor the Great Depression, nor 2008, nor measures like these still don't mean anything as far as it not working, so it works because it apparently never does not work, no matter what. P.S. I d…

You labor under the delusion that we have capitalism. We don't. We have socialism, and have for over 70 years.

We do indeed, but only for bailing out megacorporations.

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

#305

Post by grecy »

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…

Thanks for the detailed explanation. I really don't understand a lot of what's going on, I hope you don't mind a few beginner questions

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

Are the measures being taken now just adding another layer onto the "house of cards" as some people describe it?

Will these measures just make it all fall harder at some point in the future?

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

#306

Post by icelancer »

spikels wrote: post #224
KKKKkkkk1 wrote: post #208

Earlier quoted context omitted.

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.

The biggest problem at the moment is the debt markets have almost completely stopped functioning. Let me repeat what the other poster said: “We are talking about companies with plenty of assets and strong businesses”. And they still can’t get needed short term financing. Should we let clearly creditworthy companies go bankrupt because the credit markets are temporarily closed?

>> Should we let clearly creditworthy companies go bankrupt because the credit markets are temporarily closed?

There two major assumptions there.

"Clearly creditworthy companies"

and

"Credit markets are temporarily closed"

The bonds are devalued. People are issuing credit to those who qualify. (I've secured two LOCs myself for both my business and personal needs.)

It's just that the bar is higher than normal. What is the function of a market if you don't allow it to clear?

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

#307

Post by icelancer »

jkhdigital wrote: post #248
spikels wrote: post #224

Earlier quoted context omitted.

The biggest problem at the moment is the debt markets have almost completely stopped functioning. Let me repeat what the other poster said: “We are talking about companies with plenty of assets and strong businesses”. And they still can’t get needed short term financing. Should we let clearly creditworthy companies go bankrupt because the credit markets are temporarily closed?

I'm not going to answer your question, but I'll just comment that moral hazard is real. Debt financing is not required to operate a business, but when liquidity is guaranteed through a lender of last resort companies will inevitably leverage their balance sheets far beyond what is justified by the underlying risk of the business. Also, is it really accurate to call a company "clearly creditworthy" if a 2-3 month gap…

>> Debt financing is not required to operate a business

Exactly. No one forced them to take on loans and then operate their balance sheets like they'd always be able to revolve bonds.

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

#308

Post by icelancer »

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.

>> Banks are fine, it is the corporations which need to re-issue bonds that are going to hit a wall.

"Need" to re-issue bonds? Did anyone force them to buy into a model that has a huge linchpin failure?

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

#309

Post by icelancer »

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.

Huh? If I default on my mortgage due to this pandemic, the loan is collateralized and the house is seized / a lien is put on it.

Why, then, do corporations get to avoid their collateralized downfall?

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

#310

Post by bjourne »

spikels wrote: post #224
KKKKkkkk1 wrote: post #208

Earlier quoted context omitted.

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.

The biggest problem at the moment is the debt markets have almost completely stopped functioning. Let me repeat what the other poster said: “We are talking about companies with plenty of assets and strong businesses”. And they still can’t get needed short term financing. Should we let clearly creditworthy companies go bankrupt because the credit markets are temporarily closed?

If the companies are clearly creditworthy how come no one wants to lend them any money? It appears that whoever has the money doesn't think these companies are clearly creditworthy.
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