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

#351

Post by mistermann » Tue, Mar 24, 2020, 5:32 AM UTC

dragontamer wrote: post #328

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. They have literally unlimited funds, and this approach would actually be the most consistent with our "capitalistic" economic model. That's actually called Socialism, when the government buys up companies and starts to own the means of production.

Under capitalism, if you go broke, you're broke. Boeing is broke, because the executives took all the cash for themselves via buybacks.

If the taxpayers are getting their wallet out, it should be to purchase something. So, they will be purchasing equity in the bankrupt company.

If Boeing doesn't like it, they can go pound sand, or maybe the executives could use the money (that formerly belonged to the shareholders) to purchase the shares themselves. Of course they don't want that, they want to have their cake and eat it too, again.

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

#352

Post by helen___keller » Tue, Mar 24, 2020, 10:43 AM UTC

afpx wrote: post #336

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…

So, what are the probable and worst case scenarios? Right now, it's hard to cut through the hyperbole.

Nobody really knows because the virus itself carries so much uncertainty. That's why market volatility is so high- 2 weeks of lockdown? Two months? A year? Oh it's ending next week? Nobody knows

Worst case you can just imagine up some great depression 2.0 where all confidence in the economy is gone and nobody has jobs , or maybe a government so intent on preventing this that it causes hyperinflation. I don't think either of these are particularly likely

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

#353

Post by dragonwriter » Tue, Mar 24, 2020, 10:54 AM UTC

jkhdigital wrote: post #243

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. 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…

> Except that those assets are owned with borrowed money. Someone has to eat the losses, and in an actual free market there are two options: the equity holders, or the bondholders.

There are no actual free markets and there never have been; governments exist and always intervene in the market, and even if they didn't have something like the Fed executing monetary policy, there's typically the option of “past, present, or future taxpayers”; in the case of future taxpayers, often in part or in whole out of returns directly made from the gains from keeping the businesses afloat rather than letting them fail.

> And so the charade will continue.

What “charade”? It would only be a charade if the government pretended that monetary and fiscal policy wasn't part of the system of the economy, which it does not.

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

#354

Post by dragonwriter » Tue, Mar 24, 2020, 10:58 AM UTC

toomuchtodo wrote: post #326

ahelwer wrote: post #324

Earlier quoted context omitted.

Bankruptcy doesn't mean the company's assets are thrown in the trash. It just means the current equity & bond holders get rinsed. Other presumably smarter people can then come in and run the company.

They mustn’t even be smarter, simply more ethical and responsible.

They needn’t even be more ethical and responsible, either. Calvinist mythology aside, financial success isn't a symptom of moral virtue.

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

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Post by athaht » Tue, Mar 24, 2020, 12:08 PM UTC

chewz wrote: post #17

athaht wrote: post #2

Hope this works

Define "it works" and for whom...

The economy of the entire world is at stake and you ask me to define ‘it works’ and for whom...

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

#356

Post by tylerhou » Tue, Mar 24, 2020, 2:47 PM UTC

chii wrote: post #332

tylerhou wrote: post #313

Earlier quoted context omitted.

> Loss or profit only happens when you sell your assets. This is a meme phrase; losses absolutely do happen before you sell your assets. (If I bought Enron at $90 and never sold, I didn't lose any money, right?) > "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 You have two misunderstandings here.…

> When times get tough, AA can sell equity for more money, which is a stock buyback but in reverse so why are they not doing this, but instead asking for low interest loans? ( https://finance.yahoo.com/news/airline-ceos-promise-to-elimi... ) The reason is that raising equity dilutes all current shareholders. It's a bigger "loss" to them than a termed interest loan which the tax payer gets minimal reward for taking on…

> The reason is that raising equity dilutes all current shareholders.

But like venture funding, dilution is fine as long as it means that the company survives or grows. I'd rather own 1% of a billion dollar company than 10% of a dead one.

> It's a bigger "loss" to them than a termed interest loan which the tax payer gets minimal reward for taking on the risk.

Yes, I agree, but my key point is that buybacks are a natural part of equity markets and are not done solely to "manipulate the market" as commonly claimed.

> I say, that any bailout loans _should_ come with an equity dilution component. Tax payers should get compensated, or this moral hazard will just continue into the future.

Agreed, any exceptional bailouts through the government should come with an equity stake. I'm fine with lending to airlines at normal corporate lending rates without needing any additional compensation, though.

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

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Post by resters » Tue, Mar 24, 2020, 5:43 PM UTC

andrekandre wrote: post #322

resters wrote: post #151

Earlier quoted context omitted.

This is actually the goal, to prevent price discovery and to make it less likely that the political system would require firms to use adequately cautious levels of underwriting capital. The perverse incentive for firms is that the more accurately they structure their financials to be highly vulnerable to systemic risk, the more likely it will be that the decision to do so will be rewarded by policymakers. Simply put,…

i don’t disagree with your points at all, but just want to point out something i think a lot of people may not be thinking about in these scenarios: maybe govts are looking at their economies not just as systems of production but literally matters of national security, i.e if an economy looses its largest producers of certain products and industries, it looses a huge amount of economic leverage and hegemony... by bai…

I'll admit that I think national security justifications used by politicians are often quite lacking in substance.

From an economic perspective, we need to think about what our economy is "good at". Generally speaking, when there is demand for something, the economy successfully figures out how to supply it.

With bailouts, there is very little demand for the expertise needed to package and re-sell parts of failed companies to the highest bidder. If Ford had been allowed to fail, perhaps Tesla could have purchased crucial IP or hired entire teams.

The legacy of Henry Ford's entrepreneurship is not the Ford name, it's in the firm's unique business acumen and many years of experience creating excellence. If the larger business (effectively a holding company) called "Ford" fails, the sub-units still have significant value, and the world is better off if that value can be utilized by more capable managers in other firms.

The bailout of Ford effectively punished Tesla, punished consumers, and even punished employees, since their lot is largely a function of the wisdom of those formulating the strategy, something that Ford did poorly enough that it deserved to fail.

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

#358

Post by sershe » Tue, Mar 24, 2020, 6:00 PM UTC

alexmingoia wrote: post #7

How does injecting money solve a problem that’s not caused by lack of money? This market downturn isn’t a lack of liquidity, or a lack of money, or toxic assets like the mortgage backed securities. People aren’t going to stores, restaurants, and airlines because of SARS-CoV-2, not a lack of credit or money. Printing money isn’t going to create customers for businesses effected by this pandemic.

People aren't not going to stores, etc. because of the virus. In WA this weekend, with lockdown theater in full force, there were tons of groups eating outside restaurants on benches and grass out of takeout containers, hiking trailheads were overflowing with cars, running in a city park near my house was impossible because of the crowds (larger than on a regular sunny weekend). It was really inspiring to see (from a position of a person who absolutely disagrees with lockdowns, even if the worst case exponential spread was the alternative).

Imagine what the economic impact of the virus alone would be if there weren't lockdown pleas all over the news, social media, even highway signs. It would be close to zero now, and if Spanish Flu teaches us anything it would be negligible even at the peak.

So, the government is killing the economy. Hence, the government is also trying to prop it up. I suspect it won't end well either way.

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

#359

Post by dang » Tue, Mar 24, 2020, 6:07 PM UTC

nocorpwelfare wrote: post #238

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…

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.

You're welcome to participate on HN, but please don't use it for political warfare. That's destructive of the intellectual curiosity this site attempts to organize around. This is in the site guidelines, which we'd appreciate if you'd read and follow: https://news.ycombinator.com/newsguidelines.html.

Also, it's not great to use a politically provocative username. That ends up having a politically provocative effect on every thread the account posts to. If you want to stick around and use HN as intended, we can rename the account for you if you email hn@ycombinator.com.

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

#360

Post by [deleted] » Tue, Mar 24, 2020, 6:34 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…

[deleted]