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

#361

Post by perl4ever » Tue, Mar 24, 2020, 8:37 PM UTC

SilasX wrote: post #348

perl4ever wrote: post #343

Earlier quoted context omitted.

This is circular reasoning, but it's also counter to the facts, which are that markets aren't yet pricing securities for an apocalypse.

No, you're the one assuming they're functioning companies to prove that the deserve to be saved. That's itself circular. And if you think the market is correctly pricing the equity, you can't turn around and say it's mispricing the bonds so the Fed has to "correct it".

I didn't say the market is correctly pricing anything. I'm saying if it is correctly pricing securities, then it can't be used as evidence they are nonviable.

I mean, circular reasoning is one level of stupidity, but getting it going with a counterfactual is just enraging to me.

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

#362

Post by chii » Tue, Mar 24, 2020, 9:31 PM UTC

tylerhou wrote: post #356

chii wrote: post #332

Earlier quoted context omitted.

> 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 natu…

> I'm fine with lending to airlines at normal corporate lending rates without needing any additional compensation, though.

the problem is that the current bond and credit markets have seized up because nobody wants to lend (at "normal" rates). If the gov't comes into the market and act as a perfect lender of last resort, then true price discovery don't happen, and you cannot really know what the "true" corporate lending rate would be. That's my take on why it doesn't work without an equity stake for the gov't to do the lending.

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

#363

Post by perl4ever » Tue, Mar 24, 2020, 11:52 PM UTC

SilasX wrote: post #349

perl4ever wrote: post #344

Earlier quoted context omitted.

If someone has an acute problem with low blood sugar, do you let them die right now because increasing their blood sugar won't cure diabetes? This is how insane people sound to me right now. And from what I've read, this is how the great depression was created - people said "oh, the banks that are failing are weak, so they should fail".

Except the patient we're trying to save is the market, not any one business, and malignant businesses are like cancer. It's important for the cancer to die so the patient can live. I mean, if you want to debate this thing entirely in analogies.

I think the average person, or at least the average internet commenter, is too ready to consider large sectors of the economy "malignant" even in the best of times.

But without debating which analogy is right, it does matter whether it's cancer or not. And if aggressive treatment of advanced cancer involves cutting out major organs and the patient will only survive a month longer at best, it makes more sense to assume it's not terminal cancer and act accordingly even if there's a chance.

If someone appears to have a seizure and/or falls down and passes out, it could be a stroke, they could have cancer that's metastasized everywhere, but you don't make that assumption when there are many easily treatable possibilities.

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

#364

Post by avn2109 » Wed, Mar 25, 2020, 11:24 AM UTC

daxorid wrote: post #329

tylerhou wrote: post #288

Earlier quoted context omitted.

> 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…

> Money is being temporarily created and lent What is your definition of temporary? QE 1/2/3 were each supposed to be temporary. But each one was never enough, and fed smoothly into the next. Then they finally tried reducing their balance sheet and the repo market blew up. Then "Not QE" repo support was supposed to last two weeks. Then only a few months. Now "only" a year, and at a trillion dollars overnight and half…

Should be top comment in this thread.

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

#365

Post by llcoolv » Wed, Mar 25, 2020, 1:42 PM UTC

daxorid wrote: post #329

tylerhou wrote: post #288

Earlier quoted context omitted.

> 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…

> Money is being temporarily created and lent What is your definition of temporary? QE 1/2/3 were each supposed to be temporary. But each one was never enough, and fed smoothly into the next. Then they finally tried reducing their balance sheet and the repo market blew up. Then "Not QE" repo support was supposed to last two weeks. Then only a few months. Now "only" a year, and at a trillion dollars overnight and half…

This. It is basically a rigged system and a no-win game of feudals and peasantry. What happened to responsibility and equal opportunity? Are the 99% of population who are not involved in this scam even considered human beings?

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

#366

Post by llcoolv » Wed, Mar 25, 2020, 1:45 PM UTC

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...

It won't disappear. Just change owners as it was already explained and proven.

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

#367

Post by andrekandre » Thu, Mar 26, 2020, 11:29 AM UTC

resters wrote: post #357

andrekandre wrote: post #322

Earlier quoted context omitted.

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 com…

> The bailout of Ford effectively punished Tesla

that’s a good point, and well taken

i guess the other side of it is, if it’s easy for people to find another job, and/or there is a sufficient safety net, then it’s also probably easier to “just let the companies die”... but i think our system is basically run by those with the money to direct resources in the other direction unfortunately....

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

#368

Post by spectrum1234 » Thu, Mar 26, 2020, 4:42 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…

Why don't companies with lots of assets like airlines sell them? Companies without assets need some help, not airlines.