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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 bon

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 risk rating on these bonds has gone up, meaning they in-fact need to sell said bonds to reduce their risk exposure. Thus the FED is acting as a lender of last resort directly to major corporations. Without this last resort said corporations would need to either fire-sale off assets to pay the principle on these bonds or face a technical default. Covenants on their other bonds mean that if the corporation defaults on any of their bonds, all of the bonds become callable. 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. Thus the Fed and US Government are/should be acting to avoid any such rapid deleverage. It took Japan 2 decades to reduce leverage in the corporations. Without intervention the US could undergo this same deleveraging in a matter of months. It would throw the American people into such a deep poverty the likes of which we've not seen since the great depression. Which is to say: these bailouts are going to happen. No one who understands what is at stack would choose to "let the house fall".

thoughtstheseus 7y ago
Agreed, deleveraging fast is dangerous. That said if any large company gave themselves less than six months to refinance that’s on them. Everyone knows markets can become dislocated and closed for periods.
derefr 7y ago
> 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 be written to include additional language Y; and any covenant triggers written before date X would be implicitly interpreted as if they did contain language Y. Language Y specifies that the activation of the covenant is suspended when the government says a certain named financial-market state "Z" pertains; and, when state "Z" is declared as having ended, only then would the covenant be evaluated for activation, based on the present state of the debtor, rather than its state during the historical period during condition "Z". Effectively, the covenant wouldn't be able to "see into" whatever happened during "Z" to apply its triggering logic to it. (I'm picturing here how you can, in an RDBMS, create constraints that don't validate until a transaction is complete, such that you can temporarily put a table into a constraint-violating state during the TX, and—as long as you fix things before the end of the TX—everything will be fine, and the trigger won't run.)
- nostromo 7y ago
  Banks would almost immediately be insolvent, which is exactly what the Fed is trying to prevent.
- Danieru 7y ago
  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 to be re-paid.
  - derefr 7y ago
    > 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, whatever their creditors demand. The creditors would ultimately have to take them to court to attempt to get their covenants enforced.) And, if the covenant enforcement hits the court system, then the government would already be "in place" to suspend traffic—it's "the wire" that court-system messages are flowing through! (Or, really, it's more like a judge is a router and the legislature controls a WAF module in said router. The judge, as router for motions, is required to deny any motion the law-as-WAF declares as illegitimate.)
    - Danieru 7y ago
      Covenants are the smallest part of this. Without the flow of money the funds/banks/institutions which own those bonds are in-turn going to default to their creditors. Hence the internet analogy: you cannot just hack in a pause on your local machine. There is a world of complex interactions which would also need to be paused, so complex just figuring out who owes who would take years/decades.
jeoeo9nn 7y ago
And of course this is all just emotional paranoia. None of those things are real except as emotional gates on social agency so the privileged under the law can get first dibs. Remember Thiel & Trump, probably the rest, really believe romantic notions like tough guys must rule as “that’s the way society has to be because that’s how it has always been”. Trump literally said it the other day and Thiels ramble was posted here recently.
paulsutter 7y ago
If the banks periodically need a bailout, shouldn't bankers be paid like civil servants? (because that's what they are, apparently)
- Danieru 7y ago
  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.
  - paulsutter 7y ago
    Banks are fine as long as they aren't holding the debt of companies that hit the wall. It's a bailout.
  - SilasX 7y ago
    Wait until the mortgage payments stop coming in and then tell me whether they need a bailout. Edit: Why is this controversial? If people can't afford to make their mortgage payments, and political aid doesn't come through, many banks will definitely be in need of a bailout.
  - icelancer 7y ago
    >> 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?
airstrike 7y ago
Also want to point out that if companies can't afford their expenses, they'll stop paying rent (usually a huge expense and one that is fairly easy to stop paying while still occupying the real estate) Then landlords can't pay their expenses, and will default on their own payments This trickles up all the way to the banks and could result in their insolvency, which is what the Fed is (rightfully) trying to prevent
- hamiltont 7y ago
  In my industry (software), rent is typically peanuts compared to payroll
  - airstrike 7y ago
    Indeed. Payroll will also be significantly affected even in "rent-heavy" industries https://www.wsj.com/articles/ge-to-cut-aviation-workforce-as-coronavirus-grounds-airliners-11584972724 https://www.wsj.com/articles/ge-to-cut-aviation-workforce-as...
dwnvoted2hell 7y ago
We've been writing corporate America a hall pass for quite some time. With many of these, I'm sure it's time to say "We'll loan you the money, on the condition the government owns you if you don't pay up." And if there is any company trying to lend more than their value...just end them - they've effectively become a cancer.
deleted 7y ago
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talentedcoin 7y ago
Thank you for putting it so well. Keeping the corporate bond market going does not sound like a noble goal on its face but it's vital in so many respects. I appreciate (and indeed once shared) the knee-jerk libertarianism of the people saying "let them fail", but this view does not fully appreciate the consequences of allowing a violent deleveraging such as we're experiencing now to continue indefinitely.
- OscarCunningham 7y ago
  I don't think its unlibertarian to support the Fed's action here. If the Fed was a private organisation, that convinced people to use dollars by promising to maintain steady 2% inflation, then it would be printing a lot of money right now. So the government not printing a lot of money right now would actually be a greater intervention away from what would naturally happen. A libertarian purist would say that money creation shouldn't be government controlled; but given that it is they should at least do a good job of it.
- Blackthorn 7y ago
  There's no indication that they would actually deleverage if bailed out in this fashion. FFS, these "strong businesses" are so extremely fragile that they are liable to go bankrupt because they can't roll over some of their debt. And now the Fed just wants to let them roll it over again consequence free.
  - icelancer 7y ago
    Exactly. If your business was so dependent on rolling over bonds that you go bankrupt/de-lever massively in a 3-6 month window... how strong was the business?
tarsinge 7y ago
But Japan did not let the banks and corporations fail, then they got zombie economy. Instead let entrepreneurs buy defaulting corporations with all their assets for $1 and see what can happen with fresh blood and creativity. No value is destroyed, assets and personnel stays, and hopefully consumer demand will go back after the pandemic. Edit: ah yes shareholders lose money but that's the game. Retirement pensions? If you are not for socializing it then it's the game too.
- trimbo 7y ago
  It's not just one or two companies. At minimum: all retail, all airlines, all hotels, all cruise ship companies are at risk.
  - tarsinge 7y ago
    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.
    - trimbo 7y ago
      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...
      - mistermann 7y ago
        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.
        7y ago
cryptica 7y ago
The real problem is that these corporations are brittle. The Fed is bailing out innefficent corporations once again under the same pretext as last time. I recall that the government promised its citizens back in 2008 that it would be the last time and now look, only 10 years later, same story; more bailouts and all corporate executives get to keep their jobs too. The US today is more communist than China. The US tends to make fun of China's government for still calling themselves 'communists', but now the tables have turned and I wouldn't be surprised if China starts to make fun of the US for calling themselves 'capitalists'.
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Causality1 7y ago
Why is it legal for corporations to build financial houses of cards like that?
- xyzzyz 7y ago
  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.
  - jkhdigital 7y ago
    Except that people didn't have to save for decades to afford houses before the advent of the 30-year mortgage. Debt is risky, period. Someone has to pay for that risk when bad things happen and the debt cannot be repaid. Also, people respond to incentives. When individuals and companies are allowed to keep all the profits from their risky activities, but are shielded in whole or in part from the losses, they will respond by taking on more risk than they would otherwise. It's called moral hazard. Some of this is inevitable, and desirable--risk-taking is the driver of all economic progress. But how much? How far do we take it? Are we actually creating a society worth living in when the "risk-takers" are all rich multinational corporations?
    - xyzzyz 7y ago
      > Except that people didn't have to save for decades to afford houses before the advent of the 30-year mortgage. There is a certain truth in that the ballooning housing prices in many places have a lot to do with availability of credit to the buyers. At the same time, if you're planning to build a new house, you'll find that the costs of building itself are also high. Quite simply, building requires lots of labor, and labor today is much more expensive than it used to be in the old days. To build a house under modern standards and code, you're going to spend at least $200k, probably more. It definitely will take a decade if not two before a typical American family can save up as much, especially while making rent payments at the same time. > Some of this is inevitable, and desirable--risk-taking is the driver of all economic progress. But how much? How far do we take it? Are we actually creating a society worth living in when the "risk-takers" are all rich multinational corporations? In truth, the real risk-takers are millions of regular people, who don't build any significant savings to weather the storm. I find it strange to complain about moral hazard of government or Fed bailing out businesses by loaning them money, when at the same time individual people are given various kinds of unemployment insurance, child benefits, subsidized housing etc. These might be right thing to do, but they create even bigger moral hazard, and it should be recognized before complaining about businesses getting some government support. Can you imagine government instituting a "loss of profits insurance" program, where every business must pay in some percentage of profits, and which will pay out replacement of profit should something happen, the same way unemployment insurance works? Or a program where government simply gives cash to businesses that are owned or employ people government decides are worthy of support, the same way child benefits work?
KKKKkkkk1 7y ago
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.
- spikels 7y ago
  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?
  - jkhdigital 7y ago
    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 in cash flow results in bankruptcy? Surely the CFO can get down on his knees and find some spare change under the couch cushions to get through this.
    - icelancer 7y ago
      >> 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.
  - SilasX 7y ago
    Well, yes, if you define "appropriately pessimistic bond markets" as "non-functioning", sure. These aren't sound businesses, because the current virus is going to screw them.
cryptica 7y ago
>> We are talking about companies which have plenty of assets and strong businesses. If their businesses were so strong, they shouldn't have taken a loan that would jeopardize them so easily. The Fed should let them default and take all their cronies down with them. Give the system a good clean by wiping out the parasites. A lot of these so-called 'strong' companies had been using debt as a way to evade taxes... And now that their highly unethical schemes are about to crumble, we bail them out? The Fed are aggravating the 'too-big-to-fail' problem. They're turning every corporation into 'too-big-to-fail'. If we continue down this path, we'll end up with communism. It will be the worst, most perverse form of communism ever invented.
- hn_throwaway_99 7y ago
  This line of thinking is so much in fantasy land. Here is what would really happen: 1. Lots of businesses would fail, and we would experience another great depression. 2. You don't like populism now? The risks of outright fascism (beyond what you could say we already are experiencing) would go up exponentially. The main problem with the Ron Paul acolytes is they think that society wouldn't have a massive breakdown in the face of an extremely deep depression - it would just be "the smart entrepreneurs would buy up the assets and build something better!" - but they never talk about how they would deal with the breakdown in democracy and basic government systems that would be a likely result.
  - cryptica 7y ago
    >> 1. Lots of businesses would fail, and we would experience another great depression. We need a great depression. Every depression brings new opportunities. Have you considered the other side of the story? There are many people who have been locked out of opportunities (especially millennial) and who have been struggling to start or grow their own businesses for a whole decade because they could not compete against corporate monopolies. The failure of these corporations would be a huge opportunity for them. >> 2. You don't like populism now? The risks of outright fascism (beyond what you could say we already are experiencing) would go up exponentially. It's better to have fascism officially if that means everyone will be subject to the same rules and same level of hardship.
JDiculous 7y ago
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.
- oflannabhra 7y ago
  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 can't get their collective heads out of their own asses at the moment.
  - JDiculous 7y ago
    > 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.
yread 7y ago
But some companies obviously won't go back to business as usual - cruises will for sure take a couple of years before people forget
woofie11 7y ago
They make sense to do, but there are better bailouts. https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3SjhsZ0ztpG5bMzA3WNbVNhU/edit https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs... We need a consistent approach across the board -- small businesses, individuals, etc. Pausing the economy makes much more sense than targeted bailouts to specific industries.
elamje 7y ago
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 Greenspan or Bernanke biographies to hear what, and why, they use the levers that they do. There is simply too much nuance in financial markets and the Fed to play arm-chair politics about whether it is effective or not. I just wrote a thread [0] responding to a joke going around about our first response to everything being to lower interest rates. [0] https://mobile.twitter.com/elamje/status/1242129602040008704 https://mobile.twitter.com/elamje/status/1242129602040008704
- mindslight 7y ago
  Lowering rates wouldn't be seen as dishonest if the Fed ever actually raised them. We're at 0% because their algorithm seems to be if (problem) lower() else party(). The response to 2008 wasn't a problem in isolation, but continuing that policy into 2010-2019 was. Rates even started going up slightly a year ago, but then got nipped in the bud to keep the stock bubble rising. I'm willing to agree that at this current point, these bailouts seem quite prudent. The problem is that after the crisis is over, the hazardous financial and business practices that necessitated the bailouts will never be reigned in, but allowed to continue thus necessitating another bailout in the future.
- waterfowl 7y ago
  "the Greenspan or Bernanke biographies" Which ones would you recommend? The autobiographies?
  - elamje 7y ago
    The Age of Turbulence, and The Courage to Act
nocorpwelfare 7y ago
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.
- DamnYuppie 7y ago
  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.
  - mistermann 7y ago
    https://www.nytimes.com/2009/07/31/business/31pay.html 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.
    - perl4ever 7y ago
      If a million, a billion, and a trillion are all equal, or equal to whatever big number you want them to be at any given moment, then what's the point of discussing anything?
jkhdigital 7y ago
> 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 corporations will tend to leverage their balance sheets far beyond a level commensurate with the actual risk of the underlying business. > We are talking about companies which have plenty of assets and strong businesses. 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. 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.
- jdkee 7y ago
  "the existence of a "lender of last resort" such as the Fed " This. The moral hazard here is enormous. And why should the Fed serve the interests of equity owners over the national interest in a strong, reserve dollar?
  - RealityVoid 7y ago
    My feeling is that the answer to this is because these companies (arguably) produce something of value to the world. Letting them become bankrupt would mean they do not produce that something of value so that would be bad economics. And a case of not seeing the forest for the trees. The role of economy is to sustain a certain confort to the population, an people should forget that at their own peril.
    - ahelwer 7y ago
      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.
steve76 7y ago
Go back to work, no guarantee another virus hits. Live well. Get rid of a lot of bad behavior by just not doing. I don't want to work. I don't want to be told what to do, by anyone. I don't even want to leave my home. I want to stay at home. Learn. Contribute knowledge. Drones deliver what I need, for free. If I run out of power, I crash something into the Earth from space to charge batteries. My economic bubble of knowledge pops when we reach the point of just not knowing, as in existence is due to minimum focal length of what I just built.
SilasX 7y ago
>We are talking about companies which have plenty of assets and strong businesses. Do they? That's kind of a big assumption here. If the virus is going to have a major negative effect on their ability to deliver value, then that means they aren't (currently) sound businesses, and the market is correctly marking down their value. There could definitely be fiscal -- and epidemiological! -- measures that can reverse this state. However, to buy up the bonds without those measures doesn't change the fundamental soundness of the business; it just loads up the Fed's balance sheet with garbage.
- perl4ever 7y ago
  "then that means they aren't (currently) sound businesses, and the market is correctly marking down their value." There is definitely an unsound premise here - the market hasn't marked down public companies as if they are generally unsound...yet. All the "crash" so far has done is take us back to the levels of 3-4 years ago. Your point about buying bonds not changing "fundamental soundness" is like saying keeping someone from dying of an acute condition doesn't cure their illness. It still keeps them from dying right now! What is the advantage of causing a preventable catastrophe, just because everything eventually ends?
  - SilasX 7y ago
    >There is definitely an unsound premise here - the market hasn't marked down public companies as if they are generally unsound...yet. All the "crash" so far has done is take us back to the levels of 3-4 years ago. Yes, because maybe it hasn't accepted the gravity of what's going to happen to their ability to deliver value, or anticipates free money. >Your point about buying bonds not changing "fundamental soundness" is like saying keeping someone from dying of an acute condition doesn't cure their illness. It still keeps them from dying right now! What is the advantage of causing a preventable catastrophe, just because everything eventually ends? My point was that if they're not actually sound, then buying the bonds doesn't change that; it's just doing that weekend-at-bernie's thing. To the extent that the business can't deliver value, markets depend on such businesses shutting down, and subsidizing their bonds only delays. Now, you'd be right that, if there's something fixable about them with collective action, then we should do that thing. But that would still obviate the need to subsidize their bonds, because it would revitalize market interest in them!
mistermann 7y ago
> We are talking about companies which have plenty of assets and strong businesses. Technically true, but I would argue misleading (note: not implying intent on your behalf). "We are talking about companies which have plenty of assets and fragile, taxpayer supported businesses" contains kind of the opposite message of your statement, yet this statement is also technically true. > Thus the FED is acting as a lender of last resort directly to major corporations. Without this last resort said corporations would need to either fire-sale off assets to pay the principle on these bonds or face a technical default. Again, technically true, under the circumstances we find ourselves in. But might the existence of the Fed, and its past policy responses to such events, have possibly creates an environment of moral hazard whereby events like this are practically guaranteed? > Which is to say: these bailouts are going to happen. No one who understands what is at stack would choose to "let the house fall". This seems like a bit of a false dichotomy to me, as if letting the house fail or bailing them out (once again) in this fashion are our only two options. In a true capitalist system, the US government would receive equity in all the companies they bail out. At some point I think it would be a good idea for us to admit to ourselves what kind of economic system we really have in the West, and try to determine if it is up to the task of competing with China and their economic system, which to my eye is clearly superior (based in part on observable relative performance in the last 20 years).
oarabbus_ 7y ago
All this does is result in further leveraging for the next cycle, when even unlimited QE cannot save the bond markets.
roenxi 7y ago
> It is 110% not good to have any major corporation go into a technical default. Too big to fail, eh? If that were true, there is no point having technical bailout as a possible state for companies to be in. Just remove it as a legal option and given them a permanent exception from having to do anything if the situation arises. The justification is flimsy. If the businesses were any good they wouldn't need a bailout. They'd get new owners ad carry on as before. Capitalists are perfectly capable of putting an operation on ice for a few months for all that it would be painful and disruptive. Businesses go bankrupt because they are bad businesses and the economy is signalling the resources should be redeployed. I can agree that the bailouts are going to happen; but these bailouts have been set in stone since 2008. Once 'give money to the wealthy and powerful to preserve the status quo' was identified as an acceptable solution it was going to become the default solution to any and all crisises. Someone could have come up with a better plan in the last 10 years but there was no incentive to.
grecy 7y ago
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?
- thoughtstheseus 7y ago
  It’s divided between 3 schools of thought (1) governments can just continue to prop up financial markets indefinitely (2) you can temporarily prop up these markets but you can and will want to unwind government intervention over time and (3) this is just going to make a huge bubble that will burst eventually. People say you can grow out of these problems... The Fed has an enormous amount of flexible firepower, it’s tough to sit back and not do everything you can to stop economic turmoil. They launched the most simulative economic policy of all time and stocks dropped today. If only there was action in other executive arms and congress.
  - chii 7y ago
    (2) and (3) are basically the same thing.
deleted 7y ago
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spectrum1234 7y ago
Why don't companies with lots of assets like airlines sell them? Companies without assets need some help, not airlines.

thoughtstheseus 7y ago

Agreed, deleveraging fast is dangerous. That said if any large company gave themselves less than six months to refinance that’s on them. Everyone knows markets can become dislocated and closed for periods.

derefr 7y ago

> 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 be written to include additional language Y; and any covenant triggers written before date X would be implicitly interpreted as if they did contain language Y. Language Y specifies that the activation of the covenant is suspended when the government says a certain named financial-market state "Z" pertains; and, when state "Z" is declared as having ended, only then would the covenant be evaluated for activation, based on the present state of the debtor, rather than its state during the historical period during condition "Z". Effectively, the covenant wouldn't be able to "see into" whatever happened during "Z" to apply its triggering logic to it. (I'm picturing here how you can, in an RDBMS, create constraints that don't validate until a transaction is complete, such that you can temporarily put a table into a constraint-violating state during the TX, and—as long as you fix things before the end of the TX—everything will be fine, and the trigger won't run.)

nostromo 7y ago
Banks would almost immediately be insolvent, which is exactly what the Fed is trying to prevent.
Danieru 7y ago
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 to be re-paid.
- derefr 7y ago
  > 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, whatever their creditors demand. The creditors would ultimately have to take them to court to attempt to get their covenants enforced.) And, if the covenant enforcement hits the court system, then the government would already be "in place" to suspend traffic—it's "the wire" that court-system messages are flowing through! (Or, really, it's more like a judge is a router and the legislature controls a WAF module in said router. The judge, as router for motions, is required to deny any motion the law-as-WAF declares as illegitimate.)
  - Danieru 7y ago
    Covenants are the smallest part of this. Without the flow of money the funds/banks/institutions which own those bonds are in-turn going to default to their creditors. Hence the internet analogy: you cannot just hack in a pause on your local machine. There is a world of complex interactions which would also need to be paused, so complex just figuring out who owes who would take years/decades.

jeoeo9nn 7y ago

And of course this is all just emotional paranoia. None of those things are real except as emotional gates on social agency so the privileged under the law can get first dibs. Remember Thiel & Trump, probably the rest, really believe romantic notions like tough guys must rule as “that’s the way society has to be because that’s how it has always been”. Trump literally said it the other day and Thiels ramble was posted here recently.

paulsutter 7y ago

If the banks periodically need a bailout, shouldn't bankers be paid like civil servants? (because that's what they are, apparently)

Danieru 7y ago
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.
- paulsutter 7y ago
  Banks are fine as long as they aren't holding the debt of companies that hit the wall. It's a bailout.
- SilasX 7y ago
  Wait until the mortgage payments stop coming in and then tell me whether they need a bailout. Edit: Why is this controversial? If people can't afford to make their mortgage payments, and political aid doesn't come through, many banks will definitely be in need of a bailout.
- icelancer 7y ago
  >> 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?

airstrike 7y ago

Also want to point out that if companies can't afford their expenses, they'll stop paying rent (usually a huge expense and one that is fairly easy to stop paying while still occupying the real estate) Then landlords can't pay their expenses, and will default on their own payments This trickles up all the way to the banks and could result in their insolvency, which is what the Fed is (rightfully) trying to prevent

hamiltont 7y ago
In my industry (software), rent is typically peanuts compared to payroll
- airstrike 7y ago
  Indeed. Payroll will also be significantly affected even in "rent-heavy" industries https://www.wsj.com/articles/ge-to-cut-aviation-workforce-as-coronavirus-grounds-airliners-11584972724 https://www.wsj.com/articles/ge-to-cut-aviation-workforce-as...

dwnvoted2hell 7y ago

We've been writing corporate America a hall pass for quite some time. With many of these, I'm sure it's time to say "We'll loan you the money, on the condition the government owns you if you don't pay up." And if there is any company trying to lend more than their value...just end them - they've effectively become a cancer.

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talentedcoin 7y ago

Thank you for putting it so well. Keeping the corporate bond market going does not sound like a noble goal on its face but it's vital in so many respects. I appreciate (and indeed once shared) the knee-jerk libertarianism of the people saying "let them fail", but this view does not fully appreciate the consequences of allowing a violent deleveraging such as we're experiencing now to continue indefinitely.

OscarCunningham 7y ago
I don't think its unlibertarian to support the Fed's action here. If the Fed was a private organisation, that convinced people to use dollars by promising to maintain steady 2% inflation, then it would be printing a lot of money right now. So the government not printing a lot of money right now would actually be a greater intervention away from what would naturally happen. A libertarian purist would say that money creation shouldn't be government controlled; but given that it is they should at least do a good job of it.
Blackthorn 7y ago
There's no indication that they would actually deleverage if bailed out in this fashion. FFS, these "strong businesses" are so extremely fragile that they are liable to go bankrupt because they can't roll over some of their debt. And now the Fed just wants to let them roll it over again consequence free.
- icelancer 7y ago
  Exactly. If your business was so dependent on rolling over bonds that you go bankrupt/de-lever massively in a 3-6 month window... how strong was the business?

tarsinge 7y ago

But Japan did not let the banks and corporations fail, then they got zombie economy. Instead let entrepreneurs buy defaulting corporations with all their assets for $1 and see what can happen with fresh blood and creativity. No value is destroyed, assets and personnel stays, and hopefully consumer demand will go back after the pandemic. Edit: ah yes shareholders lose money but that's the game. Retirement pensions? If you are not for socializing it then it's the game too.

trimbo 7y ago
It's not just one or two companies. At minimum: all retail, all airlines, all hotels, all cruise ship companies are at risk.
- tarsinge 7y ago
  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.
  - trimbo 7y ago
    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...
    - mistermann 7y ago
      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.
      - 7y ago

cryptica 7y ago

The real problem is that these corporations are brittle. The Fed is bailing out innefficent corporations once again under the same pretext as last time. I recall that the government promised its citizens back in 2008 that it would be the last time and now look, only 10 years later, same story; more bailouts and all corporate executives get to keep their jobs too. The US today is more communist than China. The US tends to make fun of China's government for still calling themselves 'communists', but now the tables have turned and I wouldn't be surprised if China starts to make fun of the US for calling themselves 'capitalists'.

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Causality1 7y ago

Why is it legal for corporations to build financial houses of cards like that?

xyzzyz 7y ago
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.
- jkhdigital 7y ago
  Except that people didn't have to save for decades to afford houses before the advent of the 30-year mortgage. Debt is risky, period. Someone has to pay for that risk when bad things happen and the debt cannot be repaid. Also, people respond to incentives. When individuals and companies are allowed to keep all the profits from their risky activities, but are shielded in whole or in part from the losses, they will respond by taking on more risk than they would otherwise. It's called moral hazard. Some of this is inevitable, and desirable--risk-taking is the driver of all economic progress. But how much? How far do we take it? Are we actually creating a society worth living in when the "risk-takers" are all rich multinational corporations?
  - xyzzyz 7y ago
    > Except that people didn't have to save for decades to afford houses before the advent of the 30-year mortgage. There is a certain truth in that the ballooning housing prices in many places have a lot to do with availability of credit to the buyers. At the same time, if you're planning to build a new house, you'll find that the costs of building itself are also high. Quite simply, building requires lots of labor, and labor today is much more expensive than it used to be in the old days. To build a house under modern standards and code, you're going to spend at least $200k, probably more. It definitely will take a decade if not two before a typical American family can save up as much, especially while making rent payments at the same time. > Some of this is inevitable, and desirable--risk-taking is the driver of all economic progress. But how much? How far do we take it? Are we actually creating a society worth living in when the "risk-takers" are all rich multinational corporations? In truth, the real risk-takers are millions of regular people, who don't build any significant savings to weather the storm. I find it strange to complain about moral hazard of government or Fed bailing out businesses by loaning them money, when at the same time individual people are given various kinds of unemployment insurance, child benefits, subsidized housing etc. These might be right thing to do, but they create even bigger moral hazard, and it should be recognized before complaining about businesses getting some government support. Can you imagine government instituting a "loss of profits insurance" program, where every business must pay in some percentage of profits, and which will pay out replacement of profit should something happen, the same way unemployment insurance works? Or a program where government simply gives cash to businesses that are owned or employ people government decides are worthy of support, the same way child benefits work?

KKKKkkkk1 7y ago

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.

spikels 7y ago
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?
- jkhdigital 7y ago
  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 in cash flow results in bankruptcy? Surely the CFO can get down on his knees and find some spare change under the couch cushions to get through this.
  - icelancer 7y ago
    >> 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.
- SilasX 7y ago
  Well, yes, if you define "appropriately pessimistic bond markets" as "non-functioning", sure. These aren't sound businesses, because the current virus is going to screw them.

cryptica 7y ago

>> We are talking about companies which have plenty of assets and strong businesses. If their businesses were so strong, they shouldn't have taken a loan that would jeopardize them so easily. The Fed should let them default and take all their cronies down with them. Give the system a good clean by wiping out the parasites. A lot of these so-called 'strong' companies had been using debt as a way to evade taxes... And now that their highly unethical schemes are about to crumble, we bail them out? The Fed are aggravating the 'too-big-to-fail' problem. They're turning every corporation into 'too-big-to-fail'. If we continue down this path, we'll end up with communism. It will be the worst, most perverse form of communism ever invented.

hn_throwaway_99 7y ago
This line of thinking is so much in fantasy land. Here is what would really happen: 1. Lots of businesses would fail, and we would experience another great depression. 2. You don't like populism now? The risks of outright fascism (beyond what you could say we already are experiencing) would go up exponentially. The main problem with the Ron Paul acolytes is they think that society wouldn't have a massive breakdown in the face of an extremely deep depression - it would just be "the smart entrepreneurs would buy up the assets and build something better!" - but they never talk about how they would deal with the breakdown in democracy and basic government systems that would be a likely result.
- cryptica 7y ago
  >> 1. Lots of businesses would fail, and we would experience another great depression. We need a great depression. Every depression brings new opportunities. Have you considered the other side of the story? There are many people who have been locked out of opportunities (especially millennial) and who have been struggling to start or grow their own businesses for a whole decade because they could not compete against corporate monopolies. The failure of these corporations would be a huge opportunity for them. >> 2. You don't like populism now? The risks of outright fascism (beyond what you could say we already are experiencing) would go up exponentially. It's better to have fascism officially if that means everyone will be subject to the same rules and same level of hardship.

JDiculous 7y ago

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.

oflannabhra 7y ago
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 can't get their collective heads out of their own asses at the moment.
- JDiculous 7y ago
  > 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.

yread 7y ago

But some companies obviously won't go back to business as usual - cruises will for sure take a couple of years before people forget

woofie11 7y ago

They make sense to do, but there are better bailouts. https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3SjhsZ0ztpG5bMzA3WNbVNhU/edit https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs... We need a consistent approach across the board -- small businesses, individuals, etc. Pausing the economy makes much more sense than targeted bailouts to specific industries.

elamje 7y ago

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 Greenspan or Bernanke biographies to hear what, and why, they use the levers that they do. There is simply too much nuance in financial markets and the Fed to play arm-chair politics about whether it is effective or not. I just wrote a thread [0] responding to a joke going around about our first response to everything being to lower interest rates. [0] https://mobile.twitter.com/elamje/status/1242129602040008704 https://mobile.twitter.com/elamje/status/1242129602040008704

mindslight 7y ago
Lowering rates wouldn't be seen as dishonest if the Fed ever actually raised them. We're at 0% because their algorithm seems to be if (problem) lower() else party(). The response to 2008 wasn't a problem in isolation, but continuing that policy into 2010-2019 was. Rates even started going up slightly a year ago, but then got nipped in the bud to keep the stock bubble rising. I'm willing to agree that at this current point, these bailouts seem quite prudent. The problem is that after the crisis is over, the hazardous financial and business practices that necessitated the bailouts will never be reigned in, but allowed to continue thus necessitating another bailout in the future.
waterfowl 7y ago
"the Greenspan or Bernanke biographies" Which ones would you recommend? The autobiographies?
- elamje 7y ago
  The Age of Turbulence, and The Courage to Act

nocorpwelfare 7y ago

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.

DamnYuppie 7y ago
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.
- mistermann 7y ago
  https://www.nytimes.com/2009/07/31/business/31pay.html 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.
  - perl4ever 7y ago
    If a million, a billion, and a trillion are all equal, or equal to whatever big number you want them to be at any given moment, then what's the point of discussing anything?

jkhdigital 7y ago

> 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 corporations will tend to leverage their balance sheets far beyond a level commensurate with the actual risk of the underlying business. > We are talking about companies which have plenty of assets and strong businesses. 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. 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.

jdkee 7y ago
"the existence of a "lender of last resort" such as the Fed " This. The moral hazard here is enormous. And why should the Fed serve the interests of equity owners over the national interest in a strong, reserve dollar?
- RealityVoid 7y ago
  My feeling is that the answer to this is because these companies (arguably) produce something of value to the world. Letting them become bankrupt would mean they do not produce that something of value so that would be bad economics. And a case of not seeing the forest for the trees. The role of economy is to sustain a certain confort to the population, an people should forget that at their own peril.
  - ahelwer 7y ago
    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.

steve76 7y ago

Go back to work, no guarantee another virus hits. Live well. Get rid of a lot of bad behavior by just not doing. I don't want to work. I don't want to be told what to do, by anyone. I don't even want to leave my home. I want to stay at home. Learn. Contribute knowledge. Drones deliver what I need, for free. If I run out of power, I crash something into the Earth from space to charge batteries. My economic bubble of knowledge pops when we reach the point of just not knowing, as in existence is due to minimum focal length of what I just built.

SilasX 7y ago

>We are talking about companies which have plenty of assets and strong businesses. Do they? That's kind of a big assumption here. If the virus is going to have a major negative effect on their ability to deliver value, then that means they aren't (currently) sound businesses, and the market is correctly marking down their value. There could definitely be fiscal -- and epidemiological! -- measures that can reverse this state. However, to buy up the bonds without those measures doesn't change the fundamental soundness of the business; it just loads up the Fed's balance sheet with garbage.

perl4ever 7y ago
"then that means they aren't (currently) sound businesses, and the market is correctly marking down their value." There is definitely an unsound premise here - the market hasn't marked down public companies as if they are generally unsound...yet. All the "crash" so far has done is take us back to the levels of 3-4 years ago. Your point about buying bonds not changing "fundamental soundness" is like saying keeping someone from dying of an acute condition doesn't cure their illness. It still keeps them from dying right now! What is the advantage of causing a preventable catastrophe, just because everything eventually ends?
- SilasX 7y ago
  >There is definitely an unsound premise here - the market hasn't marked down public companies as if they are generally unsound...yet. All the "crash" so far has done is take us back to the levels of 3-4 years ago. Yes, because maybe it hasn't accepted the gravity of what's going to happen to their ability to deliver value, or anticipates free money. >Your point about buying bonds not changing "fundamental soundness" is like saying keeping someone from dying of an acute condition doesn't cure their illness. It still keeps them from dying right now! What is the advantage of causing a preventable catastrophe, just because everything eventually ends? My point was that if they're not actually sound, then buying the bonds doesn't change that; it's just doing that weekend-at-bernie's thing. To the extent that the business can't deliver value, markets depend on such businesses shutting down, and subsidizing their bonds only delays. Now, you'd be right that, if there's something fixable about them with collective action, then we should do that thing. But that would still obviate the need to subsidize their bonds, because it would revitalize market interest in them!

mistermann 7y ago

> We are talking about companies which have plenty of assets and strong businesses. Technically true, but I would argue misleading (note: not implying intent on your behalf). "We are talking about companies which have plenty of assets and fragile, taxpayer supported businesses" contains kind of the opposite message of your statement, yet this statement is also technically true. > Thus the FED is acting as a lender of last resort directly to major corporations. Without this last resort said corporations would need to either fire-sale off assets to pay the principle on these bonds or face a technical default. Again, technically true, under the circumstances we find ourselves in. But might the existence of the Fed, and its past policy responses to such events, have possibly creates an environment of moral hazard whereby events like this are practically guaranteed? > Which is to say: these bailouts are going to happen. No one who understands what is at stack would choose to "let the house fall". This seems like a bit of a false dichotomy to me, as if letting the house fail or bailing them out (once again) in this fashion are our only two options. In a true capitalist system, the US government would receive equity in all the companies they bail out. At some point I think it would be a good idea for us to admit to ourselves what kind of economic system we really have in the West, and try to determine if it is up to the task of competing with China and their economic system, which to my eye is clearly superior (based in part on observable relative performance in the last 20 years).

oarabbus_ 7y ago

All this does is result in further leveraging for the next cycle, when even unlimited QE cannot save the bond markets.

roenxi 7y ago

> It is 110% not good to have any major corporation go into a technical default. Too big to fail, eh? If that were true, there is no point having technical bailout as a possible state for companies to be in. Just remove it as a legal option and given them a permanent exception from having to do anything if the situation arises. The justification is flimsy. If the businesses were any good they wouldn't need a bailout. They'd get new owners ad carry on as before. Capitalists are perfectly capable of putting an operation on ice for a few months for all that it would be painful and disruptive. Businesses go bankrupt because they are bad businesses and the economy is signalling the resources should be redeployed. I can agree that the bailouts are going to happen; but these bailouts have been set in stone since 2008. Once 'give money to the wealthy and powerful to preserve the status quo' was identified as an acceptable solution it was going to become the default solution to any and all crisises. Someone could have come up with a better plan in the last 10 years but there was no incentive to.

grecy 7y ago

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?

thoughtstheseus 7y ago
It’s divided between 3 schools of thought (1) governments can just continue to prop up financial markets indefinitely (2) you can temporarily prop up these markets but you can and will want to unwind government intervention over time and (3) this is just going to make a huge bubble that will burst eventually. People say you can grow out of these problems... The Fed has an enormous amount of flexible firepower, it’s tough to sit back and not do everything you can to stop economic turmoil. They launched the most simulative economic policy of all time and stocks dropped today. If only there was action in other executive arms and congress.
- chii 7y ago
  (2) and (3) are basically the same thing.

deleted 7y ago

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spectrum1234 7y ago

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