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Your argument is basically: "market pricing reflects reality", which you clearly don't believe because you go by the handle "valuearb". Credit markets are appa

Your argument is basically: "market pricing reflects reality", which you clearly don't believe because you go by the handle "valuearb". Credit markets are appallingly inefficient at pricing risk. Lenders are aware of bailouts. They are explicitly factored into credit ratings! Leverage is heavily subsidized by the tax code. The current level of corporate leverage is absurd and has massive negative externalities. https://www.youtube.com/watch?v=qs1DhA91fm0 https://www.youtube.com/watch?v=qs1DhA91fm0

valuearb 7y ago
Hard to respond to a smorgasbord of irrelevant tangents, but I'll try. I believe the public capital markets are often efficient, but not always. I have no doubt that credit markets are less efficient. How they are or aren't, and whether they reflect bailouts, is immaterial. Lenders have to make smart lending decisions or they will cease to exist as lenders, they have every incentive in the world to properly assess risks. The fact that some times some lenders do a poor job at it doesn't change that fact. The market, red in tooth and claw, will eventually chase down and devour dumb lenders. It's true leverage was heavily subsidized by the tax code, the interest paid was subsidized about 40% when the federal corporate tax rate was 35% (plus whatever state corporate income tax you were subject to). Ironically when Trump signed the new tax cut bill, by cutting corporate rates he reduced that subsidy to only 25%. The best solution for ending that subsidy is simple and hugely beneficial for everyone in our country. Stop taxing corporate income, and increase tax rates on dividends and capital gains to compensate. No longer would we be taxing reinvestment creating better jobs and raising productivity faster, and we could start taxing investors investment incomes in proportion to their incomes, restoring a lot more progressively to the tax code.

valuearb 7y ago

Hard to respond to a smorgasbord of irrelevant tangents, but I'll try. I believe the public capital markets are often efficient, but not always. I have no doubt that credit markets are less efficient. How they are or aren't, and whether they reflect bailouts, is immaterial. Lenders have to make smart lending decisions or they will cease to exist as lenders, they have every incentive in the world to properly assess risks. The fact that some times some lenders do a poor job at it doesn't change that fact. The market, red in tooth and claw, will eventually chase down and devour dumb lenders. It's true leverage was heavily subsidized by the tax code, the interest paid was subsidized about 40% when the federal corporate tax rate was 35% (plus whatever state corporate income tax you were subject to). Ironically when Trump signed the new tax cut bill, by cutting corporate rates he reduced that subsidy to only 25%. The best solution for ending that subsidy is simple and hugely beneficial for everyone in our country. Stop taxing corporate income, and increase tax rates on dividends and capital gains to compensate. No longer would we be taxing reinvestment creating better jobs and raising productivity faster, and we could start taxing investors investment incomes in proportion to their incomes, restoring a lot more progressively to the tax code.