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Not "buying crap," we are talking fallen angels AKA companies that were previously rated investment grade that have been downgraded due to the crisis. "... rate

Not "buying crap," we are talking fallen angels AKA companies that were previously rated investment grade that have been downgraded due to the crisis. "... rated at least BBB-/Baa3 as of March 22, 2020 ..." in the press release. It's not like the Fed is buying WeWork bonds, just closing a loophole in the previous investment grade bond buying facility to cover bonds that were recently downgraded. Which is kind of the point, extending credit to otherwise-strong firms that are impacted by the social distancing measures.

toomuchtodo 7y ago
You are no longer "otherwise-strong" if you have been impacted by COVID economically. The economy pre-pandemic no longer exists. It will not magically exist again in the future. The Fed buying junk bonds is "extend and pretend". If you want to save the jobs, allow overextended firms to fail, and then bail them out with the government taking ownership (while removing management). We did this with GM in 2008: we saved the jobs, we removed management, and we wiped out existing equity owners.
- DSingularity 7y ago
  Why it not preventing a “black swan” event from wrecking companies who could have otherwise continued to operate if it wasn’t for the shelter in place response?
  - toomuchtodo 7y ago
    Many companies did prepare and don't need a bailout. If you don't need a bailout, you don't need to give up ownership. Don't devalue a currency because of poor management at scale. Otherwise, you're supporting greed and kleptocracy with monetary policy.
    - imtringued 7y ago
      Ok, let's look at a theoretical business that is designed to survive a pandemic. Well, what is the biggest problem that would affect such a business? Of course, lack of customers! If you don't have customers you also don't need employees. So you can just fire them! Now that we have gotten rid of the first dead weight the next problem is that you still have certain fixed costs. All that real estate is now empty since you fired all your employees. There isn't much you can do except save up money like scrooge McDuck. The easiest way to get that money is by screwing over your employees during good times. Don't give them raises and bonuses. You'll need that money during some government lock down. Now the lockdown is over and your business survived without needing government help. Maybe you have noticed something. The rich managers don't really a give a damn about the lock down. They have a huge amount of money and mostly diversified their net worth away from their own business. $5 million after a 50% stock market crash is still $2.5 million. That might sound like a huge loss but only when you forget to consider that there also exist people that aren't managers and they are in the majority. If you lose your job that is pretty much a 100% reduction in income. If you lose your job you can't just kick out the rest of your family to reduce costs. For every manager that is seeing his portfolio dip there are probably a dozen more non-managers having a worse time. The bank bailouts weren't actually about bailing out banks. The taxpayers were bailing their own money out. Dead banks mean your money is gone. It's like video game servers shutting down. Your stuff is just gone. The managers at the bank probably couldn't care less about their customers losing all their funds.
      - Apocryphon 7y ago
        As discussed before, not only in this thread but in the responses to other articles, some of these companies should not have wasted their cash on stock buybacks. They ran out of their emergency funds, and have only themselves to blame.
      - icedchai 7y ago
        A failing bank doesn't mean your money is gone. In the US, savings accounts are FDIC insured up to a maximum of $250K. If your bank fails, it's likely getting acquired by another bank anyway. Customers have value.
      - 7y ago
    - _curious_ 7y ago
      "Otherwise, you're supporting greed and kleptocracy with monetary policy." sounds like the MO of the current presidential administration...
    - Red_Leaves_Flyy 7y ago
      "Never let a crisis go to waste."
  - pjmorris 7y ago
    It's not a black swan, pandemics are predictable. @nntaleb, the author of 'The Black Swan' has been explaining this. More crucially, the virus is affecting the real economy, and people's lives. Fixes for the financial economy that don't address that directly are band-aids to make balance sheets look good.
    - deleted 7y ago
      [deleted]
    - DSingularity 7y ago
      I don’t quite agree. When 99.9% of businesses gets blindsided by the impact of the shelter in place orders it becomes a black swan like event. All those businesses couldn’t predict an event this cataclysmic to their core product. Just because the pandemic itself was predicted doesn’t mean much when the global fall out is totally novel and unpredictable.
    - icedchai 7y ago
      Something like this has never happened, even with other pandemics. It is an extreme outlier event even if it is not technically a "black swan."
  - ouid 7y ago
    When the federal government acts as an insurer of last resort against correlated phenomena, but does not have any ability to set premiums or regulate behavior, companies will seek to maximize their risk in these situations. This includes buying back stocks with low interest loans. This is not the Fed's job. If these companies want to file claims, they will need to talk directly to their insurer, the taxpayers.
- jrockway 7y ago
  I don't think this is the right approach. Look at the airlines, for example. They own/lease super expensive machines that need to be in the air filled with paying customers to make the economics of being an airline viable. Travel is now essentially banned, so they can't do that. It is likely that when the pandemic is under control, people will again want to ride airplanes to far-away destinations. So it seems reasonable to me to provide some sort of financial help to the airlines alive during this once-in-a-century event. They didn't really mismanage their business by buying airliners and not planning for a global pandemic -- there was simply no way to run the business profitably with an allowance for "someday we will be unable to fly for 6 months in a row". It seems to me that if society wants air travel, which we do, we have to step up and at least provide a loan to cover for this essentially-unforeseeable event. There isn't a passenger airline in existence that planned for this event and is making a profit right now, it's simply not an environment that a passenger airline can be profitable in. The government paying for Coronavirus also provides a financial incentive to not fuck it up so badly next time. We ignored the warning signs and decided to do nothing -- now it's costing us. Next time, we'll know that mismanaging the early days of a pandemic is going to cost trillions of dollars, so we'll probably do a better job. (Or rather, vote for people that will do a better job.) (Here's how I think we should have handled the early days of Coronavirus. Ban travel and buy back the tickets/reservations for all travellers. People were still taking vacations even when Coronavirus was widespread. I'm guessing they did that because they sunk $2000 into non-refundable reservations, and didn't want to be the ones to subsidize the airlines. So they took their trip, got Coronavirus, infected 3 other people, and now tens of thousands of people are dead.)
  - toomuchtodo 7y ago
    > The government paying for Coronavirus also provides a financial incentive to not fuck it up so badly next time. It absolutely doesn't. Time and time again, corporations have proven their shareholders (management as well) will simply strip as much value as they can, and leave us (taxpayers via government, citizens with devalued currency via the Fed and their monetary policy) holding the bag with any losses or externalities to clean up. For example, the Tax Reform Act was sold as incentivizing "jobs and investment"; all it incentivized was share buybacks [1]. Shareholders and management have proven themselves unworthy of trust, or more accurately, public and fiscal policy benefiting them that operates on the honor system. "Fool me once!" [1] https://money.cnn.com/2018/07/10/investing/stock-buybacks-record-tax-cuts/index.html https://money.cnn.com/2018/07/10/investing/stock-buybacks-re...
- eganist 7y ago
  > You are no longer "otherwise-strong" if you have been impacted by COVID economically. The economy pre-pandemic no longer exists. It will not magically exist again in the future. Citation needed for this. The 1920s would seem to differ.
  - rednerrus 7y ago
    Didn't it take close to 30 years to recover from the 20s?
    - elliekelly 7y ago
      It also took four years after the Great Depression started for the Federal Government to pass the New Deal that helped pull the country out of the gutter. As much as I wish Congress had moved faster and done more with the CARES Act they’re still way ahead of their counterparts a century earlier.
      - dantheman 7y ago
        The new deal extended the great depression and it's mishandling is extremely well known. Destroying goods to drive up prices, centrazlied price fixing, the blue eagle program, wage controls, the reason healthcare is tied to employment. The new deal was a failure and caused long lasting damage to the USA.
        posix_me_less 7y ago
        That's a fascinating narrative which I don't believe one bit. Source?
        rcpt 7y ago
        https://www.econlib.org/archives/2013/11/a_crime_beyond.html https://www.econlib.org/archives/2013/11/a_crime_beyond.html The works of the roots of the vines, of the trees, must be destroyed to keep up the price, and this is the saddest, bitterest thing of all. Carloads of oranges dumped on the ground. The people came for miles to take the fruit, but this could not be. How would they buy oranges at twenty cents a dozen if they could drive out and pick them up? And men with hoses squirt kerosene on the oranges, and they are angry at the crime, angry at the people who have come to take the fruit. A million people hungry, needing the fruit—and kerosene sprayed over the golden mountains. And the smell of rot fills the country. Burn coffee for fuel in the ships. Burn corn to keep warm, it makes a hot fire. Dump potatoes in the rivers and place guards along the banks to keep the hungry people from fishing them out. Slaughter the pigs and bury them, and let the putrescence drip down into the earth. There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificate—died of malnutrition—because the food must rot, must be forced to rot. The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quick-lime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage. The Grapes of Wrath, John Steinbeck
- whatok 7y ago
  The Fed buying junk bonds is completely misleading and likely only has consequences for a single company; Ford. Ford has more liquidity on-hand than GM (investment grade which means nothing right now) and can likely ride this out better than they can. Which one is more "overextended"? Do you have any idea of how large the universe is that this covers? Are these non-high yield companies not "overextended" somehow because a random rating agency put some different letters next to their name?
  - toomuchtodo 7y ago
    Ford's finances were marginal prior to COVID ramping up across the world (debt downgraded to junk in September 2019 [1]). If the Fed's actions are solely to support $F from becoming insolvent, that's in violation of their mandate. Your argument holds little water when you wave away the ratings of "random rating agencies". Their ratings are what drives investment decisioning by the largest funds in the world. [1] https://www.cnn.com/2019/09/10/business/ford-downgrade-junk/index.html https://www.cnn.com/2019/09/10/business/ford-downgrade-junk/...
    - whatok 7y ago
      Ford was only downgraded by a single rating agency in September and only recently downgraded by the rest last month; well after the initial model of these facilities was announced. Ford has been preparing for being downgraded and has the liquidity to support themselves even without Fed action. I'm not waving away rating agencies. I'm saying that General Motors has less liquidity than Ford. In your "no bailouts" world, Ford would be in better shape than General Motors. General Motors is investment grade, does that magically make them better than Ford even though cash on hand says different? Ratings really mean nothing right now as far as the health of a company goes and ratings agencies have specifically mentioned that they are backlogged with assessing all consequences of what's going on right now. Ratings have and are always backwards looking data. How the "largest funds" in the world invest is completely irrelevant for this.
      - toomuchtodo 7y ago
- chrisco255 7y ago
  This is insane. This is going to lead to nationalization of our corporations. This is too massive and you cannot allow the government to do this. This is full on fascist.
  - Others 7y ago
    If a company is failing, the existing management will need new jobs anyway. All the government is doing with the parents strategy, is ensuring less jobs are lost and less lives are impacted. It's not like the government really wanted to run GM...
- at-fates-hands 7y ago
  > We did this with GM in 2008 GM was not allowed to fail and then the government took ownership of the company. That's not all what happened: On July 10, 2009, following Chapter 11 reorganization after an initial filing on June 8 2009,[25][26] the original General Motors sold assets and some subsidiaries to an entirely new company including the trademark General Motors. Liabilities were left with the original GM freeing the companies of many liabilites resulting in a new GM. GM emerged from government backed Chapter 11 reorganization after an initial filing on June 8, 2009.[25][26] Through the Troubled Asset Relief Program the US Treasury invested $49.5 billion in General Motors and recovered $39 billion when it sold its shares on December 9, 2013 resulting in a loss of $10.3 billion. The Treasury invested an additional $17.2 billion into GM's former financing company, GMAC (now Ally). The shares in Ally were sold on December 18, 2014 for $19.6 billion netting $2.4 billion.[27][28] A study by the Center for Automotive Research found that the GM bailout saved 1.2 million jobs and preserved $34.9 billion in tax revenue.[29] Also in 2009 General Motors of Canada Limited was not part of theGeneral Motors Chapter 11 Bankruptcy, the company shed several brands, closing Saturn, Pontiac, and Hummer, while selling Saab Automobile to Dutch automaker Spyker, and emerged from a government-backed Chapter 11 reorganization. In 2010, the reorganized GM made an initial public offering that was one of the world's top five largest IPOs to date, and returned to profitability later that year.[19][30][31] The government did the same thing its doing now. Investing in companies on a short term basis to prop them up and allow them to continue to operate. Once the economy is stabilized, it will cash out its investment(s) like it did with GM. What you are advocating for is not at all what occurred with GM.
  - aaronblohowiak 7y ago
    I think what the person meant in spirit is aligned with what happened in practice — GM’s shareholders were wiped out and the government (through chapter 11 restructuring and investment) ensured it was a going concern and had a subsequent IPO (privitization) ..
    - toomuchtodo 7y ago
      Yep, exactly, although privatization isn’t a necessary component (Fannie and Freddie mortgage GSEs have been held onto as a public good).
- jmeyer2k 7y ago
  I don't think that's true. This is a true supply shock. Nothing fundamentally changed except that there is a "short-term" (1-2 years) issue of workers not being able to work and consumers not being able to get a job. In contrast, in 2008, we realized things were being criminally propped-up and the economy crashed. Expectations were much higher compared to the actual performance of the economy. The job of the Fed is to keep companies from going under due to this supply shock. If companies do go under, that means that there WILL be long-term problems with the economy because we're lowering LONG-RUN supply. The whole point of the fed is to smooth short-run supply shocks so that long-run aggregate supply isn't affected.
  - viklove 7y ago
    > If companies do go under, that means that there WILL be long-term problems with the economy because we're lowering LONG-RUN supply. This is a false narrative. If a company goes under, chances are the long-run supply will not be affected much, if at all. When a company goes under, its assets are not burned, and its employees are not killed. If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off. A government bailout only makes sense if you own a company being bailed out, and you want to stay rich. A government bailout is bad for every other American, because it introduces an incentive to making poor decisions and not planning for market downturns. We should not be rewarding bad corporate behavior with a bailout, we should be punishing it by letting the companies go under so fresh blood can have a try. We shouldn't be living in a feudal society of fiefdoms that are propped up by the federal government. Let the market run its course.
    - andrekandre 7y ago
      > We shouldn't be living in a feudal society of fiefdoms that are propped up by the federal government. Let the market run its course. probably wouldn’t be much of a problem (letting the market run its course) if we had sufficient social safety nets in place for workers but as we all probably know by now, the govt is mostly working for those with moneyed interests so, they get front and center
- arcticbull 7y ago
  > The economy pre-pandemic no longer exists. It will not magically exist again in the future. That's ridiculous nothing structural has changed about the economy. When the doors fly open people will be back to work and life will resume as normal, as it always has.
  - 3131s 7y ago
    So many obvious examples, but since up thread people are using the "teach a man to fish" idea, let's go with that... you are now the captain of a fishing boat! So what happens when, in order to cover expenses while you're quarantined for a few months, you've sold your fishing boat, fishing poles, life vests, etc.? Your fishing boat might have been turned into scrap metal by the time you can resume working, and you've already spent all the money in the interim (you sold it for cheap because at the time everyone else was selling their fishing boats for the same reason). That's why life won't necessarily return to normal when this is over.
    - arcticbull 7y ago
      That's a crazy hyperbolic example. A fishing boat is likely owned by a small business welcome to take out a (potentially forgivable) loan from the SBA to tide them over. Scheduled maintenance can be either deferred or completed by folks wearing masks -- I'd wager boat maintenance people wear masks anyways. Not to mention, is there any evidence people aren't eating fish anymore, and boats aren't out on the water -- well isolated from the rest of society? Isn't being out on the water about as socially isolated as you can possibly get? Beyond that, China was out of commission for 76 days. How long are you expecting this to go in the US beyond 76 days, and why?
  - macintux 7y ago
    We don’t know when the doors will open. It’s reasonably certain they won’t “fly” open. If the coronavirus continues to be a major threat for the next year or two, which is well within the realm of possibility, we don’t know what society or the economy will look like after. Worse, we don’t know that there is an after. It’s possible there is no effective and safe vaccine, and that social distancing becomes a permanent feature of life.
- coredog64 7y ago
  Anyone want to go halfsies on a debtor-in-possession agreement worth $3T? /sarc Bankruptcy requires a functioning, liquid market to operate. Complete collapse of demand on a scale never before seen isn’t that.
- dragonwriter 7y ago
  > You are no longer "otherwise-strong" if you have been impacted by COVID economically. “Otherwise” is a word with meaning, and, contrary to your claim, that's exactly what “otherwise” means. Now, the underlying premise for that “otherwise strong” being a meaningful category (that firms in that position are well positioned for a post-COVID rebound if they are prevented from a catastrophic collapse due to COVID) may be subject to legitimate debate, but that's another question.
billylindeman 7y ago
"Otherwise Strong" They've been downgraded for a reason (airlines for example) Most of those fallen angels are leveraged to the max because they were borrowing money to finance share repurchasing and in some cases even paying dividends. The moral hazard of this latest move is unconscionable
- whatok 7y ago
  There's not a single high yield airliner that qualifies for this.
  - cinquemb 7y ago
    Air Canada, ACACN 008911AZ2 US008911AZ26, rated Ba2 qualifies for this since their HY paper is held by HYG. American Airlines Group, AAL 02376RAE2 US02376RAE27, rated B1 qualifies for this since their HY paper is held by HYG. Probably a great time to write malware hack and steal money from these companies listed in IG and HY ETF's since they'll be made whole apparently now no matter what malfeasance they were up to before hand. However, lets keep in mind that since the announcement on March 23, frbny via loans through blackrock has yet to buy any corporate bonds in the secondary market as of April 8th ("Loans" > "Secondary credit") : https://www.federalreserve.gov/releases/h41/current/ https://www.federalreserve.gov/releases/h41/current/
    - whatok 6y ago
      Yes, HYG has some HY airliners but that doesn't make the actual issuers available for any of these facilities. That's the point that I was making.
      - cinquemb 6y ago
        Supporting the paper in the secondary market through ETFs, will allow any new issuance to be priced more favorably than if it wasn't at all, even if frbny isn't the one doing the origination (yet, at this rate I think they will eventually along with equity etfs purchases). That's the point I'm making.
cs702 7y ago
They're suddenly rated junk because they have become junk -- i.e., no longer as creditworthy. Otherwise I agree: this is urgently necessary.
- whatok 7y ago
  Right, but there's a massive difference between the broader high yield universe that would definitely see some credit losses pre-Corona vs recently downgraded companies that would likely be okay without this. These facilities were created to triage, not resuscitate.
phkahler 7y ago
If they are buying bonds on the open market then it's not helping the companies that issued them, its helping investors. If they are buying newly issued bonds then you can argue its helping the companies.
- whatok 7y ago
  Buying bonds on the open market absolutely helps companies that issue them because new issues are priced off secondary market. Are you going to buy a new issue bond at 5% yield when a similar secondary bond from the same company is at 10%?
- missedthecue 7y ago
  Supporting the secondary market allows firms to place new issues, and raise the capital they need to sustain themselves through this. Essentially, you just don't want the market locked up.
rayuela 7y ago
They're literally buying JUNK bonds.... https://www.bloomberg.com/news/articles/2020-04-09/fed-unleashes-fresh-steps-for-as-much-as-2-3-trillion-in-aid?srnd=premium https://www.bloomberg.com/news/articles/2020-04-09/fed-unlea...
A4ET8a8uTh0 7y ago
The fallen angels is an interesting construct. At the end of the day, their ratings are considered junk. Classifying them as crap is appropriate. Without serious infusion of cash there is a notable nonzero change they would fail. What is the point of those ratings if they are being ignored at the first sign of trouble?
- ipsum2 7y ago
  > Without serious infusion of cash there is a notable nonzero change they would fail This is an exaggeration. Many companies purposely have junk bonds so they can borrow more money at a low rate, compared to investment grade bonds.
  - A4ET8a8uTh0 7y ago
    Yes. Their purpose is to have funding. Do you think they pay higher interest rates out of the goodness of their hearts? I am not sure what you are arguing here.
  - gruez 7y ago
    >Many companies purposely have junk bonds so they can borrow more money at a low rate, compared to investment grade bonds. What? Conventional wisdom says that risky (junk) bonds would have higher yields (aka costs for the borrower) than safer (investment grade) bonds.
- elliekelly 7y ago
  Recent history has shown that the ratings are calculated as a function of politics, market psychology, and the rating agency’s best hunch.
- foota 7y ago
  There's a difference between a company that has always been junk and a company that is only rated junk because of the current crisis?
cryptica 7y ago
Every time the Fed does something outrageous and indefensible, you ALWAYS see a bunch of comments and articles like this trying to rationalize it. All the facts are clear as crystal and speak for themselves: - Corporations have kept getting bigger and reinforcing their monopolies far beyond the point of optimum efficiency and have been manipulating elections and policy-making to benefit their own interests. - House prices in big cities have kept going up due to a combination of factors including centralization of capital due to corporate monopoly power. - Many corporations took free 0% loans from the government to buy back their own shares; often for the purpose of tax evasion. This conduct is unethical in at least 3 different ways when you consider the fact that the Fed is now shamelessly bailing out these corporations to clear that same debt which they used for tax evasion. - Freedom of speech in the work environment has declined significantly. - Trust between people has declined to an all time low due to the adverse, coercive work environments in which we operate. - We are facing huge environmental threats which are not addressed due in a large part to lobbyists backed by corporate interests. - The financial system is over-complicated and opaque; few people understand how fiat money enters the system but it's clear from empirical evidence that it benefits corporations while harming both small businesses and consumers. Even the Fed itself has admitted that their cash injections do not reach small businesses or the workers. - Our governments will screw over its citizens in the most blatant way imaginable; they will even exploit a health disaster as an opportunity to fast-track the agendas of their corporate masters. It's bad enough that most people just stand back idly and nod their heads... But it's deeply disturbing to witness some people go further than that and actually manufacture excuses for what are obviously deeply unethical activities... Also, it seems that these people who spread misinformation for the sole benefit of corporations are not even getting paid for it! This behavior is not even aligned with the capitalistic self-interest ideals which their corporate thought leaders keep preaching, it's like some weird type of selective masochistic altruism whereby some individuals feel compelled to only help evil people who they know will hurt them along with the rest of society. If you're a real capitalist, do as you preach and stop defending other richer peoples' interests! That's not how it's supposed to work. If you're not a billionaire yourself and you oppose the idea of the government making laws which will reduce the wealth of billionaires, you're a socialist for the top 0.0001 percent. A maso-socialist.
- 7y ago

toomuchtodo 7y ago

You are no longer "otherwise-strong" if you have been impacted by COVID economically. The economy pre-pandemic no longer exists. It will not magically exist again in the future. The Fed buying junk bonds is "extend and pretend". If you want to save the jobs, allow overextended firms to fail, and then bail them out with the government taking ownership (while removing management). We did this with GM in 2008: we saved the jobs, we removed management, and we wiped out existing equity owners.

DSingularity 7y ago
Why it not preventing a “black swan” event from wrecking companies who could have otherwise continued to operate if it wasn’t for the shelter in place response?
- toomuchtodo 7y ago
  Many companies did prepare and don't need a bailout. If you don't need a bailout, you don't need to give up ownership. Don't devalue a currency because of poor management at scale. Otherwise, you're supporting greed and kleptocracy with monetary policy.
  - imtringued 7y ago
    Ok, let's look at a theoretical business that is designed to survive a pandemic. Well, what is the biggest problem that would affect such a business? Of course, lack of customers! If you don't have customers you also don't need employees. So you can just fire them! Now that we have gotten rid of the first dead weight the next problem is that you still have certain fixed costs. All that real estate is now empty since you fired all your employees. There isn't much you can do except save up money like scrooge McDuck. The easiest way to get that money is by screwing over your employees during good times. Don't give them raises and bonuses. You'll need that money during some government lock down. Now the lockdown is over and your business survived without needing government help. Maybe you have noticed something. The rich managers don't really a give a damn about the lock down. They have a huge amount of money and mostly diversified their net worth away from their own business. $5 million after a 50% stock market crash is still $2.5 million. That might sound like a huge loss but only when you forget to consider that there also exist people that aren't managers and they are in the majority. If you lose your job that is pretty much a 100% reduction in income. If you lose your job you can't just kick out the rest of your family to reduce costs. For every manager that is seeing his portfolio dip there are probably a dozen more non-managers having a worse time. The bank bailouts weren't actually about bailing out banks. The taxpayers were bailing their own money out. Dead banks mean your money is gone. It's like video game servers shutting down. Your stuff is just gone. The managers at the bank probably couldn't care less about their customers losing all their funds.
    - Apocryphon 7y ago
      As discussed before, not only in this thread but in the responses to other articles, some of these companies should not have wasted their cash on stock buybacks. They ran out of their emergency funds, and have only themselves to blame.
    - icedchai 7y ago
      A failing bank doesn't mean your money is gone. In the US, savings accounts are FDIC insured up to a maximum of $250K. If your bank fails, it's likely getting acquired by another bank anyway. Customers have value.
    - 7y ago
  - _curious_ 7y ago
    "Otherwise, you're supporting greed and kleptocracy with monetary policy." sounds like the MO of the current presidential administration...
  - Red_Leaves_Flyy 7y ago
    "Never let a crisis go to waste."
- pjmorris 7y ago
  It's not a black swan, pandemics are predictable. @nntaleb, the author of 'The Black Swan' has been explaining this. More crucially, the virus is affecting the real economy, and people's lives. Fixes for the financial economy that don't address that directly are band-aids to make balance sheets look good.
  - deleted 7y ago
    [deleted]
  - DSingularity 7y ago
    I don’t quite agree. When 99.9% of businesses gets blindsided by the impact of the shelter in place orders it becomes a black swan like event. All those businesses couldn’t predict an event this cataclysmic to their core product. Just because the pandemic itself was predicted doesn’t mean much when the global fall out is totally novel and unpredictable.
  - icedchai 7y ago
    Something like this has never happened, even with other pandemics. It is an extreme outlier event even if it is not technically a "black swan."
- ouid 7y ago
  When the federal government acts as an insurer of last resort against correlated phenomena, but does not have any ability to set premiums or regulate behavior, companies will seek to maximize their risk in these situations. This includes buying back stocks with low interest loans. This is not the Fed's job. If these companies want to file claims, they will need to talk directly to their insurer, the taxpayers.
jrockway 7y ago
I don't think this is the right approach. Look at the airlines, for example. They own/lease super expensive machines that need to be in the air filled with paying customers to make the economics of being an airline viable. Travel is now essentially banned, so they can't do that. It is likely that when the pandemic is under control, people will again want to ride airplanes to far-away destinations. So it seems reasonable to me to provide some sort of financial help to the airlines alive during this once-in-a-century event. They didn't really mismanage their business by buying airliners and not planning for a global pandemic -- there was simply no way to run the business profitably with an allowance for "someday we will be unable to fly for 6 months in a row". It seems to me that if society wants air travel, which we do, we have to step up and at least provide a loan to cover for this essentially-unforeseeable event. There isn't a passenger airline in existence that planned for this event and is making a profit right now, it's simply not an environment that a passenger airline can be profitable in. The government paying for Coronavirus also provides a financial incentive to not fuck it up so badly next time. We ignored the warning signs and decided to do nothing -- now it's costing us. Next time, we'll know that mismanaging the early days of a pandemic is going to cost trillions of dollars, so we'll probably do a better job. (Or rather, vote for people that will do a better job.) (Here's how I think we should have handled the early days of Coronavirus. Ban travel and buy back the tickets/reservations for all travellers. People were still taking vacations even when Coronavirus was widespread. I'm guessing they did that because they sunk $2000 into non-refundable reservations, and didn't want to be the ones to subsidize the airlines. So they took their trip, got Coronavirus, infected 3 other people, and now tens of thousands of people are dead.)
- toomuchtodo 7y ago
  > The government paying for Coronavirus also provides a financial incentive to not fuck it up so badly next time. It absolutely doesn't. Time and time again, corporations have proven their shareholders (management as well) will simply strip as much value as they can, and leave us (taxpayers via government, citizens with devalued currency via the Fed and their monetary policy) holding the bag with any losses or externalities to clean up. For example, the Tax Reform Act was sold as incentivizing "jobs and investment"; all it incentivized was share buybacks [1]. Shareholders and management have proven themselves unworthy of trust, or more accurately, public and fiscal policy benefiting them that operates on the honor system. "Fool me once!" [1] https://money.cnn.com/2018/07/10/investing/stock-buybacks-record-tax-cuts/index.html https://money.cnn.com/2018/07/10/investing/stock-buybacks-re...
eganist 7y ago
> You are no longer "otherwise-strong" if you have been impacted by COVID economically. The economy pre-pandemic no longer exists. It will not magically exist again in the future. Citation needed for this. The 1920s would seem to differ.
- rednerrus 7y ago
  Didn't it take close to 30 years to recover from the 20s?
  - elliekelly 7y ago
    It also took four years after the Great Depression started for the Federal Government to pass the New Deal that helped pull the country out of the gutter. As much as I wish Congress had moved faster and done more with the CARES Act they’re still way ahead of their counterparts a century earlier.
    - dantheman 7y ago
      The new deal extended the great depression and it's mishandling is extremely well known. Destroying goods to drive up prices, centrazlied price fixing, the blue eagle program, wage controls, the reason healthcare is tied to employment. The new deal was a failure and caused long lasting damage to the USA.
      - posix_me_less 7y ago
        That's a fascinating narrative which I don't believe one bit. Source?
        rcpt 7y ago
        https://www.econlib.org/archives/2013/11/a_crime_beyond.html https://www.econlib.org/archives/2013/11/a_crime_beyond.html The works of the roots of the vines, of the trees, must be destroyed to keep up the price, and this is the saddest, bitterest thing of all. Carloads of oranges dumped on the ground. The people came for miles to take the fruit, but this could not be. How would they buy oranges at twenty cents a dozen if they could drive out and pick them up? And men with hoses squirt kerosene on the oranges, and they are angry at the crime, angry at the people who have come to take the fruit. A million people hungry, needing the fruit—and kerosene sprayed over the golden mountains. And the smell of rot fills the country. Burn coffee for fuel in the ships. Burn corn to keep warm, it makes a hot fire. Dump potatoes in the rivers and place guards along the banks to keep the hungry people from fishing them out. Slaughter the pigs and bury them, and let the putrescence drip down into the earth. There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificate—died of malnutrition—because the food must rot, must be forced to rot. The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quick-lime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage. The Grapes of Wrath, John Steinbeck
whatok 7y ago
The Fed buying junk bonds is completely misleading and likely only has consequences for a single company; Ford. Ford has more liquidity on-hand than GM (investment grade which means nothing right now) and can likely ride this out better than they can. Which one is more "overextended"? Do you have any idea of how large the universe is that this covers? Are these non-high yield companies not "overextended" somehow because a random rating agency put some different letters next to their name?
- toomuchtodo 7y ago
  Ford's finances were marginal prior to COVID ramping up across the world (debt downgraded to junk in September 2019 [1]). If the Fed's actions are solely to support $F from becoming insolvent, that's in violation of their mandate. Your argument holds little water when you wave away the ratings of "random rating agencies". Their ratings are what drives investment decisioning by the largest funds in the world. [1] https://www.cnn.com/2019/09/10/business/ford-downgrade-junk/index.html https://www.cnn.com/2019/09/10/business/ford-downgrade-junk/...
  - whatok 7y ago
    Ford was only downgraded by a single rating agency in September and only recently downgraded by the rest last month; well after the initial model of these facilities was announced. Ford has been preparing for being downgraded and has the liquidity to support themselves even without Fed action. I'm not waving away rating agencies. I'm saying that General Motors has less liquidity than Ford. In your "no bailouts" world, Ford would be in better shape than General Motors. General Motors is investment grade, does that magically make them better than Ford even though cash on hand says different? Ratings really mean nothing right now as far as the health of a company goes and ratings agencies have specifically mentioned that they are backlogged with assessing all consequences of what's going on right now. Ratings have and are always backwards looking data. How the "largest funds" in the world invest is completely irrelevant for this.
    - toomuchtodo 7y ago
chrisco255 7y ago
This is insane. This is going to lead to nationalization of our corporations. This is too massive and you cannot allow the government to do this. This is full on fascist.
- Others 7y ago
  If a company is failing, the existing management will need new jobs anyway. All the government is doing with the parents strategy, is ensuring less jobs are lost and less lives are impacted. It's not like the government really wanted to run GM...
at-fates-hands 7y ago
> We did this with GM in 2008 GM was not allowed to fail and then the government took ownership of the company. That's not all what happened: On July 10, 2009, following Chapter 11 reorganization after an initial filing on June 8 2009,[25][26] the original General Motors sold assets and some subsidiaries to an entirely new company including the trademark General Motors. Liabilities were left with the original GM freeing the companies of many liabilites resulting in a new GM. GM emerged from government backed Chapter 11 reorganization after an initial filing on June 8, 2009.[25][26] Through the Troubled Asset Relief Program the US Treasury invested $49.5 billion in General Motors and recovered $39 billion when it sold its shares on December 9, 2013 resulting in a loss of $10.3 billion. The Treasury invested an additional $17.2 billion into GM's former financing company, GMAC (now Ally). The shares in Ally were sold on December 18, 2014 for $19.6 billion netting $2.4 billion.[27][28] A study by the Center for Automotive Research found that the GM bailout saved 1.2 million jobs and preserved $34.9 billion in tax revenue.[29] Also in 2009 General Motors of Canada Limited was not part of theGeneral Motors Chapter 11 Bankruptcy, the company shed several brands, closing Saturn, Pontiac, and Hummer, while selling Saab Automobile to Dutch automaker Spyker, and emerged from a government-backed Chapter 11 reorganization. In 2010, the reorganized GM made an initial public offering that was one of the world's top five largest IPOs to date, and returned to profitability later that year.[19][30][31] The government did the same thing its doing now. Investing in companies on a short term basis to prop them up and allow them to continue to operate. Once the economy is stabilized, it will cash out its investment(s) like it did with GM. What you are advocating for is not at all what occurred with GM.
- aaronblohowiak 7y ago
  I think what the person meant in spirit is aligned with what happened in practice — GM’s shareholders were wiped out and the government (through chapter 11 restructuring and investment) ensured it was a going concern and had a subsequent IPO (privitization) ..
  - toomuchtodo 7y ago
    Yep, exactly, although privatization isn’t a necessary component (Fannie and Freddie mortgage GSEs have been held onto as a public good).
jmeyer2k 7y ago
I don't think that's true. This is a true supply shock. Nothing fundamentally changed except that there is a "short-term" (1-2 years) issue of workers not being able to work and consumers not being able to get a job. In contrast, in 2008, we realized things were being criminally propped-up and the economy crashed. Expectations were much higher compared to the actual performance of the economy. The job of the Fed is to keep companies from going under due to this supply shock. If companies do go under, that means that there WILL be long-term problems with the economy because we're lowering LONG-RUN supply. The whole point of the fed is to smooth short-run supply shocks so that long-run aggregate supply isn't affected.
- viklove 7y ago
  > If companies do go under, that means that there WILL be long-term problems with the economy because we're lowering LONG-RUN supply. This is a false narrative. If a company goes under, chances are the long-run supply will not be affected much, if at all. When a company goes under, its assets are not burned, and its employees are not killed. If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off. A government bailout only makes sense if you own a company being bailed out, and you want to stay rich. A government bailout is bad for every other American, because it introduces an incentive to making poor decisions and not planning for market downturns. We should not be rewarding bad corporate behavior with a bailout, we should be punishing it by letting the companies go under so fresh blood can have a try. We shouldn't be living in a feudal society of fiefdoms that are propped up by the federal government. Let the market run its course.
  - andrekandre 7y ago
    > We shouldn't be living in a feudal society of fiefdoms that are propped up by the federal government. Let the market run its course. probably wouldn’t be much of a problem (letting the market run its course) if we had sufficient social safety nets in place for workers but as we all probably know by now, the govt is mostly working for those with moneyed interests so, they get front and center
arcticbull 7y ago
> The economy pre-pandemic no longer exists. It will not magically exist again in the future. That's ridiculous nothing structural has changed about the economy. When the doors fly open people will be back to work and life will resume as normal, as it always has.
- 3131s 7y ago
  So many obvious examples, but since up thread people are using the "teach a man to fish" idea, let's go with that... you are now the captain of a fishing boat! So what happens when, in order to cover expenses while you're quarantined for a few months, you've sold your fishing boat, fishing poles, life vests, etc.? Your fishing boat might have been turned into scrap metal by the time you can resume working, and you've already spent all the money in the interim (you sold it for cheap because at the time everyone else was selling their fishing boats for the same reason). That's why life won't necessarily return to normal when this is over.
  - arcticbull 7y ago
    That's a crazy hyperbolic example. A fishing boat is likely owned by a small business welcome to take out a (potentially forgivable) loan from the SBA to tide them over. Scheduled maintenance can be either deferred or completed by folks wearing masks -- I'd wager boat maintenance people wear masks anyways. Not to mention, is there any evidence people aren't eating fish anymore, and boats aren't out on the water -- well isolated from the rest of society? Isn't being out on the water about as socially isolated as you can possibly get? Beyond that, China was out of commission for 76 days. How long are you expecting this to go in the US beyond 76 days, and why?
- macintux 7y ago
  We don’t know when the doors will open. It’s reasonably certain they won’t “fly” open. If the coronavirus continues to be a major threat for the next year or two, which is well within the realm of possibility, we don’t know what society or the economy will look like after. Worse, we don’t know that there is an after. It’s possible there is no effective and safe vaccine, and that social distancing becomes a permanent feature of life.
coredog64 7y ago
Anyone want to go halfsies on a debtor-in-possession agreement worth $3T? /sarc Bankruptcy requires a functioning, liquid market to operate. Complete collapse of demand on a scale never before seen isn’t that.
dragonwriter 7y ago
> You are no longer "otherwise-strong" if you have been impacted by COVID economically. “Otherwise” is a word with meaning, and, contrary to your claim, that's exactly what “otherwise” means. Now, the underlying premise for that “otherwise strong” being a meaningful category (that firms in that position are well positioned for a post-COVID rebound if they are prevented from a catastrophic collapse due to COVID) may be subject to legitimate debate, but that's another question.

billylindeman 7y ago

"Otherwise Strong" They've been downgraded for a reason (airlines for example) Most of those fallen angels are leveraged to the max because they were borrowing money to finance share repurchasing and in some cases even paying dividends. The moral hazard of this latest move is unconscionable

whatok 7y ago
There's not a single high yield airliner that qualifies for this.
- cinquemb 7y ago
  Air Canada, ACACN 008911AZ2 US008911AZ26, rated Ba2 qualifies for this since their HY paper is held by HYG. American Airlines Group, AAL 02376RAE2 US02376RAE27, rated B1 qualifies for this since their HY paper is held by HYG. Probably a great time to write malware hack and steal money from these companies listed in IG and HY ETF's since they'll be made whole apparently now no matter what malfeasance they were up to before hand. However, lets keep in mind that since the announcement on March 23, frbny via loans through blackrock has yet to buy any corporate bonds in the secondary market as of April 8th ("Loans" > "Secondary credit") : https://www.federalreserve.gov/releases/h41/current/ https://www.federalreserve.gov/releases/h41/current/
  - whatok 6y ago
    Yes, HYG has some HY airliners but that doesn't make the actual issuers available for any of these facilities. That's the point that I was making.
    - cinquemb 6y ago
      Supporting the paper in the secondary market through ETFs, will allow any new issuance to be priced more favorably than if it wasn't at all, even if frbny isn't the one doing the origination (yet, at this rate I think they will eventually along with equity etfs purchases). That's the point I'm making.

cs702 7y ago

They're suddenly rated junk because they have become junk -- i.e., no longer as creditworthy. Otherwise I agree: this is urgently necessary.

whatok 7y ago
Right, but there's a massive difference between the broader high yield universe that would definitely see some credit losses pre-Corona vs recently downgraded companies that would likely be okay without this. These facilities were created to triage, not resuscitate.

phkahler 7y ago

If they are buying bonds on the open market then it's not helping the companies that issued them, its helping investors. If they are buying newly issued bonds then you can argue its helping the companies.

whatok 7y ago
Buying bonds on the open market absolutely helps companies that issue them because new issues are priced off secondary market. Are you going to buy a new issue bond at 5% yield when a similar secondary bond from the same company is at 10%?
missedthecue 7y ago
Supporting the secondary market allows firms to place new issues, and raise the capital they need to sustain themselves through this. Essentially, you just don't want the market locked up.

rayuela 7y ago

They're literally buying JUNK bonds.... https://www.bloomberg.com/news/articles/2020-04-09/fed-unleashes-fresh-steps-for-as-much-as-2-3-trillion-in-aid?srnd=premium https://www.bloomberg.com/news/articles/2020-04-09/fed-unlea...

A4ET8a8uTh0 7y ago

The fallen angels is an interesting construct. At the end of the day, their ratings are considered junk. Classifying them as crap is appropriate. Without serious infusion of cash there is a notable nonzero change they would fail. What is the point of those ratings if they are being ignored at the first sign of trouble?

ipsum2 7y ago
> Without serious infusion of cash there is a notable nonzero change they would fail This is an exaggeration. Many companies purposely have junk bonds so they can borrow more money at a low rate, compared to investment grade bonds.
- A4ET8a8uTh0 7y ago
  Yes. Their purpose is to have funding. Do you think they pay higher interest rates out of the goodness of their hearts? I am not sure what you are arguing here.
- gruez 7y ago
  >Many companies purposely have junk bonds so they can borrow more money at a low rate, compared to investment grade bonds. What? Conventional wisdom says that risky (junk) bonds would have higher yields (aka costs for the borrower) than safer (investment grade) bonds.
elliekelly 7y ago
Recent history has shown that the ratings are calculated as a function of politics, market psychology, and the rating agency’s best hunch.
foota 7y ago
There's a difference between a company that has always been junk and a company that is only rated junk because of the current crisis?

cryptica 7y ago

Every time the Fed does something outrageous and indefensible, you ALWAYS see a bunch of comments and articles like this trying to rationalize it. All the facts are clear as crystal and speak for themselves: - Corporations have kept getting bigger and reinforcing their monopolies far beyond the point of optimum efficiency and have been manipulating elections and policy-making to benefit their own interests. - House prices in big cities have kept going up due to a combination of factors including centralization of capital due to corporate monopoly power. - Many corporations took free 0% loans from the government to buy back their own shares; often for the purpose of tax evasion. This conduct is unethical in at least 3 different ways when you consider the fact that the Fed is now shamelessly bailing out these corporations to clear that same debt which they used for tax evasion. - Freedom of speech in the work environment has declined significantly. - Trust between people has declined to an all time low due to the adverse, coercive work environments in which we operate. - We are facing huge environmental threats which are not addressed due in a large part to lobbyists backed by corporate interests. - The financial system is over-complicated and opaque; few people understand how fiat money enters the system but it's clear from empirical evidence that it benefits corporations while harming both small businesses and consumers. Even the Fed itself has admitted that their cash injections do not reach small businesses or the workers. - Our governments will screw over its citizens in the most blatant way imaginable; they will even exploit a health disaster as an opportunity to fast-track the agendas of their corporate masters. It's bad enough that most people just stand back idly and nod their heads... But it's deeply disturbing to witness some people go further than that and actually manufacture excuses for what are obviously deeply unethical activities... Also, it seems that these people who spread misinformation for the sole benefit of corporations are not even getting paid for it! This behavior is not even aligned with the capitalistic self-interest ideals which their corporate thought leaders keep preaching, it's like some weird type of selective masochistic altruism whereby some individuals feel compelled to only help evil people who they know will hurt them along with the rest of society. If you're a real capitalist, do as you preach and stop defending other richer peoples' interests! That's not how it's supposed to work. If you're not a billionaire yourself and you oppose the idea of the government making laws which will reduce the wealth of billionaires, you're a socialist for the top 0.0001 percent. A maso-socialist.

7y ago