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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

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.
  - A4ET8a8uTh0 7y ago
    Besides the fact that FDIC would have covered those ( anyone remembers FDIC fridays? ), banks are not servers. Your analogy is wrong. If they failed, the disruption would be great, but money would not be lost, the houses, cars, equipment, factories, people would still be there. The bailout was aimed at the real owners in the US. And they got it. Simply because golden rule works.
    - aaronblohowiak 7y ago
      Both money and value would be lost. The former due to write-offs (one persons debt is another’s person’s income) and the latter due to disorganization / entropy / chaos. The FDIC fund is not able to cover all deposits currently and would require massive government spending and distribution.
- _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.

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.
- A4ET8a8uTh0 7y ago
  Besides the fact that FDIC would have covered those ( anyone remembers FDIC fridays? ), banks are not servers. Your analogy is wrong. If they failed, the disruption would be great, but money would not be lost, the houses, cars, equipment, factories, people would still be there. The bailout was aimed at the real owners in the US. And they got it. Simply because golden rule works.
  - aaronblohowiak 7y ago
    Both money and value would be lost. The former due to write-offs (one persons debt is another’s person’s income) and the latter due to disorganization / entropy / chaos. The FDIC fund is not able to cover all deposits currently and would require massive government spending and distribution.
_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.