7 ms·

Fed should pay every American, let hedge funds and billionaires ‘get wiped out’

130 points by kensai 7y ago

aazaa 7y ago
To paraphrase... Planes, employees, and marketing power, for example, all outlive the bankruptcy. A bankruptcy wipes out speculators and what should be sophisticated investors. They can take it, and this is what they signed up for. The company that emergence from bankruptcy does so without the debt it had heading in.
- itg 7y ago
  Wouldn't 401k's and pensions also get wiped out?
  - toomuchtodo 7y ago
    You can hack around that with policy. Think of SIPC insurance: in the event something crazy goes on with your brokerage, they step in and provide cash value of the equities at the time the insurable event took place. I've provided the below link as an example; ignore the limits, they would not be adhered to for my example due to extraordinary circumstances. Disclaimer: Huge fan of Chamath coming out and telling it how it is on CNBC. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
    - strictnein 7y ago
      So the government will step in and protect the upper 20%? That's the plan?
      - toomuchtodo 7y ago
        I think it’s reasonable to protect retirement assets if means tested, yes. It’d be an entirely different story if pensions hadn’t been gutted and everyone tossed to the wolves with 401ks over the last 40 years. If you want to wipe out retirement assets and top it up with social security instead, again means tested, that’d be a reasonable approach. But you can’t tell folks their only option is 401ks and to be diligent savers, and then burn them to the ground out of moral hazard. The goal is to wipe out investors to whom hundreds of millions of dollars means nothing to their quality of life.
        deleted 7y ago
        [deleted]
        strictnein 7y ago
        So if I've been working 40 years, have a strong 401k, and am doing fine now I should get my savings wiped out? You're arguing all sides now. I didn't propose a policy that would greatly harm retirement savings, you did. You proposed protecting 401ks with government backing. I stated that doing so would be a boon to the top 20% at the expense of everyone else.
        toomuchtodo 7y ago
        It seems I might not be communicating my thoughts on the topic coherently. My apologies! I felt that I have, but I think I’ll have to come back with a blog post instead of ad hoc thread comments. I appreciate the rebuttals for helping me refine my arguments! EDIT: /u/HarryHirsch's comment here [1] explains succinctly what I intended to explain but did so poorly. [1] https://news.ycombinator.com/item?id=22835580 https://news.ycombinator.com/item?id=22835580 ("You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.")
    - Schweigi 7y ago
      Actually SIPC doesn’t provide the cash value for equities. They provide you with the original shares which will be worthless if the company goes bankrupt. Its in the third paragraph of your link. Maybe it would be better to require retirement accounts to be invested in broad indexes to be eligible for a insure for a certain amount of money value. I don’t see how it could be done fairly on single stock base without having big discussions about what kind of events will be covered.
  - deleted 7y ago
    [deleted]
  - drtillberg 7y ago
    Pensions are Federally insured (PBGC). As for 401ks -- the custodians aren't at risk. So are you asking, "What if I make a bad investment in my 401k?". You lose money. Investing in a bankrupt company would be a bad investment.
    - wmf 7y ago
      More like "What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" At this point the bailouts have already been priced in for a decade and it isn't even politically possible to say "this will be the last bailout but next time there will be bankruptcy".
      - drtillberg 7y ago
        I think it would be interesting to see a tabulation of all the implied government guaranties compared to the practical limits of the government to generate money by "printing" dollars. The first category is practically unbounded and dynamic, I think. I wonder under what circumstances it could swamp the second category.
      - throwaway_USD 7y ago
        >"What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" Maybe it is time people paying into pensions and 401k's begin to understand they are scams enshrined in law to prop up the financial industry. Maybe if mainstreet stopped giving their money to wallstreet to mismanage in the first place there would be no need for future bailouts to begin with as wallstreet runs a muck with pension and 401k funds. These are the very same bankers who continued to buy toxic mortgages in 2008 with Client funds as the banks were selling off any positions they had in the very same assets.
      - asdff 7y ago
        Then you'd take a deep breath, pull up a chart from any other recession in history, and see that you and the market index will be back to where you were in 2-5 years. This would be a good time to buy, and average down your positions.
  - HarryHirsch 7y ago
    You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.
  - uskiwi 7y ago
    There's a slippery slope between "I saved hard and I don't want to lose the money I was recommended to invest in the stockmarket" and "I have a billion dollars in stock and I want to remain completely whole". It is possible to achieve the first without the second. You can have federal insurance (like FDIC/SIPC) that fades out rather than has a strict cutoff (you get 100% of the first 100k, 80% of the next 400k etc etc). There's some boundary where you "should" have been sophisticated and deserve to lose some money (probably near the point where you have a high end accountant look for deductions or are an accredited investor). Yes, this is "unfair" to people who had very high paying jobs. But it's easy to argue that the current tax code is also "unfair". It's a question of "how unfair, and unfair to whom" not "we need this to be completely fair / preserve the status quo".
lordnacho 7y ago
He's spot on. Equity risk is for people who want risk. Even risks they hadn't thought of like a virus shutting down the economy. Corporate bankruptcy is a reasonable way to redistribute claims, and we should use it. Not even every business in trouble will go under, a lot will simply be bought by someone wanting to take over the risk at a sensible price. No jobs need to be lost. I'm all in favour of bailing out real people though.
- mrosett 7y ago
  He's spot on that equity risk should actually have downside. But the idea that a whole bunch of massive corporations can fail and no jobs would be lost seems like a real stretch to me. In fact, it's strange to think that a company wouldn't have fewer employees coming out of bankruptcy if one of the causes was being overextended.
  - lordnacho 7y ago
    Fair enough, but at any given company it's not the case that all the employees must lose their jobs. I worded that badly. Even so, the collapse is a signal that should not be ignored that the economy ought to be organised differently, basically some people should be doing other things than previously thought.
  - chickenpotpie 7y ago
    Counterpoint, companies will learn not to overextend and we won't have to worry about job loss or bailouts the next time this happens
    - mewpmewp2 7y ago
      Counterpoint. We will have less innovation and tech advancement if companies will have to spend more to prepare for disasters like this virus. If new businesses have to do that then we will have a lot tougher barrier entry meaning old fish will prevail.
      - 7y ago
vorpalhex 7y ago
Title differs from source. Original title: "Fed should pay every American more, let hedge funds and billionaires ‘get wiped out,’ says Social Capital CEO"
strictnein 7y ago
I get that it's a clickbait headline, but he doesn't seem to be making any coherent point. Somehow billionaires, debt holders, etc will get wiped out, companies will go bankrupt and protect their employee pensions (what are those?), and then they will reemerge being partially owned by their employees. > "“It would be better for the Fed to have given half a million to every man, woman and child in the United States,” he said." What now? A $165 Trillion bailout?
- enitihas 7y ago
  Who needs math if you can appeal to emotions.
  - viklove 7y ago
    I think you're the ones letting emotions get in your way. The whole point is to dilute the wealth in this country to bring million/billionaires down to the commoner's level. Then let society build its way back up, because you'll end up with something much different when the average American has the same purchasing power as the wealthiest American. Right now if you want to start a business, you have to get "approval" from a wealthy American in the form of an investment or loan. If you remove this "approval" process, you will end up with a true free marketplace of ideas, where everyone can try something out without needing to ask someone's permission first. More importantly, demand won't only be coming from the top down. Instead of billions of dollars going into acquisitions of valueless corporations like WeWork, billions will be spent on making American's lives better. A dollar is a coupon you can use to redeem for some amount of human productive output. Instead of letting 1% of society decide how we use this productive output, it should be a decision for all Americans to make (by spending dollars, which they haven't had the opportunity to do in the last 2 decades).
- totalZero 7y ago
  The number is off, but it doesn't matter. I think he was being hyperbolical, but we can consider the idea of bailout to people vs bailout to corporations anyway. Give each family 60k, and you cover them for a year at the same cost of the bailout that actually occurred. In that scenario.... Groceries get bought. Bills get paid. Essential businesses make money, which means they get compensated for being useful. That's a good thing. Elderly employees who don't feel comfortable working, can quit their jobs. We have grown so accustomed to rampant corporate feudalism that it almost feels un-American to question the collapse of companies that are not essential to the health and well-being of our citizens or our government. It feels wrong to allow the financial losses of a billionaire who knowingly bought a risk asset, only because we have been told for years that normal people need billionaires to create our jobs for us. Let them take it in the face for once. Risks have a downside factor. We shouldn't eliminate that just because rich people want to maintain their riches.
mrosett 7y ago
> But Palihapitiya argued that rather giving workers relatively small $1,200 checks, the U.S. would be better off giving everyone larger payments directly, and skip businesses entirely. > “It would be better for the Fed to have given half a million to every man, woman and child in the United States,” he said. Yes, we can definitely spend checks notes 150 trillion dollars on that. How do people keep making the exact same arithmetic mistake? And why are we expected to listen to people who can't do simple arithmetic? > Palihapitiya’s argument, basically, is: Let those businesses fail, but without layoffs, and let the rich stakeholders absorb the pain. > When a business typically fails, Palihapitiya said, “it does not fire their employees,” instead going though a bankruptcy process that often preserves pensions, and employees end up owning more of the company in the end. Sometimes bankruptcy works out the way he's describing. Sometimes the assets get sold for scrap and the workers are all out of a job. I'm less sanguine than this guy is that letting a whole bunch of companies fail all at once would be a windfall for workers (not to mention everyone else.) Mind you, I do think that equity holders should be taking a big hit. (That's what equity holders are for.) I just think the details would be a lot messier than he's imagining.
- infogulch 7y ago
  Matt Parker made a video that tries to explain how people keep getting this basic arithmetic completely wrong. https://youtu.be/6egeUxIEQnM https://youtu.be/6egeUxIEQnM
  - wmf 7y ago
    I think it's more likely that he's being provocative instead of getting the math wrong. If we're willing to print money and give it to people, where's the limit? What is the right amount?
- asdfasgasdgasdg 7y ago
  I know that inflation (exclusive of higher education and housing) has been pretty low for a while. But I feel pretty confident in saying that if you just airdropped $1M or so into each household, that would cause significant inflation in ~whatever~ people decided to spend the money on.
Proven 7y ago
The Fed mustn't be a charity (or criminal) organization. No free lunch for anyone. If you want to donate, do it yourself. Don't steal from others (by printing currency out of nothing).
Simulacra 7y ago
I would prefer my retirement savings are not wiped out.
- vkou 7y ago
  I would prefer my savings to not be inflated away to preserve the valuations of the zombie businesses in your retirement portfolio... But the fed seems to disagree with me in this, and will prop both those businesses, and their valuations up with a firehouse of money. At the expense of everyone who owns USD, of course.
- DanTheManPR 7y ago
  I would prefer not to be homeless and starving.
- downerending 7y ago
  This is an important point, and we need to realize that it's not just the rich guys (e.g., most of you) that will be hurt--most holders of retirement savings accounts are not rich. I've personally had my net worth zeroed (in a bad divorce). The effects are quite life-changing, and I think many would not survive it. If nothing else, you begin to wonder why--if it can all be so easily lost--you should bother to work at all. I do think the government "stay alive" payments are critical, and it looks like a lot more will be needed. But this is a very complex problem, and I distrust anyone who waves it away with a "simple" solution.
  - Ericson2314 7y ago
    Rather than making every American a wannabe financier, we should actually have a real safety net.
    - deleted 7y ago
      [deleted]
crazygringo 7y ago
It's a somewhat noble sentiment, but an absolutely terrible idea in practice. Letting large businesses (airlines etc.) go bankrupt isn't just a disaster for the rich -- it's a disaster for retirees who hold a majority of savings in equities (index funds etc.), as they've been told is the responsible thing to do. Don't throw the baby out with the bathwater -- or grandma out with the billionaires. We want to reduce inequality? Great. But do it in a targeted way, through taxation that takes into account people's income and overall wealth. Not in a blunt-instrument way that harms middle-class savers along with hedge funds. And not through letting a host of major corporations go bankrupt through zero fault of their management/board. (Remember, it's not like an airline can buy insurance against a months-long pandemic, nor are public companies supposed to retain unnecessary cash in times of profit -- the IRS virtually requires them to distribute it to shareholders either through dividends or buybacks.) EDIT (in response to comments): OK, I exaggerated a little -- retirees shouldn't be holding a majority of savings in stock. But since one common rule of thumb is to hold a percentage in equities that is 100 minus your age, a 70-year-old still has 30% in equities. And your 50-year-old saving up for retirement has half. The main point still stands: normal middle-class folks hold equities as a significant part of their savings. It's not just billionaires who own equities.
- throwaway6734 7y ago
  No retiree should hold a majority of their savings in equities
  - deleted 7y ago
    [deleted]
  - asdfasgasdgasdg 7y ago
    All depends on your spending flexibility, time horizon, etc. If you can comfortably drop to half of your steady state spending for a couple of years, or if you do something like a CD ladder, it can make sense to have >50% of your retirement assets in stock.
- lordnacho 7y ago
  Aren't retirees told that the sensible thing to do is to have a lot of bonds and relatively few equities? Also why hold your savings concentrated in a single company, even if you worked for it years ago?
logicslave 7y ago
The phrase is: "Privatize the profits, socialize the losses" As workers, we get the downside, but not the upside. We are peasants like all of those in times past. Only difference is standard of living is higher now, so we should be so happy to get the scraps.
cryptica 7y ago
The Fed should give every American $1 million and every other country should follow suit and turn all their citizens into USD-equivalent millionaires. That would create an exciting competitive economy! Think about the excitement of everyone having 1 million dollars and trying to figure out what they want to invest in!
- deleted 7y ago
  [deleted]
- _greim_ 7y ago
  I'll assume this is a joke but just for clarity, but that would be a total cash give-out by the government of this many dollars: 327,000,000,000,000 Notice all the zeroes in there. It's important that we as a species learn to take all those zeroes into account.
  - cryptica 7y ago
    I was kind of joking around. That said, I don't think it would create as much inflation as it may seem. A carton of milk would still cost about the same maybe only 2x the price? I think most of the money would end up in stocks, gambling, speculative investments, luxury goods and real estate (especially in big cities) so that's where the inflation would show up... Which is fine. So long as the cost of basic commodities don't explode, then we can afford it as a society.
e40 7y ago
Let's be honest, a billionaire getting "wiped out" means they will just be really rich compared to normal folks. Doesn't seem like a terrible thing. However, what normal folks will go through, that is truly scary.
throwaway_jobs 7y ago
Funny I did an “Ask HN” asking HNs opinion about this 14 days ago, it immediately got 19 upvotes/20 comments and then was flagged off the front page. https://news.ycombinator.com/item?id=22699520 https://news.ycombinator.com/item?id=22699520
- downerending 7y ago
  Got a lot more than that this time before being flagged.
pavlov 7y ago
Too many large American companies have no buffer because they've been distributing all their cash to shareholders as dividends and stock buybacks, all the while using credit to fund operations. When a rare risk materializes, sales suddenly stop and lenders get antsy, these companies find themselves in trouble. Their primary recourse should be to ask shareholders for money — that's where the cash was drained over the years, after all. If these businesses are so great, shouldn't shareholders be happy to buy newly issued stock at these prices? Yet I don't see anyone doing stock offerings. That seems like a sign that the whole thing is a house of cards: nobody actually has liquidity until Fed injects it into the system. Interestingly, there are two very different kind of companies that have been hoarding cash through the years. There's the SV giants (FAMAA collectively held $570 billion at the end of 2019), and then there are extremely conservative Japanese industrial companies. Some of these have enough cash to operate for decades with zero revenue.
jshaqaw 7y ago
If you want to see a true windfall for hedge funds and billionaires let every business in America fail simultaneously and see the sharpest and best positioned in finance scoop up assets in the BK process for pennies on the dollar. Distressed operators like Apollo etc... could only dream for a shot like that.

130 points by kensai 7y ago

To paraphrase... Planes, employees, and marketing power, for example, all outlive the bankruptcy. A bankruptcy wipes out speculators and what should be sophisticated investors. They can take it, and this is what they signed up for. The company that emergence from bankruptcy does so without the debt it had heading in.

itg 7y ago
Wouldn't 401k's and pensions also get wiped out?
- toomuchtodo 7y ago
  You can hack around that with policy. Think of SIPC insurance: in the event something crazy goes on with your brokerage, they step in and provide cash value of the equities at the time the insurable event took place. I've provided the below link as an example; ignore the limits, they would not be adhered to for my example due to extraordinary circumstances. Disclaimer: Huge fan of Chamath coming out and telling it how it is on CNBC. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
  - strictnein 7y ago
    So the government will step in and protect the upper 20%? That's the plan?
    - toomuchtodo 7y ago
      I think it’s reasonable to protect retirement assets if means tested, yes. It’d be an entirely different story if pensions hadn’t been gutted and everyone tossed to the wolves with 401ks over the last 40 years. If you want to wipe out retirement assets and top it up with social security instead, again means tested, that’d be a reasonable approach. But you can’t tell folks their only option is 401ks and to be diligent savers, and then burn them to the ground out of moral hazard. The goal is to wipe out investors to whom hundreds of millions of dollars means nothing to their quality of life.
      - deleted 7y ago
        [deleted]
      - strictnein 7y ago
        So if I've been working 40 years, have a strong 401k, and am doing fine now I should get my savings wiped out? You're arguing all sides now. I didn't propose a policy that would greatly harm retirement savings, you did. You proposed protecting 401ks with government backing. I stated that doing so would be a boon to the top 20% at the expense of everyone else.
        toomuchtodo 7y ago
        It seems I might not be communicating my thoughts on the topic coherently. My apologies! I felt that I have, but I think I’ll have to come back with a blog post instead of ad hoc thread comments. I appreciate the rebuttals for helping me refine my arguments! EDIT: /u/HarryHirsch's comment here [1] explains succinctly what I intended to explain but did so poorly. [1] https://news.ycombinator.com/item?id=22835580 https://news.ycombinator.com/item?id=22835580 ("You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.")
  - Schweigi 7y ago
    Actually SIPC doesn’t provide the cash value for equities. They provide you with the original shares which will be worthless if the company goes bankrupt. Its in the third paragraph of your link. Maybe it would be better to require retirement accounts to be invested in broad indexes to be eligible for a insure for a certain amount of money value. I don’t see how it could be done fairly on single stock base without having big discussions about what kind of events will be covered.
- deleted 7y ago
  [deleted]
- drtillberg 7y ago
  Pensions are Federally insured (PBGC). As for 401ks -- the custodians aren't at risk. So are you asking, "What if I make a bad investment in my 401k?". You lose money. Investing in a bankrupt company would be a bad investment.
  - wmf 7y ago
    More like "What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" At this point the bailouts have already been priced in for a decade and it isn't even politically possible to say "this will be the last bailout but next time there will be bankruptcy".
    - drtillberg 7y ago
      I think it would be interesting to see a tabulation of all the implied government guaranties compared to the practical limits of the government to generate money by "printing" dollars. The first category is practically unbounded and dynamic, I think. I wonder under what circumstances it could swamp the second category.
    - throwaway_USD 7y ago
      >"What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" Maybe it is time people paying into pensions and 401k's begin to understand they are scams enshrined in law to prop up the financial industry. Maybe if mainstreet stopped giving their money to wallstreet to mismanage in the first place there would be no need for future bailouts to begin with as wallstreet runs a muck with pension and 401k funds. These are the very same bankers who continued to buy toxic mortgages in 2008 with Client funds as the banks were selling off any positions they had in the very same assets.
    - asdff 7y ago
      Then you'd take a deep breath, pull up a chart from any other recession in history, and see that you and the market index will be back to where you were in 2-5 years. This would be a good time to buy, and average down your positions.
- HarryHirsch 7y ago
  You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.
- uskiwi 7y ago
  There's a slippery slope between "I saved hard and I don't want to lose the money I was recommended to invest in the stockmarket" and "I have a billion dollars in stock and I want to remain completely whole". It is possible to achieve the first without the second. You can have federal insurance (like FDIC/SIPC) that fades out rather than has a strict cutoff (you get 100% of the first 100k, 80% of the next 400k etc etc). There's some boundary where you "should" have been sophisticated and deserve to lose some money (probably near the point where you have a high end accountant look for deductions or are an accredited investor). Yes, this is "unfair" to people who had very high paying jobs. But it's easy to argue that the current tax code is also "unfair". It's a question of "how unfair, and unfair to whom" not "we need this to be completely fair / preserve the status quo".

lordnacho 7y ago

He's spot on. Equity risk is for people who want risk. Even risks they hadn't thought of like a virus shutting down the economy. Corporate bankruptcy is a reasonable way to redistribute claims, and we should use it. Not even every business in trouble will go under, a lot will simply be bought by someone wanting to take over the risk at a sensible price. No jobs need to be lost. I'm all in favour of bailing out real people though.

mrosett 7y ago
He's spot on that equity risk should actually have downside. But the idea that a whole bunch of massive corporations can fail and no jobs would be lost seems like a real stretch to me. In fact, it's strange to think that a company wouldn't have fewer employees coming out of bankruptcy if one of the causes was being overextended.
- lordnacho 7y ago
  Fair enough, but at any given company it's not the case that all the employees must lose their jobs. I worded that badly. Even so, the collapse is a signal that should not be ignored that the economy ought to be organised differently, basically some people should be doing other things than previously thought.
- chickenpotpie 7y ago
  Counterpoint, companies will learn not to overextend and we won't have to worry about job loss or bailouts the next time this happens
  - mewpmewp2 7y ago
    Counterpoint. We will have less innovation and tech advancement if companies will have to spend more to prepare for disasters like this virus. If new businesses have to do that then we will have a lot tougher barrier entry meaning old fish will prevail.
    - 7y ago

vorpalhex 7y ago

Title differs from source. Original title: "Fed should pay every American more, let hedge funds and billionaires ‘get wiped out,’ says Social Capital CEO"

strictnein 7y ago

I get that it's a clickbait headline, but he doesn't seem to be making any coherent point. Somehow billionaires, debt holders, etc will get wiped out, companies will go bankrupt and protect their employee pensions (what are those?), and then they will reemerge being partially owned by their employees. > "“It would be better for the Fed to have given half a million to every man, woman and child in the United States,” he said." What now? A $165 Trillion bailout?

enitihas 7y ago
Who needs math if you can appeal to emotions.
- viklove 7y ago
  I think you're the ones letting emotions get in your way. The whole point is to dilute the wealth in this country to bring million/billionaires down to the commoner's level. Then let society build its way back up, because you'll end up with something much different when the average American has the same purchasing power as the wealthiest American. Right now if you want to start a business, you have to get "approval" from a wealthy American in the form of an investment or loan. If you remove this "approval" process, you will end up with a true free marketplace of ideas, where everyone can try something out without needing to ask someone's permission first. More importantly, demand won't only be coming from the top down. Instead of billions of dollars going into acquisitions of valueless corporations like WeWork, billions will be spent on making American's lives better. A dollar is a coupon you can use to redeem for some amount of human productive output. Instead of letting 1% of society decide how we use this productive output, it should be a decision for all Americans to make (by spending dollars, which they haven't had the opportunity to do in the last 2 decades).
totalZero 7y ago
The number is off, but it doesn't matter. I think he was being hyperbolical, but we can consider the idea of bailout to people vs bailout to corporations anyway. Give each family 60k, and you cover them for a year at the same cost of the bailout that actually occurred. In that scenario.... Groceries get bought. Bills get paid. Essential businesses make money, which means they get compensated for being useful. That's a good thing. Elderly employees who don't feel comfortable working, can quit their jobs. We have grown so accustomed to rampant corporate feudalism that it almost feels un-American to question the collapse of companies that are not essential to the health and well-being of our citizens or our government. It feels wrong to allow the financial losses of a billionaire who knowingly bought a risk asset, only because we have been told for years that normal people need billionaires to create our jobs for us. Let them take it in the face for once. Risks have a downside factor. We shouldn't eliminate that just because rich people want to maintain their riches.

mrosett 7y ago

> But Palihapitiya argued that rather giving workers relatively small $1,200 checks, the U.S. would be better off giving everyone larger payments directly, and skip businesses entirely. > “It would be better for the Fed to have given half a million to every man, woman and child in the United States,” he said. Yes, we can definitely spend checks notes 150 trillion dollars on that. How do people keep making the exact same arithmetic mistake? And why are we expected to listen to people who can't do simple arithmetic? > Palihapitiya’s argument, basically, is: Let those businesses fail, but without layoffs, and let the rich stakeholders absorb the pain. > When a business typically fails, Palihapitiya said, “it does not fire their employees,” instead going though a bankruptcy process that often preserves pensions, and employees end up owning more of the company in the end. Sometimes bankruptcy works out the way he's describing. Sometimes the assets get sold for scrap and the workers are all out of a job. I'm less sanguine than this guy is that letting a whole bunch of companies fail all at once would be a windfall for workers (not to mention everyone else.) Mind you, I do think that equity holders should be taking a big hit. (That's what equity holders are for.) I just think the details would be a lot messier than he's imagining.

infogulch 7y ago
Matt Parker made a video that tries to explain how people keep getting this basic arithmetic completely wrong. https://youtu.be/6egeUxIEQnM https://youtu.be/6egeUxIEQnM
- wmf 7y ago
  I think it's more likely that he's being provocative instead of getting the math wrong. If we're willing to print money and give it to people, where's the limit? What is the right amount?
asdfasgasdgasdg 7y ago
I know that inflation (exclusive of higher education and housing) has been pretty low for a while. But I feel pretty confident in saying that if you just airdropped $1M or so into each household, that would cause significant inflation in ~whatever~ people decided to spend the money on.

Proven 7y ago

The Fed mustn't be a charity (or criminal) organization. No free lunch for anyone. If you want to donate, do it yourself. Don't steal from others (by printing currency out of nothing).

Simulacra 7y ago

I would prefer my retirement savings are not wiped out.

vkou 7y ago
I would prefer my savings to not be inflated away to preserve the valuations of the zombie businesses in your retirement portfolio... But the fed seems to disagree with me in this, and will prop both those businesses, and their valuations up with a firehouse of money. At the expense of everyone who owns USD, of course.
DanTheManPR 7y ago
I would prefer not to be homeless and starving.
downerending 7y ago
This is an important point, and we need to realize that it's not just the rich guys (e.g., most of you) that will be hurt--most holders of retirement savings accounts are not rich. I've personally had my net worth zeroed (in a bad divorce). The effects are quite life-changing, and I think many would not survive it. If nothing else, you begin to wonder why--if it can all be so easily lost--you should bother to work at all. I do think the government "stay alive" payments are critical, and it looks like a lot more will be needed. But this is a very complex problem, and I distrust anyone who waves it away with a "simple" solution.
- Ericson2314 7y ago
  Rather than making every American a wannabe financier, we should actually have a real safety net.
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crazygringo 7y ago

It's a somewhat noble sentiment, but an absolutely terrible idea in practice. Letting large businesses (airlines etc.) go bankrupt isn't just a disaster for the rich -- it's a disaster for retirees who hold a majority of savings in equities (index funds etc.), as they've been told is the responsible thing to do. Don't throw the baby out with the bathwater -- or grandma out with the billionaires. We want to reduce inequality? Great. But do it in a targeted way, through taxation that takes into account people's income and overall wealth. Not in a blunt-instrument way that harms middle-class savers along with hedge funds. And not through letting a host of major corporations go bankrupt through zero fault of their management/board. (Remember, it's not like an airline can buy insurance against a months-long pandemic, nor are public companies supposed to retain unnecessary cash in times of profit -- the IRS virtually requires them to distribute it to shareholders either through dividends or buybacks.) EDIT (in response to comments): OK, I exaggerated a little -- retirees shouldn't be holding a majority of savings in stock. But since one common rule of thumb is to hold a percentage in equities that is 100 minus your age, a 70-year-old still has 30% in equities. And your 50-year-old saving up for retirement has half. The main point still stands: normal middle-class folks hold equities as a significant part of their savings. It's not just billionaires who own equities.

throwaway6734 7y ago
No retiree should hold a majority of their savings in equities
- deleted 7y ago
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- asdfasgasdgasdg 7y ago
  All depends on your spending flexibility, time horizon, etc. If you can comfortably drop to half of your steady state spending for a couple of years, or if you do something like a CD ladder, it can make sense to have >50% of your retirement assets in stock.
lordnacho 7y ago
Aren't retirees told that the sensible thing to do is to have a lot of bonds and relatively few equities? Also why hold your savings concentrated in a single company, even if you worked for it years ago?

logicslave 7y ago

The phrase is: "Privatize the profits, socialize the losses" As workers, we get the downside, but not the upside. We are peasants like all of those in times past. Only difference is standard of living is higher now, so we should be so happy to get the scraps.

cryptica 7y ago

The Fed should give every American $1 million and every other country should follow suit and turn all their citizens into USD-equivalent millionaires. That would create an exciting competitive economy! Think about the excitement of everyone having 1 million dollars and trying to figure out what they want to invest in!

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_greim_ 7y ago
I'll assume this is a joke but just for clarity, but that would be a total cash give-out by the government of this many dollars: 327,000,000,000,000 Notice all the zeroes in there. It's important that we as a species learn to take all those zeroes into account.
- cryptica 7y ago
  I was kind of joking around. That said, I don't think it would create as much inflation as it may seem. A carton of milk would still cost about the same maybe only 2x the price? I think most of the money would end up in stocks, gambling, speculative investments, luxury goods and real estate (especially in big cities) so that's where the inflation would show up... Which is fine. So long as the cost of basic commodities don't explode, then we can afford it as a society.

e40 7y ago

Let's be honest, a billionaire getting "wiped out" means they will just be really rich compared to normal folks. Doesn't seem like a terrible thing. However, what normal folks will go through, that is truly scary.

throwaway_jobs 7y ago

Funny I did an “Ask HN” asking HNs opinion about this 14 days ago, it immediately got 19 upvotes/20 comments and then was flagged off the front page. https://news.ycombinator.com/item?id=22699520 https://news.ycombinator.com/item?id=22699520

downerending 7y ago
Got a lot more than that this time before being flagged.

pavlov 7y ago

Too many large American companies have no buffer because they've been distributing all their cash to shareholders as dividends and stock buybacks, all the while using credit to fund operations. When a rare risk materializes, sales suddenly stop and lenders get antsy, these companies find themselves in trouble. Their primary recourse should be to ask shareholders for money — that's where the cash was drained over the years, after all. If these businesses are so great, shouldn't shareholders be happy to buy newly issued stock at these prices? Yet I don't see anyone doing stock offerings. That seems like a sign that the whole thing is a house of cards: nobody actually has liquidity until Fed injects it into the system. Interestingly, there are two very different kind of companies that have been hoarding cash through the years. There's the SV giants (FAMAA collectively held $570 billion at the end of 2019), and then there are extremely conservative Japanese industrial companies. Some of these have enough cash to operate for decades with zero revenue.

jshaqaw 7y ago

If you want to see a true windfall for hedge funds and billionaires let every business in America fail simultaneously and see the sharpest and best positioned in finance scoop up assets in the BK process for pennies on the dollar. Distressed operators like Apollo etc... could only dream for a shot like that.