12 ms·

Seen everywhere in last U.S. crisis, moral hazard is nowhere in this one

114 points by jameslk 7y ago

Ancalagon 7y ago
Looks like these reporters have missed the entirety of reddit, there is plenty of criticism there, from what I’m assuming amounts to thousands or millions of people.
- amiantos 7y ago
  The article seems to be about how the political response from conservatives seems to be muted, making the point that all their talk about small government, no regulation, and the evils of socialism appear to vanish the moment the people who need government assistance are millionaires and not common folk.
  - armada651 7y ago
    While I definitely don't make a habit of defending conservatives, when they were concerned about the fed "picking winnners" the winners the fed picked were generally the millionaires.
    - AnimalMuppet 7y ago
      But if the government picks winners, they might pick the wrong millionaires, instead of "all millionaires".
  - Ididntdothis 7y ago
    It's always fun to imagine how partisan people would react if the other side was in power, said the same things and did the same things in the same situation. Their reaction would be very different.
Apes 7y ago
This article is no way reflects reality. There's a reason the "money printer go brrr" meme is blowing up. There is already significant outrage about the moral hazard of what's being done by the fed, and the sentiment is growing. This article reeks so badly of blantently trying to control the narrative to the advantage of the elite that it's disgusting. Rather than let companies that made shitty decisions die and let capitalism operate, we're creating a horde of zombie companies that are going to plague our economy for decades. Welcome to the beginning of the lost decades. With these policies, it's going to decades before we see any true economic growth in the US.
- caseysoftware 7y ago
  100% agree with everything except that this is the "beginning" - I think we're a couple iterations in already. It's just so widespread and deeper than before that people are seeing it more. 0% interest rates are purely to encourage consumption now instead of later. But unfortunately, the bill always - usually? - comes due. Unfortunately, most of the common indicators, signs, and metrics are detached from each other. Maybe they always were (Keynes vs Hayek) but now they're going opposite of where "common sense" says they should.
- mindslight 7y ago
  Who needs economic growth when we can just lower interest rates to make The Line keep going up? It's been working over the past few decades...
  - cvlasdkv 7y ago
    In a sense if we can collectively agree that the future will be better... we're all fine. We are in a crisis but there is really no reason that if the world stopped improving _today_ we would not be fine as a species. Good, even, if we redistributed wealth from hoarders. Alas, said hoarders are the ones who make everyone else believe that The Line means more than anything else.
- deusexepsilon 7y ago
  I was in the front row this week talking about the growing resistance to the US government. That's the most powerful time in recent years, an hour. It's a "answer," people who have already died because they're paid don't die. They put the lives of millions of other people on their books, and they're just taking their money to buy the goods. My dad was a retired lawyer who spent the decade of 1995 caring for elderly retirees who need help. My mom, now 75, and her husband had their hearts broken out in the way as they tried to save a little money.
pandesmos 7y ago
I don’t understand this stuff. Politicians have directly ordered closures. If your bottom falls out from under you because you were playing fast and loose that seems inherently different than being told from above “you just cease your main method of generating revenue until we tell you otherwise.”
- anonuser123456 7y ago
  You're asking me,(general tax payer) to give you money to ride out the storm, but you get all the private gains in the future while I take the risk now. There is a much more fair way to do this. Firms simply issue new stock and sell it to the market. Firms get the capital they need, the general tax payer isn't holding the bag.
  - throwawaysea 7y ago
    GP is making the point that in this case, the government caused the insolvency of these businesses in significant part through authoritarian closures, not through the irresponsibility of those running the business. Therefore the government (taxpayers) owe them recompense to make them whole.
    - anonuser123456 7y ago
      A virus is no more the governments fault than an asteroid. The shutdown is consequence of the disaster, not a cause. Economic activity would decline substantially regardless of government action.
      - twblalock 7y ago
        The shutdown is the government’s fault, period. The damage it is causing is far worse than what would have happened if the government had started taking action in January and ramped up testing capacity. Instead the government did close to nothing and now the lockdowns are the last resort. Other countries handled this better. South Korea and Taiwan are good examples of countries that ramped up testing and did not need to shut down society. Shutdowns are not inevitable. They are a result of government failure, and the government should compensate businesses that it orders to shut down.
the-dude 7y ago
In The Netherlands, our government reserved a special € 100 million for startups, because they are not eligible for the normal relief program because these startups have no revenue and "their succes is measured differently". In the grand scheme of things, € 100 million is peanuts of course. Still I found it baffling. I should also mention these are loans, but if the startups fail the government is still holding the bag.
- lowdose 7y ago
  There is no default in the Netherlands, so the entrepreneur is always holding the bag.
  - luckylion 7y ago
    They do have limited liability companies, why would the owners be liable for loans to the company if the company goes bankrupt?
  - stdbrouw 7y ago
    There is. https://business.gov.nl/starting-your-business/choosing-a-business-structure/private-limited-company-in-the-netherlands/ https://business.gov.nl/starting-your-business/choosing-a-bu...
throwaway13337 7y ago
There seems to be little talk about it on main stream media but it doesn't feel like that's the general sentiment. The narrative has been mostly contained. It's scary times, really.
wtvanhest 7y ago
The biggest moral hazard is in colleges. The boards of colleges justified higher expense structures in the name of trying to win a zero sum rankings game. The best case for them is a lot of people wondering why they are paying $30k a year to watch online lectures while inflation wipes out the debt. The worst case for schools is a total restructure due to lower revenue and donations due to students unwilling to overpay to sit at home and alumni not having the funds. The future is no college degree at all.
- AnimalMuppet 7y ago
  I think the future is a series of online courses that have objective pass-fail, and somebody with recognized authority to issue degrees in X if you pass X's set of courses. And it's cheap - maybe $100 per class. And there's different classes competing to be in the set for X, and there's competing outfits with the authority to issue degrees.
  - throwawayjava 7y ago
    Everything that you just listed is basically how our current system works. Accredited institutions can issue degrees if you pass their courses. There are various "grades" that bucket people, but as far as getting the degree goes, you just need to pass. Grading is at least ostensibly objective. Admissions to accredited institutions is selective, and colleges compete with one another for students. The only two differences are price per class and "objective grading". The former amounts to "what if we had our current system, except everything were cheaper". Which, I guess I have to admit, would indeed be nice. It'd be nice if healthcare and cars and real estate were cheaper as well. Not sure how to actually do it, though. And for the latter, we've done that in K12 (standardized tests). Almost everyone seems to agree it's a terrible system.
    - AnimalMuppet 7y ago
      OK, let me try again. I'm the accrediting institution. For my degree in physics, you have to pass this online class on electrodynamics from MIT, because it's the best one there is. And you have to pass this other online class from Caltech on special relativity, because it's the best there is on that. And so on. The "accrediting institution" doesn't need to own any of the course content. It can take the best of the online courses that are available. And the online stuff that's available tends to be the best of the available lecturers. That's why it could be less expensive. You don't have to have classrooms. You don't have to pay the lecturers' salaries (though you do have to pay license fees on the video). You have to have a very small amount of administration, and you have to write and administer tests that show whether the student actually knows the material. Western Governors University already runs on something like this model, except that I believe that they use their own content instead of the best available online content, and they only have a limited set of majors. And, I didn't say "standardized tests". The tests would probably belong to the accrediting institution. But there need to be tests, so that they can tell that you actually learned something, instead of just sitting through the videos watching something else on your phone.
davidxc 7y ago
The statement about the lack of inflation from QE and other stimulus programs from 2008 is pretty questionable. There's been little inflation as measured using usual consumer price indices, but the construction of those indices is typically fairly focused on consumer goods and underweights the assets that rich people tend to invest in (stocks, real estate, bonds, etc). The QE and stimulus programs from 2008 were significantly more targeted toward the upper and upper-middle classes (arguably without that much trickle-down), and so there wouldn't be much significant inflation as measured by consumer price indices. But if we look at the assets that rich people invest in (since it's mostly wealthier people who benefited from the 2008 stimulus programs), then I'd say there's been a significant amount of inflation - P/E ratios for stocks have been historically high in the last few years, real estate in desirable cities has gotten significantly more expensive, and bond yields have been low. We seem to be already seeing some of the same, with the stock market being pushed up by the Fed's commitment to 4T+ in stimulus this time around and ever lower interest rates.
- grey-area 7y ago
  We're about to find out what global QE to infinity does. I'd expect more events like the recent boom in stock prices in spite of massive global unemployment and the wave of unrest nicknamed the Arab spring which came after 2008 and had origins in economic disruption. Revolutions often come after the unbearable has passed. Even if we quickly overcome the virus the global economic impact of the lockdown and QE will be severe and long lasting. It's quite possible that due to QE/stimulus none of that will show up in stock prices and they will shoot up, boosting inequality again.
  - api 7y ago
    Based on past experience post-dot-com-bust-bailout and post-2008-bailout: Prepare for the $1.5M starter home financed by an 0.08% interest 90 year no money down mortgage, $800k student loans at 0% interest, and business lines of credit at 2% to any business that has shown any revenue at all in the last month and that can produce one mammal capable of fogging glass. Any mammal with provable respiration will be able to get a car loan and a credit card. Go long on real estate, stocks, bonds, Bitcoin, Litecoin, Dogecoin, all the shitcoins that don't even work, gold, oil, cow farts, and pogo stick futures. Expect more monstrously overfunded "unicorn" startups that lose massive amounts of money and produce very little. These are basically Ponzi schemes targeting the very rich and venture funds. Wages however will continue to stagnate. Everything always goes up but wages. As a result of wage stagnation in 2024 or 2028 another even more asinine Populist than Trump will be elected; whether they are "right-wing" or "left-wing" will depend on which side is able to produce a louder demagogue and better memes. Meanwhile the rich will build orbital bases and prepare to leave the planet.
devit 7y ago
Well, not really: bailouts punish people and business who incurred costs to operate in a way that would allow them to pause their economic activity for months (cancellable supply/rent/employment contracts, cash reserves, etc.), and favors those who did not do so. In general, a society where it is possible to pause all economic activity at any time is going to be much more robust than one that doesn't, and is going to reduce the impact of an apocalyptic event that the government cannot bail the society out of, possibly avoiding human extinction in the most severe cases. For instance, if everyone stores several years worth of food and water at home, then even the most catastrophic events are much less likely to kill the vast majority of people in the world. So, there is a moral hazard, and it may be wise to either minimize the bailouts or to make such resilience mandatory.
- twblalock 7y ago
  Businesses were never expected to be able to totally shut down for months at a time. It’s not reasonable to suggest that businesses who can’t handle that have been irresponsible or are less deserving of help.
  - unethical_ban 7y ago
    To say that those who can't handle it are not less responsible, is to say that those in the same industry who can handle it are not more responsible. I understand your point, that this is a major extreme that people don't tend to plan for, and for small businesses, I don't fault them at all. There is less sympathy for larger organizations like airlines who have (or should have) at least one full time team of people who prepare for all kinds of logistical scenarios: War/hostilities between nations, fuel shortages, pandemics, a broken supply chain of repair parts, green new deal legislation, the list goes on. So not only should larger organizations have been mindful that this kind of thing could happen, their cavalier use of cash on hand to inflate their imaginary value (stock price) should mean any help they get is tied to government stock in the company, a ban on stock buybacks, etc.
    - gerdesj 7y ago
deleted 7y ago
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colonelanguz 7y ago
This was incredibly frustrating to read because, intentionally or not, it perpetuates and normalizes the actual moral hazard of this crisis. It conflates the correct notion that if the government is forcing people not to work, it should make sure they don't starve to death, with the false notion that, in a capitalist society, businesses who were so balance sheet reckless that they couldn't last a month without government loans ought to be bailed out simply because it's "not their fault" that an economic crisis exposed their irresponsible planning. That's not how capitalism works; the weakest companies should be allowed to fail. The government can still lend to keep their workers alive, but what it's really doing in this crisis is keeping their stock price alive, which overwhelmingly benefits corporate insiders and rich people who own stocks. That's the opposite of how the corporate form is supposed to work—equityholders get all of the upside on a sunny day, so they're entitled to ZERO protection on a rainy day. It's risky to buy stock. Buy bonds if you don't want to shoulder risk. The most frustrating thing to me is that the same companies who are asking for buyouts could have simply held excess cash, or raised their employees' wages, or invested in profitable assets—all things you expect companies to do under capitalism! But instead, they invested in stock buybacks, which means literally spending retained earnings on inflating their own stock price. Apple is a classic example: earnings has actually been flat since like 2015, but earnings per share has gone up because Apple has bought back $250B of its own stock in the last eight years or so. But at least Apple is solvent! The airlines, for example, are asking for a bailout in almost exactly the same amount that they have spent on stock buybacks in the last several years. It frustrates.
- macintux 7y ago
  I don’t think the problem is “a month” of inactivity, although clearly there are no shortage of people and businesses who can’t survive even that. The real problem is that we’re a month in and there’s no genuine end in sight, optimistic politicians notwithstanding. The actual end of the crisis could be two months away or two years.
  - colonelanguz 7y ago
    That's a fair point. It doesn't make me feel any differently about the proposition that, in a society that preaches values like rugged individualism and fiscal responsibility to its poorest members, it's strange to me that 99% of the government's per capita expenditures are going to places other than the people. Literally 99%. And by blindly subsidizing every single business, including like hedge funds and other speculators who partially caused the liquidity crisis, the government in sowing the seeds for the next meltdown and disguising insolvent firms as economically viable ones. All of which is bad for society and the economy.
vfclists 7y ago
The moral hazard overlooked here is the fact US govt policy being dictated by congressmen, hedge fund managers and "investment" bankers who see it terms how they can profit from a long bull run, and profits to made from shares in the companies who have quasi-monopolies on the the products that will eventually "save" us from coronavirus. And the fact that you can't expect a health system run for profit to prepare properly for a pandemic which may never happen. By the time the products ordered for the crisis have been delivered the crisis will be over, and whether they will be stored in preparation for another pandemic is questionable.
crazygringo 7y ago
I see so much talk here on about how companies should be left to go bankrupt because of their "shitty decisions", that "the weakest companies should be allowed to fail", and "shareholders have to hold the bag" (all from comments here). This fundamentally misunderstands how businesses work. If your business has a 5% profit margin, and you're supposed to have enough savings to weather, say, six months of essentially full fixed costs but zero revenue... that means you would need to save a full ten years of profits before ever returning them to shareholders, and if your company is less than ten years old, goodbye. That's ludicrous. It's also against the "accumulated earnings tax", where the IRS virtually requires companies to return their earnings to shareholders (via dividends/buybacks) yearly, because they're financially penalized otherwise. Good management teams aren't supposed to save for pandemics. It's not normal business. Companies in general are unable to buy insurance against it (because there's no insurance company with enough money to pay out). Capitalism is about weeding out the better companies from the worse -- not ones that are arbitrarily more or less hit by an unpredictable global catastrophe. Letting swathes of companies go bankrupt through zero fault of their own is economic disaster, and neither is there anything remotely fair or capitalistic about it whatsoever.
- Apes 7y ago
  I find your implied assumption that starting a company should in normal circumstances be seen as a get rich scheme that pays out in under 10 years as completely toxic, but that's an aside. The point is large companies shouldn't be hurting for money, they have two big options on the table to generate money right now: issue stock or bonds. However, there are a lot of really stupid large companies that decided to max out their credit cards in the good times to pump up their stock price via buy backs. They can't issue bonds, but they could still issue stock. However, that would cause the price to crash, and Trumperino in Chief can't allow that to happen.
  - lazerpants 7y ago
    Of course, the Fed is implicitly at fault here too for keeping interest rates too low for too long. They tacitly encouraged borrowing with low rates. If rates had been higher, companies would be thrilled about lowering rates due to covid and would start to issue bonds.
chewz 7y ago
> “Colonel Cargill was so awful a marketing executive that his services were much sought after by firms eager to establish losses for tax purposes. His prices were high, for failure often did not come easily. He had to start at the top and work his way down, and with sympathetic friends in Washington, losing money was no simple matter. It took months of hard work and careful misplanning. A person misplaced, disorganized, miscalculated, overlooked everything and open every loophole, and just when he thought he had it made, the government gave him a lake or a forest or an oilfield and spoiled everything. Even with such handicaps, Colonel Cargill could be relied on to run the most prosperous enterprise into the ground. He was a self-made man who owed his lack of success to nobody.” Catch-22
- pjmorris 7y ago
  Thank you. It's been too long since I read this, putting it in the 'to read' pile.
deleted 7y ago
[deleted]
KKKKkkkk1 7y ago
People are undertaking sacrifices for the common good. We need to make them whole. To the extent we have the ability to make them whole we should be doing that as a society,” Powell said. “They didn’t cause this. Their business isn’t closed because of anything they did wrong. They didn’t lose their job because of anything they did wrong.” Why is it important if anyone did anything wrong or not? The world is experiencing a massive calamity and a lot of wealth is being destroyed. It's not obvious that you can make everyone whole without causing unintended consequences.
- LatteLazy 7y ago
  It matters because after this crisis, in a few months time, we want them to go back to doing what they did before. You want people to go right back to opening businesses and getting jobs and buying houses, as quickly and enthusiastically as possible. More so if we can manage it. That's what prevents a crisis from becoming a depression.
- Proven 7y ago
  Correct. The man premise of the article is there has been no moral hazard prior to this crisis. That's bollocks. Companies spent billions buying back shares counting on the Fed to save them, millennials gorged on student loans counting on debt forgiveness, etc. Virtually no one deleveraged from 2008.
skat20phys 7y ago
I'd argue that's in part because of the protection racket that's partially at the heart of the moral hazard: the poor regulation of healthcare services, at least in the US. What this should be laying bare is the failure of federal regulation, how this got in the way at a critical moment, and when it was too late, things only got better when they got out of the way. Or what about a healthcare system oriented toward protecting the hospitals, those at the top of a hierarchy, the rent seeking, and so forth, rather than oriented toward public health? What about an artificial reduction in the number of providers to increase their salaries, a lack of competition in provider models and delivery of services? There was a Slate article about how one side-effect of the pandemic is how much it has exposed bullshit everywhere, how easily so many rules are set aside when the cards are on the table. Some of this is happening now with healthcare, but few are asking what else could have been different, other than single payer care. To me this all feels like some kind of abuser-victim relationship, where people are subject to some broken system, and then when things go wrong and are failed, they're made to be dependent on their broken system and start cheering it on. I realize this all sounds bleak but to me there are so many things that could have been avoided, from the highest levels of the government all the way down, and there seems to be little introspection about this. Instead we just blame the virus, rather than what caused our systems to be so vulnerable in the first place.
- cvlasdkv 7y ago
  I agree with criticism of governments in these instances but in order to be more thoughtful we should be critical of _how_ the governments ended up in this state. In other words: I do not think that the government (as a concept) is the issue here. I think that the current (and decades past) American government is the issue. They are 100% corrupt and culpable but it is not inherent to every government. Note: I am NOT saying you are ignoring what I've said above. I have just seen many people make poor generalizations about government because of their experience with the American government's inability to prioritize citizens over the networth of the elite.

114 points by jameslk 7y ago

Looks like these reporters have missed the entirety of reddit, there is plenty of criticism there, from what I’m assuming amounts to thousands or millions of people.

amiantos 7y ago
The article seems to be about how the political response from conservatives seems to be muted, making the point that all their talk about small government, no regulation, and the evils of socialism appear to vanish the moment the people who need government assistance are millionaires and not common folk.
- armada651 7y ago
  While I definitely don't make a habit of defending conservatives, when they were concerned about the fed "picking winnners" the winners the fed picked were generally the millionaires.
  - AnimalMuppet 7y ago
    But if the government picks winners, they might pick the wrong millionaires, instead of "all millionaires".
- Ididntdothis 7y ago
  It's always fun to imagine how partisan people would react if the other side was in power, said the same things and did the same things in the same situation. Their reaction would be very different.

Apes 7y ago

This article is no way reflects reality. There's a reason the "money printer go brrr" meme is blowing up. There is already significant outrage about the moral hazard of what's being done by the fed, and the sentiment is growing. This article reeks so badly of blantently trying to control the narrative to the advantage of the elite that it's disgusting. Rather than let companies that made shitty decisions die and let capitalism operate, we're creating a horde of zombie companies that are going to plague our economy for decades. Welcome to the beginning of the lost decades. With these policies, it's going to decades before we see any true economic growth in the US.

caseysoftware 7y ago
100% agree with everything except that this is the "beginning" - I think we're a couple iterations in already. It's just so widespread and deeper than before that people are seeing it more. 0% interest rates are purely to encourage consumption now instead of later. But unfortunately, the bill always - usually? - comes due. Unfortunately, most of the common indicators, signs, and metrics are detached from each other. Maybe they always were (Keynes vs Hayek) but now they're going opposite of where "common sense" says they should.
mindslight 7y ago
Who needs economic growth when we can just lower interest rates to make The Line keep going up? It's been working over the past few decades...
- cvlasdkv 7y ago
  In a sense if we can collectively agree that the future will be better... we're all fine. We are in a crisis but there is really no reason that if the world stopped improving _today_ we would not be fine as a species. Good, even, if we redistributed wealth from hoarders. Alas, said hoarders are the ones who make everyone else believe that The Line means more than anything else.
deusexepsilon 7y ago
I was in the front row this week talking about the growing resistance to the US government. That's the most powerful time in recent years, an hour. It's a "answer," people who have already died because they're paid don't die. They put the lives of millions of other people on their books, and they're just taking their money to buy the goods. My dad was a retired lawyer who spent the decade of 1995 caring for elderly retirees who need help. My mom, now 75, and her husband had their hearts broken out in the way as they tried to save a little money.

pandesmos 7y ago

I don’t understand this stuff. Politicians have directly ordered closures. If your bottom falls out from under you because you were playing fast and loose that seems inherently different than being told from above “you just cease your main method of generating revenue until we tell you otherwise.”

anonuser123456 7y ago
You're asking me,(general tax payer) to give you money to ride out the storm, but you get all the private gains in the future while I take the risk now. There is a much more fair way to do this. Firms simply issue new stock and sell it to the market. Firms get the capital they need, the general tax payer isn't holding the bag.
- throwawaysea 7y ago
  GP is making the point that in this case, the government caused the insolvency of these businesses in significant part through authoritarian closures, not through the irresponsibility of those running the business. Therefore the government (taxpayers) owe them recompense to make them whole.
  - anonuser123456 7y ago
    A virus is no more the governments fault than an asteroid. The shutdown is consequence of the disaster, not a cause. Economic activity would decline substantially regardless of government action.
    - twblalock 7y ago
      The shutdown is the government’s fault, period. The damage it is causing is far worse than what would have happened if the government had started taking action in January and ramped up testing capacity. Instead the government did close to nothing and now the lockdowns are the last resort. Other countries handled this better. South Korea and Taiwan are good examples of countries that ramped up testing and did not need to shut down society. Shutdowns are not inevitable. They are a result of government failure, and the government should compensate businesses that it orders to shut down.

the-dude 7y ago

In The Netherlands, our government reserved a special € 100 million for startups, because they are not eligible for the normal relief program because these startups have no revenue and "their succes is measured differently". In the grand scheme of things, € 100 million is peanuts of course. Still I found it baffling. I should also mention these are loans, but if the startups fail the government is still holding the bag.

lowdose 7y ago
There is no default in the Netherlands, so the entrepreneur is always holding the bag.
- luckylion 7y ago
  They do have limited liability companies, why would the owners be liable for loans to the company if the company goes bankrupt?
- stdbrouw 7y ago
  There is. https://business.gov.nl/starting-your-business/choosing-a-business-structure/private-limited-company-in-the-netherlands/ https://business.gov.nl/starting-your-business/choosing-a-bu...

throwaway13337 7y ago

There seems to be little talk about it on main stream media but it doesn't feel like that's the general sentiment. The narrative has been mostly contained. It's scary times, really.

wtvanhest 7y ago

The biggest moral hazard is in colleges. The boards of colleges justified higher expense structures in the name of trying to win a zero sum rankings game. The best case for them is a lot of people wondering why they are paying $30k a year to watch online lectures while inflation wipes out the debt. The worst case for schools is a total restructure due to lower revenue and donations due to students unwilling to overpay to sit at home and alumni not having the funds. The future is no college degree at all.

AnimalMuppet 7y ago
I think the future is a series of online courses that have objective pass-fail, and somebody with recognized authority to issue degrees in X if you pass X's set of courses. And it's cheap - maybe $100 per class. And there's different classes competing to be in the set for X, and there's competing outfits with the authority to issue degrees.
- throwawayjava 7y ago
  Everything that you just listed is basically how our current system works. Accredited institutions can issue degrees if you pass their courses. There are various "grades" that bucket people, but as far as getting the degree goes, you just need to pass. Grading is at least ostensibly objective. Admissions to accredited institutions is selective, and colleges compete with one another for students. The only two differences are price per class and "objective grading". The former amounts to "what if we had our current system, except everything were cheaper". Which, I guess I have to admit, would indeed be nice. It'd be nice if healthcare and cars and real estate were cheaper as well. Not sure how to actually do it, though. And for the latter, we've done that in K12 (standardized tests). Almost everyone seems to agree it's a terrible system.
  - AnimalMuppet 7y ago
    OK, let me try again. I'm the accrediting institution. For my degree in physics, you have to pass this online class on electrodynamics from MIT, because it's the best one there is. And you have to pass this other online class from Caltech on special relativity, because it's the best there is on that. And so on. The "accrediting institution" doesn't need to own any of the course content. It can take the best of the online courses that are available. And the online stuff that's available tends to be the best of the available lecturers. That's why it could be less expensive. You don't have to have classrooms. You don't have to pay the lecturers' salaries (though you do have to pay license fees on the video). You have to have a very small amount of administration, and you have to write and administer tests that show whether the student actually knows the material. Western Governors University already runs on something like this model, except that I believe that they use their own content instead of the best available online content, and they only have a limited set of majors. And, I didn't say "standardized tests". The tests would probably belong to the accrediting institution. But there need to be tests, so that they can tell that you actually learned something, instead of just sitting through the videos watching something else on your phone.

davidxc 7y ago

The statement about the lack of inflation from QE and other stimulus programs from 2008 is pretty questionable. There's been little inflation as measured using usual consumer price indices, but the construction of those indices is typically fairly focused on consumer goods and underweights the assets that rich people tend to invest in (stocks, real estate, bonds, etc). The QE and stimulus programs from 2008 were significantly more targeted toward the upper and upper-middle classes (arguably without that much trickle-down), and so there wouldn't be much significant inflation as measured by consumer price indices. But if we look at the assets that rich people invest in (since it's mostly wealthier people who benefited from the 2008 stimulus programs), then I'd say there's been a significant amount of inflation - P/E ratios for stocks have been historically high in the last few years, real estate in desirable cities has gotten significantly more expensive, and bond yields have been low. We seem to be already seeing some of the same, with the stock market being pushed up by the Fed's commitment to 4T+ in stimulus this time around and ever lower interest rates.

grey-area 7y ago
We're about to find out what global QE to infinity does. I'd expect more events like the recent boom in stock prices in spite of massive global unemployment and the wave of unrest nicknamed the Arab spring which came after 2008 and had origins in economic disruption. Revolutions often come after the unbearable has passed. Even if we quickly overcome the virus the global economic impact of the lockdown and QE will be severe and long lasting. It's quite possible that due to QE/stimulus none of that will show up in stock prices and they will shoot up, boosting inequality again.
- api 7y ago
  Based on past experience post-dot-com-bust-bailout and post-2008-bailout: Prepare for the $1.5M starter home financed by an 0.08% interest 90 year no money down mortgage, $800k student loans at 0% interest, and business lines of credit at 2% to any business that has shown any revenue at all in the last month and that can produce one mammal capable of fogging glass. Any mammal with provable respiration will be able to get a car loan and a credit card. Go long on real estate, stocks, bonds, Bitcoin, Litecoin, Dogecoin, all the shitcoins that don't even work, gold, oil, cow farts, and pogo stick futures. Expect more monstrously overfunded "unicorn" startups that lose massive amounts of money and produce very little. These are basically Ponzi schemes targeting the very rich and venture funds. Wages however will continue to stagnate. Everything always goes up but wages. As a result of wage stagnation in 2024 or 2028 another even more asinine Populist than Trump will be elected; whether they are "right-wing" or "left-wing" will depend on which side is able to produce a louder demagogue and better memes. Meanwhile the rich will build orbital bases and prepare to leave the planet.

devit 7y ago

Well, not really: bailouts punish people and business who incurred costs to operate in a way that would allow them to pause their economic activity for months (cancellable supply/rent/employment contracts, cash reserves, etc.), and favors those who did not do so. In general, a society where it is possible to pause all economic activity at any time is going to be much more robust than one that doesn't, and is going to reduce the impact of an apocalyptic event that the government cannot bail the society out of, possibly avoiding human extinction in the most severe cases. For instance, if everyone stores several years worth of food and water at home, then even the most catastrophic events are much less likely to kill the vast majority of people in the world. So, there is a moral hazard, and it may be wise to either minimize the bailouts or to make such resilience mandatory.

twblalock 7y ago
Businesses were never expected to be able to totally shut down for months at a time. It’s not reasonable to suggest that businesses who can’t handle that have been irresponsible or are less deserving of help.
- unethical_ban 7y ago
  To say that those who can't handle it are not less responsible, is to say that those in the same industry who can handle it are not more responsible. I understand your point, that this is a major extreme that people don't tend to plan for, and for small businesses, I don't fault them at all. There is less sympathy for larger organizations like airlines who have (or should have) at least one full time team of people who prepare for all kinds of logistical scenarios: War/hostilities between nations, fuel shortages, pandemics, a broken supply chain of repair parts, green new deal legislation, the list goes on. So not only should larger organizations have been mindful that this kind of thing could happen, their cavalier use of cash on hand to inflate their imaginary value (stock price) should mean any help they get is tied to government stock in the company, a ban on stock buybacks, etc.
  - gerdesj 7y ago

deleted 7y ago

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colonelanguz 7y ago

This was incredibly frustrating to read because, intentionally or not, it perpetuates and normalizes the actual moral hazard of this crisis. It conflates the correct notion that if the government is forcing people not to work, it should make sure they don't starve to death, with the false notion that, in a capitalist society, businesses who were so balance sheet reckless that they couldn't last a month without government loans ought to be bailed out simply because it's "not their fault" that an economic crisis exposed their irresponsible planning. That's not how capitalism works; the weakest companies should be allowed to fail. The government can still lend to keep their workers alive, but what it's really doing in this crisis is keeping their stock price alive, which overwhelmingly benefits corporate insiders and rich people who own stocks. That's the opposite of how the corporate form is supposed to work—equityholders get all of the upside on a sunny day, so they're entitled to ZERO protection on a rainy day. It's risky to buy stock. Buy bonds if you don't want to shoulder risk. The most frustrating thing to me is that the same companies who are asking for buyouts could have simply held excess cash, or raised their employees' wages, or invested in profitable assets—all things you expect companies to do under capitalism! But instead, they invested in stock buybacks, which means literally spending retained earnings on inflating their own stock price. Apple is a classic example: earnings has actually been flat since like 2015, but earnings per share has gone up because Apple has bought back $250B of its own stock in the last eight years or so. But at least Apple is solvent! The airlines, for example, are asking for a bailout in almost exactly the same amount that they have spent on stock buybacks in the last several years. It frustrates.

macintux 7y ago
I don’t think the problem is “a month” of inactivity, although clearly there are no shortage of people and businesses who can’t survive even that. The real problem is that we’re a month in and there’s no genuine end in sight, optimistic politicians notwithstanding. The actual end of the crisis could be two months away or two years.
- colonelanguz 7y ago
  That's a fair point. It doesn't make me feel any differently about the proposition that, in a society that preaches values like rugged individualism and fiscal responsibility to its poorest members, it's strange to me that 99% of the government's per capita expenditures are going to places other than the people. Literally 99%. And by blindly subsidizing every single business, including like hedge funds and other speculators who partially caused the liquidity crisis, the government in sowing the seeds for the next meltdown and disguising insolvent firms as economically viable ones. All of which is bad for society and the economy.

vfclists 7y ago

The moral hazard overlooked here is the fact US govt policy being dictated by congressmen, hedge fund managers and "investment" bankers who see it terms how they can profit from a long bull run, and profits to made from shares in the companies who have quasi-monopolies on the the products that will eventually "save" us from coronavirus. And the fact that you can't expect a health system run for profit to prepare properly for a pandemic which may never happen. By the time the products ordered for the crisis have been delivered the crisis will be over, and whether they will be stored in preparation for another pandemic is questionable.

crazygringo 7y ago

I see so much talk here on about how companies should be left to go bankrupt because of their "shitty decisions", that "the weakest companies should be allowed to fail", and "shareholders have to hold the bag" (all from comments here). This fundamentally misunderstands how businesses work. If your business has a 5% profit margin, and you're supposed to have enough savings to weather, say, six months of essentially full fixed costs but zero revenue... that means you would need to save a full ten years of profits before ever returning them to shareholders, and if your company is less than ten years old, goodbye. That's ludicrous. It's also against the "accumulated earnings tax", where the IRS virtually requires companies to return their earnings to shareholders (via dividends/buybacks) yearly, because they're financially penalized otherwise. Good management teams aren't supposed to save for pandemics. It's not normal business. Companies in general are unable to buy insurance against it (because there's no insurance company with enough money to pay out). Capitalism is about weeding out the better companies from the worse -- not ones that are arbitrarily more or less hit by an unpredictable global catastrophe. Letting swathes of companies go bankrupt through zero fault of their own is economic disaster, and neither is there anything remotely fair or capitalistic about it whatsoever.

Apes 7y ago
I find your implied assumption that starting a company should in normal circumstances be seen as a get rich scheme that pays out in under 10 years as completely toxic, but that's an aside. The point is large companies shouldn't be hurting for money, they have two big options on the table to generate money right now: issue stock or bonds. However, there are a lot of really stupid large companies that decided to max out their credit cards in the good times to pump up their stock price via buy backs. They can't issue bonds, but they could still issue stock. However, that would cause the price to crash, and Trumperino in Chief can't allow that to happen.
- lazerpants 7y ago
  Of course, the Fed is implicitly at fault here too for keeping interest rates too low for too long. They tacitly encouraged borrowing with low rates. If rates had been higher, companies would be thrilled about lowering rates due to covid and would start to issue bonds.

chewz 7y ago

> “Colonel Cargill was so awful a marketing executive that his services were much sought after by firms eager to establish losses for tax purposes. His prices were high, for failure often did not come easily. He had to start at the top and work his way down, and with sympathetic friends in Washington, losing money was no simple matter. It took months of hard work and careful misplanning. A person misplaced, disorganized, miscalculated, overlooked everything and open every loophole, and just when he thought he had it made, the government gave him a lake or a forest or an oilfield and spoiled everything. Even with such handicaps, Colonel Cargill could be relied on to run the most prosperous enterprise into the ground. He was a self-made man who owed his lack of success to nobody.” Catch-22

pjmorris 7y ago
Thank you. It's been too long since I read this, putting it in the 'to read' pile.

deleted 7y ago

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KKKKkkkk1 7y ago

People are undertaking sacrifices for the common good. We need to make them whole. To the extent we have the ability to make them whole we should be doing that as a society,” Powell said. “They didn’t cause this. Their business isn’t closed because of anything they did wrong. They didn’t lose their job because of anything they did wrong.” Why is it important if anyone did anything wrong or not? The world is experiencing a massive calamity and a lot of wealth is being destroyed. It's not obvious that you can make everyone whole without causing unintended consequences.

LatteLazy 7y ago
It matters because after this crisis, in a few months time, we want them to go back to doing what they did before. You want people to go right back to opening businesses and getting jobs and buying houses, as quickly and enthusiastically as possible. More so if we can manage it. That's what prevents a crisis from becoming a depression.
Proven 7y ago
Correct. The man premise of the article is there has been no moral hazard prior to this crisis. That's bollocks. Companies spent billions buying back shares counting on the Fed to save them, millennials gorged on student loans counting on debt forgiveness, etc. Virtually no one deleveraged from 2008.

skat20phys 7y ago

I'd argue that's in part because of the protection racket that's partially at the heart of the moral hazard: the poor regulation of healthcare services, at least in the US. What this should be laying bare is the failure of federal regulation, how this got in the way at a critical moment, and when it was too late, things only got better when they got out of the way. Or what about a healthcare system oriented toward protecting the hospitals, those at the top of a hierarchy, the rent seeking, and so forth, rather than oriented toward public health? What about an artificial reduction in the number of providers to increase their salaries, a lack of competition in provider models and delivery of services? There was a Slate article about how one side-effect of the pandemic is how much it has exposed bullshit everywhere, how easily so many rules are set aside when the cards are on the table. Some of this is happening now with healthcare, but few are asking what else could have been different, other than single payer care. To me this all feels like some kind of abuser-victim relationship, where people are subject to some broken system, and then when things go wrong and are failed, they're made to be dependent on their broken system and start cheering it on. I realize this all sounds bleak but to me there are so many things that could have been avoided, from the highest levels of the government all the way down, and there seems to be little introspection about this. Instead we just blame the virus, rather than what caused our systems to be so vulnerable in the first place.

cvlasdkv 7y ago
I agree with criticism of governments in these instances but in order to be more thoughtful we should be critical of _how_ the governments ended up in this state. In other words: I do not think that the government (as a concept) is the issue here. I think that the current (and decades past) American government is the issue. They are 100% corrupt and culpable but it is not inherent to every government. Note: I am NOT saying you are ignoring what I've said above. I have just seen many people make poor generalizations about government because of their experience with the American government's inability to prioritize citizens over the networth of the elite.