8 ms·

What can you say about the substance of the article? Is it wrong in your view?

dv_dt 6y ago
For one, when it says "the taxpayers will be eating the losses".. it raises some flags for me. Might just be hyperbole, but it also suggests a possible misunderstanding of the fundamentals of how the Fed operates.
- rmrfstar 6y ago
  There is nothing magical going on. Step 1: Fed conjurs D dollars into existence Step 2: Fed trades D dollars for a stack of paper Step 3: Fed trades paper stack for (1-r)D dollars The net effect is the Fed giving away rD dollars. If the Federal government gives away any dollars, it is taxpayers footing the bill.
- jules-jules 6y ago
  Why is this hyperbole? My understanding is that the Fed has set aside $454 billion of taxpayers’ money via the CARES act to absorb the losses in the bail out programs set up by the Fed. And this has more detail, from an earlier article [1] Senator Pat Toomey of Pennsylvania asked Quarles to clarify if the taxpayers’ money ($454 billion handed over by the Treasury to the Fed, which will then be used as equity in Special Purpose Vehicles set up by the Fed and leveraged up to $4.54 trillion to make loans and purchases of toxic assets on Wall Street banks’ balance sheets), is in fact going to be used to absorb losses on what the Fed is taking off the balance sheets on Wall Street. Quarles responded as follows: “The Treasury has the fiduciary responsibility, if you will, to the Congress for the use of the funds that are appropriated to it. So I wouldn’t want to speak for them as to how that equity should be handled. But it is true that in the construction of the 13(3) facilities [Fed’s emergency programs] that use Treasury equity, the Treasury equity is there to insure the Fed, which statutorily cannot take losses, has to be sure that it won’t, is there to insure that that cushion exists for the funding portion of the facility.” Fed Chairman Jerome Powell has already admitted that the $454 billion is to be used to absorb losses that it anticipates it will take. [1] https://wallstreetonparade.com/2020/05/wall-street-banks-paid-11-7-billion-in-dividends-to-investors-this-year-while-taxpayers-must-absorb-454-billion-of-bank-losses/ https://wallstreetonparade.com/2020/05/wall-street-banks-pai... Does this not imply exactly that, the taxpayers will be eating the losses?
  - ikeboy 6y ago
    The fact that $454 billion was set aside to eat losses does not imply that there will be $454 billion of losses, or even that there will be any losses. The Fed is buying bonds at market prices and getting paid interest - the only way they'd lose money is if the bond market as a whole loses money / is overvalued, and specifically is overvalued by more than the interest rate.
    - chishaku 6y ago
      The bottom line is that taxpayers are on the hook. Since 2008, we're desensitized to this level of intervention. What will come of it? Who knows? But at least some recognize the risk in such uncharted territory. “Socialising of this risk is fraught with moral hazard” - Daniel Loeb “Today’s trading levels of stocks and bonds reflect ‘thumb on the scale’ valuations driven by persistent and massive government asset purchases and zero percent (or lower!) short-term policy rates, as well as an essentially unlimited tolerance for risk." - Paul Singer
      - ikeboy 6y ago
        It's irresponsible to say the taxpayers are eating losses that hasn't happened yet and may never happen. Taxpayers didn't lose in the TARP bailout, despite similar warnings at the time. And the other side of this is the fact that without any action, the economy will collapse further than it already has, and taxpayers certainly won't be in the black if that happens.
        chishaku 6y ago
        > It's irresponsible to say the taxpayers are eating losses I didn't say they are eating losses, I said they are on the hook. Give me $1000 from your bank account. Given my recent performance, I can generate some decent return. What do you say? > the economy will collapse further than it already has With all due respect, this is my larger issue. You're not necessarily wrong. But we have no political imagination or will to think beyond what is forced down our throats. Either the Federal Reserve saves us all or we are doomed.
- chishaku 6y ago
  > also suggests a possible misunderstanding of the fundamentals of how the Fed operates. Translation: "You plebes just don't understand." Typical Fed policy apologia.
- ericmcer 6y ago
  Unless we are rewriting how our economy works, the Fed should have a neutral balance sheet, i.e. all the debt it creates by purchasing bonds/securities/etc. should be paid off eventually. Any Treasury securities are going to be paid off by taxpayer money. If we are entering a new type of economy (which we have been since 2008), and the Fed is no longer worried about having an ever expanding balance sheet, then we are entering modern money theory territory, which is scary to me because we completely lack the oversight needed.

For one, when it says "the taxpayers will be eating the losses".. it raises some flags for me. Might just be hyperbole, but it also suggests a possible misunderstanding of the fundamentals of how the Fed operates.

rmrfstar 6y ago
There is nothing magical going on. Step 1: Fed conjurs D dollars into existence Step 2: Fed trades D dollars for a stack of paper Step 3: Fed trades paper stack for (1-r)D dollars The net effect is the Fed giving away rD dollars. If the Federal government gives away any dollars, it is taxpayers footing the bill.
jules-jules 6y ago
Why is this hyperbole? My understanding is that the Fed has set aside $454 billion of taxpayers’ money via the CARES act to absorb the losses in the bail out programs set up by the Fed. And this has more detail, from an earlier article [1] Senator Pat Toomey of Pennsylvania asked Quarles to clarify if the taxpayers’ money ($454 billion handed over by the Treasury to the Fed, which will then be used as equity in Special Purpose Vehicles set up by the Fed and leveraged up to $4.54 trillion to make loans and purchases of toxic assets on Wall Street banks’ balance sheets), is in fact going to be used to absorb losses on what the Fed is taking off the balance sheets on Wall Street. Quarles responded as follows: “The Treasury has the fiduciary responsibility, if you will, to the Congress for the use of the funds that are appropriated to it. So I wouldn’t want to speak for them as to how that equity should be handled. But it is true that in the construction of the 13(3) facilities [Fed’s emergency programs] that use Treasury equity, the Treasury equity is there to insure the Fed, which statutorily cannot take losses, has to be sure that it won’t, is there to insure that that cushion exists for the funding portion of the facility.” Fed Chairman Jerome Powell has already admitted that the $454 billion is to be used to absorb losses that it anticipates it will take. [1] https://wallstreetonparade.com/2020/05/wall-street-banks-paid-11-7-billion-in-dividends-to-investors-this-year-while-taxpayers-must-absorb-454-billion-of-bank-losses/ https://wallstreetonparade.com/2020/05/wall-street-banks-pai... Does this not imply exactly that, the taxpayers will be eating the losses?
- ikeboy 6y ago
  The fact that $454 billion was set aside to eat losses does not imply that there will be $454 billion of losses, or even that there will be any losses. The Fed is buying bonds at market prices and getting paid interest - the only way they'd lose money is if the bond market as a whole loses money / is overvalued, and specifically is overvalued by more than the interest rate.
  - chishaku 6y ago
    The bottom line is that taxpayers are on the hook. Since 2008, we're desensitized to this level of intervention. What will come of it? Who knows? But at least some recognize the risk in such uncharted territory. “Socialising of this risk is fraught with moral hazard” - Daniel Loeb “Today’s trading levels of stocks and bonds reflect ‘thumb on the scale’ valuations driven by persistent and massive government asset purchases and zero percent (or lower!) short-term policy rates, as well as an essentially unlimited tolerance for risk." - Paul Singer
    - ikeboy 6y ago
      It's irresponsible to say the taxpayers are eating losses that hasn't happened yet and may never happen. Taxpayers didn't lose in the TARP bailout, despite similar warnings at the time. And the other side of this is the fact that without any action, the economy will collapse further than it already has, and taxpayers certainly won't be in the black if that happens.
      - chishaku 6y ago
        > It's irresponsible to say the taxpayers are eating losses I didn't say they are eating losses, I said they are on the hook. Give me $1000 from your bank account. Given my recent performance, I can generate some decent return. What do you say? > the economy will collapse further than it already has With all due respect, this is my larger issue. You're not necessarily wrong. But we have no political imagination or will to think beyond what is forced down our throats. Either the Federal Reserve saves us all or we are doomed.
chishaku 6y ago
> also suggests a possible misunderstanding of the fundamentals of how the Fed operates. Translation: "You plebes just don't understand." Typical Fed policy apologia.
ericmcer 6y ago
Unless we are rewriting how our economy works, the Fed should have a neutral balance sheet, i.e. all the debt it creates by purchasing bonds/securities/etc. should be paid off eventually. Any Treasury securities are going to be paid off by taxpayer money. If we are entering a new type of economy (which we have been since 2008), and the Fed is no longer worried about having an ever expanding balance sheet, then we are entering modern money theory territory, which is scary to me because we completely lack the oversight needed.