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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

• 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.
      • ikeboy 6y ago
        I'm critiquing the framing in OP. >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. I wouldn't view it as saving. The Fed's job is to stabilize prices and employment. If you think a different part of the government should be responsible for that, or if you think we shouldn't stabilize it at all (but then how much money should be printed? Should we abolish monetary policy completely?), then make that argument. But don't criticise the Fed for trying to do its job of ensuring price stability. When something happens that significantly decreases inflation, then the Fed responds by printing more money. It's not somehow "neutral" if the Fed were to ignore that and allow prices to drop.
        • chishaku 6y ago
          > The Fed's job is to stabilize prices and employment. > But don't criticise the Fed for trying to do its job of ensuring price stability. By your own analysis, you're missing something here. How's the Fed doing with that mandate? You don't think there's room for criticism?
          • ikeboy 6y ago
            I think the proper critique is exactly the opposite - that they're not doing enough. Inflation is expected to be well below target over the next decade. Critiques that they're doing too much fall completely flat, for me.
            • chishaku 6y ago
              You're ignoring the employment part of the mandate. Unprecedented levels of Fed intervention hasn't prevented 41 million (and counting) new unemployment filings in just a few months. This obsessive focus on propping up financial markets without more direct support for Main St is what I mean about lack of political imagination or will.
              • 6y ago
  • arkis22 6y ago
    "On the hook" means that while taxpayers are shouldering the risk, they are also the ones enjoying the reward. I for one would not like the entire country to descend into violence and madness. I'm willing to pile on debt to avoid anarchy. The government is the lender of last resort because they can print new money to dilute old money. That's a high risk high reward lending scenario.
• loeg 6y ago
  > The Fed is buying bonds at market prices In some trivial sense, sure, but not really; by pouring tons of money into these funds, it is moving the market price. Real market prices are below the levels propped up by the Fed.
  • ikeboy 6y ago
    Somewhat, but to make that argument you'd have to show what percentage they're buying and how prices have moved. I don't think there's evidence of a large effect currently.
    • loeg 6y ago
      That wouldn't be conclusive, as one could readily make the argument that prices would have fallen without the Fed support. The logic here is armchair economics 101: supply and demand. The Fed is propping up demand.
      • ikeboy 6y ago
        Econ 101 distinguishes between buyers with market power and buyers without. You also need to distinguish between the expectations channel and the purchase channel. The Fed announcing it's going to pump money into the economy decreases expectations of a severe ongoing recession, which reduces the probability of default, which raises bond prices.
        • loeg 6y ago
          Yep! Some of the price and liquidity impact is the buying and some is just the announcement of buying. Levine had a nice column on it several days ago.