4 ms·

They have not bought anywhere close to trillion dollars worth of corporate debt. As you can see in the breakdown [0], most of what they are buying is our own g

by mrep 6y ago

They have not bought anywhere close to trillion dollars worth of corporate debt. As you can see in the breakdown [0], most of what they are buying is our own governments debt (the same debt used to fund the CARES act) and US mortgage backed securities. [0]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm

deleted 6y ago
[deleted]
gregwebs 6y ago
Sorry, it is hard for me to untangle all this. Some of this money is authorized by CARES, and some is independent action. We are already at a trillion dollars to the largest companies now when you combine CARES and the fed's commitment to debt purchase. In June they just committed to deploying an additional $250 billion https://www.wsj.com/articles/fed-will-amass-corporate-bond-portfolio-using-index-approach-11592246982 https://www.wsj.com/articles/fed-will-amass-corporate-bond-p... Add this to the existing billions of debt already purchased and we could easily be at half a trillion dollars of independent fed action to buy corporate debt in a short time frame. The CARES act also reduced corporate taxes by 210 billion. So There is at least half a trillion dollars not mentioned in articles like the one from NPR. The CARES act separately authorized 500 billion just to the largest corporations in America. Some of the additional hundreds of billions deployed to "small" businesses is really to large companies as well. It would be great to get a detailed breakdown of what the fed is doing, I am certainly not doing it justice in my description.
- throwaway373438 6y ago
  A debt purchase and unemployment are very different things. Unemployment is money given away to another. It's a permanent giveaway. A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. These cannot be compared as equivalent. The tax reduction changes the way loss is calculated to better capture the reality of the economy falling apart in one year, letting losses be deducted from income generated in past years. There's a tax savings, but it's reflective of real loss incurred by business.
  - gregwebs 6y ago
    > A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. The corporate tax reduction is equivalent to a handout since it won't be paid back. As is the paycheck protection program. I agree that debt is not a 100% handout, but it is definitely not a 0% either. The fed is not that worried about qualifying its purchases and some of these companies will still go bankrupt: those cases may be 100% handouts. The debt is being purchased at above market rates and inflating prices for the asset so that's still a noticeable percentage of handout for the loans that get repaid. But I wouldn't assume that corporate debt will ever truly get repaid until I see the fed balance sheet go down. They tried to unload just a little bit last year and the stock market went down so they stopped. We now have 1.9 trillion in mortgage backed securities even though the housing crisis is over and housing prices are back to the levels of the prior bubble.
    - throwaway373438 6y ago
      It's true that bad debt isn't paid back, but in a bankruptcy the investors are wiped out so it would be disingenuous to frame those monies as "corporate bailouts." The funds will have gone to sustaining the business and employing the employees -- not to shareholders. The tax change isn't a reduction per se, it's a change in the way we account for losses across multiple years. It's also very new -- it's removing a new carryover rule that was added in 2017. I think it's also disingenuous to frame this as a reduction as the losses would be carried forward anyway. It is, like most of the other "corporate handouts," more of a shift in when the money is paid rather than a change in the amount.
      - gregwebs 6y ago
        It's a bad outcome to temporarily sustain zombie businesses even if you stop shareholders from benefitting. Thanks for the correction on the corporate tax reduction.
        6y ago
dv_dt 6y ago
Depending on the situation, the Fed could take on government securities from banks so that the banks may extend more credit to private lendees (mostly companies) without running too low on required reserves. This balance sheet may not reflect what other agreements are attached to the treasury assets in holding.
- _eht 6y ago
  In case you missed it, the Fed has removed almost all reserve requirements.
mediaman 6y ago
Additionally, purchases of corporate debt are not the same thing as issuance of grants to individuals or companies, examples of which are unemployment benefits or a portion of the PPP small business program. Historically, looking back at 2008-2009, purchases of corporate debt by the government either turned a profit or lost very little money. The 'bailouts' had aggressive terms and were repaid. If it does turn into a subsidy, the correct measurement is the difference between what the government pays today and what they sell it for later, or, if it defaults, the bankruptcy settlement value (which in the case of collateralized loans is rarely zero). Not the dollar amount of bonds purchased or money lent. This year, purchasing of corporate bonds has been focused on investment grade debt. It is unlikely they will experience any significant loss on this.
- Consultant32452 6y ago
  Buying corporate debt at above market prices is a grant. Stopping your massive business from going under and being replaced by a more agile competitor is oligarchy.

by mrep 6y ago

deleted 6y ago

[deleted]

gregwebs 6y ago

Sorry, it is hard for me to untangle all this. Some of this money is authorized by CARES, and some is independent action. We are already at a trillion dollars to the largest companies now when you combine CARES and the fed's commitment to debt purchase. In June they just committed to deploying an additional $250 billion https://www.wsj.com/articles/fed-will-amass-corporate-bond-portfolio-using-index-approach-11592246982 https://www.wsj.com/articles/fed-will-amass-corporate-bond-p... Add this to the existing billions of debt already purchased and we could easily be at half a trillion dollars of independent fed action to buy corporate debt in a short time frame. The CARES act also reduced corporate taxes by 210 billion. So There is at least half a trillion dollars not mentioned in articles like the one from NPR. The CARES act separately authorized 500 billion just to the largest corporations in America. Some of the additional hundreds of billions deployed to "small" businesses is really to large companies as well. It would be great to get a detailed breakdown of what the fed is doing, I am certainly not doing it justice in my description.

throwaway373438 6y ago
A debt purchase and unemployment are very different things. Unemployment is money given away to another. It's a permanent giveaway. A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. These cannot be compared as equivalent. The tax reduction changes the way loss is calculated to better capture the reality of the economy falling apart in one year, letting losses be deducted from income generated in past years. There's a tax savings, but it's reflective of real loss incurred by business.
- gregwebs 6y ago
  > A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. The corporate tax reduction is equivalent to a handout since it won't be paid back. As is the paycheck protection program. I agree that debt is not a 100% handout, but it is definitely not a 0% either. The fed is not that worried about qualifying its purchases and some of these companies will still go bankrupt: those cases may be 100% handouts. The debt is being purchased at above market rates and inflating prices for the asset so that's still a noticeable percentage of handout for the loans that get repaid. But I wouldn't assume that corporate debt will ever truly get repaid until I see the fed balance sheet go down. They tried to unload just a little bit last year and the stock market went down so they stopped. We now have 1.9 trillion in mortgage backed securities even though the housing crisis is over and housing prices are back to the levels of the prior bubble.
  - throwaway373438 6y ago
    It's true that bad debt isn't paid back, but in a bankruptcy the investors are wiped out so it would be disingenuous to frame those monies as "corporate bailouts." The funds will have gone to sustaining the business and employing the employees -- not to shareholders. The tax change isn't a reduction per se, it's a change in the way we account for losses across multiple years. It's also very new -- it's removing a new carryover rule that was added in 2017. I think it's also disingenuous to frame this as a reduction as the losses would be carried forward anyway. It is, like most of the other "corporate handouts," more of a shift in when the money is paid rather than a change in the amount.
    - gregwebs 6y ago
      It's a bad outcome to temporarily sustain zombie businesses even if you stop shareholders from benefitting. Thanks for the correction on the corporate tax reduction.
      - 6y ago

dv_dt 6y ago

Depending on the situation, the Fed could take on government securities from banks so that the banks may extend more credit to private lendees (mostly companies) without running too low on required reserves. This balance sheet may not reflect what other agreements are attached to the treasury assets in holding.

_eht 6y ago
In case you missed it, the Fed has removed almost all reserve requirements.

mediaman 6y ago

Additionally, purchases of corporate debt are not the same thing as issuance of grants to individuals or companies, examples of which are unemployment benefits or a portion of the PPP small business program. Historically, looking back at 2008-2009, purchases of corporate debt by the government either turned a profit or lost very little money. The 'bailouts' had aggressive terms and were repaid. If it does turn into a subsidy, the correct measurement is the difference between what the government pays today and what they sell it for later, or, if it defaults, the bankruptcy settlement value (which in the case of collateralized loans is rarely zero). Not the dollar amount of bonds purchased or money lent. This year, purchasing of corporate bonds has been focused on investment grade debt. It is unlikely they will experience any significant loss on this.

Consultant32452 6y ago
Buying corporate debt at above market prices is a grant. Stopping your massive business from going under and being replaced by a more agile competitor is oligarchy.