7 ms·

Privatize the profit, socialize the debt.

hankchinaski 6y ago
Supposedly the fed gets rewarded for that debt issuance (it’s not interest free?). the choice to provide credit line is to avoid thousands of job losses and domino’s bankruptcies. And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress
- jaekash 6y ago
  > And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress No taxpayer money is being loaned out here ... so ... I mean it is good you are trying to be a voice of reason here - but the amount of misinformation and straight out propaganda in the water is astounding.
  - deleuze 6y ago
    > No taxpayer money is being loaned out here That doesn't mean there isn't an opportunity cost to providing liquidity through buying up bonds versus other socially productive forms of spending. Just because we have a magic money tree, why does that mean Walmart should be the beneficiary?
    - rmah 6y ago
      Buying bonds is not spending. Those bonds will either mature and the funds paid back to the Fed or the Fed will sell the bonds on the open market. Either way, this is very different from handouts to the public or "socially productive spending" in that the money will get paid back. Finally, it's not the Federal Reserve's role to be socially helpful except as to fulfill their dual mandates to 1) minimize inflation and 2) maximize employment.
      - deleuze 6y ago
        The feds balance sheet is imaginary who cares if it gets paid back.
      - pbhjpbhj 6y ago
        So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? Pretending there's no limit and no deleterious effect seems wrong. If that were true then the Federal Reserve could just by boobs for all debts and every citizen would be debt free and there would be nothing wrong. If every time a company struggles the gov step in, because instead of maintaining reserves the companies pay out profit, bonuses and dividends, then large companies will engineer in the need for gov assistance and their ability to self maintain will be lost.
        rmah 6y ago
        Very few bonds are callable. And why would the Fed need to call the bond, it's not like they are short of cash. lol. Either way, I wasn't "pretending there's no limit and no deleterious effect". As you stated, that would be wrong. There are obvious and not-so obvious problems with central banks engaging in QE (i.e. buying financial assets as a means of injecting money into the system). But this thread was about QE via corp bonds vs the Fed handing out gifts to the public so I didn't go into that.
        jaekash 6y ago
        > So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? They can't, not how bonds work. > Pretending there's no limit and no deleterious effect seems wrong. Nobody is pretending. There are many potentially deleterious effects, but amazingly the set of problems people have with this have almost no intersection with the potentially deleterious effects. > If every time a company struggles the gov step in This is a pandemic. The government engineered a scenario which destroyed the economy to save lives. Walmart engineered nothing here.
    - jaekash 6y ago
      The federal reserve is not spending money, they are buying bonds, when they buy a bond it is like adding a number in a spreadsheet, when the money is paid back (or even not) they just add the number back. The federal reserve is not allowed under law to go pay people UBI or something. What exactly do you expect them to do instead? And why should it be instead? You get the federal reserve has no inherent limit to the amount of bonds they could buy, so even if there was some other "socially productive forms of spending" they could undertake this is in no way mutually exclusive to buying bonds from Walmart. It is astounding how little people understand of what is going on here.
      - deleuze 6y ago
        The fed does plenty of things that are outside of the scope of it's charter. Further, we can just change the law, this isn't some immutable truth of central banks. Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. > It is astounding how little people understand of what is going on here. No, you're just a smug asshole.
        jaekash 6y ago
        > The fed does plenty of things that are outside of the scope of it's charter. Name one. > Further, we can just change the law, this isn't some immutable truth of central banks. Well then go change the the law instead of saying that with the law being what it currently is the fed should instead engage in other "socially productive forms of spending". > Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. Invent them then and tell us. The fed can buy bonds, they buy bonds, they can set the interest rate, they set the interest rate. If there is a company building infrastructure that issues bonds then presumably the Fed can buy them, and I'm sure they will because the Fed is trying to flood the system with money, and for the most part indiscriminately with maybe just an eye on credit ratings.
    - dageshi 6y ago
      There isn't an opportunity cost. It's not the feds job to perform "socially productive forms of spending", it's the elected governments job to do that. The feds job is financial stability and low inflation.
      - occamrazor 6y ago
        And low unemployment, which, I guess, is the main reason for this bond buying program.
  - harryh 6y ago
    These threads tend to bring out the Fed Truthers on HN. There are a lot of borderline cranks.
    - hankchinaski 6y ago
      lolz
    - mindslight 6y ago
      One has to love how "truth" has become a dismissive label. I think Orwell had something to say about that. Judging by the constant stream of downvotes and upvotes, my conclusion is that people are living in two very different economic worlds. Likely defined by their access to the outlets of newly created money.
      - jaekash 6y ago
        Call me old fashioned but facts are facts. Challenge claims of fact if you have something to show they are wrong but otherwise they are what they are.
        mindslight 6y ago
        I was responding specifically to harryh, who said "There are a lot of borderline cranks" after having responded to a different comment of mine with a dismissive Fed talking point. I do agree with your previous comment that "No taxpayer money is being loaned out here". "Public money" would be an appropriate description though.
        harryh 6y ago
        Pointing out that all the inflation that people have been afraid of for maybe two decades now keeps not coming isn't a dismissive Fed talking point. It's reality. The idea that it's just asset inflation and not inflation in the real economy is also wrong. The fact of the matter is that we now live in a world where raw capital is no longer a rare commodity, thus you can no longer get a significant return on a risk free asset like a bank account or a t-bill. In order to make a return you have to take risks with your capital and invest them in something value producing like a business. You don't have a God given right to high interest rates. We've had a secular decline in interest rates for...maybe hundreds of years. That's just reality. Complaining that the Fed (and every other central bank in the developed world) is somehow screwing you by not creating them for you is foolish. The interest rate on your savings account is not important compared to the gainful employment by the populace that happens when we don't have too tight monetary policy.
  - pbhjpbhj 6y ago
    Can you explain how it works: No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? How does the original creditor write it off their balance sheet if they don't receive anything?
    - jaekash 6y ago
      > No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? No, the government does not acquire debts, the only entity here that acquired debts is Walmart. When walmart wants capital they have two options, issue stock, or issue bonds. When they issue bonds buyers can buy the bonds. The bond is a contract which says that the Walmart will pay the holder of the bond certain monies. What happened here is Walmart issued bonds, those bonds were bought by some legal entities, then the Fed bought those bonds from the legal entities that held them. So the fed paid money, which it created out of thin air, to some legal entities, in exchange for contracts which require that Walmart pays the Fed some money (probably quite a bit more than what the Fed paid for those contracts). When Walmart pays back the principle of the Bond the money basically gets deleted and the yield is added to the Federal reserves balance sheet. (I am not an economist, so I may be wrong on some terms here).
      - pbhjpbhj 6y ago
        >So the fed paid money, which it created out of thin air // By devaluing currency, a cost to all holders. They can make virtual numbers, they can't make value. There's a cost, the cost is just obscured. The way you describe it is clearly wrong, otherwise the Fed could buy everyone's debt and save the economy of the entire World. Yay, just "print money" we'll all be rich!
        jaekash 6y ago
        > The way you describe it is clearly wrong Please cite the inaccuracy.
  - cconroy 6y ago
    how about counterfeiting the taxpayer's money?
    - jaekash 6y ago
      Not a thing that is happening here.
beervirus 6y ago
This is not that.
- jjoonathan 6y ago
  It's the opposite of that.
  - rlucas 6y ago
    Can grant you that using accounting definitions, jjoonathan is literally correct: the [accounting] profit goes to sociaty (the Fed) here and the debt liability is on the private balance sheet (Walmart). However, GP is making a point I might take the liberty of rewording as, "privatize the profits and benefits, socialize the risks and costs." The reworded version is certainly true in economic (not accounting) terms. The profits and benefits accrue to the private side (Walmart) through a lower cost of capital and hence a higher profit margin. The risks and costs are borne by society (the Fed) through the credit risk and the infinitesimal debasement of the currency.
    - aaronblohowiak 6y ago
      As a nit, this isn't as clear cut and dry when you think about qui bono -- The fed's purchase itself increases the value of other outstanding Walmart debt, creating wealth for the other debt holders...
  - deleted 6y ago
    [deleted]
LoSboccacc 6y ago
I hate that too, especially when it's megacorps. however I'd like to introduce two points of discussion: https://www.foxbusiness.com/economy/fed-bought-debt-from-walmart-mcdonalds-berkshire-hathaway-and-microsoft-as-part-of-coronavirus-response https://www.foxbusiness.com/economy/fed-bought-debt-from-wal... first, Walmart is not the most outrageous of the list. coca cola is much worse. For all it's shortcomings, Walmart has a lot of domestic employees, around 1.5 millions. If the money from the fed directly went into welfare for these workers, it would have covered a couple months top, so it becomes a question of efficiency: if restructuring the debt buys a year or so before bankruptcy, it's still a net gain, under the assumption that being unemployed now would be much worse than being unemployed in 10 months after the current crisis is over. second, Walmart effectively is the American version of social welfare. It's the kind of job almost anyone can get to get back on their feet. It's not too big too fail, nobody should be, but it's also not so bad a company to have around.
- harryh 6y ago
  if restructuring the debt buys a year or so before bankruptcy Walmart is currently worth, checks notes, 336 Billion dollars. It is one of the most valuable companies in the world. It is in no danger of going bankrupt.
  - clairity 6y ago
    yes, they should sell equity if necessary, not expect cheap debt from the government. shareholders especially need to feel the downsides of risky decisions too, otherwise it distorts pricing mechanisms and imbalances the proper allocation of capital across the economy.
    - harryh 6y ago
      They haven't expected cheap debt from the government. Large corporations routinely cary debt to finance short term cashflow needs. Right now Walmart has about 60B worth. The FED, as part of a large program of corporate debt purchases, has bought a grand total of about 9 million dollars worth of this. That's .015%. Whatever gave you the idea that Walmart had this expectation is wrong.

Supposedly the fed gets rewarded for that debt issuance (it’s not interest free?). the choice to provide credit line is to avoid thousands of job losses and domino’s bankruptcies. And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress

jaekash 6y ago
> And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress No taxpayer money is being loaned out here ... so ... I mean it is good you are trying to be a voice of reason here - but the amount of misinformation and straight out propaganda in the water is astounding.
- deleuze 6y ago
  > No taxpayer money is being loaned out here That doesn't mean there isn't an opportunity cost to providing liquidity through buying up bonds versus other socially productive forms of spending. Just because we have a magic money tree, why does that mean Walmart should be the beneficiary?
  - rmah 6y ago
    Buying bonds is not spending. Those bonds will either mature and the funds paid back to the Fed or the Fed will sell the bonds on the open market. Either way, this is very different from handouts to the public or "socially productive spending" in that the money will get paid back. Finally, it's not the Federal Reserve's role to be socially helpful except as to fulfill their dual mandates to 1) minimize inflation and 2) maximize employment.
    - deleuze 6y ago
      The feds balance sheet is imaginary who cares if it gets paid back.
    - pbhjpbhj 6y ago
      So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? Pretending there's no limit and no deleterious effect seems wrong. If that were true then the Federal Reserve could just by boobs for all debts and every citizen would be debt free and there would be nothing wrong. If every time a company struggles the gov step in, because instead of maintaining reserves the companies pay out profit, bonuses and dividends, then large companies will engineer in the need for gov assistance and their ability to self maintain will be lost.
      - rmah 6y ago
        Very few bonds are callable. And why would the Fed need to call the bond, it's not like they are short of cash. lol. Either way, I wasn't "pretending there's no limit and no deleterious effect". As you stated, that would be wrong. There are obvious and not-so obvious problems with central banks engaging in QE (i.e. buying financial assets as a means of injecting money into the system). But this thread was about QE via corp bonds vs the Fed handing out gifts to the public so I didn't go into that.
      - jaekash 6y ago
        > So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? They can't, not how bonds work. > Pretending there's no limit and no deleterious effect seems wrong. Nobody is pretending. There are many potentially deleterious effects, but amazingly the set of problems people have with this have almost no intersection with the potentially deleterious effects. > If every time a company struggles the gov step in This is a pandemic. The government engineered a scenario which destroyed the economy to save lives. Walmart engineered nothing here.
  - jaekash 6y ago
    The federal reserve is not spending money, they are buying bonds, when they buy a bond it is like adding a number in a spreadsheet, when the money is paid back (or even not) they just add the number back. The federal reserve is not allowed under law to go pay people UBI or something. What exactly do you expect them to do instead? And why should it be instead? You get the federal reserve has no inherent limit to the amount of bonds they could buy, so even if there was some other "socially productive forms of spending" they could undertake this is in no way mutually exclusive to buying bonds from Walmart. It is astounding how little people understand of what is going on here.
    - deleuze 6y ago
      The fed does plenty of things that are outside of the scope of it's charter. Further, we can just change the law, this isn't some immutable truth of central banks. Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. > It is astounding how little people understand of what is going on here. No, you're just a smug asshole.
      - jaekash 6y ago
        > The fed does plenty of things that are outside of the scope of it's charter. Name one. > Further, we can just change the law, this isn't some immutable truth of central banks. Well then go change the the law instead of saying that with the law being what it currently is the fed should instead engage in other "socially productive forms of spending". > Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. Invent them then and tell us. The fed can buy bonds, they buy bonds, they can set the interest rate, they set the interest rate. If there is a company building infrastructure that issues bonds then presumably the Fed can buy them, and I'm sure they will because the Fed is trying to flood the system with money, and for the most part indiscriminately with maybe just an eye on credit ratings.
  - dageshi 6y ago
    There isn't an opportunity cost. It's not the feds job to perform "socially productive forms of spending", it's the elected governments job to do that. The feds job is financial stability and low inflation.
    - occamrazor 6y ago
      And low unemployment, which, I guess, is the main reason for this bond buying program.
- harryh 6y ago
  These threads tend to bring out the Fed Truthers on HN. There are a lot of borderline cranks.
  - hankchinaski 6y ago
    lolz
  - mindslight 6y ago
    One has to love how "truth" has become a dismissive label. I think Orwell had something to say about that. Judging by the constant stream of downvotes and upvotes, my conclusion is that people are living in two very different economic worlds. Likely defined by their access to the outlets of newly created money.
    - jaekash 6y ago
      Call me old fashioned but facts are facts. Challenge claims of fact if you have something to show they are wrong but otherwise they are what they are.
      - mindslight 6y ago
        I was responding specifically to harryh, who said "There are a lot of borderline cranks" after having responded to a different comment of mine with a dismissive Fed talking point. I do agree with your previous comment that "No taxpayer money is being loaned out here". "Public money" would be an appropriate description though.
        harryh 6y ago
        Pointing out that all the inflation that people have been afraid of for maybe two decades now keeps not coming isn't a dismissive Fed talking point. It's reality. The idea that it's just asset inflation and not inflation in the real economy is also wrong. The fact of the matter is that we now live in a world where raw capital is no longer a rare commodity, thus you can no longer get a significant return on a risk free asset like a bank account or a t-bill. In order to make a return you have to take risks with your capital and invest them in something value producing like a business. You don't have a God given right to high interest rates. We've had a secular decline in interest rates for...maybe hundreds of years. That's just reality. Complaining that the Fed (and every other central bank in the developed world) is somehow screwing you by not creating them for you is foolish. The interest rate on your savings account is not important compared to the gainful employment by the populace that happens when we don't have too tight monetary policy.
- pbhjpbhj 6y ago
  Can you explain how it works: No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? How does the original creditor write it off their balance sheet if they don't receive anything?
  - jaekash 6y ago
    > No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? No, the government does not acquire debts, the only entity here that acquired debts is Walmart. When walmart wants capital they have two options, issue stock, or issue bonds. When they issue bonds buyers can buy the bonds. The bond is a contract which says that the Walmart will pay the holder of the bond certain monies. What happened here is Walmart issued bonds, those bonds were bought by some legal entities, then the Fed bought those bonds from the legal entities that held them. So the fed paid money, which it created out of thin air, to some legal entities, in exchange for contracts which require that Walmart pays the Fed some money (probably quite a bit more than what the Fed paid for those contracts). When Walmart pays back the principle of the Bond the money basically gets deleted and the yield is added to the Federal reserves balance sheet. (I am not an economist, so I may be wrong on some terms here).
    - pbhjpbhj 6y ago
      >So the fed paid money, which it created out of thin air // By devaluing currency, a cost to all holders. They can make virtual numbers, they can't make value. There's a cost, the cost is just obscured. The way you describe it is clearly wrong, otherwise the Fed could buy everyone's debt and save the economy of the entire World. Yay, just "print money" we'll all be rich!
      - jaekash 6y ago
        > The way you describe it is clearly wrong Please cite the inaccuracy.
- cconroy 6y ago
  how about counterfeiting the taxpayer's money?
  - jaekash 6y ago
    Not a thing that is happening here.

beervirus 6y ago

This is not that.

jjoonathan 6y ago
It's the opposite of that.
- rlucas 6y ago
  Can grant you that using accounting definitions, jjoonathan is literally correct: the [accounting] profit goes to sociaty (the Fed) here and the debt liability is on the private balance sheet (Walmart). However, GP is making a point I might take the liberty of rewording as, "privatize the profits and benefits, socialize the risks and costs." The reworded version is certainly true in economic (not accounting) terms. The profits and benefits accrue to the private side (Walmart) through a lower cost of capital and hence a higher profit margin. The risks and costs are borne by society (the Fed) through the credit risk and the infinitesimal debasement of the currency.
  - aaronblohowiak 6y ago
    As a nit, this isn't as clear cut and dry when you think about qui bono -- The fed's purchase itself increases the value of other outstanding Walmart debt, creating wealth for the other debt holders...
- deleted 6y ago
  [deleted]

LoSboccacc 6y ago

I hate that too, especially when it's megacorps. however I'd like to introduce two points of discussion: https://www.foxbusiness.com/economy/fed-bought-debt-from-walmart-mcdonalds-berkshire-hathaway-and-microsoft-as-part-of-coronavirus-response https://www.foxbusiness.com/economy/fed-bought-debt-from-wal... first, Walmart is not the most outrageous of the list. coca cola is much worse. For all it's shortcomings, Walmart has a lot of domestic employees, around 1.5 millions. If the money from the fed directly went into welfare for these workers, it would have covered a couple months top, so it becomes a question of efficiency: if restructuring the debt buys a year or so before bankruptcy, it's still a net gain, under the assumption that being unemployed now would be much worse than being unemployed in 10 months after the current crisis is over. second, Walmart effectively is the American version of social welfare. It's the kind of job almost anyone can get to get back on their feet. It's not too big too fail, nobody should be, but it's also not so bad a company to have around.

harryh 6y ago
if restructuring the debt buys a year or so before bankruptcy Walmart is currently worth, checks notes, 336 Billion dollars. It is one of the most valuable companies in the world. It is in no danger of going bankrupt.
- clairity 6y ago
  yes, they should sell equity if necessary, not expect cheap debt from the government. shareholders especially need to feel the downsides of risky decisions too, otherwise it distorts pricing mechanisms and imbalances the proper allocation of capital across the economy.
  - harryh 6y ago
    They haven't expected cheap debt from the government. Large corporations routinely cary debt to finance short term cashflow needs. Right now Walmart has about 60B worth. The FED, as part of a large program of corporate debt purchases, has bought a grand total of about 9 million dollars worth of this. That's .015%. Whatever gave you the idea that Walmart had this expectation is wrong.