> the Primary Dealer Credit Facility (PDCF) [...] the cash-for-trash facility, where Wall Street’s toxic waste from a decade of irresponsible trading and lending, will be purged from the balance sheets of the Wall Street firms and handed over to the balance sheet of the Federal Reserve
Yay let's subsidize Wall Street using public funds! "We can't afford universal healthcare", but we can totally - yet unnaturally - bail out (mostly rentier) capitalist businesses that have been reckless and parasitical.
I know, personally I think in the midst of the largest world crisis of the past fifty years, the prudent thing to do is let the banks all fail, which will really teach them a lesson about not properly preparing for the totally-predictable near-halting of global commerce.
Perhaps “die” is the wrong word. I prefer “nationalized and converted to financial utilities”. Shareholders? Gone! Existing management? Gone! Put adults in charge and have a relationship similar to the USPS or the Fed. Require an open platform so the APIs and underlying back office are solid but innovators can still get access to innovate (Europe mandated this via PSD2).
Public goods must be protected. USPS does pretty well IMHO, as a similar example. No reason to recapitalize with public shareholders if you don’t need them. The Fed doesn’t have them (their shares are unique and essentially non transferable).
Public goods don’t have to break even or generate a profit. They still deliver my mail like clockwork, and we’ll cover any pension obligations with taxes if there’s a shortfall because of Congressional action (which is why USPS loses money, due to Congress having unreasonable pension funding requirements specifically for USPS).
If you require a bailout, you had your chance as a for profit concern. Entirely reasonable to run services at a loss as a government entity. Some services are simply expenses.
"Makes the trains run on time" is a pretty weak argument when the alternative (e.g. UPS) has a demonstrated ability to do the same thing without losing billions of dollars.
> If you require a bailout, you had your chance as a for profit concern. Entirely reasonable to run services at a loss as a government entity.
Isn't this a double standard? A private entity loses money and requires a taxpayer bailout once, they've had their chance. A government entity loses money and requires a taxpayer bailout every year, cost of doing business?
We have bailed banks and airlines out repeatedly, not once. UPS is not mandated to deliver to every address in the United States six days a week, such that USPS is.
> If the big banks die the entire US economy dies with them.
Can you clarify exactly how this happens? This has been claimed before, that these banks are "too big to be allowed to fail", but I haven't seen an explanation of why, and it is certainly in the interest of the banks to promulgate the idea "if we die it's the apocalypse" regardless of whether it's true.
Because of fractional reserve banking. 90% of the money in your bank account are in fact credit created by the private banks out of thin air. If the banks fail, 90% of the money in the entire system will suddenly disappear. Imagine that.
I'm not necessarily a fan of how things currently work, but I believe the FDIC is supposed to insure up to $250k on each bank account. That would seem to mean it wouldn't hurt most people, only people (and institutions?) that put much more than that into individual bank accounts. I suspect most of those would have also put lots into other types of investments, so I don't think anyone would be completely wiped out. That doesn't sound apocalyptic to me.
I have no idea how this became such a popular misconception. Fractional reserve banking allows banks to use a portion of their deposits to make loans. This doesn’t create money out of thin air. It does affect money supply, but in a completely different way. Because deposits are withdrawn from circulation, and loans allow a percentage of that to be returned to circulation. If a bank folded, it would simply have a list of debtors (loan holders), and creditors (depositors). The value of the liabilities may exceed the value of the assets (in which case it would be insolvent), but no money at all will be withdrawn from existence.
Banks collapsing in this crisis exacerbates confidence issues. The market operates on perceived confidence. There are already morons, sorry, my misanthropy is just peaking lately, the general public are already withdrawing cash from banks, stocking up on toilet paper. A real intellectual bunch we’re talking about here.
Whether things are solvent or not, right now everything has to look like it’s totally under control. Perception is very critical here.
So, if a couple of banks collapse and many people lose confidence, then exactly who gets hurt and how? If a bunch of "morons" go pull their money out of a bank, that might ruin the bank, but FDIC insurance is supposed to protect against the worst of that. What's the path that leads to the "entire US economy dying"?
Yes, I think most folks here know what a back run is. The FDIC was instituted after the Depression specifically to limit the damage caused by bank runs.
2008 was a completely different circumstance than this.
People have a tendency to call everything a bank. Lehman Brothers was an investment bank. AIG is an insurance company. They were buying and selling mortgages and credit default swaps, but they weren't savings banks or mortgage banks.
What happened in 2008 was that the mortgage banks (spurred on by government policy) were making mortgage loans to everybody. People with bad credit. Interest only payments. Because the regular banks were selling the mortgages to Lehman Brothers or buying credit default swaps from AIG, so they didn't care if people would default. This naturally caused housing prices to soar.
Then interest rates went up a little and people did start to default. Then people started to notice how uncreditworthy those borrowers were and didn't want to buy those mortgages anymore ("toxic assets"), so banks stopped making them. Which tends to cause housing prices to crash, which tends to lead to more defaults as people notice they're underwater, and so on.
If housing prices came down a lot there would be too many defaults, so the Fed responded by lowering interest rates. That gets people to borrow more and bid up housing prices again, but that's only kicking the can down the road unless they plan to leave interest rates low indefinitely... except that's just what they did.
Meanwhile they also had to do something about the companies selling these credit default swaps, which were basically insurance banks bought against having their borrowers default. If AIG went bankrupt then so would all of these actual mortgage banks who they had insured and were about to have claims to file. And if all these mortgage banks went bankrupt -- even though they were the ones being smart and buying these credit default swaps -- investors would start to view mortgage lending as a risky investment in general. That would tend to raise mortgage interest rates, because investors would demand a higher return for this newfound risk. But they needed lower interest rates to keep housing prices from crashing and causing defaults/foreclosures, so they bailed out the dumb investors and insurance companies to save the "smart" mortgage banks who didn't expect their insurance scheme to be so successful that it bankrupted the insurance company.
This time, in 2020, it isn't a question of bailing out some insurance companies. The problem right now is that nobody really wants to borrow more money, despite literally zero interest rates, because they've been so low for so long that everybody is already leveraged to the hilt. But we're also experiencing deflationary forces from this coronavirus, which generally requires some kind of inflationary force to counter it and prevent a deflationary spiral -- commonly done by lowering interest rates to increase borrowing, except that everybody's already tapped out.
So what that leaves is having the government counter deflation by creating new money, and ideally give it directly to real people and not Wall St which has no excuse whatsoever to get it this time.
These are loans not bail outs. Low interest sure, but not outright handouts. Additionally, a lot of the customers these companies lend to are about to default. Those low interest loans will not save a company if they can't also survive those defaults.
Not saying companies weren't irresponsible or that it's "unfair", but it isn't the worst proposal.
It's funny how the most capitalist people I know can't see the hypocrisy when I use their neo-liberal arguments of 'meritocracy' and 'pull your boots up by your bootstraps' to show the contradiction in their arguments for a government funded bailout.
The root issue you are describing never gets the public’s attention during normal times. It’s an emergency right now, so we have to do it, but look - fuck the average person, they don’t give a fuck when things are fine. They don’t vote on real issues, and when shit hits the fan, I honestly don’t know anymore. It’s a seriously undereducated and literally unconscious public. We’ll forget about the underlying issues by summer.
So then you agree that capitalism with it's overly parasitic rentier/usury mechanisms is a ponzi scheme, waiting to collapse?
After collapse, hopefully we have a transition to a p2p mutual credit paradigm.
"They assert a belief in ‘free markets’ and want us to believe that economic policies are extending them. That is untrue. Today we have the most unfree market system ever created. It is deeply corrupt because its leaders claim it is the opposite of what it is becoming."
"How can politicians look into TV cameras and say we have a free market system when patents guarantee monopoly incomes for twenty years, preventing anyone from competing? How can they claim there are free markets when copyright rules give a guaranteed income for seventy years after a person’s death? How can they claim free markets exist when one person or company is given a subsidy and not others, or when they sell off the commons that belong to all of us, at a discount, to a favoured individual or company, or when Uber, TaskRabbit and their ilk act as unregulated labour brokers, profiting from the labour of others?
Far from trying to stop these negations of free markets, governments are creating rules that allow and encourage them. That is what this book is about."
"…today, a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income, not only from housing and land but from a range of other assets, natural and created. ‘Rentiers’ of all kinds are in unparalleled ascendancy and the neo-liberal state is only too keen to oblige their greed.
Rentiers derive income from ownership, possession or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation or financial investments, but other sources have grown too. They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’ (such as patents, copyright, brands and trademarks); capital gains on investments; ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge high prices or dictate terms); income from government subsidies; and income of financial and other intermediaries derived from third-party transactions."
There was a Reddit thread a day or two ago asking something along the lines of, "How is this pandemic going to change the future forever?"
People had some really wild ideas about how the population at large was going to have these revelations about globalization, the economy, their expenditures, travel, caring about one another, UBI, social norms, voting habits...
I don't know if these people were too young to notice around 2008 or what, but my prediction is that people will be only too happy to be able to be served a cheeseburger and a beer in a restaurant or bar, where they will bitch about the past few months for a couple weeks before promptly forgetting any of it happened.
Right, like if you think society is going to ponder ‘hey remember when our society went to shit because we all stopped going to restaurants for a month? Haha, weird, what a fragile economy/social system, wonder if we should figure that one out’ - not gonna happpen.
This one's a bit interesting, because everybody is staying home. Disproportionately many people, who still have jobs waiting for them when this is over but aren't doing them right now, so right now they have time to organize.
That hasn't really happened since the internet has existed.
Margin Call is a fictional movie and the 2008 financial crisis had many companies that died before bailouts. And those bailouts were loans that were paid back in full with interest so the US taxpayers actually made money for once.
None of this has to do with capitalism. Governments exist to look after the citizenship and step in during exigent circumstances like war and pandemics. Of course we want better corporate ethics and accountability, but letting critical companies die now will only lead to further ruin. We want to avoid total societal collapse, not accelerate it.
TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation.
Amazing profit the taxpayers made!
If the bailout was such a good deal, maybe the private industry could do it?
Yes, taxpayers didn't lose any money, made a tiny profit, and the economy was stabilized while preventing catastrophic failure. You consider this a bad outcome?
Public and private sectors work together. Private enterprise is great for growth and freedom but there are emergency situations where the government can help for the good of society. What is so controversial about this?
Notably compared to the 2008 program, this time around they allow dealer banks to take out cash loans using... equities.. as collateral.
Dealer goes bust, market takes a huge hit, and the collateral value shrinks in correspondence to that hit. Madness. And still the markets have barely even sniffed at these announcements.
I expect before this is all over, POTUS will be making those daily coronavirus livestreams wearing fancy dress and cracking jokes just to keep people interested, because they've already spent every last drop of substance in the opening weeks of what promises to be a 6+ month journey.
BoJ has for a long time purchased equities (like the fed will sometimes buy treasuries and MBS.) ECB just announced this as well. Would you rather equities used as collateral or to have the fed purchase them? As collateral, it is an interesting statement of faith on their future value.
If you follow MMT, we could do away with the whole “loan” shenanigans and just print it and distribute directly.
If you print to buy equities, that’s reasonable, as long as you’re distributing the gains to citizens as UBI and not just buying to put a price floor on assets to maintain the wealth of a small subset of the country. So start buying up assets and fire up ACH transfers for citizens to get their dividends.
“Backstop America”, not just the wealthy. That’s the injustice people take issue with (and rightfully so). We’ve seen this before, we’ve seen how it played out, and the appetite for it to be repeated is likely not there.
The appetite for bank bailouts wasn't there in 2008 either, people took issue with how banks paid massive bonuses during that time. Still it happened. We're doomed to repeat the mistake again
Bank bailouts weren’t the problem. Massive amount of fraud the banks allowed was the problem. They allowed people to borrow massive amounts of cash with little to no income. None of the senior execs were prosecuted.
To be clear, the fraud was banks packaging up subprime loans as prime and then dumping them on the secondary market to unsuspecting investors who thought they were getting quality mortgage bonds (I gloss over the nuance of tranches and CDOs for brevity).
This of course hurt homeowners who had loans made that never should’ve been made, but the root cause was investors not getting what they thought they were buying, and the resulting collapse in confidence. Homeowners were collateral damage, and as you mention, prosecutions were underwhelming (only 1 person was prosecuted).
I felt really bad about ordinary people that got clobberd and then just left to fend for themselves. Ordinary people don't buy houses as 'prudent investments'. They do it because that's where they are in life.
I initially found the article’s attitude against the Fed’s noted actions surprising, but slowly a bias from the author surfaced, particularly after I started seeing phrases like “toxic waste” and “a secret from the American people”. I am not saying Wall St. and/or/nor the Fed’s actions (or lack thereof) were correct for the time (2008), but this seemingly personal vendetta does not make for a valuable, objective piece of journalism. The author even notes herself as “an outspoken critic“ on the About page [1].
I don’t believe objective journalism exists, unless you are somehow able to represent all 7 billion human perspectives. If you think you are not neutral, or if you have to think about to check if are harming anyone, then there is a high chance that you are the dominator/oppressor [1].
Inflation happens when there is too much money in the economy. The total count of money isn’t really a thing, it is the amount of money * the rate at which it changes hands. So, in order for there to be inflation you have to have the amount of “money*hands” grow faster than consumption. Since we are at a period of extreme illiquidity (money isn’t moving around,) we can afford to add more money into the system. When the rate of money transfer picks up, you need to remove money from the system (raise interest rates.)
The first is what inflation is. The second is what we call a retraction or recession, and we have plenty of those where the "price of money" (buying power and cost to borrow) does not change. The third thing (which you did not mention) is "stagflation", which is basically "moving less stuff for more money".
Being constrained on the supply side would indeed cause prices to rise, but this is not inflation. Inflation is where the entire supply/demand curve is shifted (because money itself is worth more or less.)
As an example -- in inflation, both your gold necklace and your toilette paper would go up in price. In supply constraint, only your tp would go up in price. The value of a dollar hasn't changed (as evidenced by the price to sell your necklace.)
I'm not an economist, but I make money gambling on options as a hobby.
meanwhile the SBA is currently loaning money at 3.7 percent under the Coronavirus disaster relief initiative. Must be nice to get an almost interest free loan as a large company while use little people have to pay through the nose.
You seem to be misreading the parent comment. It isn't complaining about small businesses getting loans, it's complaining about them having to pay a higher interest rate than large corporations. (Presumably the reasons for that are a combination of the corporations being "too big to fail" and their loans being collateralized.)
Yeah, you're right. I didn't think any sane person that's eligible for an SBA loan would be complaining about a 4% interest rate. Private unsecured small business loans run like 20%.
This article, as written, is untrue. From a very quick search, "Triple-A CLO paper eligible for the Fed's PDCF" [0] would be a better term. What is "Triple A CLO paper" you might ask? Well, it's any loan(s) made to a company with triple A credit. And there are only 2 US Companies with triple A credit, again according to my very quick search: Microsoft, and Johnson & Johnson [1]. So, it's not as if these banks have a bunch of bad junk debt they can just toss of into the fed, and they're certainly not funding hedge funds.
>What is "Triple A CLO paper" you might ask? Well, it's any loan(s) made to a company with triple A credit
This is not exactly right. A CLO is a collateralized loan obligation. It's essentially a company that holds the loans of many other companies. Those companies may be highly or poorly rated.
The CLO finances it's loans by borrowing from investors (by issuing securities). The different securities take losses in different ways if the underlying loans go bad. One class of securities losses money as the loans go bad, then once they are wiped out, the next class takes losses and so on.
The last group to take losses is the triple-A CLO paper you referred to. It loses money only if >X% of the underlying loans in the company go bad, and thus is the most highly rated, assuming X is a sufficiently large number in relationship to the quality of the underlying loans.
Typical buyers of AAA CLO paper are insurance companies etc.
And yes, this is the very much like the structure that caused so much pain in the last crisis when it was filled with mortgages.
I get that the government has to do something, but what sucks about these bailouts designed to help America out are all the people that this won’t help. It’s the nature of the deal in this case.
Of course the executives at the banks and trade groups asking for these bailouts are trying to get the best possible deal for themselves, and once the money arrives those executives are the ones to decide how the compensation flows down the ladder - starting with themselves and shareholders.
No promise from these banks that “don’t worry, all this money will trickle down and save us!” can be trusted. Honestly, I hope the US government remembers 2008 and doesn’t just bend over to the banking industry to only have this same thing happen again in 10 years. It’s such a ruse by the banking industry at this point.
I don’t have an answer on what to do... that is something the American people need to push for. At least a starting point with figuring out the unknown is determining what not to do.
The government can’t keep acting like trust fund parents to the banking industry and other industry lobbying groups to enable executives and shareholders to live in a world where business consequences don’t affect them.
> what sucks about these bailouts designed to help America out are all the people that this won’t help.
Contrary to what you might think, this helps more people than just the banking industry. Without the banks giving out loans, your neighborhood McDonalds stops being able to hand out paychecks. Without incentive to do investments, your own company starts hoarding cash and laying off people just to survive. If a bank goes down -- not only does the bank and all of its employees suffer -- the banks are not prop shops: the money is owned by someone else. Your 401(k), your city's muni fund, pension fund, university endowment, etc., gone.
None of this is supposed to be a justification for trickle down economics, of course. Trickle down doesn't work. This is about saving what we have right now. An argument could be made that the banks are too big to fail, sure, but that doesn't change what needs to be saved, right now.
> I hope the US government remembers 2008 and doesn’t just bend over to the banking industry to only have this same thing happen again in 10 years.
These are very different times. 2008 is probably caused by the financial industry itself, sure. But this time around, the fundamentals is the problem: no matter how good the banks are, they're just not going to survive without help if the whole economy just shuts down for a year.
" This is about saving what we have right now. An argument could be made that the banks are too big to fail, sure, but that doesn't change what needs to be saved, right now."
This is exactly how it sounded in 2008. You have to throw money at the banks right now or the world will go under! No time for thinking.
And the ECB just announced more stimulus. The BoJ has gone further than anyone else by directly participating in the market by buying up japanese stocks for a few years now. The FED is probably signing up for a brokerage account at etrade right now.
For all the talk about capitalism, market economics and "something something bootstraps", the wealthy sure love being bailed out. But apparently, we are told it's for our benefit. Isn't that nice.
So is this the new normal? Continuous and neverending bailouts?
It was just 12 years ago that bernanke, paulson, etc justified the bailouts as once in a lifetime event. Are human lifetimes just 12 years now?
Sorry about that. I used an archive link to lessen traffic load on the original page, which operates without ads or other revenue streams. I will use the original source in future submissions.
91 comments
[ 0.25 ms ] story [ 247 ms ] threadYay let's subsidize Wall Street using public funds! "We can't afford universal healthcare", but we can totally - yet unnaturally - bail out (mostly rentier) capitalist businesses that have been reckless and parasitical.
Why not just let them die?
Has anyone watched the movie Margin Call?
Take a look at what happened to Lehman Brothers in 2008.
Why Americans would let a few bankers wield such power and be accountable to no one is another question.
If you require a bailout, you had your chance as a for profit concern. Entirely reasonable to run services at a loss as a government entity. Some services are simply expenses.
"Makes the trains run on time" is a pretty weak argument when the alternative (e.g. UPS) has a demonstrated ability to do the same thing without losing billions of dollars.
> If you require a bailout, you had your chance as a for profit concern. Entirely reasonable to run services at a loss as a government entity.
Isn't this a double standard? A private entity loses money and requires a taxpayer bailout once, they've had their chance. A government entity loses money and requires a taxpayer bailout every year, cost of doing business?
Can you clarify exactly how this happens? This has been claimed before, that these banks are "too big to be allowed to fail", but I haven't seen an explanation of why, and it is certainly in the interest of the banks to promulgate the idea "if we die it's the apocalypse" regardless of whether it's true.
The loss of money in the commercial sector means (after a series of cascading failures) we're all unemployed and burning dollars to stay warm.
Close, it's actually $250K per depositor per ownership category per institution. Multiple accounts in the same category don't add insurance limits.
Whether things are solvent or not, right now everything has to look like it’s totally under control. Perception is very critical here.
People have a tendency to call everything a bank. Lehman Brothers was an investment bank. AIG is an insurance company. They were buying and selling mortgages and credit default swaps, but they weren't savings banks or mortgage banks.
What happened in 2008 was that the mortgage banks (spurred on by government policy) were making mortgage loans to everybody. People with bad credit. Interest only payments. Because the regular banks were selling the mortgages to Lehman Brothers or buying credit default swaps from AIG, so they didn't care if people would default. This naturally caused housing prices to soar.
Then interest rates went up a little and people did start to default. Then people started to notice how uncreditworthy those borrowers were and didn't want to buy those mortgages anymore ("toxic assets"), so banks stopped making them. Which tends to cause housing prices to crash, which tends to lead to more defaults as people notice they're underwater, and so on.
If housing prices came down a lot there would be too many defaults, so the Fed responded by lowering interest rates. That gets people to borrow more and bid up housing prices again, but that's only kicking the can down the road unless they plan to leave interest rates low indefinitely... except that's just what they did.
Meanwhile they also had to do something about the companies selling these credit default swaps, which were basically insurance banks bought against having their borrowers default. If AIG went bankrupt then so would all of these actual mortgage banks who they had insured and were about to have claims to file. And if all these mortgage banks went bankrupt -- even though they were the ones being smart and buying these credit default swaps -- investors would start to view mortgage lending as a risky investment in general. That would tend to raise mortgage interest rates, because investors would demand a higher return for this newfound risk. But they needed lower interest rates to keep housing prices from crashing and causing defaults/foreclosures, so they bailed out the dumb investors and insurance companies to save the "smart" mortgage banks who didn't expect their insurance scheme to be so successful that it bankrupted the insurance company.
This time, in 2020, it isn't a question of bailing out some insurance companies. The problem right now is that nobody really wants to borrow more money, despite literally zero interest rates, because they've been so low for so long that everybody is already leveraged to the hilt. But we're also experiencing deflationary forces from this coronavirus, which generally requires some kind of inflationary force to counter it and prevent a deflationary spiral -- commonly done by lowering interest rates to increase borrowing, except that everybody's already tapped out.
So what that leaves is having the government counter deflation by creating new money, and ideally give it directly to real people and not Wall St which has no excuse whatsoever to get it this time.
Not saying companies weren't irresponsible or that it's "unfair", but it isn't the worst proposal.
Wall Street loves socialism for bankers!
In my experience, this sounds like grandiosity talking.
This is the alternative you are suggesting? I enjoy making straw man arguments, it’s my favorite usually.
So then you agree that capitalism with it's overly parasitic rentier/usury mechanisms is a ponzi scheme, waiting to collapse?
After collapse, hopefully we have a transition to a p2p mutual credit paradigm.
"They assert a belief in ‘free markets’ and want us to believe that economic policies are extending them. That is untrue. Today we have the most unfree market system ever created. It is deeply corrupt because its leaders claim it is the opposite of what it is becoming."
"How can politicians look into TV cameras and say we have a free market system when patents guarantee monopoly incomes for twenty years, preventing anyone from competing? How can they claim there are free markets when copyright rules give a guaranteed income for seventy years after a person’s death? How can they claim free markets exist when one person or company is given a subsidy and not others, or when they sell off the commons that belong to all of us, at a discount, to a favoured individual or company, or when Uber, TaskRabbit and their ilk act as unregulated labour brokers, profiting from the labour of others?
Far from trying to stop these negations of free markets, governments are creating rules that allow and encourage them. That is what this book is about."
"…today, a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income, not only from housing and land but from a range of other assets, natural and created. ‘Rentiers’ of all kinds are in unparalleled ascendancy and the neo-liberal state is only too keen to oblige their greed.
Rentiers derive income from ownership, possession or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation or financial investments, but other sources have grown too. They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’ (such as patents, copyright, brands and trademarks); capital gains on investments; ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge high prices or dictate terms); income from government subsidies; and income of financial and other intermediaries derived from third-party transactions."
- Guy Standing
There was a Reddit thread a day or two ago asking something along the lines of, "How is this pandemic going to change the future forever?"
People had some really wild ideas about how the population at large was going to have these revelations about globalization, the economy, their expenditures, travel, caring about one another, UBI, social norms, voting habits...
I don't know if these people were too young to notice around 2008 or what, but my prediction is that people will be only too happy to be able to be served a cheeseburger and a beer in a restaurant or bar, where they will bitch about the past few months for a couple weeks before promptly forgetting any of it happened.
That hasn't really happened since the internet has existed.
None of this has to do with capitalism. Governments exist to look after the citizenship and step in during exigent circumstances like war and pandemics. Of course we want better corporate ethics and accountability, but letting critical companies die now will only lead to further ruin. We want to avoid total societal collapse, not accelerate it.
Amazing profit the taxpayers made!
If the bailout was such a good deal, maybe the private industry could do it?
Public and private sectors work together. Private enterprise is great for growth and freedom but there are emergency situations where the government can help for the good of society. What is so controversial about this?
Dealer goes bust, market takes a huge hit, and the collateral value shrinks in correspondence to that hit. Madness. And still the markets have barely even sniffed at these announcements.
I expect before this is all over, POTUS will be making those daily coronavirus livestreams wearing fancy dress and cracking jokes just to keep people interested, because they've already spent every last drop of substance in the opening weeks of what promises to be a 6+ month journey.
If you follow MMT, we could do away with the whole “loan” shenanigans and just print it and distribute directly.
“Backstop America”, not just the wealthy. That’s the injustice people take issue with (and rightfully so). We’ve seen this before, we’ve seen how it played out, and the appetite for it to be repeated is likely not there.
This of course hurt homeowners who had loans made that never should’ve been made, but the root cause was investors not getting what they thought they were buying, and the resulting collapse in confidence. Homeowners were collateral damage, and as you mention, prosecutions were underwhelming (only 1 person was prosecuted).
[1]: https://wallstreetonparade.com/about-3/about/
[1] https://www.historyisaweapon.com/defcon1/imperialism.html
And then there will be no money to fund the FDIC.
Maybe bring one or two levels of armed backup, however.
Moving the same stuff for more money.
Moving less stuff for the same amount of money.
It's seems like a bunch of free with supply side scarcity of the basics due to hording could cause inflation... Maybe?
I have hardly any background in economics, so feel free to point out the holes. These are just my thoughts after reading your comment.
Being constrained on the supply side would indeed cause prices to rise, but this is not inflation. Inflation is where the entire supply/demand curve is shifted (because money itself is worth more or less.)
As an example -- in inflation, both your gold necklace and your toilette paper would go up in price. In supply constraint, only your tp would go up in price. The value of a dollar hasn't changed (as evidenced by the price to sell your necklace.)
I'm not an economist, but I make money gambling on options as a hobby.
[0] - https://www.globalcapital.com/article/b1kt9stqwx0q2q/triplea...
[1] - https://www.investopedia.com/stock-analysis/2011/what-do-aa-...
Edit:
Official source: https://www.federalreserve.gov/newsevents/pressreleases/mone...
This is not exactly right. A CLO is a collateralized loan obligation. It's essentially a company that holds the loans of many other companies. Those companies may be highly or poorly rated.
The CLO finances it's loans by borrowing from investors (by issuing securities). The different securities take losses in different ways if the underlying loans go bad. One class of securities losses money as the loans go bad, then once they are wiped out, the next class takes losses and so on.
The last group to take losses is the triple-A CLO paper you referred to. It loses money only if >X% of the underlying loans in the company go bad, and thus is the most highly rated, assuming X is a sufficiently large number in relationship to the quality of the underlying loans.
Typical buyers of AAA CLO paper are insurance companies etc.
And yes, this is the very much like the structure that caused so much pain in the last crisis when it was filled with mortgages.
I've been reading about corporate bonds causing the next financial crisis since at least 2015.
Of course the executives at the banks and trade groups asking for these bailouts are trying to get the best possible deal for themselves, and once the money arrives those executives are the ones to decide how the compensation flows down the ladder - starting with themselves and shareholders.
No promise from these banks that “don’t worry, all this money will trickle down and save us!” can be trusted. Honestly, I hope the US government remembers 2008 and doesn’t just bend over to the banking industry to only have this same thing happen again in 10 years. It’s such a ruse by the banking industry at this point.
I don’t have an answer on what to do... that is something the American people need to push for. At least a starting point with figuring out the unknown is determining what not to do.
The government can’t keep acting like trust fund parents to the banking industry and other industry lobbying groups to enable executives and shareholders to live in a world where business consequences don’t affect them.
Contrary to what you might think, this helps more people than just the banking industry. Without the banks giving out loans, your neighborhood McDonalds stops being able to hand out paychecks. Without incentive to do investments, your own company starts hoarding cash and laying off people just to survive. If a bank goes down -- not only does the bank and all of its employees suffer -- the banks are not prop shops: the money is owned by someone else. Your 401(k), your city's muni fund, pension fund, university endowment, etc., gone.
None of this is supposed to be a justification for trickle down economics, of course. Trickle down doesn't work. This is about saving what we have right now. An argument could be made that the banks are too big to fail, sure, but that doesn't change what needs to be saved, right now.
> I hope the US government remembers 2008 and doesn’t just bend over to the banking industry to only have this same thing happen again in 10 years.
These are very different times. 2008 is probably caused by the financial industry itself, sure. But this time around, the fundamentals is the problem: no matter how good the banks are, they're just not going to survive without help if the whole economy just shuts down for a year.
This is exactly how it sounded in 2008. You have to throw money at the banks right now or the world will go under! No time for thinking.
Yes, that's exactly what you do. You fix the imminent problem now, and then introduce legislative measures later. See Dodd-Frank.
For all the talk about capitalism, market economics and "something something bootstraps", the wealthy sure love being bailed out. But apparently, we are told it's for our benefit. Isn't that nice.
So is this the new normal? Continuous and neverending bailouts?
It was just 12 years ago that bernanke, paulson, etc justified the bailouts as once in a lifetime event. Are human lifetimes just 12 years now?