Fed reinstates multi-trillion dollar bailout program for Wall Street
wallstreetonparade.com
wallstreetonparade.com
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).
[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.
[1] https://www.historyisaweapon.com/defcon1/imperialism.html
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?
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.
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.
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?