Author: Economoralist in Chief

Banking on bad times? (or what happens when you know you’ll be made immune from a downturn)

by Economoralist in ChiefIn the NewsLeave a Comment on Banking on bad times? (or what happens when you know you’ll be made immune from a downturn)

While the world waits for “herd immunity” to take hold to help protect us from ongoing waves of the Coronavirus, a different kind of “herd” is once again being made immune from bearing any responsibility for their irresponsible debt-fueled actions over the past decade. And unlike with COVID-19, the government is guaranteeing their survival.

Forbes: Stimulus Money May Jumpstart The Economy, But Who Is Picking Up The Tab?

https://www.forbes.com/sites/georgeschultze/2020/04/09/irs-plans-to-start-releasing-stimulus-checks-next-week/

“There’s no doubt that it’s socially desirable to rescue our economy; but are we attempting to solve a debt problem by piling on more debt? That’s a scenario that may not end so well. “

“Also, why were we so focused on stopping a market correction? Doesn’t the mere drop in prices caused by a dramatic market sell off automatically help form the basis of the next market recovery? Socializing losses while privatizing profits sounds great politically, but with each successive crisis, the likelihood of future victories grows more remote.”

“…efficient markets, which automatically reallocate capital from failed businesses to successful ones, get unsettled when politically-powerful zombie firms (with far too much debt) successfully lobby for handouts when times get tough.”

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Bailing out summer in the Hamptons?

by Economoralist in ChiefIn the NewsLeave a Comment on Bailing out summer in the Hamptons?

Is “summer in the Hamptons” for a certain segment of the population a “critical function of our economy” that requires a federal bailout with taxpayer dollars? You decide. Chamath Palihapitiya, founder and CEO of investment firm Social Capital, has an opinion.

CNBC: Chamath Palihapitiya: US shouldn’t bail out hedge funds, billionaires during coronavirus pandemic

https://www.cnbc.com/2020/04/09/chamath-palihapitiya-us-needs-to-let-hedge-funds-billionaires-fail.html

“On Main Street today, people are getting wiped out. Right now, rich CEOs are not, boards that have horrible governance are not. People are,” Palihapitiya, an early Facebook executive, said on CNBC’s “Fast Money Halftime Report.”

“What we’ve done is disproportionately prop up poor-performing CEOs and boards, and you have to wash these people out.”

“Just to be clear on who we are talking about. We’re talking about a hedge fund that serves a bunch of billionaire family offices, who cares? They don’t get the summer in the Hamptons?” he said. “These are the people that purport to be the most sophisticated investors in the world.”

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Prudent and responsible investing? No longer tolerated.

by Economoralist in ChiefIn the NewsLeave a Comment on Prudent and responsible investing? No longer tolerated.

Enough said. By Scott Minerd, the Chief Investment Officer of Guggenheim Partners. In reference to the Fed’s latest round of QE, bond-buying, everything-buying, really.

Scott Minerd on Twitter: The #Fed has made it clear that it will not tolerate prudent and responsible investing.

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If Wall Street is happy, does it matter if anyone else is?

by Economoralist in ChiefIn the NewsLeave a Comment on If Wall Street is happy, does it matter if anyone else is?

CNBC: Cramer: Wall Street says ‘happy days are here again.’ That’s not what Main Street thinks.

https://www.cnbc.com/2020/04/07/cramer-wall-street-optimism-on-coronavirus-not-shared-on-main-street.html

“There is a happy days are here again Wall Street impression versus what I hear … people saying, ‘Can I get a mask? How do I get a mask? Do I want an N95?’ “Look, I like it. I love optimism … but I don’t like getting sick,”

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Fiscal irresponsibility: If no one notices the problem, is it really a problem?

by Economoralist in ChiefTimely CommentaryLeave a Comment on Fiscal irresponsibility: If no one notices the problem, is it really a problem?

It’s a legitimate question, at this point. Time will tell if the math ultimately gives out, or if the “dismal science” of economics can continue to live up to its name in defying expectations.

Maybe it’s just another example of economic moral relativity?

If you strive to live in a world where individual responsibility is a virtue, then we might just have a problem here, folks.

If not, then who are we to judge? Only history will be able to do that.

American Institute for Economic Research: A Fate Worse than Hyperinflation

A Fate Worse than Hyperinflation
https://www.aier.org/article/a-fate-worse-than-hyperinflation/

“…easy money generates risk free profits for banks and growing federal deficits. Worst of all, the public is unaware.”

“The political system has developed a formula over the last decade that has only pushed in the direction of further fiscal irresponsibility. Fiscal expansion is not followed by higher taxes or a period of fiscal constraint. It is supported by a central bank that has become increasingly effective at hiding the detrimental effects of this policy. “

“The pain that will accompany a shift toward responsible behavior, whether adopted voluntarily or involuntarily in the case of a day of reckoning, is only increasing.”

“A lack of awareness of the dangers faced in this game by both the public and by politicians leaves the audience of public opinion in a collective yawn in response to discussion of fiscal responsibility.”

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Another case of privatized gains, socialized losses?

by Economoralist in ChiefIn the NewsLeave a Comment on Another case of privatized gains, socialized losses?

We’re all for keeping the little guys afloat. And whatever you think of the private-equity model in the first place, and what it means for “short-term bottom-line impact vs. long-term growth and workers” (perhaps a discussion for another day) it might all be fine until you read that last part…

(Hint: It’s Risk/Reward – until you take all the risk away from those who stand to get the greatest rewards)

(Another Hint: As long as the wealthy get to stay wealthy first and foremost, then some folks might be willing to help keep the little guys afloat)

SFGate: Behind the scenes, private equity angles for a piece of stimulus

https://www.sfgate.com/news/article/Behind-the-scenes-private-equity-angles-for-a-15182768.php

“…the private-equity model often leads to more unemployed workers because firms are focused on ruthless efficiency and the investors’ bottom line, rather than long-term growth and workers.”

“Currently, most small companies in a private-equity firm’s portfolio don’t qualify for stimulus funds provided through the Small Business Administration under what is known as the “affiliation rule.” Businesses must report if they have major investors, and they are blocked from the program on the theory that they can borrow money from their larger and deep-pocketed private-equity backers, rather than taxpayers.“

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Maybe those old savers were on to something?

by Economoralist in ChiefTimely CommentaryLeave a Comment on Maybe those old savers were on to something?

To be fair to the young adults, our policies, what with QE, ZIRP, NIRP, no-money-down-mortgages, asset price inflation, bailouts, soaring college costs, identity politics, everyones-entitled-to-a-free-lunch (but especially Wall Street), etc… kind of made debt seem “cool” over the past few decades. Wonder where they got it from? At least they’re starting to question it now…

NY Times: Young Adults, Burdened With Debt, Are Now Facing an Economic Crisis

https://www.nytimes.com/2020/04/06/business/millennials-economic-crisis-virus.html

“You compare it to the older generations — they worked up and saved money,”

Bad Behavior = Benefits & Bailouts?

by Economoralist in ChiefIn the NewsLeave a Comment on Bad Behavior = Benefits & Bailouts?

Stamford Advocate: U.S. airlines want a $50 billion bailout. They spent $45 billion buying back their stock.

https://www.stamfordadvocate.com/business/article/U-S-airlines-want-a-50-billion-bailout-They-15182769.php

“But what I am saying is that the terms of the bailout money that the airlines get from us should reflect the fact that a substantial part of their current financial problem is of their own making.”

“But it’s a point that we should keep in mind every time we see companies line up at the bailout trough. If many of these companies hadn’t spent lots of money to buy back their own stock to prop up its price, they wouldn’t need anywhere near as much money as they need now. “

“The main reason companies buy back stock in the market, of course, is to support their share price. High stock prices not only make shareholders happy but also increase top executives’ wealth by making their shareholdings and stock-purchase options more valuable.”

“In addition, in many cases higher share prices help trigger higher executive compensation because share price is one of the metrics that corporate boards often use to determine executives’ compensation packages.”

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Tough decisions today. Who will value the future returns?

by Economoralist in ChiefIn the NewsLeave a Comment on Tough decisions today. Who will value the future returns?

We don’t envy the decisions that policy-makers have to make in light of the Coronavirus crisis. We’re not going to pretend there are any easy decisions here. Or that there are any magic-bullet answers. Because there aren’t. It hardly benefits anyone if the entire system collapses at once. But, how we approach those decisions, how we apply them going forward, and how (if at all) we learn from and deal with the inevitable fallout from those decisions, will say much about our values as a society (or at least, the values of those in charge of making the decisions?).

History will be the judge on this one. As will all the people watching – and their reactions once the dust settles. The question will be – are enough even paying attention?

AP: Hawks no more: Fiscal conservatives embrace rescue package

https://apnews.com/5c295f39bcb742aea238640be1b92735

“This is a response to an invasion,” he told reporters. “This is the kind of thing you’d have to do if we were at war.”

“Failing to take dramatic action now, Toomey said, “would be a wildly imprudent thing, and it would probably result in such a severe recession — it might very well be a depression — and it could take decades to come out of this.”

“The future will be more painful,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.”

Still, she added: “This is definitely not the time to worry about the deficit. This is the time to be borrowing as much as we need to deal with the huge health crisis.”

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When bailouts go bait-and-switch. Already.

by Economoralist in ChiefIn the NewsLeave a Comment on When bailouts go bait-and-switch. Already.

It’s perhaps a minor example in the grand scheme of things, and especially given what’s likely to come, but the early signs aren’t good. While we fully appreciate that businesses and organizations will have tough decisions to make around how they stay afloat (or don’t), including whether they are capable of retaining employees, the stakes are raised when taxpayer money is involved (which is why we generally don’t love for taxpayer money to be involved).

One could even attempt to make a cogent argument (welcomed on this blog) that arts & music are an important form of social/cultural infrastructure valued by a not-negligible segment of the population. We can respect that. Whether a particular performing arts facility, in a particular building, with a particular governing board, with a particular set of individuals drawing down compensation — perhaps that’s a different story.

In this case, taking taxpayer money (questionable in the first place) while lying (or at least dealing in vagaries) about how it would be used is just a bad look. And to think, the bailouts are just getting started…

Washington Free Beacon: Kennedy Center Tells Musicians It Will Stop Paying Them Hours After $25 Million Bailout Is Signed

https://freebeacon.com/issues/kennedy-center-tells-musicians-will-stop-paying-them-hours-after-25-million-bailout-signed/

“Congress included $25 million in taxpayer funding for the Kennedy Center, a provision that raised eyebrows from both Democrats and Republicans, but ultimately won support from President Trump. The bailout was designed to “cover operating expenses required to ensure the continuity of the John F. Kennedy Center for the Performing Arts and its affiliates, including for employee compensation and benefits, grants, contracts, payments for rent or utilities, fees for artists or performers,” according to the law’s text.”

followed quickly by:

“Everyone should proceed as if their last paycheck will be April 3,” the email says. “We understand this will come [as a] shock to all of you, as it did to us.”

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