Tag: bailout

Faith in the powerful? Whose power?

by Economoralist in ChiefTimely CommentaryLeave a Comment on Faith in the powerful? Whose power?

We don’t necessarily envy the role Steve Mnuchin has to play right now, but this article could’t help but get us thinking about the very tenets of the Economorals blog (particularly the last one on the list below). A refresher:

  • Who gets to define “need”? Who gets to define “want”?
  • Ask not (yet) what your economy can do for you.
  • Ask not (yet) what you can do for your economy.
  • Ask first: What purpose does your economic system serve in the first place?
  • Ask then: How closely aligned are the views & values of popular economists to your own, as they relate to the previous question??

The Week: Coronavirus stimulus will make Mnuchin ‘one of the most powerful Cabinet members in modern history’

https://theweek.com/speedreads/905240/coronavirus-stimulus-make-mnuchin-most-powerful-cabinet-members-modern-history

“…a $500 billion funding program, and Mnuchin will oversee how it’s distributed to local and state governments, as well as businesses, the Post notes. He’ll undoubtedly face pressure from corporate executives looking for bailouts from that fund, and will have to weigh those pleas alongside the needs of taxpayers.”

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Beggars can’t be choosers (except when we choose the beggars we like better)

by Economoralist in ChiefTimely CommentaryLeave a Comment on Beggars can’t be choosers (except when we choose the beggars we like better)

Politico: Washington Is About to Pick Which Companies Survive

https://www.politico.com/news/magazine/2020/03/22/bailout-coronavirus-congress-crisis-142961

A practical viewpoint we can get behind:

“The first rule for getting out of a hole is to stop digging, and that means throwing money at any business that can make more tests, masks or ventilators, provide more hospital beds or medical supplies, or otherwise help get the pandemic under control.”

This one’s a little more slippery:

“It may seem unfair to send other blameless industries to the back of the line, especially after Washington approved $700 billion for too-big-to-fail banks that actually caused the cataclysm in 2008, but it really reflects the same principle. The crisis in 2008 was a financial panic, an all-out run on the financial system that props up the economy; the only way to end the panic was to assure depositors and creditors that their money would be safe in the system, and the only way to do that was to have the government stand behind the banks.”

And while we agree “Jubilee” would come with its own set of moral hazards, we’d be short of calling it any more “crazy” than the alternatives (I mean, relatively speaking):

“This is why one Main Street solution floating around, a “Jubilee”-type mandate where the government suspends all payments on mortgages and rent and other loans for a couple months, could freak out creditors and destabilize the financial system yet again. “That. Would. Be. Crazy!” another crisis veteran told me.”

Unfortunately, it comes down to the simple fact that some will get their money back (and then some) for the risks they took, while others will not. And who or what will determine which category you fall into? It won’t be the quality of your planning & execution, or the efficacy of your risk management protocols, or even your simple prudence. Rather, it will be a decision made by a government bureaucrat. As such, how likely will you be to ever take that risk again? Regardless of the quality, merit, or potential value of your ideas? Probably depends which category the government put you into. From this point forward. #MoralHazard

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What happens when you “throw money at the problem”.

by Economoralist in ChiefIn the NewsLeave a Comment on What happens when you “throw money at the problem”.

MarketWatch: Exclusive: Fed is ‘throwing money in the wrong place,’ says Sheila Bair, former top banking regulator

https://www.marketwatch.com/story/exclusive-fed-is-throwing-money-in-the-wrong-place-says-sheila-bair-former-top-banking-regulator-2020-03-15

“They are throwing money in the wrong place,” Bair said of an unprecedented move by the Fed on Sunday to slash benchmark rates to zero and start a $700 billion Treasury- and mortgage-bond buying program.

“Lowering interest rates to zero doesn’t help if businesses can’t pay their loans back and they don’t have cash flow,” she said. “We need to get help out there, especially to small businesses and people already losing their jobs.”

“Companies, shame on them, but they have borrowed too much,” Bair said, added that’s a consequence of having 10 years of ultra-low rates.

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Free money for Wall Street? Or free cash for the people? Is either really “free”?

by Economoralist in ChiefTimely CommentaryLeave a Comment on Free money for Wall Street? Or free cash for the people? Is either really “free”?

When it comes to plugging up the gaps in our financial system that will inevitably result from the Coronavirus crisis, it seems to be “pick your poison”:

  1. Targeted bailouts to those corporations and businesses “deemed critical” to the economy (a.k.a. those with the right political connections)
  2. Free cash for everyone (a.k.a. inflationary socialism, or “modern monetary theory” as touted by some)

There will be variations of both scenarios proposed- whether it’s cherry-picking the “insiders” who get the corporate & Wall Street bailouts, and whether those bailouts end up focusing primarily on the banking system vs. direct company support – or “compromising” on the “free cash for everybody” idea and instead setting artificial thresholds for who actually gets the “free cash” (i.e. pity the poor soul who makes $81k/year if the “threshold” ends up getting set at $80k – he/she would have been better asking for a pay cut, or simply working less).

None of it is free, some of it might be slightly more “fair” than others, but all of it is fraught with some degree of moral hazard. Also, all of it ultimately leads to devaluation of our life’s labors – whether through direct currency devaluation and resulting inflation, or by further separating capital from labor, and the financial system from the real economy. Nobody really wins, but some might come out slightly ahead – at least relative to their definition of success.

CBS News: As coronavirus recession threatens, economists recommend cash for people

https://www.cbsnews.com/news/as-coronavirus-market-recession-threatens-economists-say-just-send-money/

“To cushion the economy, “You need something that would be targeted at boosting people’s incomes in the near term — tax rebates, basically cash giveaways, that sort of thing…”

“…less enthusiastic about other reported fixes, such as tax breaks or targeted industry bailouts.”

“Direct payments are preferable to tax cuts or juiced-up unemployment insurance for a number of reasons. Checks “go to everyone, including people that can’t work; come in a lump sum, so they are big enough to matter; and support is [the] same for all”

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