
Fed reinstates multi-trillion dollar bailout program for Wall Street - jules-jules
https://wallstreetonparade.com/2020/03/fed-announces-program-for-wall-street-banks-to-pledge-plunging-stocks-to-get-trillions-in-loans-at-%C2%BC-percent-interest/
======
slovenlyrobot
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.

~~~
aaronblohowiak
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.

~~~
toomuchtodo
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.

~~~
TAForObvReasons
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

~~~
adrr
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.

~~~
toomuchtodo
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).

~~~
Gibbon1
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.

------
cellis
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.

[0] -
[https://www.globalcapital.com/article/b1kt9stqwx0q2q/triplea...](https://www.globalcapital.com/article/b1kt9stqwx0q2q/triplea-
clo-paper-eligible-for-the-fed39s-pdcf)

[1] - [https://www.investopedia.com/stock-analysis/2011/what-do-
aa-...](https://www.investopedia.com/stock-analysis/2011/what-do-aa-and-aaa-
credit-ratings-mean-jnj-xom-adp-msft0809.aspx)

Edit:

Official source:
[https://www.federalreserve.gov/newsevents/pressreleases/mone...](https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317b.htm)

~~~
ddeck
_> 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.

~~~
runawaybottle
And to make things worse, the ratings were manipulated the last go around.

~~~
onlyrealcuzzo
Is there sufficient reason to believe they haven't been for corporate bonds?

I've been reading about corporate bonds causing the next financial crisis
since at least 2015.

------
LordOfWolves
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].

[1]:
[https://wallstreetonparade.com/about-3/about/](https://wallstreetonparade.com/about-3/about/)

~~~
thulecitizen
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].

[1]
[https://www.historyisaweapon.com/defcon1/imperialism.html](https://www.historyisaweapon.com/defcon1/imperialism.html)

------
siruncledrew
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.

~~~
yzmtf2008
> 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.

~~~
Ididntdothis
" 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.

~~~
yzmtf2008
> 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.

------
lgleason
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.

~~~
dcftoapv
I misread this comment; my bad.

~~~
bjacokes
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.)

~~~
dcftoapv
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%.

------
dntbnmpls
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?

------
dang
We changed the url from [http://archive.fo/RlH0d](http://archive.fo/RlH0d) to
the original source, as the site guidelines ask:
[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html).

~~~
jules-jules
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.

~~~
dang
Appreciated!

------
devnullbyte
got to socialize those loses!

------
xapata
Turns out the Yang plan is a better idea, and might even be cheaper.

------
titzer
Terrible move. They will still fail.

And then there will be no money to fund the FDIC.

~~~
thulecitizen
There will be money, there will always be more money. That's the nature of
national fiat money. Is it trust you are talking about, integrity?

~~~
mr_toad
Well, if they just start printing money to bail everybody out, at least we’ll
have a source of toilet paper.

~~~
aaronblohowiak
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.)

~~~
swsieber
I can see two sources of inflation:

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.

~~~
aaronblohowiak
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.

------
charred_toast
Bailing companies out isn't capitalism.

------
olliej
well, it is important that large financial business get to have an interest
free loan.

------
thulecitizen
> 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.

Why not just let them die?

Has anyone watched the movie Margin Call?

~~~
runawaybottle
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.

~~~
randomdude402
Agree.

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.

~~~
runawaybottle
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.

~~~
AnthonyMouse
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.

