
Fed should pay every American, let hedge funds and billionaires ‘get wiped out’ - kensai
https://www.marketwatch.com/story/fed-should-pay-every-american-more-let-hedge-funds-and-billionaires-get-wiped-out-says-social-capital-ceo-2020-04-09
======
mrosett
> But Palihapitiya argued that rather giving workers relatively small $1,200
> checks, the U.S. would be better off giving everyone larger payments
> directly, and skip businesses entirely.

> “It would be better for the Fed to have given half a million to every man,
> woman and child in the United States,” he said.

Yes, we can definitely spend _checks notes_ 150 trillion dollars on that. How
do people keep making the exact same arithmetic mistake? And why are we
expected to listen to people who can't do simple arithmetic?

> Palihapitiya’s argument, basically, is: Let those businesses fail, but
> without layoffs, and let the rich stakeholders absorb the pain.

> When a business typically fails, Palihapitiya said, “it does not fire their
> employees,” instead going though a bankruptcy process that often preserves
> pensions, and employees end up owning more of the company in the end.

Sometimes bankruptcy works out the way he's describing. Sometimes the assets
get sold for scrap and the workers are all out of a job. I'm less sanguine
than this guy is that letting a whole bunch of companies fail all at once
would be a windfall for workers (not to mention everyone else.)

Mind you, I do think that equity holders should be taking a big hit. (That's
what equity holders are for.) I just think the details would be a lot messier
than he's imagining.

~~~
ardme
He made the same mistake on the "Pomp" podcast the other day too. He was
saying we send 50k to every person in the USA for the stimulus.

Well, no. 2 trillion divided by by 327 million is $6,116 dollars. So yeah
maybe we should divide the 2 trillion up between the people but he got a
decimal point wrong.

Personally it seems more effective to send most of the money to hospitals and
medical organizations because people wouldn't necessarily be able to use
stimulus money for anything now anyway.

Seems like it makes sense to prop up businesses since you can't build a
business overnight and most people would not be able to start one easily.

I like some of his arguments but basically give them any real thought and this
guy is just trying to get attention by saying shocking things.

~~~
asdff
People aren't going to be buying stuff with this. They will be paying rent,
other bills, and debts, because a lot of people have been laid off already
with more layoffs coming every week. These people are going to be in a world
of hurt without any intervention; 4 in 10 americans can't come up with $400.

------
lordnacho
He's spot on. Equity risk is for people who want risk. Even risks they hadn't
thought of like a virus shutting down the economy.

Corporate bankruptcy is a reasonable way to redistribute claims, and we should
use it. Not even every business in trouble will go under, a lot will simply be
bought by someone wanting to take over the risk at a sensible price. No jobs
need to be lost.

I'm all in favour of bailing out real people though.

~~~
mrosett
He's spot on that equity risk should actually have downside. But the idea that
a whole bunch of massive corporations can fail and no jobs would be lost seems
like a real stretch to me. In fact, it's strange to think that a company
_wouldn 't_ have fewer employees coming out of bankruptcy if one of the causes
was being overextended.

~~~
chickenpotpie
Counterpoint, companies will learn not to overextend and we won't have to
worry about job loss or bailouts the next time this happens

~~~
dllthomas
Companies can't "learn not to overextend" for things this rare. If they spend
a bunch of resources making sure they can weather sufficiently infrequent
storms, they'll be out competed in the shorter term by companies that refuse
to.

If we need companies to prepare for this kind of thing, we need to somehow
test their readiness more frequently.

~~~
Ericson2314
Companies should just plan on failing, and everyone moves on to the next
thing. Not everything has to last for ever.

~~~
dllthomas
Yeah, my point was just that "make them hurt so they learn" doesn't really
make sense here. There may be plenty of reasons to allow companies to fail, in
particular instances or in general.

------
strictnein
I get that it's a clickbait headline, but he doesn't seem to be making any
coherent point.

Somehow billionaires, debt holders, etc will get wiped out, companies will go
bankrupt and protect their employee pensions (what are those?), and then they
will reemerge being partially owned by their employees.

> "“It would be better for the Fed to have given half a million to every man,
> woman and child in the United States,” he said."

What now? A $165 Trillion bailout?

~~~
totalZero
The number is off, but it doesn't matter. I think he was being hyperbolical,
but we can consider the idea of bailout to people vs bailout to corporations
anyway.

Give each family 60k, and you cover them for a year at the same cost of the
bailout that actually occurred.

In that scenario....

Groceries get bought. Bills get paid. Essential businesses make money, which
means they get compensated for being useful. That's a good thing.

Elderly employees who don't feel comfortable working, can quit their jobs.

We have grown so accustomed to rampant corporate feudalism that it almost
feels un-American to question the collapse of companies that are not essential
to the health and well-being of our citizens or our government. It feels wrong
to allow the financial losses of a billionaire who knowingly bought a risk
asset, only because we have been told for years that normal people need
billionaires to create our jobs for us.

Let them take it in the face for once. Risks have a downside factor. We
shouldn't eliminate that just because rich people want to maintain their
riches.

~~~
EGreg
I will go even further.

Why not give everyone a UBI and let things shift towards strengthening
necessities all the time? People who make less money have a higher Marginal
Propensity to Consume necessities. That would correctly distribute what’s
needed in society by actual level of need. It would also automatically adjust
to shortages etc.

I think as entrepreneurs we can all say that investors put in $$ when they see
demand for your products and services, and not because they got a tax break!

------
aazaa
To paraphrase...

Planes, employees, and marketing power, for example, all outlive the
bankruptcy.

A bankruptcy wipes out speculators and what should be sophisticated investors.
They can take it, and this is what they signed up for.

The company that emergence from bankruptcy does so without the debt it had
heading in.

~~~
itg
Wouldn't 401k's and pensions also get wiped out?

~~~
toomuchtodo
You can hack around that with policy. Think of SIPC insurance: in the event
something crazy goes on with your brokerage, they step in and provide cash
value of the equities at the time the insurable event took place.

I've provided the below link as an example; ignore the limits, they would not
be adhered to for my example due to extraordinary circumstances.

Disclaimer: Huge fan of Chamath coming out and telling it how it is on CNBC.

[https://www.sipc.org/for-investors/what-sipc-
protects](https://www.sipc.org/for-investors/what-sipc-protects)

~~~
strictnein
So the government will step in and protect the upper 20%? That's the plan?

~~~
toomuchtodo
I think it’s reasonable to protect retirement assets if means tested, yes.

It’d be an entirely different story if pensions hadn’t been gutted and
everyone tossed to the wolves with 401ks over the last 40 years.

If you want to wipe out retirement assets and top it up with social security
instead, again means tested, that’d be a reasonable approach. But you can’t
tell folks their only option is 401ks and to be diligent savers, and then burn
them to the ground out of moral hazard.

The goal is to wipe out investors to whom hundreds of millions of dollars
means nothing to their quality of life.

~~~
strictnein
So if I've been working 40 years, have a strong 401k, and am doing fine now I
should get my savings wiped out?

You're arguing all sides now. I didn't propose a policy that would greatly
harm retirement savings, you did. You proposed protecting 401ks with
government backing. I stated that doing so would be a boon to the top 20% at
the expense of everyone else.

~~~
toomuchtodo
It seems I might not be communicating my thoughts on the topic coherently. My
apologies! I felt that I have, but I think I’ll have to come back with a blog
post instead of ad hoc thread comments. I appreciate the rebuttals for helping
me refine my arguments!

EDIT: /u/HarryHirsch's comment here [1] explains succinctly what I intended to
explain but did so poorly.

[1]
[https://news.ycombinator.com/item?id=22835580](https://news.ycombinator.com/item?id=22835580)
("You could nationalize the pension system. Considering the fact that on
average the 401(k) balance is a few tens of thousands and that there is a
retirement catastrophe coming, that wouldn't be the bad idea. The downside is
that the stock market would be affected negatively since demand for stock
would drop.")

------
e40
Let's be honest, a billionaire getting "wiped out" means they will just be
really rich compared to normal folks. Doesn't seem like a terrible thing.

However, what normal folks will go through, that is truly scary.

------
vorpalhex
Title differs from source. Original title: "Fed should pay every American
more, let hedge funds and billionaires ‘get wiped out,’ says Social Capital
CEO"

------
logicslave
The phrase is:

"Privatize the profits, socialize the losses"

As workers, we get the downside, but not the upside. We are peasants like all
of those in times past. Only difference is standard of living is higher now,
so we should be so happy to get the scraps.

------
pavlov
Too many large American companies have no buffer because they've been
distributing all their cash to shareholders as dividends and stock buybacks,
all the while using credit to fund operations. When a rare risk materializes,
sales suddenly stop and lenders get antsy, these companies find themselves in
trouble.

Their primary recourse should be to ask shareholders for money — that's where
the cash was drained over the years, after all. If these businesses are so
great, shouldn't shareholders be happy to buy newly issued stock at these
prices? Yet I don't see anyone doing stock offerings. That seems like a sign
that the whole thing is a house of cards: nobody actually has liquidity until
Fed injects it into the system.

Interestingly, there are two very different kind of companies that have been
hoarding cash through the years. There's the SV giants (FAMAA collectively
held $570 billion at the end of 2019), and then there are extremely
conservative Japanese industrial companies. Some of these have enough cash to
operate for decades with zero revenue.

------
cryptica
The Fed should give every American $1 million and every other country should
follow suit and turn all their citizens into USD-equivalent millionaires. That
would create an exciting competitive economy!

Think about the excitement of everyone having 1 million dollars and trying to
figure out what they want to invest in!

~~~
_greim_
I'll assume this is a joke but just for clarity, but that would be a total
cash give-out by the government of this many dollars:

    
    
        327,000,000,000,000
    

Notice all the zeroes in there. It's important that we as a species learn to
take all those zeroes into account.

~~~
cryptica
I was kind of joking around. That said, I don't think it would create as much
inflation as it may seem. A carton of milk would still cost about the same
maybe only 2x the price?

I think most of the money would end up in stocks, gambling, speculative
investments, luxury goods and real estate (especially in big cities) so that's
where the inflation would show up... Which is fine. So long as the cost of
basic commodities don't explode, then we can afford it as a society.

------
throwaway_jobs
Funny I did an “Ask HN” asking HNs opinion about this 14 days ago, it
immediately got 19 upvotes/20 comments and then was flagged off the front
page.

[https://news.ycombinator.com/item?id=22699520](https://news.ycombinator.com/item?id=22699520)

~~~
downerending
Got a lot more than that this time before being flagged.

------
crazygringo
It's a somewhat noble sentiment, but an absolutely _terrible_ idea in
practice.

Letting large businesses (airlines etc.) go bankrupt isn't just a disaster for
the rich -- it's a disaster for retirees who hold a majority of savings in
equities (index funds etc.), as they've been told is the responsible thing to
do.

Don't throw the baby out with the bathwater -- or grandma out with the
billionaires.

We want to reduce inequality? _Great_. But do it in a _targeted_ way, through
taxation that takes into account people's income and overall wealth. Not in a
blunt-instrument way that harms middle-class savers along with hedge funds.

And _not_ through letting a host of major corporations go bankrupt through
zero fault of their management/board.

(Remember, it's not like an airline can buy insurance against a months-long
pandemic, nor are public companies supposed to retain unnecessary cash in
times of profit -- the IRS virtually requires them to distribute it to
shareholders either through dividends or buybacks.)

EDIT (in response to comments): OK, I exaggerated a little -- retirees
shouldn't be holding a _majority_ of savings in stock. But since one common
rule of thumb is to hold a percentage in equities that is 100 minus your age,
a 70-year-old still has 30% in equities. And your 50-year-old saving up for
retirement has half. The main point still stands: normal middle-class folks
hold equities as a significant part of their savings. It's not just
billionaires who own equities.

~~~
throwaway6734
No retiree should hold a majority of their savings in equities

~~~
asdfasgasdgasdg
All depends on your spending flexibility, time horizon, etc. If you can
comfortably drop to half of your steady state spending for a couple of years,
or if you do something like a CD ladder, it can make sense to have >50% of
your retirement assets in stock.

------
jshaqaw
If you want to see a true windfall for hedge funds and billionaires let every
business in America fail simultaneously and see the sharpest and best
positioned in finance scoop up assets in the BK process for pennies on the
dollar. Distressed operators like Apollo etc... could only dream for a shot
like that.

------
Simulacra
I would prefer my retirement savings are not wiped out.

~~~
downerending
This is an important point, and we need to realize that it's not just the rich
guys (e.g., most of you) that will be hurt--most holders of retirement savings
accounts are _not_ rich.

I've personally had my net worth zeroed (in a bad divorce). The effects are
quite life-changing, and I think many would not survive it. If nothing else,
you begin to wonder why--if it can all be so easily lost--you should bother to
work at all.

I do think the government "stay alive" payments are critical, and it looks
like a lot more will be needed. But this is a very complex problem, and I
distrust anyone who waves it away with a "simple" solution.

~~~
Ericson2314
Rather than making every American a wannabe financier, we should actually have
a real safety net.

