Author Topic: Let Rent-Seekers Fail  (Read 5540 times)

Kaegi2011

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Re: Let Rent-Seekers Fail
« Reply #60 on: May 10, 2020, 09:05:49 PM »
I’m not saying that I approve (or disapprove) I’m just not sure that this will be as costly as implied. They’re mostly buying IG, right? I read they may buy some junk ETF’s and fallen angels and would expect them to lose a little dough on a few IG defaults, but it’s not like the Fed is buying CLO equity and California Resources unsecureds, right?

Is the ultimate measure of success whether they made or lost money?  Because if that's the yardstick, then propping up asset values is always going to look good in hindsight.  They might as well go into CLO equity as the return will look even better.  I don't mean this as a sarcastic comment at all.  I think there was a major line that was crossed this time around with the Fed in terms of its programs and the markets it participates in.  If the intent to "preserve" asset value what's the difference b/t equity and credit?  Why not just go into SPY?  It seems like a major slippery slope.  One that I very much dislike on a principal basis as a citizen (but my accounts are better for it...). 


thepupil

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Re: Let Rent-Seekers Fail
« Reply #61 on: May 11, 2020, 03:59:10 AM »
I guess I just took the phrase “perpetrated on the American taxpayer” too literally.

My understanding was they were buying IG bonds and stuff so I’d expect them to make a tiny amount of money on their purchase so the “direct cost” would likely be minimal unless you think the IG default rate will be very high. And even if they lost 10% it’d be a meager $75 billion, which in the context of government spending is a drop in the ocean.

To some extent, whether they make or lose money (over the long term, as in are the spreads at which they are purchasing compensating for what will be the realized defaults / recoveries) is a measure of the degree of “subsidization”
of these moves. For example Fannie/Freddie has been very profitable, so I’d argue the taxpayer was not “screwed” in that case. Others may have been, but the taxpayer seems to be doing okay on that deal.

I don’t want the Fed to go full Japan and buy equity ETF’s either m.
« Last Edit: May 11, 2020, 04:05:11 AM by thepupil »

Cigarbutt

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Re: Let Rent-Seekers Fail
« Reply #62 on: May 11, 2020, 05:41:51 AM »
^In a way, the verbal management has done the job as spreads have largely recovered and (AFAIK) the Fed has not even started buying the actual securities. What's wrong with that? The beginning of an answer needs to include trust which takes a long time to be lost but which also tends to disappear suddenly, once in certain territories which are defined mostly at times by events outside of one's (anyone's) control.
From a certain perspective, moral hazard is not a problem and can never be a problem with Fed intervention:
https://files.stlouisfed.org/files/htdocs/publications/review/08/03/Poole.pdf
The problem is that the Fed's role for putting out fires have gradually allowed (forced?) them to be participating arsonists. On this slippery slope, they may become victims of their own "successes".
With the virus episode and the global evolution in different time frames, some wonder why late participants failed to integrate vicarious learning. With the monetary policy episode and the Japan-led global evolution in different time frames, i wonder why the Fed deliberately follows the same path. i'm afraid it's because it's the path of least resistance.

Nomad

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Re: Let Rent-Seekers Fail
« Reply #63 on: May 21, 2020, 02:54:43 PM »
https://www.bloomberg.com/news/articles/2020-05-21/how-larry-fink-s-blackrock-is-helping-the-fed-with-bond-buying

Quote
One arm of BlackRock knows what the Fed is buying, while other parts of the business participating in credit markets could benefit from that knowledge. To avoid conflicts, “there are stringent information barriers in place,” says the BlackRock spokesman. BlackRock employees working on the Fed programs must segregate their operations from all other units, including trading, brokerage, and sales. The fee waiver on ETFs helps avoid the appearance of self-dealing.

But BlackRock’s contract with the Fed also acknowledges that senior executives “may sit atop of the information barrier” and “have access to confidential information on one side of a wall while carrying out duties on the other side.”

Front-running the taxpayers for fun and profit!