Let Rent-Seekers Fail

[SHDL]

Senate Republicans now hoping to pump the brakes on stimulus spending:

 

https://www.wsj.com/articles/deficit-fears-put-senate-republicans-and-trump-on-coronavirus-collision-course-11588787336

 

 

[Nomad]

Senate Republicans now hoping to pump the brakes on stimulus spending:

 

https://www.wsj.com/articles/deficit-fears-put-senate-republicans-and-trump-on-coronavirus-collision-course-11588787336

 

Ironically, infrastructure spending is probably one of the things that would actually be accretive to US GDP and productivity right now.

 

Lots of US infrastructure is in Third World condition, and I say this as an American citizen. I will never forget landing at LaGuardia Airport in New York a few years ago - it was shortly after a rainstorm and I had to pass by plastic buckets placed around the concourse set up to catch the water leaking from the ceiling. It's not just the airports - apparently nearly 4 bridges out of every 10 are "structurally deficient" according to this report: https://artbabridgereport.org/reports/2020%20ARTBA%20Bridge%20Report.pdf

 

Despite its arguable utility and bipartisan popularity with the public, I'm doubtful that there will be a dime allocated to infrastructure spending. The takeaway is simple: In the modern US, spending that benefits the public is "too costly." But if you are a lucky member of the looter class, we can offer you infinite money courtesy of the Treasury and the Federal Reserve. If you happen to be a member of the looter class that owns BlackRock, so much the better, because the taxpayers will be paying your ETF fees.

[rb]

It's even better if you're part of the "looter class" and not an American. Then you can loot America and not have to deal with its shitty infrastructure at the same time.  ;D

 

Attaboy Mitch!

[TwoCitiesCapital]

Senate Republicans now hoping to pump the brakes on stimulus spending:

 

https://www.wsj.com/articles/deficit-fears-put-senate-republicans-and-trump-on-coronavirus-collision-course-11588787336

 

Ironically, infrastructure spending is probably one of the things that would actually be accretive to US GDP and productivity right now.

 

Lots of US infrastructure is in Third World condition, and I say this as an American citizen. I will never forget landing at LaGuardia Airport in New York a few years ago - it was shortly after a rainstorm and I had to pass by plastic buckets placed around the concourse set up to catch the water leaking from the ceiling. It's not just the airports - apparently nearly 4 bridges out of every 10 are "structurally deficient" according to this report: https://artbabridgereport.org/reports/2020%20ARTBA%20Bridge%20Report.pdf

 

Despite its arguable utility and bipartisan popularity with the public, I'm doubtful that there will be a dime allocated to infrastructure spending. The takeaway is simple: In the modern US, spending that benefits the public is "too costly." But if you are a lucky member of the looter class, we can offer you infinite money courtesy of the Treasury and the Federal Reserve. If you happen to be a member of the looter class that owns BlackRock, so much the better, because the taxpayers will be paying your ETF fees.

 

+1

 

I've long said infrastructure spending is the only deficit spending I'd be in support of. Now that the pandemic has hit, I'd have to revise that to include increases in unemployment, but would still be for a massive shift to payments to states/cities to manage a infrastructure improvement over the next 10 years.

 

It's crazy to me were willing to send $1,200 to any any American earning less than 99k, regardless of need, but are not willing to pay people to do jobs that are necessary and an investment in the future productivity of this country.

 

I was for increased unemployment benefits. I've been largely neutral towards PPP loans. I've been absolutely against direct payments as they weren't anywhere near targeted enough and don't provide any long term benefits.

 

Why is infrastructure spending so hard compared to war time spending and increases in entitlements? Why is it that something that should be bi-partisan gets no support?

 

 

[SHDL]

It's even better if you're part of the "looter class" and not an American. Then you can loot America and not have to deal with its shitty infrastructure at the same time.  ;D

 

Attaboy Mitch!

 

You have a somewhat similar situation with very rich Americans too. Who cares how bad LGA is if you never have to use it thanks to your private jet? I think that is a key reason why infrastructure spending doesn’t get as much political support from Republicans as one might hope.

[Gamecock-YT]

 

 

Why is infrastructure spending so hard compared to war time spending and increases in entitlements? Why is it that something that should be bi-partisan gets no support?

 

Show me the incentives and I will show you the outcome.

[Nomad]

WSJ today with more details on one of the most corrupt and fraudulent schemes perpetrated on the American taxpayers in my lifetime:

 

https://www.wsj.com/articles/big-money-managers-take-lead-role-in-managing-coronavirus-stimulus-11589130185

 

The Fed works with outside firms if it believes they bring speed and expertise the central bank can’t provide on its own. Moving fast, it tapped BlackRock’s financial markets advisory business to buy corporate bonds for it, without a tender process that would let others bid for the job.

 

...

 

The Treasury promised to shoulder any initial losses on the Fed’s mammoth purchases. The central bank isn’t allowed to risk taxpayer money by propping up insolvent companies. During negotiations over the Treasury funds, Senate banking committee members tried to lock in prescriptive terms on how the Fed and Treasury would deploy the money. Fed officials voiced concerns, and won flexibility.

[thepupil]

WSJ today with more details on one of the most corrupt and fraudulent schemes perpetrated on the American taxpayers in my lifetime:

 

https://www.wsj.com/articles/big-money-managers-take-lead-role-in-managing-coronavirus-stimulus-11589130185

 

The Fed works with outside firms if it believes they bring speed and expertise the central bank can’t provide on its own. Moving fast, it tapped BlackRock’s financial markets advisory business to buy corporate bonds for it, without a tender process that would let others bid for the job.

 

...

 

The Treasury promised to shoulder any initial losses on the Fed’s mammoth purchases. The central bank isn’t allowed to risk taxpayer money by propping up insolvent companies. During negotiations over the Treasury funds, Senate banking committee members tried to lock in prescriptive terms on how the Fed and Treasury would deploy the money. Fed officials voiced concerns, and won flexibility.

 

How much money do you expect the taxpayers to lose via this program?

[Cigarbutt]

WSJ today with more details on one of the most corrupt and fraudulent schemes perpetrated on the American taxpayers in my lifetime:

https://www.wsj.com/articles/big-money-managers-take-lead-role-in-managing-coronavirus-stimulus-11589130185

The Fed works with outside firms if it believes they bring speed and expertise the central bank can’t provide on its own. Moving fast, it tapped BlackRock’s financial markets advisory business to buy corporate bonds for it, without a tender process that would let others bid for the job.

...

The Treasury promised to shoulder any initial losses on the Fed’s mammoth purchases. The central bank isn’t allowed to risk taxpayer money by propping up insolvent companies. During negotiations over the Treasury funds, Senate banking committee members tried to lock in prescriptive terms on how the Fed and Treasury would deploy the money. Fed officials voiced concerns, and won flexibility.

How much money do you expect the taxpayers to lose via this program?

An argument could be made that the Fed is circumventing the intent of the Federal Reserve Act.

Why was the Act made in a way to avoid this kind of situation?

Why do we end up in a situation (paraphrasing Mr. Buffett here) with a binary choice between significant ramifications with inaction and potentially extreme consequences with action?

[thepupil]

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?

[Kaegi2011]

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]

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.

[Cigarbutt]

^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]

https://www.bloomberg.com/news/articles/2020-05-21/how-larry-fink-s-blackrock-is-helping-the-fed-with-bond-buying

 

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!