Sam Long and Alexander Synkov write,
Altogether the Fed will deploy more than $1.45 trillion in support of investors in leveraged assets—more than double the size of the 2008 Troubled Asset Relief Program, and over $7,000 for each working-age American. That includes $750 billion to purchase recently downgraded junk bonds and bond exchange-traded funds—an unprecedented intervention in the private credit markets.
I have said all along that the checks being written to households and small businesses were just a fig leaf to cover a massive bailout of large corporations and the financial industry.
If we saw mobs breaking into stores, pulling items from the shelves, and walking out, we would recognize this as looting. But if we define looting as taking property without giving anything of value in return, then it is now widespread.
Tenants are looting landlords by not paying rent and not getting evicted.
Borrowers are looting banks by not paying mortgages or credit card debt.
Shareholders of airlines are looting the rest of us by getting bailout money.
The financial industry is looting us by getting bailout money from the Fed.
The government does not produce food, electricity, medical care, or any of the stuff that you can order from Amazon. The government produces pieces of paper, which it uses for looting. Households and businesses who are prudent and try to save for the future will be looted the most, through taxes and inflation. I predict that sooner or later the people who do work to produce food, electricity, and so on also will be looted, as their pieces of paper that will depreciate in value before they can spend them.
We are becoming a culture that accepts looting. It’s not people’s fault that they cannot pay their bills, so let them loot. It’s not the airlines’ fault that hardly anyone is flying, so let them loot. We can’t afford to let the financial industry go under, so let it loot. The government can pay its bills by printing money, so let it loot.
The widespread looting is not criminal, in that it is taking place within the framework of our political and administrative system. So far, it is not accompanied by violence. For that, we can be thankful.
You are starting to sound a little hysterical. Given the elements of truth in what you are saying, what is your strategy for coping (financially, politically, emotionally)? Shouting “looters!” doesn’t sound like an a good strategy.
I agree that it does sound a little overkill. But, one of the things I love about ASK is his willingness to express unpopular or controversial opinions. And, please give him some space to vent! Part of our therapy at this point is to be able to express our frustrations.
I love this blog–and I concur with Jim Bursch above that Arnold’s tone has changed of late.
Everything that Arnold says now may be as objectively accurate as everything he was writing 3 months ago. I find that the tone has changed. The virus news and the quarantine may partly be responsible.
I also wonder if Arnold is still writing 3 days ahead of time, as he used to.
Perhaps Arnold could update us about his writing process. There are certainly more posts per week, as he strives to cover both the virus and much of his standard, pre-virus topics.
Take care of yourself, Arnold. You have lots of fans!
“I also wonder if Arnold is still writing 3 days ahead of time, as he used to.”
I highly doubt it. I, for one, find it refreshing. Let Arnold be Arnold (even when I disagree with him). Let him get it out in its unpasteurized form an then we can digest it and critique it from there.
“Tenants are looting landlords by not paying rent and not getting evicted. Borrowers are looting banks by not paying mortgages or credit card debt.”
These debts are not being forgiven (yet), just delayed. Tenants and borrowers still owe the amounts that they haven’t paid. The landlords and creditors themselves have not necessarily written off those payments as uncollectible (at least not yet).
“The financial industry is looting us by getting bailout money from the Fed.”
First, I thought that the Fed so far is only authorized to buy junk bonds and bond ETFs. They haven’t done it yet, and may not have to. (See Scott Sumner and others about the “Chuck Norris effect.”) Second, the owners of all that debt are end investors, most of whom do not work in the financial industry. It’s not a bailout of a specific industry. At most, it’s a bailout of the investors (creditors) and borrowers, who are spread out over many industries.
“Shareholders of airlines are looting the rest of us by getting bailout money.” True.
“Yet” keeps the bagholders identity secrect
By your definition, a lot of what government does even in the good times is “looting.” Granted, it is worse now, but it is still similar to SOP.
(By the way, the market says your worry about inflation is ‘way overblown.)
We need a government looting insurance policy since our government practices the art on a regular basis.
“Tenants are looting landlords by not paying rent and not getting evicted.”
For those that can’t afford rent because of reduced wages or unemployment, is there an alternative? Is a sizable uptick in eviction what we need?
Or is the above statement intended to describe those who can pay rent/mortgages but using this crisis to choose not to (rent strike, using the money to deleverage from unsecured debt, etc)?
“For those that can’t afford rent because of reduced wages or unemployment, is there an alternative? Is a sizable uptick in eviction what we need?”
Exactly. You want lockdowns, then you’re going to have to live with the obvious consequences. Hold your nose!
This is straight up cruel. I don’t get it. Normally I think Mr. Kling’s takes are very moderate and reasonable, but considering the circumstances I can’t believe evicting millions of people is the right thing to do. Somebody is going to have take a huge loss, of course, but this was an unprecedented catastrophe that 99.9% of the world did not predict. What’s the alternative as long as we’re in lockdown? A very large percentage of the normally available jobs in this country have been taken away by fiat. (yes, everybody should have had a rainy day fund, but come on, can you really blame people for this one?)
Did we, or did we not just mail out a bunch of checks to the unemployed with more promised to come? If we did, then why won’t they pay the rent/mortgage?
“I think Mr. Kling’s takes are very moderate and reasonable, but considering the circumstances I can’t believe evicting millions of people is the right thing to do.”
I cannot disagree with this. Again, if we wanted lockdowns then we needed to be able to live with the obvious consequences (i.e. bailouts). Any less would be cruel as you suggest. But, we still need to hold our noses from the stench.
A quote… “we define looting as taking property without giving anything of value in return”.
The Treasury provides valuable taxed money for the majority of its spending.
The Treasury provides valuable future taxed money if there is a deficit. The value is uncertain. Treasury bond buyers know that in advance of buying.
The Federal Reserve provides valuable fiat money for what it buys. I don’t know how to estimate the value of fiat money but I would start with something like the value of human time saved by the use of fiat money plus the value of all gains from trade under a fiat money regime minus all gains from trade under a barter regime. I’m not sure if the estimate is identical to the value of seigniorage. Regardless of whether it is or it is not, the estimate is inevitably large. That large value is eroded by inflation but inflation is marginal unless there is hyperinflation.
To tie it all together, those last 3 paragraphs are all examples of value so I think it is an exaggeration to say there is no value traded.
What is curious to me re some of these bailout situations is that private capital has not stepped in to the fold to help these troubled companies possibly because the knee jerk reaction of the CEO’s and advisors has been to look to Uncle Sam recognizing that perhaps a better deal will be gotten from gov.
c.f. The Law, by Frederic Bastiat.
“The state is that great fiction by which everyone tries to live at the expense of everyone else.”
― Frederic Bastiat
I pointed out before and will again that this narrative doesn’t seem consistent with the facts we are seeing.
That is, I see two suggested versions of what’s happening.
1. The Fed and Big Finance are stealing $1.5T, and tremendous inflation and the bankruptcy of everyone small will follow. This is a permanent change to somethng that is basically seignorage and MMT. The government is just going to absorb all losses, then everything will crash and burn.
2. The Federal goverment has expanded the Fed’s credit line with the promise to stave off big-time cascading failures which would hurt everyone. The neat thing is, expectations mean the mere promise to do so largely prevents the NEED to do so, and it’s unlikely that the Fed actually has to buy all those assets or that it will never be able to re-sell the ones it does buy.
Now, I believe 2 because we’ve seen this sort of thing happen before, and we have somewhat coherent theories of how expectations move financial markets. Also, we have corroborating evidence that TIPs spreads and other inflation indicators aren’t indicating massive inflation, nor other behavior at the margins of the markets.
That is, what would be the evidence that showed Story 1 were the truth?
1. The Fed would actually be purchasing all those assets rather than merely threatening to purchase them. So far, seems not to be the case.
2. Investors would be behaving much differently. They’d continue to flee from the assets the Fed was buying, and would be reallocating dramatically. For instance, I’d be selling all of my bonds funds and ETFs and buying… what? Gold? Bullets?
3. Inflation expectations would be going off the charts, because it would be evident that the government was just going to start outright seignorage.
4. All of these things would be self-reinforcing and fulfilling. The closer we get to the Fed actually maxing out that credit line, the more it would have to use it because people would get increasingly scared by all of the above, flee investments, which the FED would have to buy, until it could no longer credibly do so. At which point things would collapse for real.
All of this could happen, but I think it’s pretty clearly not happening now, and if things go reasonably well in the next few months (ie. we don’t have repeated complete shutdowns) then we won’t.