The 1% are acting quickly. Here's an idea we could push:
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The government is going to be bailing out everyone and everything, especially the 1% (at the cost, sooner or later, of massive inflation).
What they should do is prohibit any bailout money from going to pay off on any credit derivatives other than those purchased in order to hedge legit business risks – e.g., if Southwest Airlines bought a hedge against rising fuel prices, that hedge could be bailed out if needed; but if Goldman Sachs bought the same hedge for purely speculative reasons, they should have to eat the loss of what they paid for it. I.e., all speculative derivatives should simply be left in default if the issuer can’t pay.
Note that what was paid for these derivatives were relatively small amounts, while the pay-outs on them if they were honored would be relatively gargantuan and do not contribute to the real economy in any way; they are merely a form of speculation that sucks wealth out of the system.
Given the tremendous losses that people in the real economy are going to suffer, I don’t feel a lot of compunctions about seeing players like Goldman lose their bet money.
Note that in the 2008 crash, the biggest losses had nothing to do with bad mortgages; they came from bailing out the derivatives. This is why the bailout of AIG was so crucial: it was the entity that had issued a great many derivatives, including to entities like Goldman. When we bailed out AIG, we enabled it to pay out on the bets Goldman had made against the very mortgage-backed securities that it had been selling others.
The main concern relating to this approach is that some of investments in derivatives may be held by pension funds. A solution would be to afford exceptions for bailouts of the pension itself rather than the hedge fund it invested in.
I realize this is all quite rough; hopefully others can refine it. Things are happening very quickly, though, so we need to think and act quickly, too.
Destruction is easy; creation is hard, but more interesting.
March 19, 2020 at 1:35 AM #289226Fugitive BirdieParticipant
- Total Posts: 311
A lot of the 700 billion QE4 ( nevermind the $1.5 Trillio) FED money is going into buying up corporate bonds that the bank have on their balance sheet.
If those companies sell stock at the new lower prices the investors stand to gain when this is all over.
Why are they asking for free money?
Can they honestly say that investors had no idea that a future pandemic would hurt profits and that such an event was overdue.
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