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How the COVID-19 Bailout Gave Wall Street a No-Lose Casino
A decade ago, the Federal Reserve was instrumental in keeping the banking system from going bust. This time around, the Fed’s actions are far more sweeping, and it has essentially propped up entire financial markets with its bottomless ability to buy assets with freshly created money.
“In this cycle, it is not a specific institution that is too big to fail — it is the investment-grade bond market that is too big to fail,”
But, still the same situation as from 2008. To maintain the credit areas. To support the bond market, which is the financial blood that flows through and is the life support of the equity market.
“The ‘too big to fail’ that existed for banks has now extended to a lot of other firms,” said Luigi Zingales, a University of Chicago professor of finance who has long studied the interplay of government, regulation and the private sector....
The surge in buybacks has received plenty of criticism in recent years, especially from the political left. But Mr. Zingales said he had largely been unsympathetic to such concerns until recently.
With the government showing it is willing to ensure the survival of some companies, share repurchases are no longer a matter that concerns the corporation and its shareholders — especially if those same companies that spent large amounts of cash on buybacks turn to taxpayers for help when the going gets tough.
God, I wonder if you just have to check your soul at the door to teach at the U. of Chicago finance department, the school that pretty much engineered the efficient market nonsense that enabled the first crisis in 2008 to happen. Do you have to bow down to an idol of Homo Economicus dressed like a golden calf every morning before lessons? Fundamentally, there has long been a disconnect between Wall Street and Main Street for many years and this cavalier attitude to companies doing nothing productive with the capital given them but buying back stock just further illustrates that disconnect. It means the situation labor is in today at most companies is insignificant to financial academics. In the past this wasn't the case as more profits generally meant more labor. But today? You can engineer profits with buybacks or replace labor with technology. More proof that trickle down supply side eco is a joke. Helping these companies without regulating them and requiring they give back to their employees, taxpayers and consumers of their products is a meaningless exercise as far as Main Street is concerned.
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To support the bond market, which is the financial blood that flows through and is the life support of the equity market.