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by driven20 2594 days ago
Didn't the US do something similar in 2008? They step in and take care of the banks.
1 comments

“Chinese government will step in and take care of everyone

The US government very much did not do that. The US let a lot of banks fail and housing prices to collapse. They did save a few banks, and most bank customers. But, most of this was adding short term liquidity to the market and otherwise healthy organizations.

PS: “Mark to market” https://en.m.wikipedia.org/wiki/Mark-to-market_accounting is an important safeguard. But, it increases the short term risks of systemic collapse.

Not to mention that the Fed made a "profit" on the liquidity injection. "Profit" because central bank doesn't really care about anything like profit, but the point is everything was repaid.

That being said, there's a widespread belief called "Greenspan put" or "Fed put": https://www.daytrading.com/fed-put

It's hard to imagine central banks not making a profit on liquidity injection.

As long as they have a semi-accurate pulse on real asset values, as a lender of last resort they have the sole ability to buy assets at distressed values. Nobody else has the ability to take a bath as the market implodes and simply create new capital to buy things at less-than-face-value.

You'd only expect things to go really bad if the Fed mispredicted actual values.