[gregwebs]

> A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0.

The corporate tax reduction is equivalent to a handout since it won't be paid back. As is the paycheck protection program.

I agree that debt is not a 100% handout, but it is definitely not a 0% either. The fed is not that worried about qualifying its purchases and some of these companies will still go bankrupt: those cases may be 100% handouts. The debt is being purchased at above market rates and inflating prices for the asset so that's still a noticeable percentage of handout for the loans that get repaid.

But I wouldn't assume that corporate debt will ever truly get repaid until I see the fed balance sheet go down. They tried to unload just a little bit last year and the stock market went down so they stopped. We now have 1.9 trillion in mortgage backed securities even though the housing crisis is over and housing prices are back to the levels of the prior bubble.

[throwaway373438]

It's true that bad debt isn't paid back, but in a bankruptcy the investors are wiped out so it would be disingenuous to frame those monies as "corporate bailouts." The funds will have gone to sustaining the business and employing the employees -- not to shareholders.

The tax change isn't a reduction per se, it's a change in the way we account for losses across multiple years. It's also very new -- it's removing a new carryover rule that was added in 2017. I think it's also disingenuous to frame this as a reduction as the losses would be carried forward anyway. It is, like most of the other "corporate handouts," more of a shift in when the money is paid rather than a change in the amount.

[gregwebs]

It's a bad outcome to temporarily sustain zombie businesses even if you stop shareholders from benefitting.

Thanks for the correction on the corporate tax reduction.

[throwaway373438]

I agree that a business folding is a bad outcome. I think the goal is to have the business not fold at all, paying back the investment. Open question how many businesses will ultimately fold or survive -- no way to know yet, right?

[gregwebs]

Even if the business survives there are bad outcomes. Creative destruction does not occur and moral hazard is increased. I agree that there is a huge benefit to society to avoid a wave of mass bankruptcies, but there are huge costs as well.

Purely from the financial side, another way of looking at this is: if bail outs were really net positive then the private sector would handle it. If the government has to handle it, it is a bail out. Governments almost always lose money on bail outs. Sometimes, like the last one, it is falsely claimed that the government made a profit. It probably lost money [1] and we still have 1.9 trillion mortgage backed securities on the fed's books that are unaccounted for in such claims.

I agree that these things are not a 100% handout, but they are most definitely a bail out.

[1] http://gcfp.mit.edu/wp-content/uploads/2019/02/BailoutsV12.p...