[timavr]

The situation with debt for average Americans is criminal.

Why lifes and mental health are being ruined, while Fed is just pumping gazillion of free money into corporations?

Not taking any debt is the best decision the person can make in their lifetime. In some cases it is OK to do it, when buying a house or using debt for business purpose from non institutional lender: friends, family etc.

Companies should just write it off. It is just money.

[Broken_Hippo]

Unfortunately, in the US, simply not taking debt (minimally a credit card and/or car loans) means that you can be negatively affected in life. Most places won't report that you've been paying your electric bill or rent on time - they'll only report negatives if they hit a threshhold or if you, say, forget a final bill.

Which means that a responsible person, who simply lives within their means and pays bills on time, buying used cars and such, winds up with no credit history. This means that folks might deny an apartment or that you'll pay a higher interest rate on a car loan. You might not get a loan for housing until you build up credit.

Credit was an issue for women specifically at one time because most bills were in their spouse's name - and joint bank accounts were usually "owned" by the husband, so that history wasn't working towards the woman.

I'm not sure if medical debt still counts towards credit scores or not: All you used to need for negative marks was to have an accident and be poor. (I have an uncle that had bankruptcy because of it: He wound up with a 250,000 hospital bill. He only made 30k before and could no longer perform his job)

It is a really crappy system, and I truly wish it were geared more towards folks simply being responsible and living within their means. Or at least minimally, require more of the positives be reported (so a hospital bill will never be negative unless that hospital also reports that folks paid on time).

[arp242]

This is such a weird system; in the Netherlands you're just assumed to be a good debtor unless you've proven otherwise; only not paying debts is recorded, and it usually doesn't (or never?) affect your interest rate.

In the US, it seems that you're basically forced to live "an average life" if you want to get any decent credit score. Land of the free indeed.

[GarrisonPrime]

Spoken like someone who has never run a business.

Why do you think the government is handing money over to corporations? Hint: It's not just to give their big business friends some moolah.

[timavr]

For startes I do run a business, but it is irrelevant. To understand how economy works, algebra is enough.

There is nothing wrong with government providing liquidity by purchasing corporate debt and replacing lost cashflows.

A lot of corporation are so leveraged, that if they can't get the new loans to pay principles on old loans, they are in big trouble. They constantly refinancing every few years.

Market conditions are so uncertain right now, that investors don't want any of that and would like to sit on the sidelines or charge crazy interest rates.

As a result Fed stepped in and said that they are happy to participate in the market to make sure the interest rate stay low and companies have access to capital.

EXAMPLE:

Corp borrows 100 dollars to build a factory at 5% annual interest to be repaid back a year later.

Corp builds a factory and makes 7 dollars that year profit.

In the end of the year they have 2 dollars in their account ( 7 minus 5 interest). So how they supposed to pay back 100 they borrowed?

They just go borrow another 100 , pay it back to early investors and cycle repeats. This business is generating 2% return to shareholders and 5% to bond holders. Sucks to be a shareholder in this, but they are in the green.

Obviously it is way more complicated in real life but it is exactly the same principle. Access and cost to capital is what businesses needs to survive. Here is example of Tesla doing it -> https://edition.cnn.com/2020/01/31/investing/tesla-cash-crun....

The moral here is that Fed willingly just creates money out of the thing air, totally realizing that they might never get it back. If those loans blow up, they just write it off and add to the national debt for future generations to pay.

If corporation goes bankrupt, nobody is chasing CEOs to pay back their multimillion salaries funded by taxpayes. It is just cost of doing business and I am fine with it.

Can we just extend same courtesy to the rest of the citizens. As the great American philosopher said: "Corporations are people my friend"

[illirik]

I'd love to hear the answer, as I have never seen a satisfactory explanation for this strange phenomenon.

[trevyn]

To attempt to prevent collapse of the regime.

[chordalkeyboard]

> Hint: It's not just to give their big business friends some moolah.

I mean, sometimes it is. Thats why they bailed out banks for making loans to people who could be reasonably expected to default, but failed to bail out the homeowners who were dumb enough to believe the bank when they were said they were able to become a homeowner in America by signing some papers they didn't really understand. Regulatory capture is absolutely a factor in explaining the government's response to many financial crises.

I'm pretty sure the average Joe would be better served with a system where corporations that make poor decisions go to bankruptcy court and their assets are sold to other people in order to pay their creditors and reallocate the capital more responsibly.

in a capitalist economy, profit is supposed to be the reward for correctly estimating risk and correctly allocating capital. in a socialist economy, the government is supposed to redistribute wealth to people who don't have it. in the current system, profits are privatized and losses are socialized, at least for powerful and connected people.

what's your alternative explanation?