Through No Fault of Their Own


To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

Scott Wapner, CNBC host, interviewing Chamath Palihapitaya on April 10

“I think we all agree with you that more money for Main Street is needed. But maybe not in spite of the money to all of these companies and whatever that make up the economy, as well. More money is needed everywhere, perhaps.

Why does anybody deserve to get wiped out from a crisis created like this? It’s like a natural disaster! Why does anyone deserve to be wiped out? Wouldn’t that be immoral itself?”

Richard Clarida, Fed vice-chair, in WSJ interview on April 13.

“Mr. Clarida also dismissed a question about whether the central bank had created a “moral hazard” that encouraged risky investor behavior when the Fed moved quickly to backstop swaths of credit markets.

“This is entirely an exogenous event,” said Mr. Clarida, noting how the virus—not private-sector behavior—had forced widespread business closures and revenue losses.”

I, for one, am delighted to learn of the “Through No Fault of Their Own” exemption to stock market risk.

What a relief to learn that there’s no need for the plebes to hog all of the money, that so long as investment losses are from an “exogenous event” as opposed to “private sector behavior” – whatever the hell that means – the Fed will provide unlimited amounts of money – their words, not mine – to make the rich investors whole.

Could this possibly be a bad idea … some form of moral hazard … for the federal government to insure the rich investors against capital market losses by buying TRILLIONS of dollars in financial assets and providing TRILLIONS of dollars in interest-free loans liquidity facilities? You know, provided that these losses weren’t their fault.


These are exactly the same people who paid off Goldman Sachs 100 cents on the dollar with their AIG losses in 2009. You think they give a flying fuck what you think about moral hazard or precedent or optics or fairness or decency? You think these oligarchs and their CNBC/fintwit Renfields care about ANYTHING other than getting their MONEY back?

Why, it would be immoral NOT to pay off the rich investors on their market losses. I mean, sure, let’s hope that Congress gets its act together and throws a bone to the poors, but c’mon, man. First things first.

Besides, you wanna know the REAL moral hazard here? Wanna know what sort of immoral behavior your sociopath “leaders” are worried about encouraging?

South Carolina Sen. Lindsey Graham, joined by fellow Sens. Ben Sasse and Tim Scott in bemoaning the moral hazard of overly generous unemployment benefits.

“Claiming the relief package will encourage people to stay out of the workforce, Graham told reporters that the bill “pays you more not to work than if you were working,” noting that it would provide the equivalent of $24.07 an hour in South Carolina versus the state minimum wage of $7.25 an hour. “If the federal government accidentally incentivizes layoffs, we risk life-threatening shortages in sectors where doctors, nurses, and pharmacists are trying to care for the sick, and where growers and grocers, truckers and cooks are trying to get food to families’ tables.”‘

I am not making this up. It’s the old Welfare Queen argument, all dolled-up for the age of COVID-19. Can’t make unemployment too attractive, you know … all those good-for-nothing poors will laze at home eating bonbons and sucking on the gummint teat instead of getting off their ass and doing an honest day’s work.

Meanwhile, back at the ranch, the Big 4 airlines will be accessing tens of billions of dollars in cash grants and easy 10-year loans, all explicitly designed to support entrenched management and equity shareholders. But hey, fret not, concerned citizen! Management will be prevented from making more stock buybacks until Sept. 30, 2021. That’s a whole eighteen months of no stock buybacks, so don’t tell me that Wall Street doesn’t understand shared sacrifice. And yikes! Management will also have to get by on their current salaries for the next three years, as hard as it may be to imagine the privation and human misery that will entail.

Oh yeah, here’s the stock-based comp, not including salaries and bonuses and deferred comp, for the CEOs of the Big 4 airlines since 2014.

One day, and soon, there will be a reckoning. Time to choose a side.


To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You'll get two or three of these emails every week, and your email will not be shared with anyone. Ever. It's our effort to spread the word about what we're doing, and allow you to read more Epsilon Theory!

Notify of
Inline Feedbacks
View all comments
1 year ago

Well said Ben. Isn’t it odd that Senator Graham can identify one moral hazard but not the glaring lesson that should be obvious from all of this? Which is to say that many management teams have been terrible risk managers. That the real moral hazard has been incentivizing short-term returns (for stock-based comp reasons) over long-term results.

Why does anyone deserve to be wiped out? I’m reminded of a quote from Downton Abbey.

“My fortune is the work of others who laboured to build a great dynasty. Do I have the right to destroy their work or impoverish that dynasty? I am a custodian, my dear, not an owner.” – Robert Crawley

Why does anyone deserve to be wiped out? Because the management teams who have siphoned millions of dollars from their companies have been terrible custodians.

Chris Hulls
1 year ago
Reply to  Mav

I agree with your conclusion but I think saying “Because the management teams who have siphoned millions of dollars from their companies have been terrible custodians.” actually undermines the message. Capitalism means you get the benefit of good luck and the downside of bad luck. Whether or not they were good/bad managers doesn’t really matter. Good managers should get better arm’s length market terms than bad ones – nothing personal. The government also shouldn’t bail out equity holders, and whether you were a good/bad custodian, outside of fraud, is sort of irrelevant.

Seth Kaufman
1 year ago
Reply to  Chris Hulls

Chris – no disrespect but the fallacy in your argument is the implicit assumption that there is a game that relies on luck at all. Rather the way management (broadly defined) has rigged the game to ensure that luck has nothing to do with it. It is all about expropriation of shareholder wealth by rigging the game (there’s a Kobayashi Maru analogy here) through fake compensation committees relying on the compensation consultants with false comparisons to enable everyone to extract wealth. This isn’t about capitalism at all but rather about “Yay Capitalism!” as Ben and Rusty have been commenting on for many moons.

1 year ago

Ben, I was so glad to read your note today! Turns out that, over the past decade, I’ve had some investments that, through no fault of my own, well, let’s just say haven’t turned out that well. And since Mr. Powell said on his interview with CNBC that the Fed is there to keep everyone ‘whole’, I’m planning on sending him an invoice for all my underperforming investments. (I’m pretty sure the markets I was trading in were ‘broken’ btw). Do you think it would be too much to ask that rather than simply being reimbursed for any losses, I would be given the return for the highest performing major stock or bond index for each year since I incurred my losses? Thanks.

1 year ago

“One day, and soon, there will be a reckoning. Time to choose a side.”

Hmmm. It’s not the sides that are the problem, it’s the game itself.

Not about sides, Ben. That just encourages people to blame each other and promotes divisive, us vs. them narratives. You know, the you only win if you get yours regardless of whether I get mine competitions.

Time to choose a different system. Time to choose a different philosophy. Time to make, protect, teach.

Keep passing the open windows. Haters gonna hate. Renfields gonna Renfield.

Lawrence Pusateri
1 year ago

The part I struggle with is so many of these companies cant operate BECAUSE the Govt will not let them. AMC would love to be open and have some policies in place to limit patron contact I am sure. In Ky we have a travel ban , The Governor in Nevada mandated that all the hotel/casino’s close. Are we going to wipe the equity because Govt policies made it impossible for those business’ find their own solution? Talk about moral hazard? Our high functioning sociopaths will put that in their memory banks the next time someone opposes them. There is a 5th Amendment issue here IMO.

I don’t pretend to know the answer these are very complex times and I see both sides.

I certainly am not carrying water for the Airline CEO’s and their boards , I also do not think that idleness should pay better than work. I’m going to disagree. I still don’t see these things as mutually exclusive.

1 year ago

Lawrence, I think you make a false assignment of blame. Yes, the governors of various states have issued orders that have required large and small businesses to close their doors in order to protect the citizens from exposure to a potentially deadly disease. They cannot be allowed to remain open because there is no practical way to reliably prevent them from becoming ground zero for the next SARS-CoV-2 hot spot. The Governors did not order those business to leverage their operations based on everything going perfectly. They did not order them to run with limited cash reserves or without business interruption insurance programs. The Governors have not prevented them from going out into the equity and capital markets to find their own disaster relief. The boards of directors and the executives of those firms made the choice to operate their business as if everything would continue to be sunshine and roses. They put themselves in a position where investors and lenders do not feel comfortable providing additional funds to allow them to stay solvent while the health care crisis resolves itself. Capitalism does not work if the gains are private and the losses are public. I don’t know where to place this pandemic in a probability distribution, but I don’t think we’re anywhere near a 6 sigma level event. (2.5-3 sigma seems about right). Pandemics have happened in the past. This is the 3rd major economic event in the 21st century. (9/11, ’08-’09, and now this) It doesn’t seem unreasonable… Read more »

Lawrence Pusateri
1 year ago
Reply to  TheCoeus

I think we are doing that —-people just got a capital injection ,is that not what all this unemployment debate is about? Som did small business’ my fiancé s company got 300k and a clients restaurant got 200K ….maybe we should let them all fail…again I’m not pretending to have all the answers.

1 year ago

I think we’re predominantly taking issue with publicly listed or private equity owned businesses getting public funds. Few are taking issue with true small businesses getting aid, and they are even being crowded out currently in the SBA loan space by publicly traded companies.

Lawrence Pusateri
1 year ago
Reply to  ike

Big company bad – small company good.

1 year ago

This is going to be a long reply, so please bear with me. If you do not have time to read the full message, please read this. Big Company bad – Small company good was not the concept I was trying to convey. It is an over-simplification of the discussion. It is cartoonification. There are no simple discussions to be had. All of the simple issues, if there ever were any, have been solved. The world is complex, the problems are complex, and so the discussion must be complex. I consider the subscribers of Epsilon Theory to be my pack. I consider Epsilon Theory to be an Idea Lab and not an Echo Chamber. (#HT: Tim Urban) As an idea lab, it is our duty to ensure that our concepts are as strong and well-reasoned as possible. I try not to comment when I have nothing to add or refine in the idea. If there is an idea that I think misses the mark, I provide my thoughts to try and refine the idea. My goal is to test the idea and my logic, not dismiss a fellow member of the pack. I have a mechanical systems background, so I tend to see the world in a cause / effect / mechanistic mindset. I know it’s an abstraction of reality, but so is everything else. Big Company Bad / Small Company Good misses the mark. Frankly, it’s the wrong measurement. The point that I was trying to make was Greedy… Read more »

Lawrence Pusateri
1 year ago
Reply to  TheCoeus

Actually that response was to Ike

Michael McVey
1 year ago

Ben- you are so right on. Call me an idealistic dreamer, but- what if investors were truly rewarded or penalized relative to the real risks, long-term thinking/decision-making might finally be given the value it should and we might look to our institutions to develop the means to better manage those risks for the “common good”, say for example a pandemic response plan that actually is funded and resourced and capable. I think this would happen because we do want efficient, cost-effective infrastructure and access to affordable goods and services, so to protect that, we would want to WORK TOGETHER, let’s say, in a democracy (not because an authoritarian dictator makes it a priority) that in turn works with other democracies to put those systems in place. We’d possibly find it worth our time to make those institutions function well, work on making them cost-effective relative to what they do (which might be to prevent things so well that they never happen, so what’s the ROI on that?) instead of building political/economic blocs that thrive on making government fail on purpose, or by throwing money at problems to gain in the polls vs. INVESTING in solutions to root causes.

Victor K
1 year ago

There was another interview between Scott Wapner and Chamath Palihapitaya today on CNBC. I was fortunate enough because of the ‘rules’ to have been able to watch both in real time. A former CEO of IBM was called out by C. P., who must be reading ET. Hopefully C.P. is a member of the pack!! It was even more than most excellent!

Brendan Doran
1 year ago

Due to Exogenous Events I am forced to choose; The PPP side.

I would like to say I love our benevolent overlords – on their terms.
Terms; I love you as long as I get my subsistence money to survive the Exogenous Events.

I will not love you if you welsh on me.


Seriously- its not even me, my income discrete. It’s for those depending on me.

The lesser folly is to make the giveaways equal $ for $ middle small biz and workers get their $ for every $ in the top tier “Tranche”.

Roy Blanchard
1 year ago

This whole argument is why it was refreshing to hear Warren Buffett say, “We made a mistake” with respect to the airline investment. It was Berkshire’s mistake and they took steps to remedy the mistake. Absent the equity share price losses, the Berkshire core businesses didn’t do bad. Reduced the $80 bn paper loss to $50 bn. Remaining long BRK/B.

The Daily Zeitgeist

The Zeitgeist – May 7, 2021

By Ben Hunt | May 7, 2021 | 8 Comments

Our weekly digest on what we’re working on …

Including this article from the WSJ: Millions Are Unemployed. Why Can’t Companies Find Workers?

I dunno, if only there were some mechanism by which companies could entice people to work for them. Weird.

Read more

The Zeitgeist – April 30, 2021

By Ben Hunt | April 30, 2021 | 3 Comments

Here’s what we’re reading and working on this week at Epsilon Theory.

Read more

The Zeitgeist – April 19, 2021

By Ben Hunt | April 19, 2021 | 6 Comments

Here’s what we’re reading and working on this week at Epsilon Theory.

Read more

The Frustrated Money Manager

By Ben Hunt | October 8, 2020 | 12 Comments

The frustrated money manager is almost always a smart, accomplished professional in his own field who believes VERY much in the existence of The Smart Money ™.

The frustrated money manager is almost always a liiiittttle bit on the make.

Like a Vatican cardinal.

Read more

Scapegoating the Zeitgeist

By Ben Hunt | October 2, 2020 | 5 Comments

One day we will recognize the defining Zeitgeist of the post-GFC Obama/Trump years for what it is: an unparalleled transfer of wealth to the managerial class.

This Wall Street Journal article is not an attack on that system. It is a defense. It is telling you that the system is fine … we just need to do something about these bad apple CEOs.

Read more

Why Am I Reading This Now?

By Ben Hunt | September 25, 2020 | 8 Comments

Yesterday, 5 GOP Senators wrote a letter to Netflix, saying that their plan to adapt Liu Cixin’s “The Three Body Problem” for TV/film amounted to “complicity” with the CCP and their horrific mistreatment of the Uyghurs.

Why am I reading this NOW?

Read more


This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.