What the Fed is up to

I know. Financial stuff bores most people to tears or sleep. Unfortunately, is it in financial stuff that taxpayers get ripped off of trillions of dollars that flow in opaque, secret, behind closed doors sorts of ways. Darned financial stuff. Darned opacity. Darned corruption.

Bailing out households backed by junk bonds

Wall Street on Parade (WSOP) reports that the Fed is planning to put lipstick on a very large pig. The Fed announced today that it will start buying junk bonds. Junk bonds, as we all know, had been, according to WSOP, “cratering for most of the month of March. That was the pig. The lipstick it applied was worded like this: ‘The Federal Reserve on Thursday took additional actions to provide up to $2.3 trillion in loans to support the economy. This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.’”

In the colorfully titled WSOP article, Fed Chair Powell Tells Whoppers This Morning on the Brookings Institution Webcast, commented that households, small businesses and most state and local governments do not issue junk bonds. So, that $2.3 trillion in funding will not assist households and employers of all sizes, or bolster the ability of most state or local governments to do squat. It will help big businesses in financial distress. WSOP argues that instead of the Fed bailing out failing companies with junk bond credit ratings, those companies should use the option that our president has used on many occasions. It is called filing for bankruptcy.

And other whoppers and deceit

WSOP also pointed out that Fed chair Powell fibbed about the loans being paid back. Much or maybe most of the money is unlikely to ever be repaid. Powell said this morning that “the Fed can only make secured loans to solvent entities with the expectation that the loans will be fully repaid.” But on March 26, Powell said this about loan repayment expectations: “We’re required to get full security for our loans so that we don’t lose money. So the Treasury puts up money as we estimate what the losses might be…Effectively $1 of loss absorption of backstop from Treasury is enough to support $10 of loans.”

Sounds like us taxpayers are going to get trillions more in debt stemming from the president’s failure to deal with coronavirus seriously or competently.

Finally, Powell commented this morning that “We entered this turbulent period on a strong economic footing, and that should help support the recovery. In the meantime, we are using our tools to help build a bridge from the solid economic foundation on which we entered this crisis to a position of regained economic strength on the other side.” 

WSOP rejected Powell's comments as lies intended to deceive the public: “The U.S. financial markets did not enter the coronavirus pandemic on solid footing or anything vaguely resembling solid footing. See our reports: Wall Street’s Crisis Began Four Months Before the First Reported Death from Coronavirus in China; Here’s the Proof and Fed Repos Have Plowed $6.6 Trillion to Wall Street in Four Months; That’s 34% of Its Feeding Tube During Epic Financial Crash. These articles clearly demonstrate that the liquidity crisis on Wall Street began four months before the first death from coronavirus in the U.S.”

If that is true, and it probably is, this coronavirus thing and federal incompetence in dealing with it could end up costing maybe as much as $10 trillion or even more.

In the coming weeks, I’ll be spending some time trying to figure out just how many trillion dollars is going to bail out businesses without much or any oversight. It is starting to look to me like we're in way more trouble than just coronavirus and a mounting death toll. We may be on the verge of trashing our entire economy and entering into a depression on the scale of 1929 or something even worse.

Captain Kirk - Common People, originally by Pulp