Yes you read me right. The Fed is bailing out American corporations and financial entities at the rate of $1 million a second — a total that will eventually exceed $4 trillion dollars acccording to Reuters. This free money from the Fed is a gift to Wall Street and essentially helicopter money for the rich. While many on the business right grudging say the $1200 you may get from the Congress is a necessary evil, they ignore the massive sums doled out by the fed to corporate America. More about that in a minute.
First the $1200 check.
Or let me get personal. My check. My $1200 voted by the Congress to help me through the rough patch of losing a job due to COVID-19 (which as it happens, I did). And it IS from the Congress — not Trump — since they voted it to be paid out of tax money. My representatives. My tax money. It’s not some big fat check from Donald Trump, as he would like to frame it.
So where is my $1200? Others are getting theirs.
I went to check my bank account; nothing there. Not surprising since I’m old-school, using paper forms, paying taxes ahead and rolling over any extra to the following year. Meaning the IRS doesn’t have my banking information.
But supposedly I can give it to them, using a cool new feature on their website. They say you can check on the whereabouts of your money, and give them your banking info if they need it. Easy peasy they say. Except instead of information or a place to enter my bank routing number, I get this:
Message that awaited me when I checked on the status of my $1200 stimulus check.
There was no link saying what went wrong and the FAQ page had a long and confusing list of issues that might have befallen me and my check. According to reporting in Bloomberg, CNBC, Money.com, and many other outlets, I’m not alone. Lot’s of us are getting the same answer when we look into our money: “payment status not available”. Forbes had some good reporting on it. One of the things they said could go wrong was that if you had already filed a 2019 return — and yes, I did. I filed my 2019 return in March. I mailed it the day before the White House extended the deadline to mid-July.
So because I paid my taxes on time and filed early, I can’t get my check via direct deposit? I have to wait — perhaps months — until an actual paper check arrives with President Donald Trump’s big fat signature on it?
Meanwhile the Fed knows exactly how to direct deposit trillions to America’s corporations, all in the service of propping up the almighty Dow. Reuters says the Fed is pumping more than $4 trillion into corporation bond buying and other market assets in order to “support” the markets.
It is an uncomfortable role that could push the Fed beyond its traditional job of keeping financial markets open and running smoothly, to picking winners and losers in whatever economy emerges from a pandemic that has brought business activity to a virtual standstill.
… In the extreme, that could include roughly $26 trillion in debt held by non-financial companies and households - $16 trillion if home mortgages are excluded.
Let me repeat: “in the extreme” the Fed could spend $16 trillion bailing out corporate America. Fact is, the Dow IS NOT recovering, as you may have been reading in headlines. It is being BAILED OUT by Trump’s brow-beaten Fed head, Jay Powell. So much for the magic of the markets, wisdom of crowds and all that mumbo-jumbo BS about the glorious ability of Wall Street markets to properly allocate capital. Although I must admit Wall Streeters are experts at allocating the capital found on Capitol Hill — they made out with additional billions in that stimulus passed by the Congress.
But perhaps the Fed had to act?
True. Perhaps. The world financial system was on the verge of collapse — no doubt about that. Just as it was a decade ago; if the Fed had done nothing, the result could have been complete disaster. A seizing up of all money in the world, like some massive monetary heart attack, with countless trillions vaporized in an instant. It is possible. We’ve never gone through a complete market melt-down in our current globalized world economy, so fact is — no one knows.
But shouldn’t there at least be some public discussion before $4 trilliion in helicopter money is thrown at the problem of crashing markets? I say helicoptor money because this isn’t Congressionally appropriated funds drawn from taxpayers and T-bill debt sold by government. It’s actually just the Fed’s printing press — more to the point, the Fed’s virtual printing press, the same thing the Fed uses for its QE purchases. You could argue it’s little more than a socialist bailout of the capitalist rich, or more to the point — a socialist bailout of Wall Street. For the second time in a decade. Explain to me again why we can’t have nice things like a health care system that works, or a properly funded educational system? Or State governments that can send out unemployment checks in a timely fashion?
The Guardian has business reporting that digs into the details of this near market melt-down, explaining that as markets tanked and panic set in, the Fed tried to use its traditional tools of cutting interest rates and ramping up quantitative easing — all to no effect. So they decided to go for something completely different:
The Fed has always steered clear of corporate debt, which it considered politically sensitive. If you bought debt from individual firms, you were vulnerable to accusations of favouritism. If you bought a cross-section of debt you ended up holding many very poor-quality loans. But by the early hours of 23 March, it was clear that something had to be done to stabilise the corporate debt market. Since 2008, bonds issued by non-financial corporations have surged from $3.3tn to more than $6.5tn. If their value fell too far, US corporations would not only face shutdowns and a complete loss of revenue, but also a crippling credit squeeze …
On 23 March, 90 minutes before markets opened, Powell made his move. He announced that the Fed was setting up legal entities – off the books of the Fed, but guaranteed by it – that would have the capacity to buy highly rated corporate debt, or at least any debt that the ratings agencies were still willing to declare investment-grade. In effect, the Fed was establishing itself as the backstop to the trillion-dollar corporate bond market. The Fed ramped up its asset-purchase programme, to an astonishing $375bn in Treasury securities and $250bn in mortgage securities in a single week.
… In the final days of March, the Federal Reserve was buying Treasury bonds and mortgage-backed securities at the rate of $83bn per day, or just shy of $1m per second. On 9 April, at the same moment as the latest horrifying unemployment numbers were released, it announced another $2.3tn in support targeted specifically at municipal debt and lower-grade corporate debt.
So yep. The Fed is buying up corporate debt — some good, a lot of it bad — at the rate of one million dollars a second!
But if you didn’t successfully get into the IRS direct deposit line in proper fashion, Treasury may take up to five months to give you a measly twelve hundred dollar check signed by Donald Trump himself. Welcome to the Trump economy.
I’ve written that the core problem is not a coronavirus-inspired market panic, but a house-of-cards economy built on a mountain of debt — and coronavirus merely set off the card avalanche. Coronavirus alone can’t explain the severity of the recent market crash or the underlying panic of the Fed as it throws trillions into the jaws of this crisis. The EU is doing a lot, but they’re not doing this.
Fact is, our economy wasn’t functioning properly even before coronavirus hit. I’ve written about it on KOS: This american carnage of pandemic-depression brought to you by Wall Street, Trump & the GOP. Or here: Market crashes, zombie stocks & a $2 trillion Senate bailout vs. "We the People".
I began a deep dive into economics last year that convinced me we were careening toward another big market crash, just waiting for something to set it off. I wrote up my findings this spring in economic essay on Medium called Dr. Strangelove economics: or how I learned to stop worrying and love the crash. It explains why our economics doesn’t work for ordinary folk. There’s a caveat — it’s an hour-long read. Albeit broken into ten easy-to-digest film-themed chapters.
I’ll be writing more about economics in the coming days on KOS, because there’s a helluva lot more to say about what’s missing in the world of business and economics reporting — things that get lost in the chaos, dysfunction and corruption of the Trump administration. Coming up soon:
Other possible economic disasters coming our way — a housing crash, for example
An answer to the question — what is helicopter money? And other exciting ways out of our current economic neoliberal swamp
