‘F-You, Main Street!’ Federal Reserve will now buy junk bonds while it bails out banks and billionaires
In less than a month 17 million Americans have applied for unemployment, while the Federal Reserve has focused on bailing out board rooms, billionaires, bankers and builders. Let them all fail.
Last week I wrote about Wall Street corruption and fraud in the $6 trillion “rescue package”. CEOs depleted assets, took home record pay and bonuses and then, months later, came hat in hand begging for bailouts.
Jerome Powell's unelected US Federal Reserve, in less than a fortnight, has elevated moral hazard to new levels of insanity with the launch of a $2.2 trillion round of bailouts for bankers, billionaires and builders. As part of this bailout, the US Treasury is providing half a trillion dollars in backstop cash in case some of the Fed’s risky loans explode – which they will.
Powell's Fed has become nothing more than a gigantic, rogue hedge fund that feels it has a lawful mandate to buy any assets not nailed down. In Thursday’s surprise announcement, Powell's Fed will buy corporate debt – including the riskiest corporate debt in existence, junk bonds – as part of another, larger $2.3 trillion rescue package for banks, businesses, builders and municipalities. Junk bonds are such garbage that pension funds are prohibited by law from purchasing them. Bailing out foreign banks is not in the Fed’s mandate, nor is buying municipal bonds, but it continues to do so – the Fed is socialising hedge fund investments gone bad, placing taxpayers at risk. The applicable law the Fed willfully ignores states “the security for emergency loans is sufficient to protect taxpayers from losses.” Junk bond collateral fails miserably to “protect taxpayers from losses.”
Not only are we bailing out the rich, but we also won’t even know the details. Buried deep within the nearly 1,000-page CARES legislation is a clause allowing the Fed to shield its bailout activities from all public scrutiny. When, not if, it goes wrong, the taxpayer will be on the hook again – BOHICA, the Federal Reserve version.
The reason? These unelected Fed officials do not want to have to deal with the same public scrutiny, banker bashing and inquiries it stonewalled after the 2008 bank bailouts. CARES allows the Fed to conduct secret meetings without having to keep records of those meetings. Except for a vote tally, the public will remain in the dark and never know who the Fed bailed out, how much the Fed gave them and for how long, what collateral was provided, what the terms of the bailout were, what conflicts existed, and, most importantly, if the money was paid back.
The Federal Reserve has appointed the world’s largest hedge fund, Larry Fink's BlackRock, to manage its new multitrillion-dollar corporate bond bailout. Fink was an early promoter of the mortgage products that caused the 2008 crisis, which he then made a fortune helping to clean up.
It’s amazing that the Fed now seems to be illegally buying junk bond ETFs from Fink’s BlackRock. Maybe the Fed is bailing out BlackRock and hiding it? Makes you wonder what other firms were involved in that tender and what type of conflicts of interest may exist between Blackrock, the Fed and all of the employees of each. Unfortunately, we will never find out.
To be clear about conflicts, one of the most significant hedge funds in the world, at least in asset size, Ken Griffin's Citadel, hired Federal Reserve Chairman Ben Bernanke after he left the Fed.
Another example is the current president of the Federal Reserve Bank of Minneapolis, Neel Kashkari. Kash-and-Carry not only oversaw the US Treasury's Troubled Asset Relief Program (TARP) during President Obama’s 2008 bailouts, but he also departed the Federal Reserve in 2009 when he was hired by investment management firm PIMCO, which boasts that it manages nearly two trillion in assets for every class of investor, including some central banks. Here’s a very informative interview with Neel from March 23, 2020.
It’s propaganda, spin and lies at their finest. I am not saying this provides evidence of pay-to-play between Washington DC’s swamp and Wall Street, but we need complete transparency to shine like rays of sunlight disinfecting the smell of the Fed’s hiring practices and every single opaque and secret deal cooked up in the basement of the Fed’s Washington DC offices.
Debt is never a bad thing if it is used to create organic growth or fund infrastructure development that creates opportunities and employment. Debt is dangerous when used to develop grotesque weapons of mass financial destruction by structuring synthetic derivative products that use leverage of 300 to 1 or more – meaning that $1 million can control $300 million in assets. The majority of the US’ massive debt pile was accrued over the last twelve years, when the missteps of the Federal Reserve's 1998, 2001 and 2008 bailouts took interest rates to zero. This devastated prudent savers, created the most significant wealth inequality gap in history, and generated the largest pool of Wall Street billionaires before and after each crisis and bailout.
The Federal Reserve bailouts have destroyed capitalism and they have never been held to account. The Fed’s actions have created an adulterated form of capitalism that, as far as financial oligarchs are concerned, has no losers, except taxpayers and future generations.
During the Fleecing of America Part I: The Great Financial Crisis, we were promised this would never happen again. Everything was "fixed.” Yeah, it was fixed all right. It was rigged by a system that is based on fraud, accountable to no-one and is systemically rotten to the core. In 2009, the Federal Reserve's rhetoric was: these bailouts are extraordinary “temporary emergency measures,” and we will “fix” regulations, increase interest rates and shrink our $5 trillion balance sheet. Did it ever happen? Nope, it was all lies.
To hide their ineptitude, the central banks are now using Covid-19 to cover their decades of reckless policies that caused crisis after crisis, with the amounts staggeringly more massive each time.
All the “too big to fail” companies need to be dismantled, and the Fed needs to be audited and shuttered. Executives at firms that receive bailouts need to have their bonuses, stock, stock options and a big chunk of their pay clawed back. As for oligarchs like Fink, he needs to be dethroned and his casino cut down to size, rather than be given multi-trillions in assets to manage for the Fed.
These bailouts are plunder on a massive scale, enabled by Washington DC’s political class. This is not capitalism or democracy; it is a modified oligarchy.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.