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The Fed Hasn’t Spent a Dime Yet for Main Street Versus $735 Billion for Wall Street

The stimulus bill known as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law by President Donald Trump on March 27. Among its many features (such as direct checks to struggling Americans and enhancing unemployment compensation by $600 per week for four months to unemployed workers so they could pay their rent and buy food) the bill also carved out a dubious $454 billion (or 25 percent of the total $1.8 trillion spending package) for the U.S. Treasury to hand over to the Federal Reserve. This was the Faustian Bargain the Democrats had to agree to in order to get the deal approved by the Wall Street cronies in the Senate.

If you subtract the $454 billion from the $1.8 trillion total spending package, that left $1.346 trillion for other purposes. But the $454 billion wasn’t really just $454 billion. It was going to be leveraged up by a factor of 10 to 1 into a $4.54 trillion bailout for Wall Street. This, effectively, meant that the CARES Act provided $1.346 trillion for average Americans and other purposes versus $4.54 trillion for Wall Street. In short, the assistance going to Wall Street was more than 3 times larger than that going to families and workers.

White House Economic Advisor Larry Kudlow, U.S. Treasury Secretary Steve Mnuchin, and Federal Reserve Chairman Jerome Powell had cooked up a scheme where the $454 billion would be handed over to the Fed, then split up into chunks, placed into Special Purpose Vehicles (SPVs) and then leveraged up by as much as 10 to 1 to provide bailouts to Wall Street. The $454 billion is being designated by the Fed as “loss absorbing capital,” meaning that taxpayers will eat the first $454 billion in losses on these Wall Street bailout programs.

Here’s where $215 billion out of the total $454 billion has thus far been earmarked by the Fed for its Wall Street bailout programs:

Primary Market Corporate Credit Facility (PMCCF)

$50 billion has been earmarked to prop up the corporate bond market by buying up new issues of corporate bonds that the big Wall Street banks don’t want to be involved with. (See its Term Sheet here.) This facility will be leveraged up to buy $500 billion in corporate bonds, both investment grade and junk-rated, as long as they were rated investment grade as of March 22.

Secondary Market Corporate Credit Facility (SMCCF)

$25 billion has been earmarked to create this $250 billion program to buy up corporate bonds in the secondary market along with Exchange Traded Funds (ETFs). Both investment grade and junk-rated bonds and ETFs will be purchased. (See the Term Sheet here.)

Term Asset-Backed Securities Loan Facility (TALF)

$10 billion is earmarked for TALF which will leverage itself up to a $100 billion program that will provide loans against collateral composed of asset-backed securities. (See the Term Sheet here.)

Commercial Paper Funding Facility (CPFF)

$10 billion is earmarked for this Fed program. We could not find any statement on the ultimate size of this program. (See Term Sheet here.) The program is described by the Fed as providing “a liquidity backstop to U.S. issuers of commercial paper through a dedicated funding vehicle that will purchase eligible three-month unsecured and asset-backed commercial paper from eligible issuers using financing provided by the Federal Reserve Bank of New York.”

Money Market Mutual Fund Liquidity Facility (MMMFLF)

$10 billion has been earmarked to bailing out money market funds with bad paper that can’t be rolled over. (See Term Sheet here.)

Main Street Lending Program (MSLP)

$75 billion has been earmarked to fund a Fed facility of $600 billion that is preposterously being called the Main Street Lending Program. (See Term Sheet here.) The program will make loans to businesses that have up to 15,000 employees and 2019 revenues of $5 billion or less. If that doesn’t sound like a business you would find on your hometown’s Main Street, see our article: JPMorgan, Wells Fargo, Citigroup and Fossil Fuel Industry Get Bailed Out Under Fed’s “Main Street” Lending Program.

Municipal Liquidity Facility (MLF)

$35 billion of taxpayers’ money will fund a $500 billion Fed facility to make loans to states and municipalities that are experiencing cash flow stress as a result of the coronavirus pandemic. (See Term Sheet here.) This will help Wall Street banks by preventing them from having to write down, or take loan loss reserves against, loans they have made to these states and municipalities.

According to the Fed’s H.4.1 report dated May 6, the Primary and Secondary Market Corporate Credit Facilities were not yet operational (although buying of Exchange Traded Funds began yesterday under the Secondary Market Corporate Credit Facility). Also not yet operational as of May 6 were the TALF, Main Street Lending Program and Municipal Liquidity Facility.

But in addition to the Wall Street bailout programs set up by the Fed using taxpayers’ money to eat the first losses, the Fed is also running an alphabet soup of other programs which are not using taxpayers’ money (raising the suspicion that it’s only demanding taxpayer money where it knows it’s going to experience losses). For these other programs, the Fed is strictly using money the Fed has created out of thin air. Amounts outstanding as of May 6 are as follows in these programs:

U.S. Dollar Swap Lines to Foreign Central Banks: $444.89 billion

Repo Loans to the New York Fed’s Primary Dealers: $172.7 billion

Discount Window Loans to Depository Banks: $26.5 billion

Paycheck Protection Program Liquidity Facility (the money is not going to small businesses. It’s going to reimburse banks that made these loans to small businesses): $29.1 billion.

Primary Dealer Credit Facility (loans at ¼ of one percent to the trading houses on Wall Street (a/k/a primary dealers): $14.9 billion.

We capture amounts outstanding as of May 6 at all Fed programs that were operational in the chart above, which includes those using taxpayers’ money plus Fed money and those using just Fed monies.

This article first appeared on Wall Street on Parade.

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