MONEY JUNKIES HOLIDAY


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The U.S. Federal Reserve has released details of its “Main Street” lending plan to buy commercial loans from American businesses.
For corporations with between 500 and 10,000 employees, the Fed will soon begin buying up to $600 billion in corporate loans from banks. Corporations are eligible if they held an “investment grade” rating or better on 22 March.
Businesses of this size are too big to qualify for aid from the Small Business Administration but too small to enter the corporate debt market.
Securities rated BBB or better by Standard and Poor’s or that Moody’s rates as Baa3 and above are classified as investment grade.
The loans can range from $1 million to $150 million, will have four-year terms, and carry interest rates equal to the Fed’s Secure Overnight Financing Rate plus 200 to 400 basis points. The Fed rate remained at 0.01 percent on 10 April.
All payments on interest and principal will be suspended for one year.
Businesses can apply for the loans through major U.S. banks. The Fed will hold 95 percent of each loan and the lending bank will hold 5 percent.
For small businesses, those with fewer than 500 employees, the Fed will guarantee repayment of the Small Business Administration’s Paycheck Protection Program loans. The businesses can borrow up to $1 million. The Fed has stressed that these are loan programs, not gifts or grants, and that the Fed does expect the loans to be repaid.
With cities and states running out of cash now that workers and businesses aren’t working and paying taxes, the Fed has agreed to buy up to $500 billion in short-term bonds from all 50 states, cities with more than a million residents, counties with more than two million residents, and the District of Columbia.
The size requirements mean that only a relative handful of cities and counties can apply for the aid, leaving out most of the country.
The CARES Act passed by Congress establishes a $150 billion pool from which cites with more than a million residents, and counties with more than two million, can borrow.
Officials from the rest of the country have complained that Congress and the Fed are ignoring the urgent needs of most of the country. Congressional aides have said that smaller areas’ needs are likely to be addressed in the next rescue package.
The Fed has the authority to buy municipal bonds with six-month maturities but has never done so.
One reason is that the Fed traditionally leaves government spending decisions to elected officials and “doesn’t want to be in a position to say you have to raise taxes or cut pay to police or firemen” in order to raise cash to pay back a loan, said Scott Alvarez, the Fed’s general counsel from 2004 to 2017.
Also, the Fed is mandated to avoid risk. It now is harder to know which municipal bonds might be risky as cities struggle to recover from the economic shutdown.
Fed and treasury officials soon will announce a plan to financially aid states hit hard by the pandemic’s economic consequences, according to treasury secretary Steven Mnuchin.
The Fed’s debt holdings have grown from $4.2 trillion in February to $6 trillion now and could reach $9 trillion by July, far exceeding previous record levels.
The central bank has indicated a willingness to lend money in any financial market it deems necessary to the proper functioning of the U.S. economy.
“It’s really an awesome display of creativity and decisiveness – the breadth and diversity of [Fed] programs,” said Antonio Weiss, a former Obama administration treasury official. “They are taking a role well beyond any the Fed has played in its modern history and the economy needs it.”
Bail Out Workers, Not the Rich, Capitalist Says

While the nation is focused on the COVID-19 pandemonium pandemic hype by the media, missed by the general public was a rare rebuke to the overt Fed’s scam of buying high-risk loans and mortgage-backed securities that guarantees investment returns to speculators and already-wealthy venture capitalists.
Chamath Palihapitiya, chief executive of Social Capital LP, a venture capital firm, said on CNBC that the Fed’s “Main Street” rescue loan program bails out rich corporations and executives but ignores workers.
When businesses fail, they typically don’t get government loans and bailouts while their employees are put on the street, Palihapitiya points out. Instead, businesses go through bankruptcy, workers stay on the job with their pensions and health insurance often intact, and investors and speculators take the pain.
“Today, rich CEOs are not getting wiped out,” he said in a 9 April interview on CNBC. “Boards that have horrible governance are not getting wiped out. Hedge funds are not getting wiped out. People are getting wiped out. What we’re doing is to disproportionately prop up and protect poor-performing CEOs, companies, and boards.”
TRENDPOST: Following the Panic of ’08, as we have long noted, when the U.S. government sold the hype that the criminal banks who had been found guilty of committing fraud – and those such as U.S. Treasury Secretary Steven “The Foreclosure King” Mnuchin, who reigned over IndyMac bank – needed $29 trillion because they were too-big-to-fail… the Fed is focused on bailing out Wall Street, not Main Street.
Beyond the banking bandits, wanting more cheap money, billion-dollar cruise ship companies are lining up for a slice of the Fed’s money pie. Many are incorporated outside of the U.S., meaning they pay no U.S. income tax.
The Fed’s plan is socialism for the rich, go-it-alone capitalism for “We the little People”… the workers of Slavelandia.
The banksters are in charge, but it’s Easter season… so let’s remember that even Jesus became violent when it came time to drive the moneychangers out of the temple.
 And, not coincidently, the Prince of Peace was murdered four days later.
 

Fed Will Buy Junk Bonds and Other Risky Debt
On 9 April, the Fed expanded its economic rescue program to include the purchase of some high-yield or “junk” bonds, mortgage-backed securities, and leveraged loans.
Junk bonds carry a higher risk of default because the companies that have issued them are more exposed to deteriorating general or industry-specific economic conditions.
The central bank announced it will begin buying exchange-traded funds of corporate bonds that were investment-grade as of 22 March but later downgraded to a S&P rating of no less than BB-, the cream of the junk bond market.
Bonds from Ford Motor Co. and retailers Macy’s and J.C. Penney fall into that category.
Through a separate program, the Fed also will buy select mortgage-backed securities – highly-rated bundles of commercial mortgages – and packages of leveraged loans, which are loans made to companies that already carry a lot of debt.
The iShares iBoxx High Yield Corporate Bond Fund – a collection of junk bonds – has just finished its worst quarter since 2008. The spread between interest rates of treasury securities and junk-rated bonds was near its highest in 12 years; the wider that spread, the more leery investors are of taking on junk bonds.
After the Fed’s announcement, the spread fell from near 12 points to under 10, and the share price of the largest junk-bond fund gained 7 percent, one of its best showings in 12 years.
Leveraged loans, similar to speculative corporate bonds, also have watched investors flee in recent weeks as the likelihood of corporate defaults has spiked.
Without government guarantees, mortgage lenders that aren’t banks are having a harder time reselling their mortgages. Some of these lenders have been laying off staff or shutting down operations.
The New Residential Investment Corp., a real estate trust heavily invested in these non-backed mortgages, last week sold $6.1 billion worth of the mortgage bonds. In March, Two Harbors Investment Corp., also a real estate trust, sold its entire portfolio of these mortgages. Many of the trusts have struggled or failed to meet their banks’ demands to post more collateral against their loans.
Fed Plan Rallies Bond Market
Bond markets, including junk bonds, jumped in value after the U.S. Federal Reserve laid out details of its expanded lending program to soothe the economy.
The iShares investment-grade bond exchange-traded fund rose 4.7 percent on the news, with iShares’ junk-bond fund gaining 6.6 percent.
Valuation of some of Ford Motor’s bonds rose almost 20 percent after the Fed’s announcement; certain Continental Resources’ bond values moved from 61 cents on the dollar to above 73 cents.
The premium above treasury securities’ interest rates that investors charge to hold corporate bonds fell from a high of 3.73 points on 23 March to 2.53 on 9 April.
The promise of Fed guarantees launched a new wave of corporate borrowing, with companies issuing more than $105 billion in new debt over the last five weeks.
 

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