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That breakdown is missing the trillion dollars of corporate debt that the fed is now engaging in purchasing. Correction: in terms of direct corporate debt purch

That breakdown is missing the trillion dollars of corporate debt that the fed is now engaging in purchasing. Correction: in terms of direct corporate debt purchase, they have currently committed to less than half a trillion dollars of purchases independent of the CARES act. But the breakdown is also missing $210 billion of reduced corporate taxes! The CARES act is a good attempt at providing fair outcomes for everyone, but that is just one of the things the fed is funding. Take a look at their balance sheet from their own website: it went up over 2 trillion in the blink of an eye and they are not done yet: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... There are winners and losers in what is going on now, and corporate America is without doubt the biggest winner. By proxy, the wealthiest Americans that are the biggest owners of the financial assets the fed is supporting are also the biggest winners. Since we are accomplishing all this by printing money, those that don't win lose even more because their dollars are worth less. The long-term result on the current course will be even greater wealth disparity between the rich and the poor. You might have noticed many people complaining about this wealth disparity during the recent economic recovery in which the fed has added almost 4 trillion dollars to their balance sheet (again see the fed's chart). These wealth gaps historically lead to populism, which gets us our current president.

mrep 6y ago
They have not bought anywhere close to trillion dollars worth of corporate debt. As you can see in the breakdown [0], most of what they are buying is our own governments debt (the same debt used to fund the CARES act) and US mortgage backed securities. [0]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm
- deleted 6y ago
  [deleted]
- gregwebs 6y ago
  Sorry, it is hard for me to untangle all this. Some of this money is authorized by CARES, and some is independent action. We are already at a trillion dollars to the largest companies now when you combine CARES and the fed's commitment to debt purchase. In June they just committed to deploying an additional $250 billion https://www.wsj.com/articles/fed-will-amass-corporate-bond-portfolio-using-index-approach-11592246982 https://www.wsj.com/articles/fed-will-amass-corporate-bond-p... Add this to the existing billions of debt already purchased and we could easily be at half a trillion dollars of independent fed action to buy corporate debt in a short time frame. The CARES act also reduced corporate taxes by 210 billion. So There is at least half a trillion dollars not mentioned in articles like the one from NPR. The CARES act separately authorized 500 billion just to the largest corporations in America. Some of the additional hundreds of billions deployed to "small" businesses is really to large companies as well. It would be great to get a detailed breakdown of what the fed is doing, I am certainly not doing it justice in my description.
  - throwaway373438 6y ago
    A debt purchase and unemployment are very different things. Unemployment is money given away to another. It's a permanent giveaway. A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. These cannot be compared as equivalent. The tax reduction changes the way loss is calculated to better capture the reality of the economy falling apart in one year, letting losses be deducted from income generated in past years. There's a tax savings, but it's reflective of real loss incurred by business.
    - gregwebs 6y ago
      > A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. The corporate tax reduction is equivalent to a handout since it won't be paid back. As is the paycheck protection program. I agree that debt is not a 100% handout, but it is definitely not a 0% either. The fed is not that worried about qualifying its purchases and some of these companies will still go bankrupt: those cases may be 100% handouts. The debt is being purchased at above market rates and inflating prices for the asset so that's still a noticeable percentage of handout for the loans that get repaid. But I wouldn't assume that corporate debt will ever truly get repaid until I see the fed balance sheet go down. They tried to unload just a little bit last year and the stock market went down so they stopped. We now have 1.9 trillion in mortgage backed securities even though the housing crisis is over and housing prices are back to the levels of the prior bubble.
      - throwaway373438 6y ago
        It's true that bad debt isn't paid back, but in a bankruptcy the investors are wiped out so it would be disingenuous to frame those monies as "corporate bailouts." The funds will have gone to sustaining the business and employing the employees -- not to shareholders. The tax change isn't a reduction per se, it's a change in the way we account for losses across multiple years. It's also very new -- it's removing a new carryover rule that was added in 2017. I think it's also disingenuous to frame this as a reduction as the losses would be carried forward anyway. It is, like most of the other "corporate handouts," more of a shift in when the money is paid rather than a change in the amount.
- dv_dt 6y ago
  Depending on the situation, the Fed could take on government securities from banks so that the banks may extend more credit to private lendees (mostly companies) without running too low on required reserves. This balance sheet may not reflect what other agreements are attached to the treasury assets in holding.
  - _eht 6y ago
    In case you missed it, the Fed has removed almost all reserve requirements.
- mediaman 6y ago
  Additionally, purchases of corporate debt are not the same thing as issuance of grants to individuals or companies, examples of which are unemployment benefits or a portion of the PPP small business program. Historically, looking back at 2008-2009, purchases of corporate debt by the government either turned a profit or lost very little money. The 'bailouts' had aggressive terms and were repaid. If it does turn into a subsidy, the correct measurement is the difference between what the government pays today and what they sell it for later, or, if it defaults, the bankruptcy settlement value (which in the case of collateralized loans is rarely zero). Not the dollar amount of bonds purchased or money lent. This year, purchasing of corporate bonds has been focused on investment grade debt. It is unlikely they will experience any significant loss on this.
  - Consultant32452 6y ago
    Buying corporate debt at above market prices is a grant. Stopping your massive business from going under and being replaced by a more agile competitor is oligarchy.
PragmaticPulp 6y ago
> These wealth gaps historically lead to populism, which is how we ended up with our current president. Yet our current president is presiding over exactly what you’re describing. Also, as the other commenter explained, there are several problems with your understanding of the Fed’s operations and what they mean in terms of long-term budget. It’s not correct to compare cash payments to individuals with counter-cyclical quantitative easing.
- alexpetralia 6y ago
  Can you clarify why it's not a valid comparison? My lay understanding is that if you recycle your debt at 3%, and now you can recycle it at 1%, that is a 2% "bailout". You quite literally have a lower cost of funds (cost of doing business), and it is artificially low due to government intervention.
  - cperciva 6y ago
    They're both handouts, yes. But a $100 cash handout is $100, while a $100 loan at 2% below prevailing rates is $2. It becomes an invalid comparison when you compare nominal values without making the appropriate cost adjustment (multiplying the loan by 2% in this hypothetical).
    - clarkevans 6y ago
      Except that the loans they are making are not $2 below prevailing rates. Many of these businesses are near insolvency and are unable to get loans in the open market. These loans are huge gifts; if they were given by private equity, they would additionally come with a large equity position. When they don't, they are gifts, equivalent to the equity position that isn't taken and the high interest rate avoided.
      - cperciva 6y ago
        Right, I suspect that the interest rate differential is higher than 2%. In some cases the businesses receiving loans are insolvent and the loans are effectively non-repayable, i.e. gifts -- but not all. The true cost is almost certainly somewhere between 2% and 100%.
jsmith99 6y ago
Eliezer Yudkowsky explained it nicely[0]: This just in! The Fed will allow schools and hospitals to use its $1.5T repo line, letting any school with $1B in Treasuries temporarily exchange them for $1B cash for 3 months. "We have no idea why you wanted this," said a confused Fed. "Are you sure you know what we do?" [0] https://mobile.twitter.com/ESYudkowsky/status/1238815344535326720 https://mobile.twitter.com/ESYudkowsky/status/12388153445353...

mrep 6y ago

They have not bought anywhere close to trillion dollars worth of corporate debt. As you can see in the breakdown [0], most of what they are buying is our own governments debt (the same debt used to fund the CARES act) and US mortgage backed securities. [0]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm

deleted 6y ago
[deleted]
gregwebs 6y ago
Sorry, it is hard for me to untangle all this. Some of this money is authorized by CARES, and some is independent action. We are already at a trillion dollars to the largest companies now when you combine CARES and the fed's commitment to debt purchase. In June they just committed to deploying an additional $250 billion https://www.wsj.com/articles/fed-will-amass-corporate-bond-portfolio-using-index-approach-11592246982 https://www.wsj.com/articles/fed-will-amass-corporate-bond-p... Add this to the existing billions of debt already purchased and we could easily be at half a trillion dollars of independent fed action to buy corporate debt in a short time frame. The CARES act also reduced corporate taxes by 210 billion. So There is at least half a trillion dollars not mentioned in articles like the one from NPR. The CARES act separately authorized 500 billion just to the largest corporations in America. Some of the additional hundreds of billions deployed to "small" businesses is really to large companies as well. It would be great to get a detailed breakdown of what the fed is doing, I am certainly not doing it justice in my description.
- throwaway373438 6y ago
  A debt purchase and unemployment are very different things. Unemployment is money given away to another. It's a permanent giveaway. A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. These cannot be compared as equivalent. The tax reduction changes the way loss is calculated to better capture the reality of the economy falling apart in one year, letting losses be deducted from income generated in past years. There's a tax savings, but it's reflective of real loss incurred by business.
  - gregwebs 6y ago
    > A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0. The corporate tax reduction is equivalent to a handout since it won't be paid back. As is the paycheck protection program. I agree that debt is not a 100% handout, but it is definitely not a 0% either. The fed is not that worried about qualifying its purchases and some of these companies will still go bankrupt: those cases may be 100% handouts. The debt is being purchased at above market rates and inflating prices for the asset so that's still a noticeable percentage of handout for the loans that get repaid. But I wouldn't assume that corporate debt will ever truly get repaid until I see the fed balance sheet go down. They tried to unload just a little bit last year and the stock market went down so they stopped. We now have 1.9 trillion in mortgage backed securities even though the housing crisis is over and housing prices are back to the levels of the prior bubble.
    - throwaway373438 6y ago
      It's true that bad debt isn't paid back, but in a bankruptcy the investors are wiped out so it would be disingenuous to frame those monies as "corporate bailouts." The funds will have gone to sustaining the business and employing the employees -- not to shareholders. The tax change isn't a reduction per se, it's a change in the way we account for losses across multiple years. It's also very new -- it's removing a new carryover rule that was added in 2017. I think it's also disingenuous to frame this as a reduction as the losses would be carried forward anyway. It is, like most of the other "corporate handouts," more of a shift in when the money is paid rather than a change in the amount.
dv_dt 6y ago
Depending on the situation, the Fed could take on government securities from banks so that the banks may extend more credit to private lendees (mostly companies) without running too low on required reserves. This balance sheet may not reflect what other agreements are attached to the treasury assets in holding.
- _eht 6y ago
  In case you missed it, the Fed has removed almost all reserve requirements.
mediaman 6y ago
Additionally, purchases of corporate debt are not the same thing as issuance of grants to individuals or companies, examples of which are unemployment benefits or a portion of the PPP small business program. Historically, looking back at 2008-2009, purchases of corporate debt by the government either turned a profit or lost very little money. The 'bailouts' had aggressive terms and were repaid. If it does turn into a subsidy, the correct measurement is the difference between what the government pays today and what they sell it for later, or, if it defaults, the bankruptcy settlement value (which in the case of collateralized loans is rarely zero). Not the dollar amount of bonds purchased or money lent. This year, purchasing of corporate bonds has been focused on investment grade debt. It is unlikely they will experience any significant loss on this.
- Consultant32452 6y ago
  Buying corporate debt at above market prices is a grant. Stopping your massive business from going under and being replaced by a more agile competitor is oligarchy.

PragmaticPulp 6y ago

> These wealth gaps historically lead to populism, which is how we ended up with our current president. Yet our current president is presiding over exactly what you’re describing. Also, as the other commenter explained, there are several problems with your understanding of the Fed’s operations and what they mean in terms of long-term budget. It’s not correct to compare cash payments to individuals with counter-cyclical quantitative easing.

alexpetralia 6y ago
Can you clarify why it's not a valid comparison? My lay understanding is that if you recycle your debt at 3%, and now you can recycle it at 1%, that is a 2% "bailout". You quite literally have a lower cost of funds (cost of doing business), and it is artificially low due to government intervention.
- cperciva 6y ago
  They're both handouts, yes. But a $100 cash handout is $100, while a $100 loan at 2% below prevailing rates is $2. It becomes an invalid comparison when you compare nominal values without making the appropriate cost adjustment (multiplying the loan by 2% in this hypothetical).
  - clarkevans 6y ago
    Except that the loans they are making are not $2 below prevailing rates. Many of these businesses are near insolvency and are unable to get loans in the open market. These loans are huge gifts; if they were given by private equity, they would additionally come with a large equity position. When they don't, they are gifts, equivalent to the equity position that isn't taken and the high interest rate avoided.
    - cperciva 6y ago
      Right, I suspect that the interest rate differential is higher than 2%. In some cases the businesses receiving loans are insolvent and the loans are effectively non-repayable, i.e. gifts -- but not all. The true cost is almost certainly somewhere between 2% and 100%.

jsmith99 6y ago

Eliezer Yudkowsky explained it nicely[0]: This just in! The Fed will allow schools and hospitals to use its $1.5T repo line, letting any school with $1B in Treasuries temporarily exchange them for $1B cash for 3 months. "We have no idea why you wanted this," said a confused Fed. "Are you sure you know what we do?" [0] https://mobile.twitter.com/ESYudkowsky/status/1238815344535326720 https://mobile.twitter.com/ESYudkowsky/status/12388153445353...