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The Fed now owns Walmart debt

97 points by uptown 6y ago

98codes 6y ago
Privatize the profit, socialize the debt.
- hankchinaski 6y ago
  Supposedly the fed gets rewarded for that debt issuance (it’s not interest free?). the choice to provide credit line is to avoid thousands of job losses and domino’s bankruptcies. And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress
  - jaekash 6y ago
    > And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress No taxpayer money is being loaned out here ... so ... I mean it is good you are trying to be a voice of reason here - but the amount of misinformation and straight out propaganda in the water is astounding.
    - deleuze 6y ago
      > No taxpayer money is being loaned out here That doesn't mean there isn't an opportunity cost to providing liquidity through buying up bonds versus other socially productive forms of spending. Just because we have a magic money tree, why does that mean Walmart should be the beneficiary?
      - rmah 6y ago
        Buying bonds is not spending. Those bonds will either mature and the funds paid back to the Fed or the Fed will sell the bonds on the open market. Either way, this is very different from handouts to the public or "socially productive spending" in that the money will get paid back. Finally, it's not the Federal Reserve's role to be socially helpful except as to fulfill their dual mandates to 1) minimize inflation and 2) maximize employment.
        deleuze 6y ago
        The feds balance sheet is imaginary who cares if it gets paid back.
        pbhjpbhj 6y ago
        So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? Pretending there's no limit and no deleterious effect seems wrong. If that were true then the Federal Reserve could just by boobs for all debts and every citizen would be debt free and there would be nothing wrong. If every time a company struggles the gov step in, because instead of maintaining reserves the companies pay out profit, bonuses and dividends, then large companies will engineer in the need for gov assistance and their ability to self maintain will be lost.
        rmah 6y ago
        Very few bonds are callable. And why would the Fed need to call the bond, it's not like they are short of cash. lol. Either way, I wasn't "pretending there's no limit and no deleterious effect". As you stated, that would be wrong. There are obvious and not-so obvious problems with central banks engaging in QE (i.e. buying financial assets as a means of injecting money into the system). But this thread was about QE via corp bonds vs the Fed handing out gifts to the public so I didn't go into that.
        jaekash 6y ago
        > So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? They can't, not how bonds work. > Pretending there's no limit and no deleterious effect seems wrong. Nobody is pretending. There are many potentially deleterious effects, but amazingly the set of problems people have with this have almost no intersection with the potentially deleterious effects. > If every time a company struggles the gov step in This is a pandemic. The government engineered a scenario which destroyed the economy to save lives. Walmart engineered nothing here.
      - jaekash 6y ago
        The federal reserve is not spending money, they are buying bonds, when they buy a bond it is like adding a number in a spreadsheet, when the money is paid back (or even not) they just add the number back. The federal reserve is not allowed under law to go pay people UBI or something. What exactly do you expect them to do instead? And why should it be instead? You get the federal reserve has no inherent limit to the amount of bonds they could buy, so even if there was some other "socially productive forms of spending" they could undertake this is in no way mutually exclusive to buying bonds from Walmart. It is astounding how little people understand of what is going on here.
        deleuze 6y ago
        The fed does plenty of things that are outside of the scope of it's charter. Further, we can just change the law, this isn't some immutable truth of central banks. Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. > It is astounding how little people understand of what is going on here. No, you're just a smug asshole.
        jaekash 6y ago
        > The fed does plenty of things that are outside of the scope of it's charter. Name one. > Further, we can just change the law, this isn't some immutable truth of central banks. Well then go change the the law instead of saying that with the law being what it currently is the fed should instead engage in other "socially productive forms of spending". > Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. Invent them then and tell us. The fed can buy bonds, they buy bonds, they can set the interest rate, they set the interest rate. If there is a company building infrastructure that issues bonds then presumably the Fed can buy them, and I'm sure they will because the Fed is trying to flood the system with money, and for the most part indiscriminately with maybe just an eye on credit ratings.
      - dageshi 6y ago
        There isn't an opportunity cost. It's not the feds job to perform "socially productive forms of spending", it's the elected governments job to do that. The feds job is financial stability and low inflation.
        occamrazor 6y ago
        And low unemployment, which, I guess, is the main reason for this bond buying program.
    - harryh 6y ago
      These threads tend to bring out the Fed Truthers on HN. There are a lot of borderline cranks.
      - hankchinaski 6y ago
        lolz
      - mindslight 6y ago
        One has to love how "truth" has become a dismissive label. I think Orwell had something to say about that. Judging by the constant stream of downvotes and upvotes, my conclusion is that people are living in two very different economic worlds. Likely defined by their access to the outlets of newly created money.
        jaekash 6y ago
        Call me old fashioned but facts are facts. Challenge claims of fact if you have something to show they are wrong but otherwise they are what they are.
        mindslight 6y ago
        I was responding specifically to harryh, who said "There are a lot of borderline cranks" after having responded to a different comment of mine with a dismissive Fed talking point. I do agree with your previous comment that "No taxpayer money is being loaned out here". "Public money" would be an appropriate description though.
        harryh 6y ago
        Pointing out that all the inflation that people have been afraid of for maybe two decades now keeps not coming isn't a dismissive Fed talking point. It's reality. The idea that it's just asset inflation and not inflation in the real economy is also wrong. The fact of the matter is that we now live in a world where raw capital is no longer a rare commodity, thus you can no longer get a significant return on a risk free asset like a bank account or a t-bill. In order to make a return you have to take risks with your capital and invest them in something value producing like a business. You don't have a God given right to high interest rates. We've had a secular decline in interest rates for...maybe hundreds of years. That's just reality. Complaining that the Fed (and every other central bank in the developed world) is somehow screwing you by not creating them for you is foolish. The interest rate on your savings account is not important compared to the gainful employment by the populace that happens when we don't have too tight monetary policy.
    - pbhjpbhj 6y ago
      Can you explain how it works: No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? How does the original creditor write it off their balance sheet if they don't receive anything?
      - jaekash 6y ago
        > No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? No, the government does not acquire debts, the only entity here that acquired debts is Walmart. When walmart wants capital they have two options, issue stock, or issue bonds. When they issue bonds buyers can buy the bonds. The bond is a contract which says that the Walmart will pay the holder of the bond certain monies. What happened here is Walmart issued bonds, those bonds were bought by some legal entities, then the Fed bought those bonds from the legal entities that held them. So the fed paid money, which it created out of thin air, to some legal entities, in exchange for contracts which require that Walmart pays the Fed some money (probably quite a bit more than what the Fed paid for those contracts). When Walmart pays back the principle of the Bond the money basically gets deleted and the yield is added to the Federal reserves balance sheet. (I am not an economist, so I may be wrong on some terms here).
        pbhjpbhj 6y ago
        >So the fed paid money, which it created out of thin air // By devaluing currency, a cost to all holders. They can make virtual numbers, they can't make value. There's a cost, the cost is just obscured. The way you describe it is clearly wrong, otherwise the Fed could buy everyone's debt and save the economy of the entire World. Yay, just "print money" we'll all be rich!
        jaekash 6y ago
        > The way you describe it is clearly wrong Please cite the inaccuracy.
    - cconroy 6y ago
      how about counterfeiting the taxpayer's money?
      - jaekash 6y ago
        Not a thing that is happening here.
- beervirus 6y ago
  This is not that.
  - jjoonathan 6y ago
    It's the opposite of that.
    - rlucas 6y ago
      Can grant you that using accounting definitions, jjoonathan is literally correct: the [accounting] profit goes to sociaty (the Fed) here and the debt liability is on the private balance sheet (Walmart). However, GP is making a point I might take the liberty of rewording as, "privatize the profits and benefits, socialize the risks and costs." The reworded version is certainly true in economic (not accounting) terms. The profits and benefits accrue to the private side (Walmart) through a lower cost of capital and hence a higher profit margin. The risks and costs are borne by society (the Fed) through the credit risk and the infinitesimal debasement of the currency.
      - aaronblohowiak 6y ago
        As a nit, this isn't as clear cut and dry when you think about qui bono -- The fed's purchase itself increases the value of other outstanding Walmart debt, creating wealth for the other debt holders...
    - deleted 6y ago
      [deleted]
- LoSboccacc 6y ago
  I hate that too, especially when it's megacorps. however I'd like to introduce two points of discussion: https://www.foxbusiness.com/economy/fed-bought-debt-from-walmart-mcdonalds-berkshire-hathaway-and-microsoft-as-part-of-coronavirus-response https://www.foxbusiness.com/economy/fed-bought-debt-from-wal... first, Walmart is not the most outrageous of the list. coca cola is much worse. For all it's shortcomings, Walmart has a lot of domestic employees, around 1.5 millions. If the money from the fed directly went into welfare for these workers, it would have covered a couple months top, so it becomes a question of efficiency: if restructuring the debt buys a year or so before bankruptcy, it's still a net gain, under the assumption that being unemployed now would be much worse than being unemployed in 10 months after the current crisis is over. second, Walmart effectively is the American version of social welfare. It's the kind of job almost anyone can get to get back on their feet. It's not too big too fail, nobody should be, but it's also not so bad a company to have around.
  - harryh 6y ago
    if restructuring the debt buys a year or so before bankruptcy Walmart is currently worth, checks notes, 336 Billion dollars. It is one of the most valuable companies in the world. It is in no danger of going bankrupt.
    - clairity 6y ago
      yes, they should sell equity if necessary, not expect cheap debt from the government. shareholders especially need to feel the downsides of risky decisions too, otherwise it distorts pricing mechanisms and imbalances the proper allocation of capital across the economy.
      - harryh 6y ago
        They haven't expected cheap debt from the government. Large corporations routinely cary debt to finance short term cashflow needs. Right now Walmart has about 60B worth. The FED, as part of a large program of corporate debt purchases, has bought a grand total of about 9 million dollars worth of this. That's .015%. Whatever gave you the idea that Walmart had this expectation is wrong.
jameslk 6y ago
> This crisis is expected to be severe but short, lowering the risk of propping up inefficient "zombie" firms that should be allowed to fail. That may not be the case next time around. I can't tell if the author is referring to the ongoing state of the economy here, but this is claimed so nonchalantly. I wonder if this reflects a majority view of those with an economics/finance background. From my point of view it seems we're nowhere near out of the woods yet with COVID-19 and its continuing impact on the economy. How long should a large number of businesses remain closed and a large number of individuals remain unemployed before we're back in a crisis again?
mindslight 6y ago
The unstated assumption underlying all of this intervention is that interest rates must not be allowed to go up. There is not a lack of investors willing to buy bonds - there is a lack of investors willing to buy bonds at the ridiculously low interest rates the Fed has forced over the past two decades. We should currently be experiencing a cyclic market correction where stock yields go down and bond rates go up. But the government is insisting that this shall not happen, as it would make politicians and fiscally irresponsible CEOs look bad. Savers and non-politically-connected small businesses lose out via monetary supply inflation, and are left with nowhere to go besides staying in the stock market bubble or hedging into gold in case this bubble finally pops.
- harryh 6y ago
  Inflation? What inflation? https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA This is a yearly graph, but if you look at the month by month data you'll see that inflation has actually been negative recently.
  - mindslight 6y ago
    I explicitly said "monetary supply inflation" to avoid a reply with that disingenuous chart. The overt price inflation is occurring in assets, preventing the majority of people from achieving financial stability instead of assorted monthly rents to service debt. In general, we would expect consumer prices to trend downwards reflecting technological progress, increasing productivity, and offshoring. The Fed's policy is to erase that distributed progress, contributing to our growing divide between the rich and the poor.
credit_guy 6y ago
The correct title should be "The Fed now owns Walmart debt", not "Walmart's debt". Walmart has more than $60BN long term debt outstanding. The Fed has bought exactly $8,668,097.01 of that. You can find the actual amounts the Fed has bought for different issuers at https://www.federalreserve.gov/monetarypolicy/smccf.htm https://www.federalreserve.gov/monetarypolicy/smccf.htm
- mshanowitz 6y ago
  Notwithstanding the relatively small amount purchased, the question remains still: is this something the federal reserve should be engaged in in the first place? And what are the long term consequences of even the perception of such behavior?
  - jaekash 6y ago
    > And what are the long term consequences of even the perception of such behavior? With the amount of gaslighting and misinformation being spread by people ranging from useful idiots to straight out antisemitittes and disintegrationists I think the behaviour of the federal reserve is not the biggest problem here and I would suggest you educate yourself to understand the problem before falling for some ragebate. No debt is being forgiven, similar practices are being taken all over the world, in Germany their concern was that they could not do this fast enough to keep the economy from collapsing. https://www.reuters.com/article/us-health-coronavirus-banks-insight/banks-struggle-to-ride-to-the-rescue-in-europes-cash-crunch-battle-idUSKBN21B0OE https://www.reuters.com/article/us-health-coronavirus-banks-... > “Flooding the market with money is not enough. You need the credit demand, and you can only have credit demand if you can hand out the money,” she said.
  - axlee 6y ago
    If the alternative is the Fed lending that money to banks who would then cut a profit on it, lending it again to private companies while assuming very little risk, I'd rather have the Fed buy the bonds directly without a middleman. Of course, that's not the only alternative. But as far as injecting liquidity into the economy, I'd rather see the government having agency into deciding where to inject it rather than letting for-profit companies who don't have the best interests of the economy at heart do it on its behalf. Same should have happened for the covid helicopter money: letting banks allocate public funds was a mistake. Public funds, public decisions.
beervirus 6y ago
“The Fed has bought a relatively small amount of Walmart’s investment-grade bonds” would be a less alarmist way of saying that.
- markkanof 6y ago
  Your point makes sense when talking about this action by the Fed when looking at it as a standalone action, but a lot of people, including myself, might think the raised state of alarm is justified given that this is a situation where the Fed is essentially investing in/bailing out individual companies. One of the huge issues with this is that it puts the Fed in a position to be choosing winners and losers, which is very much against the idea of operating in a free market economy.
- deleuze 6y ago
  I find pretty much everything the Fed does alarming.
- anm89 6y ago
  This isn't exactly an alarmist title. There is no way to argue that it is even partially untrue or at all subjective.
Animats 6y ago
Do they get a seat on the board?
- harryh 6y ago
  Equity holders vote on board seats, not debt holders.
  - Animats 6y ago
    It's not unheard of for creditors to get a seat on the board when a company is in trouble.
nemo44x 6y ago
The more they interfere the worse it will be one day. Kicking the can of the inevitable meltdown. The first mistake was allowing banks to be “too big to fail”. The second mistake was bailing them out. Buying corporate debt is simply another piece of the mistake puzzle. This making the entire system more and more fragile. At a certain point you either believe in capitalism and free markets or you admit that you like a special type of socialism.
nine_zeros 6y ago
When the govt and FED is asked to print money for healthcare -> What are we socialists? When the govt and FED is asked to print money to supplement income -> People will become lazy When the govt and FED is asked to print money to save the wealth of capitalist class -> Brrrrrrrrrrrr
- deleuze 6y ago
  The laws and very fundamental structure of this nation is designed to protect wealthy property owners and disenfranchise the working poor.
vmception 6y ago
This is only interesting if you are an issuer, or a corporate debt trader. This should only become interesting if any corporate debt the Fed owns defaults, and the Fed becomes a shareholder. For now, what this article wrote, is not the interesting part of this phenomenom.
- cinquemb 6y ago
  Asof EOD friday from about 1145 trackable CUSIPs in firna trace underlying HYG, there's 20 of them either in default or companies that have applied for bankruptcy protection. A lot more have be rolled out from HYG though.
  - vmception 6y ago
    nice, yeah thats something I find interesting too but the Fed's junk bond ETF purchasing has already been active. this article is about its investment grade primary and secondary market corporate credit facility, which was authorized with the CARES Act but took till June to get started.
    - cinquemb 6y ago
      Yeah, nothing in default yet from EOD friday in LQD. Of about 2272 CUSIPS in LQD then, 58 are rated BB, Baa1 392, Baa2 406, Baa3 251. I expect that it will happen soon that at least a few of these go into default.
      - vmception 6y ago
        Unless they directly issue to the fed and use the proceeds to pay off prior debt This is very commonplace in corporate credit, aside from issuing directly to the federal reserve, which has offered verbatim to be the sole investor! Free money! I read the whole CARES Act and found this extra large bailout to be the biggest market distortion and thought it should have more air time than PPP or unemployment insurance boosts
hankchinaski 6y ago
> The action by the Federal Reserve has been lauded by investors for easing conditions in credit markets after they rapidly deteriorated in March, avoiding a potentially catastrophic corporate cash crunch that could have triggered a wave of bankruptcies. I wonder why BKR is in the list, it does seem to have a strong balance sheet and no need for a credit lifeline like say PM that does have for example negative equity.
- nappy-doo 6y ago
  I assume you mean BRK. If that's the case, BRK borrows at a very cheap rate (in the case the bonds purchased, their coupon is 4%, which is kinda high for BRK). BRK borrows for a couple of reasons, but chief among them are that sometimes it's better to write bonds (for tax reasons), than it is to use cash. At 4%, I can see that being the case.
  - hankchinaski 6y ago
    right makes sense - noob here
radicaldreamer 6y ago
The largest grift in US history is taking place while we're failing on the entire point of these programs: to prevent unnecessary deaths and suffering. We're going to end up with a huge amount of debt, a financial crisis, and the most deaths of any industrialized country at the end of this.
- jaekash 6y ago
  > We're going to end up with a huge amount of debt, a financial crisis, and the most deaths of any industrialized country at the end of this. What industrialized country has a higher population than US? Do you not get how proportions work or something? EDIT: And if you think this phenomena of central banks buying debt is somehow unique to the USA ... I mean ... the media is actively trying to prevent people from having a balanced picture of the world ... so it is not a surprise ... but yes ... you should try inform yourself of the reality. Almost every industrialized nation and non industrialised nation is doing similar things.
  - deleted 6y ago
    [deleted]
  - deleuze 6y ago
    Most doesn't just have to refer to absolute quantity, it can also refer to a relative measure. Either way, it's a shit load of dead people, not sure what your point is.
    - jaekash 6y ago
      Industrialized countries with more deaths per capita than USA: Belgium (2.1 more) UK (1.6 times more) Spain (1.5 times more) Italy (1.43 times more) Sweden (1.3 times more) France (1.1 times more). Yes it is a shitload of deaths. Lets talk about it being more than every other industrialised nation in proportion when that actually happens.
    - deleted 6y ago
      [deleted]
7thaccount 6y ago
Why does Walmart have so much debt?
- wtfrmyinitials 6y ago
  Because ZIRP encourages corporate debt.
- frandroid 6y ago
  It's at war with Amazon, and it's able to produce an ROI which exceeds the cost of borrowing anyway.
ur-whale 6y ago
The first mistake was allowing the federal reserve to exist. Here's Jefferson on the topic [1]: "And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." [1] https://web.archive.org/web/20150711012438/http://memory.loc.gov/cgi-bin/query/r?ammem/mtj:@field(DOCID+@lit(tj110172) https://web.archive.org/web/20150711012438/http://memory.loc...)
blackrock 6y ago
I feel we are no longer getting our money’s worth from our taxes. We are taxed at almost an effective rate of 40%. This includes federal, state, and sales taxes. Then, the other 40% goes to rent, or mortgages. And you have to make due with your remaining 20% to pay for your medical expenses, food, gasoline, car, entertainment, etc. And god forbid, if you have to pay to help your aging parents, which is an added burden on your remaining 20%. What will it take to get the attention of these Washington elites, that we, the people, are getting fleeced for our money? Meanwhile, all this low interest rates, are going to do one thing, which is to further increase asset prices. Namely, housing prices, and stock prices.
mlacks 6y ago
This is probably not the correct way to ask this, but does the ‘investment’ of the fed into a company verify its stability, or is the investment force the gov to ensure it’s solvency?
brutal_chaos_ 6y ago
Could this be a big move towards the harvest box?

97 points by uptown 6y ago

98codes 6y ago

Privatize the profit, socialize the debt.

hankchinaski 6y ago
Supposedly the fed gets rewarded for that debt issuance (it’s not interest free?). the choice to provide credit line is to avoid thousands of job losses and domino’s bankruptcies. And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress
- jaekash 6y ago
  > And agree with you that there should be a policy whereby before taking taxpayer money they should first temporarily hijack dividend payouts and stock buybacks to fix their balance sheet problems especially in moments of financial distress No taxpayer money is being loaned out here ... so ... I mean it is good you are trying to be a voice of reason here - but the amount of misinformation and straight out propaganda in the water is astounding.
  - deleuze 6y ago
    > No taxpayer money is being loaned out here That doesn't mean there isn't an opportunity cost to providing liquidity through buying up bonds versus other socially productive forms of spending. Just because we have a magic money tree, why does that mean Walmart should be the beneficiary?
    - rmah 6y ago
      Buying bonds is not spending. Those bonds will either mature and the funds paid back to the Fed or the Fed will sell the bonds on the open market. Either way, this is very different from handouts to the public or "socially productive spending" in that the money will get paid back. Finally, it's not the Federal Reserve's role to be socially helpful except as to fulfill their dual mandates to 1) minimize inflation and 2) maximize employment.
      - deleuze 6y ago
        The feds balance sheet is imaginary who cares if it gets paid back.
      - pbhjpbhj 6y ago
        So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? Pretending there's no limit and no deleterious effect seems wrong. If that were true then the Federal Reserve could just by boobs for all debts and every citizen would be debt free and there would be nothing wrong. If every time a company struggles the gov step in, because instead of maintaining reserves the companies pay out profit, bonuses and dividends, then large companies will engineer in the need for gov assistance and their ability to self maintain will be lost.
        rmah 6y ago
        Very few bonds are callable. And why would the Fed need to call the bond, it's not like they are short of cash. lol. Either way, I wasn't "pretending there's no limit and no deleterious effect". As you stated, that would be wrong. There are obvious and not-so obvious problems with central banks engaging in QE (i.e. buying financial assets as a means of injecting money into the system). But this thread was about QE via corp bonds vs the Fed handing out gifts to the public so I didn't go into that.
        jaekash 6y ago
        > So if they call in the bonds tomorrow then Walmart will cancel dividends, etc., to pay them? They can't, not how bonds work. > Pretending there's no limit and no deleterious effect seems wrong. Nobody is pretending. There are many potentially deleterious effects, but amazingly the set of problems people have with this have almost no intersection with the potentially deleterious effects. > If every time a company struggles the gov step in This is a pandemic. The government engineered a scenario which destroyed the economy to save lives. Walmart engineered nothing here.
    - jaekash 6y ago
      The federal reserve is not spending money, they are buying bonds, when they buy a bond it is like adding a number in a spreadsheet, when the money is paid back (or even not) they just add the number back. The federal reserve is not allowed under law to go pay people UBI or something. What exactly do you expect them to do instead? And why should it be instead? You get the federal reserve has no inherent limit to the amount of bonds they could buy, so even if there was some other "socially productive forms of spending" they could undertake this is in no way mutually exclusive to buying bonds from Walmart. It is astounding how little people understand of what is going on here.
      - deleuze 6y ago
        The fed does plenty of things that are outside of the scope of it's charter. Further, we can just change the law, this isn't some immutable truth of central banks. Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. > It is astounding how little people understand of what is going on here. No, you're just a smug asshole.
        jaekash 6y ago
        > The fed does plenty of things that are outside of the scope of it's charter. Name one. > Further, we can just change the law, this isn't some immutable truth of central banks. Well then go change the the law instead of saying that with the law being what it currently is the fed should instead engage in other "socially productive forms of spending". > Even within the scope of the fed's mandate we could invent ways to invest in infrastructure instead of Walmart. Invent them then and tell us. The fed can buy bonds, they buy bonds, they can set the interest rate, they set the interest rate. If there is a company building infrastructure that issues bonds then presumably the Fed can buy them, and I'm sure they will because the Fed is trying to flood the system with money, and for the most part indiscriminately with maybe just an eye on credit ratings.
    - dageshi 6y ago
      There isn't an opportunity cost. It's not the feds job to perform "socially productive forms of spending", it's the elected governments job to do that. The feds job is financial stability and low inflation.
      - occamrazor 6y ago
        And low unemployment, which, I guess, is the main reason for this bond buying program.
  - harryh 6y ago
    These threads tend to bring out the Fed Truthers on HN. There are a lot of borderline cranks.
    - hankchinaski 6y ago
      lolz
    - mindslight 6y ago
      One has to love how "truth" has become a dismissive label. I think Orwell had something to say about that. Judging by the constant stream of downvotes and upvotes, my conclusion is that people are living in two very different economic worlds. Likely defined by their access to the outlets of newly created money.
      - jaekash 6y ago
        Call me old fashioned but facts are facts. Challenge claims of fact if you have something to show they are wrong but otherwise they are what they are.
        mindslight 6y ago
        I was responding specifically to harryh, who said "There are a lot of borderline cranks" after having responded to a different comment of mine with a dismissive Fed talking point. I do agree with your previous comment that "No taxpayer money is being loaned out here". "Public money" would be an appropriate description though.
        harryh 6y ago
        Pointing out that all the inflation that people have been afraid of for maybe two decades now keeps not coming isn't a dismissive Fed talking point. It's reality. The idea that it's just asset inflation and not inflation in the real economy is also wrong. The fact of the matter is that we now live in a world where raw capital is no longer a rare commodity, thus you can no longer get a significant return on a risk free asset like a bank account or a t-bill. In order to make a return you have to take risks with your capital and invest them in something value producing like a business. You don't have a God given right to high interest rates. We've had a secular decline in interest rates for...maybe hundreds of years. That's just reality. Complaining that the Fed (and every other central bank in the developed world) is somehow screwing you by not creating them for you is foolish. The interest rate on your savings account is not important compared to the gainful employment by the populace that happens when we don't have too tight monetary policy.
  - pbhjpbhj 6y ago
    Can you explain how it works: No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? How does the original creditor write it off their balance sheet if they don't receive anything?
    - jaekash 6y ago
      > No money is paid from the government (according to you) but they acquire debts (on behalf of citizens) with owed amounts of $8B? No, the government does not acquire debts, the only entity here that acquired debts is Walmart. When walmart wants capital they have two options, issue stock, or issue bonds. When they issue bonds buyers can buy the bonds. The bond is a contract which says that the Walmart will pay the holder of the bond certain monies. What happened here is Walmart issued bonds, those bonds were bought by some legal entities, then the Fed bought those bonds from the legal entities that held them. So the fed paid money, which it created out of thin air, to some legal entities, in exchange for contracts which require that Walmart pays the Fed some money (probably quite a bit more than what the Fed paid for those contracts). When Walmart pays back the principle of the Bond the money basically gets deleted and the yield is added to the Federal reserves balance sheet. (I am not an economist, so I may be wrong on some terms here).
      - pbhjpbhj 6y ago
        >So the fed paid money, which it created out of thin air // By devaluing currency, a cost to all holders. They can make virtual numbers, they can't make value. There's a cost, the cost is just obscured. The way you describe it is clearly wrong, otherwise the Fed could buy everyone's debt and save the economy of the entire World. Yay, just "print money" we'll all be rich!
        jaekash 6y ago
        > The way you describe it is clearly wrong Please cite the inaccuracy.
  - cconroy 6y ago
    how about counterfeiting the taxpayer's money?
    - jaekash 6y ago
      Not a thing that is happening here.
beervirus 6y ago
This is not that.
- jjoonathan 6y ago
  It's the opposite of that.
  - rlucas 6y ago
    Can grant you that using accounting definitions, jjoonathan is literally correct: the [accounting] profit goes to sociaty (the Fed) here and the debt liability is on the private balance sheet (Walmart). However, GP is making a point I might take the liberty of rewording as, "privatize the profits and benefits, socialize the risks and costs." The reworded version is certainly true in economic (not accounting) terms. The profits and benefits accrue to the private side (Walmart) through a lower cost of capital and hence a higher profit margin. The risks and costs are borne by society (the Fed) through the credit risk and the infinitesimal debasement of the currency.
    - aaronblohowiak 6y ago
      As a nit, this isn't as clear cut and dry when you think about qui bono -- The fed's purchase itself increases the value of other outstanding Walmart debt, creating wealth for the other debt holders...
  - deleted 6y ago
    [deleted]
LoSboccacc 6y ago
I hate that too, especially when it's megacorps. however I'd like to introduce two points of discussion: https://www.foxbusiness.com/economy/fed-bought-debt-from-walmart-mcdonalds-berkshire-hathaway-and-microsoft-as-part-of-coronavirus-response https://www.foxbusiness.com/economy/fed-bought-debt-from-wal... first, Walmart is not the most outrageous of the list. coca cola is much worse. For all it's shortcomings, Walmart has a lot of domestic employees, around 1.5 millions. If the money from the fed directly went into welfare for these workers, it would have covered a couple months top, so it becomes a question of efficiency: if restructuring the debt buys a year or so before bankruptcy, it's still a net gain, under the assumption that being unemployed now would be much worse than being unemployed in 10 months after the current crisis is over. second, Walmart effectively is the American version of social welfare. It's the kind of job almost anyone can get to get back on their feet. It's not too big too fail, nobody should be, but it's also not so bad a company to have around.
- harryh 6y ago
  if restructuring the debt buys a year or so before bankruptcy Walmart is currently worth, checks notes, 336 Billion dollars. It is one of the most valuable companies in the world. It is in no danger of going bankrupt.
  - clairity 6y ago
    yes, they should sell equity if necessary, not expect cheap debt from the government. shareholders especially need to feel the downsides of risky decisions too, otherwise it distorts pricing mechanisms and imbalances the proper allocation of capital across the economy.
    - harryh 6y ago
      They haven't expected cheap debt from the government. Large corporations routinely cary debt to finance short term cashflow needs. Right now Walmart has about 60B worth. The FED, as part of a large program of corporate debt purchases, has bought a grand total of about 9 million dollars worth of this. That's .015%. Whatever gave you the idea that Walmart had this expectation is wrong.

jameslk 6y ago

> This crisis is expected to be severe but short, lowering the risk of propping up inefficient "zombie" firms that should be allowed to fail. That may not be the case next time around. I can't tell if the author is referring to the ongoing state of the economy here, but this is claimed so nonchalantly. I wonder if this reflects a majority view of those with an economics/finance background. From my point of view it seems we're nowhere near out of the woods yet with COVID-19 and its continuing impact on the economy. How long should a large number of businesses remain closed and a large number of individuals remain unemployed before we're back in a crisis again?

mindslight 6y ago

The unstated assumption underlying all of this intervention is that interest rates must not be allowed to go up. There is not a lack of investors willing to buy bonds - there is a lack of investors willing to buy bonds at the ridiculously low interest rates the Fed has forced over the past two decades. We should currently be experiencing a cyclic market correction where stock yields go down and bond rates go up. But the government is insisting that this shall not happen, as it would make politicians and fiscally irresponsible CEOs look bad. Savers and non-politically-connected small businesses lose out via monetary supply inflation, and are left with nowhere to go besides staying in the stock market bubble or hedging into gold in case this bubble finally pops.

harryh 6y ago
Inflation? What inflation? https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA This is a yearly graph, but if you look at the month by month data you'll see that inflation has actually been negative recently.
- mindslight 6y ago
  I explicitly said "monetary supply inflation" to avoid a reply with that disingenuous chart. The overt price inflation is occurring in assets, preventing the majority of people from achieving financial stability instead of assorted monthly rents to service debt. In general, we would expect consumer prices to trend downwards reflecting technological progress, increasing productivity, and offshoring. The Fed's policy is to erase that distributed progress, contributing to our growing divide between the rich and the poor.

credit_guy 6y ago

The correct title should be "The Fed now owns Walmart debt", not "Walmart's debt". Walmart has more than $60BN long term debt outstanding. The Fed has bought exactly $8,668,097.01 of that. You can find the actual amounts the Fed has bought for different issuers at https://www.federalreserve.gov/monetarypolicy/smccf.htm https://www.federalreserve.gov/monetarypolicy/smccf.htm

mshanowitz 6y ago
Notwithstanding the relatively small amount purchased, the question remains still: is this something the federal reserve should be engaged in in the first place? And what are the long term consequences of even the perception of such behavior?
- jaekash 6y ago
  > And what are the long term consequences of even the perception of such behavior? With the amount of gaslighting and misinformation being spread by people ranging from useful idiots to straight out antisemitittes and disintegrationists I think the behaviour of the federal reserve is not the biggest problem here and I would suggest you educate yourself to understand the problem before falling for some ragebate. No debt is being forgiven, similar practices are being taken all over the world, in Germany their concern was that they could not do this fast enough to keep the economy from collapsing. https://www.reuters.com/article/us-health-coronavirus-banks-insight/banks-struggle-to-ride-to-the-rescue-in-europes-cash-crunch-battle-idUSKBN21B0OE https://www.reuters.com/article/us-health-coronavirus-banks-... > “Flooding the market with money is not enough. You need the credit demand, and you can only have credit demand if you can hand out the money,” she said.
- axlee 6y ago
  If the alternative is the Fed lending that money to banks who would then cut a profit on it, lending it again to private companies while assuming very little risk, I'd rather have the Fed buy the bonds directly without a middleman. Of course, that's not the only alternative. But as far as injecting liquidity into the economy, I'd rather see the government having agency into deciding where to inject it rather than letting for-profit companies who don't have the best interests of the economy at heart do it on its behalf. Same should have happened for the covid helicopter money: letting banks allocate public funds was a mistake. Public funds, public decisions.

beervirus 6y ago

“The Fed has bought a relatively small amount of Walmart’s investment-grade bonds” would be a less alarmist way of saying that.

markkanof 6y ago
Your point makes sense when talking about this action by the Fed when looking at it as a standalone action, but a lot of people, including myself, might think the raised state of alarm is justified given that this is a situation where the Fed is essentially investing in/bailing out individual companies. One of the huge issues with this is that it puts the Fed in a position to be choosing winners and losers, which is very much against the idea of operating in a free market economy.
deleuze 6y ago
I find pretty much everything the Fed does alarming.
anm89 6y ago
This isn't exactly an alarmist title. There is no way to argue that it is even partially untrue or at all subjective.

Animats 6y ago

Do they get a seat on the board?

harryh 6y ago
Equity holders vote on board seats, not debt holders.
- Animats 6y ago
  It's not unheard of for creditors to get a seat on the board when a company is in trouble.

nemo44x 6y ago

The more they interfere the worse it will be one day. Kicking the can of the inevitable meltdown. The first mistake was allowing banks to be “too big to fail”. The second mistake was bailing them out. Buying corporate debt is simply another piece of the mistake puzzle. This making the entire system more and more fragile. At a certain point you either believe in capitalism and free markets or you admit that you like a special type of socialism.

nine_zeros 6y ago

When the govt and FED is asked to print money for healthcare -> What are we socialists? When the govt and FED is asked to print money to supplement income -> People will become lazy When the govt and FED is asked to print money to save the wealth of capitalist class -> Brrrrrrrrrrrr

deleuze 6y ago
The laws and very fundamental structure of this nation is designed to protect wealthy property owners and disenfranchise the working poor.

vmception 6y ago

This is only interesting if you are an issuer, or a corporate debt trader. This should only become interesting if any corporate debt the Fed owns defaults, and the Fed becomes a shareholder. For now, what this article wrote, is not the interesting part of this phenomenom.

cinquemb 6y ago
Asof EOD friday from about 1145 trackable CUSIPs in firna trace underlying HYG, there's 20 of them either in default or companies that have applied for bankruptcy protection. A lot more have be rolled out from HYG though.
- vmception 6y ago
  nice, yeah thats something I find interesting too but the Fed's junk bond ETF purchasing has already been active. this article is about its investment grade primary and secondary market corporate credit facility, which was authorized with the CARES Act but took till June to get started.
  - cinquemb 6y ago
    Yeah, nothing in default yet from EOD friday in LQD. Of about 2272 CUSIPS in LQD then, 58 are rated BB, Baa1 392, Baa2 406, Baa3 251. I expect that it will happen soon that at least a few of these go into default.
    - vmception 6y ago
      Unless they directly issue to the fed and use the proceeds to pay off prior debt This is very commonplace in corporate credit, aside from issuing directly to the federal reserve, which has offered verbatim to be the sole investor! Free money! I read the whole CARES Act and found this extra large bailout to be the biggest market distortion and thought it should have more air time than PPP or unemployment insurance boosts

hankchinaski 6y ago

> The action by the Federal Reserve has been lauded by investors for easing conditions in credit markets after they rapidly deteriorated in March, avoiding a potentially catastrophic corporate cash crunch that could have triggered a wave of bankruptcies. I wonder why BKR is in the list, it does seem to have a strong balance sheet and no need for a credit lifeline like say PM that does have for example negative equity.

nappy-doo 6y ago
I assume you mean BRK. If that's the case, BRK borrows at a very cheap rate (in the case the bonds purchased, their coupon is 4%, which is kinda high for BRK). BRK borrows for a couple of reasons, but chief among them are that sometimes it's better to write bonds (for tax reasons), than it is to use cash. At 4%, I can see that being the case.
- hankchinaski 6y ago
  right makes sense - noob here

radicaldreamer 6y ago

The largest grift in US history is taking place while we're failing on the entire point of these programs: to prevent unnecessary deaths and suffering. We're going to end up with a huge amount of debt, a financial crisis, and the most deaths of any industrialized country at the end of this.

jaekash 6y ago
> We're going to end up with a huge amount of debt, a financial crisis, and the most deaths of any industrialized country at the end of this. What industrialized country has a higher population than US? Do you not get how proportions work or something? EDIT: And if you think this phenomena of central banks buying debt is somehow unique to the USA ... I mean ... the media is actively trying to prevent people from having a balanced picture of the world ... so it is not a surprise ... but yes ... you should try inform yourself of the reality. Almost every industrialized nation and non industrialised nation is doing similar things.
- deleted 6y ago
  [deleted]
- deleuze 6y ago
  Most doesn't just have to refer to absolute quantity, it can also refer to a relative measure. Either way, it's a shit load of dead people, not sure what your point is.
  - jaekash 6y ago
    Industrialized countries with more deaths per capita than USA: Belgium (2.1 more) UK (1.6 times more) Spain (1.5 times more) Italy (1.43 times more) Sweden (1.3 times more) France (1.1 times more). Yes it is a shitload of deaths. Lets talk about it being more than every other industrialised nation in proportion when that actually happens.
  - deleted 6y ago
    [deleted]

7thaccount 6y ago

Why does Walmart have so much debt?

wtfrmyinitials 6y ago
Because ZIRP encourages corporate debt.
frandroid 6y ago
It's at war with Amazon, and it's able to produce an ROI which exceeds the cost of borrowing anyway.

ur-whale 6y ago

The first mistake was allowing the federal reserve to exist. Here's Jefferson on the topic [1]: "And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." [1] https://web.archive.org/web/20150711012438/http://memory.loc.gov/cgi-bin/query/r?ammem/mtj:@field(DOCID+@lit(tj110172) https://web.archive.org/web/20150711012438/http://memory.loc...)

blackrock 6y ago

I feel we are no longer getting our money’s worth from our taxes. We are taxed at almost an effective rate of 40%. This includes federal, state, and sales taxes. Then, the other 40% goes to rent, or mortgages. And you have to make due with your remaining 20% to pay for your medical expenses, food, gasoline, car, entertainment, etc. And god forbid, if you have to pay to help your aging parents, which is an added burden on your remaining 20%. What will it take to get the attention of these Washington elites, that we, the people, are getting fleeced for our money? Meanwhile, all this low interest rates, are going to do one thing, which is to further increase asset prices. Namely, housing prices, and stock prices.

mlacks 6y ago

This is probably not the correct way to ask this, but does the ‘investment’ of the fed into a company verify its stability, or is the investment force the gov to ensure it’s solvency?

brutal_chaos_ 6y ago

Could this be a big move towards the harvest box?