Thread by @CantillonCH

Not to root for state or CB intervention, with #coronavirus, its inevitability must be faced. So how to make it the least damaging and not allow it to become entrenched in the system and lead to another decade of distortion & waste like post-#GFC? 1/x

Problem is to try to avoid the failure of otw viable firms because of disruptions due to the global health emergency - & also to spare their employees from ruin. Flooding money into financial markets is NOT the answer, #JayPowell! Blind fiscal expansion, neither, #DonaldTrump 2/x

Here's the kernel of an idea. Finmarkets are desperate for 'safe assets'. nominal yields are trifling; real ones negative. S-o-o, launch a special series of #Treasury bonds to sate the market's hunger & halt the potentially disastrous collapse in yields. 3/x

Tell #banks to exercise forbearance with needy – but Bagehot Rule solvent! - firms & then place bond issue proceeds on deposit with them, $1 per $1 of moratorium, keeping them safely liquid & not scaring other counterparts. 4/x

Tell the Fed & #regulators to treat this internal 'bad bank' as ring-fenced from #reserve & #capital requirements, obviating further action on their part. If necessary, UST should also buy replacement paper for otw unrollable maturing debt securities: a kind of Federal #ETF. 5/x

All should come with at least an effort to determine going-concern status of borrowers. All should have a strict retirement schedule worked out, once the crisis passes. Firms accessing the scheme MUST bear some costs to minimise free-riding: eg, dividend freeze until repaid. 6/x

Firms retaining workers despite slowdown could function as targeted welfare conduits by borrowing agst UST facility and later repaying, eg, by NOT enjoying any #payroll #tax holiday. Keeps the programme as granular and case-specific as possible. 7/x

This way, we 'credit-wrap' exiting monies and use THEM to tide viable businesses over WITHOUT #inflation or pumping more air into the #Nasdaq, etc; w/out further damage to pension providers; w/out going down the #NIRP rabbit-hole. 8/x

As these things always have a cute name, I suggest: “Loan Intermediation For #Entrepreneurs, Businesses, & #Employees: Limited Term” – or LIFEBELT 9/x

#coronavirus #COVID2019

In 8/x, please read "existing" monies, not "exiting".

10/x

Not forgetting that the #Treasury could stage a $400 billion dry-run without increasing its borrowing by one red cent, but simply by mobilising its extraordinary pile of dead cash, presently hoarded at the #Fed, for the purpose:-
11/x