The @federalreserve has done a damn good job of bailing out the investor class on #WallStreet during the #COVID19 pandemic: big banks, big investors, and big corporations are all doing great. And the evidence is in the data THREAD 1/8
The Fed is buying corporate bonds and it is paying ABOVE PAR for those securities. In fact in the latest data dump (today), it’s buying on average bonds at a price of 107, or 7% more than they are actually worth at face value 2/8 federalreserve.gov/reports-to-con…
For some perspective, imagine that you took out a loan for $100,000 and the creditor handed you $107,000 and said, “Hey, keep it, I have plenty.” That’s how well corporate America and its bankers are doing thanks to the Fed. 3/8
As @apark_ is wont to comment, this does not look like a market that is crying out for assistance; in fact, there are plenty that want the Fed to go away. There’s even chatter on social media by traders who say, in effect: the Fed just buys, and doesn't care about price. 4/8
It gets worse. The Fed only buys from existing investors, not companies themselves. So various pension, hedge, and other big funds are making good money here. 5/8
So are #WallStreet’s largest banks, because the Fed only buys from these “primary dealers,” who harvest the bid/ask spread between what the existing investors want and what the Fed buys 6/8
Since the Fed is so open to buying, no matter the cost, they are spreading wealth among the various players in this chain, and also to @blackrock, the massive asset manager running the purchases for the Fed 7/8
What one investment strategist said of the stock market is equally true for the bond market - BUT NOT for ordinary folk: Fed chair Jay Powell “has become Santa Claus, the Tooth Fairy and a leprechaun with a pot of gold, all wrapped into one.” 8/END washingtonpost.com/business/2020/…
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When some small business owner suggests higher bank capital rules will reduce access to credit BEWARE: it may just be @GoldmanSachs astroturfing 🧵1/10
Goldman cooked up a PR initiative, “10,000 Small Businesses” to lobby the government. And right now, those businesses are fronting for Goldman’s opposition to higher bank capital levels, which help cushion against shocks and avoid financial crises 2/10 goldmansachs.com/citizenship/10…
The public dislikes #WallStreet (see this poll) so much that Goldman and other big banks often do their lobbying by hiding behind other entities 3/10 ourfinancialsecurity.org/2020/09/voters…
“[T]he explicit guarantee extended to the globally systemic banks is now extended to everyone,” said Renita Marcellin (@aphisha28)of @realBankRefrom. “We have this implicit guarantee for everyone, but not the rules and regulations that should be paired with [them].” 2/14
What do we need? How about a stable banking system, “essential services—such as deposits, money transfers, and credit—on a universal basis,” and “a strong role for regulatory agencies that protect consumers from abusive practices.” 3/14
GREAT SCOOPS: Last weekend, Federal Reserve Chair Powell sought to DOWNPLAY role of failed regulation/supervision -- partly by the Fed! -- in collapse of #SiliconValleyBank
"the Biden administration pushed to formally spotlight shortcomings in financial regulation that they blamed for the banks’ rapid descent to insolvency." But Powell "blocked efforts to include a phrase mentioning regulatory failures" 2/12 nytimes.com/2023/03/16/bus…
As @ddayen points out, that statement was pretty anodyne, and included praise for (unnamed) Dodd-Frank law of 2010 but no mention of the 2018 partial rollback that eased oversight of SVB 3/12 federalreserve.gov/newsevents/pre…
Thanks to the #BankLobbyistAct back in 2019, and the Trump-era Fed's further deregulation, the Fed took its eyes off large banks like SVB. AFR fought against that tooth and nail. 2/6
The government moved decisively to avoid a panic by guaranteeing deposits. Banks that benefit from that now need tougher supervision. AFR's Renita Marcellin told the NYT ... 3/6
The collapse of Silicon Valley Bank and Signature Bank have something in common: they both benefited from deregulation under the #BankLobbyistAct in 2018 1/5
Congress passed the law but the Trump-era regulators pushed it even further, giving authorities less oversight of these large-ish banks. Now we need action to reverse those changes and make others 2/5 ourfinancialsecurity.org/2023/03/news-r…
The subprime corporate credit market, which includes private equity’s fave, leveraged lending and CLOs, has hit $5 trillion in the US.
This problem portends bring slower growth, job losses, and possibly instability in parts of the financial sector.
🧵1/10
This lending seldom goes to productive uses, relies on sketchy accounting, and is often very opaque.
It's often to finance private equity buyouts refinance existing debt, or suck cash out of companies.
And it supports monopoly power, by driving corporate consolidation. 2/10
The odds of a 2008-style crisis are low but the risks of damage are high.
This debt has – a redistribution of money towards Wall Street – has left companies and workers in a worse position to handle a slowing U.S. economy. 3/10