OVERSIGHT HEARING ON STATE MUNICIPAL LENDING: Why is the Fed offering so little support for state and municipal governments? Let's find out in this THREAD:
@federalreserve's Kent Hiteshew continuing to evade arguments in favor of greater support for state and municipal lending ... The Fed has used 0.3% of its $500 billion facility while pumping money into corporate markets
@BharatRamamurti points out, the Fed is giving “no strings attached support to some of America’s biggest corporations” while the municipal and state governments face tough conditions, ones that hurt first responders crucial to #COVID19 response
However, @SenToomey wants to wind down the Municipal Lending Facility, thinks it has served its purpose.
Hiteshew says muni bond rates are very low, easing refinancing of existing debt, which indicates the Fed is doing its job of supporting liquidity
Hiteshew adds that munibond markets are different than corporate bonds, and creating a secondary market facility for muni market would have been too complicated
@BharatRamamurti points out that @federalreserve is demanding a lower interest rate from Philip Morris and the state of Kentucky. Both facilities set up under same authority. Why the double standards? Hiteshew can't answer.
Ramamurti adds another example: Chevron gets a better deal than Wisconsin.
Ramamurti cites repayment terms: longer for corporates than municipalities. Why the difference? "There is no legal limitation." So, Hiteshew admits the Fed could make the terms much more generous IF IT WANTS.
@RepFrenchHill quizzes Hiteshew on whether MLF should be extended but he dodges. A question for Fed board. He does cite "warning signs" of budget cuts and state actions could affect market conditions.
Hill asks Hiteshew whether they are doing too much, cites MTA issuance that had private-sector bidders
@RepShalala questions whether Fed should have its mandate on full employment in mind when designing municipal facility? Hiteshew punts, but still wags his finger at state/local govs: "While they can't cut their way out of this crisis, neither can they borrow their way."
@SenToomey says the munibond facility should be part of the "fiscal debate" about additional stimulus, but steers comments into question about whether there's a shortage of credit. Which is not the issue.
"The Fed is using public money to purchase a bond from Chevron at a rate of ~0.9% over more than 4.5 years. A state like WI, with the exact same rating as Chevron has to pay 1.28% over 3 years" --@BharatRamamurti, on how the Fed is offering worse rates to states than corporations
@BharatRamamurti also cites new Fed stance on employment, and Powell comments on racial injustice to argue for better MLF conditions: “If the Fed wants its statements to be more than window dressing, does the Fed need to do more.”
• • •
Missing some Tweet in this thread? You can try to
force a refresh
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