Thread by @NickTimiraos

By asking the Fed to return unused Treasury capital, Mnuchin is effectively preventing the Biden administration from being able to use or revamp central bank loan backstops that were made possible by the bipartisan Cares Act passed in March wsj.com/articles/mnuch…

Could a new Treasury secretary bring these back? The easy answer is yes, it doesn’t take much to start a 13(3) facility.

But what made these facilities special was that Congress had provided a huge slug of funding so the Fed could make riskier investments than it otherwise would

So without the Cares Act funding, the Fed might be reluctant to resume the loan programs unless Treasury can make some new funding available.

This becomes a question of not only what is legally possible but how much political risk is the Fed and Treasury willing to take

The Cares Act money would go back to the Treasury’s Exchange Stabilization Fund, and per Cares, any of those funds would remain in the ESF through 2025.

But Cares also says Treasury isn’t authorized to make new investments in Fed lending programs with that money after 12/31/20

The politics of this are especially peculiar because even though this is a Republican administration closing the programs, some Democrats had been quite critical of the programs.

For example, when the Main Street Lending Program’s terms were revamped in April, some cried foul

Some liberal groups argued that the new terms would favor the oil and gas industry and they labeled this a “bailout” of oil and gas, even though Main Street has gone on to make very few loans, and even fewer oil and gas industry loans

The difficult politics were summed up in this exchange at a recent oversight hearing

https://twitter.com/nicktimiraos/status/1309145393586941955