Authored by Matt Taibbi via RollingStone.com,
“I’ve never signed anything with a ‘T’ before,” Donald Trump quipped at the signing of the $2 trillion CARES Act. He reportedly wants his signature on coronavirus relief checks, as if they were Trump Plaza casino chips. This might be a fitting metaphor for America’s post-virus economic future.
The new bailout bill, which combined with a series of Federal Reserve interventions is more like a $6 trillion rescue, is a massive double-down on the 2008 rescue efforts.
This bailout of the last bailout sets the stage for permanent state sponsorship of America’s overheated financial markets.
Like 2008, only more so, the new mega-rescue is a bipartisan effort. Lawmakers sold this as a good thing.
“This is a 9/11 moment,” said Republican congressman Dan Newhouse of Washington state. “A time to put partisan differences aside.”
“We have our differences, but we also know what is important to us,” said House Speaker Nancy Pelosi. “America’s families are important to us.”
Congress needed a year of intense infighting to approve a $4.7 trillion budget, but just a single week to draft this $2 trillion deal. Although members quibbled over numbers before the vote — Bernie Sanders insisted on more unemployment insurance, while others worried about creating a “slush fund” for airlines and other industries — the bill ultimately cruised through, passing in a voice vote in the House and 96-0 in the Senate.
The Emergency Economic Stabilization Act of 2008, the only comparable “We need a gazillion dollars in 10 minutes” legislation in recent history, passed after a bitter battle, with 63 House Democrats and 91 House Republicans opposing.
Analysts and politicians insisted the new bailout, in the broad strokes, was uncontroversial, a fire hose of money for virus-ravaged hospitals, workers, and small businesses. Even critics of Wall Street agreed that this one isn’t a complete washout compared with the last disaster, when the taxpayer was asked to bail out the very people who’d caused the crisis.
“At least this bailout has a Main Street component,” says Dennis Kelleher of Better Markets, a financial watchdog group.
There are serious logistical questions about how money is supposed to get to Main Street — like, for instance, the use of the tiny Small Business Administration to push $377 billion in emergency loans out the door — but the larger problem has to do with the meat of the bill: the backstopping of the financial sector.
As happened in the run-up to September 2008, Wall Street in recent weeks warned of Armageddon if the Fed did not immediately start spending billions per minute to buy every conceivable kind of financial product.
The Fed responded by dusting off emergency lending facilities like the Term Asset-Backed Securities Loan Facility, the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility, the Secondary Market Corporate Credit Facility, and the Primary Market Corporate Credit Facility, all of which saw action after the crash of 2008. Each would be used to step in and buy financial products in the various markets frozen due to virus panic.
The Fed furthermore announced that on March 23rd it would begin buying $50 billion in government-backed mortgage securities, in addition to $75 billion in Treasury bills, every day.
They’ve since lowered those numbers, but the scale of these interventions dwarfs any of the Fed’s actions post-2008. A $50 billion buying spree roughly represents as much Fed support of mortgage markets in one day as was done across a month at the peak of the last round of Quantitative Easing. Taken in conjunction with the CARES Act, the Fed and the Treasury were now positioned to become a major ongoing buyer of everything from mortgages to U.S. government debt to exchange-traded funds to corporate bonds to money-market funds.
The problem? A lot of these markets were already overinflated thanks to post-2008 bailouts and interventions like Quantitative Easing. We’re about to find out that the American economy has been living off dying, dysfunctional, or hyper-leveraged markets for more than a decade. The Trump administration just bought this undead economy at retail prices and committed the Fed and the Treasury to sustaining it.
A major issue with the post-2008 bailout programs is that they tended to increase rather than decrease the risk in the system. A decade-plus of zero-to-low interest rates and massive central-bank buying programs like QE made traditional safe havens unattractive and pushed investors to chase returns in a variety of not-so-healthy ways.
A few years ago, for instance, the infamous junk-bond ghoul Mike Milken — the same one recently pardoned by Trump in a macabre symbolic show of solidarity for the bullshit debt economy — gushed to Bloomberg that America was in a “golden age” for private-equity takeovers.
“This is their golden age. You can leverage, you can borrow without covenants, and so for equity holders it affords you a very unusual rate of return.”
Milken was pointing out that investors were so desperate to find higher rates of return that they were lining up to back the modern Gordon Gekkos — private-equity titans like Bain, Blackstone, KKR, and Apollo — as they searched for companies to take over. At the time Milken gave this interview in Singapore in 2017, investors were sitting on some $963 billion in “dry powder,” money raised but not yet spent.
In their haste to get that money out the door (stop me if this sounds familiar), investors were relaxing demands for underwriting standards and other protections. This is what Milken meant by “buying without covenants.”
This dynamic spurred a boom in securitized commercial loans not totally unlike the boom in securitized mortgages pre-2008. An explosion of financing for private-equity deals meant an economic landscape dotted with newly conquered companies that now owed an array of fees and “special dividends” to their Wall Street masters.
Easy financing spurred investors to plunge money into junk- or near-junk-rated corporate bonds, allowing firms that were already swimming in debt to leverage up even more.
“Corporate debt since the bailout has grown to $10 trillion,” says Kelleher.
“Of that, $3 trillion is a notch above junk level, what I’d call on the bubble of junk.”
It’s been estimated, for instance, that as many as 16% of American companies are “zombie companies,” i.e., they don’t have enough revenue to even pay interest on their debt. As Kelleher points out, many of these firms might not have survived even a mild economic downturn. Propping up this freak show, even if indirectly, is now going to become part of the War on the Virus.
Additionally, many financial markets that have been marketed as conservative and liquid actually depended all along on the presumption that these instruments could always be easily sold into a constant stream of easy money.
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http://www.zerohedge.com/political/bailing-out-bailed-out?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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