Within the CARES Act 880 pages there appears to be a $454 billion slush fund designed to kill Wall Street's two main legitimate functions: price discovery and prudent capital allocation.
The Fed Is Killing the Two Main Functions of Wall Street: Price Discovery and Prudent Capital Allocation
"On Thursday, knowing that a three-day Easter weekend was coming and the attention of the public would be elsewhere, the Federal Reserve announced that it would allow two of its emergency lending programs to begin
buying junk bonds.
"Those are bonds with less than an investment-grade credit rating, meaning they have a greater likelihood of defaulting.
"The Fed is not simply accepting junk bonds as collateral for loans, it will actually be buying junk bonds — potentially hundreds of billions of dollars of them."
For the last 40 years, finance capitalism has used Wall Street and its chief enabler, the New York Fed, as a mechanism to transfer wealth from the middle class to speculators in stocks, bonds, and real estate, regardless of which party controlled government.
The Fed Is Killing the Two Main Functions of Wall Street: Price Discovery and Prudent Capital Allocation
"The two Fed programs that will be allowed to buy junk bonds along with investment grade bonds are called the
Primary Market Corporate Credit Facility (PMCCF) and the
Secondary Market Corporate Credit Facility (SMCCF).
"The Fed could have done this all under one program name
but it learned from its nationalization of bad Wall Street bets in 2008 that if you have a mind-numbing list of alphabet soup emergency programs, it takes the public a lot longer to figure out what’s really going on: that is, that the Fed is allowing Wall Street’s fat cats to privatize profits and socialize losses.
"This can also be expressed as an institutionalized wealth transfer scheme to the 1 percent.
"(See
Bernie Sanders Hasn’t Quite Captured What Wall Street Does: It’s Actually a Fraud-Monetization System with a Money-Printing Unit Called the New York Fed.)"
For the last 40 years, finance capitalism has used Wall Street and its chief enabler, the New York Fed, as a mechanism to transfer wealth from the middle class to speculators in stocks, bonds, and real estate
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Show me on this doll where the New York Fed touched you.
"For years now, prudent investors have been forgoing risky investments like junk bond ETFs and accepting a much tinier yield on U.S. Treasury securities.
"Now, high rollers like hedge funds that bought junk bonds and junk bond ETFs and received the higher yields, are getting bailed out of these risky bets.
"The markets will now, going forward, price junk bonds on a closer plane with Treasury securities, assuming the Fed will not let them fail.
"This is effectively killing the pricing mechanism of Wall Street. A U.S. Treasury note has the unconditional guarantee of the U.S. government to make the timely payment of interest every six months and pay the principal at maturity.
"Junk bonds are backed by nothing more than deeply-indebted corporations, which can, and do, frequently file for bankruptcy protection, making their bonds sometimes sell for pennies on the dollar.
"But going forward, junk bond ETFs will be priced on the premise that the Fed may ride to the rescue."
The Fed Is Killing the Two Main Functions of Wall Street: Price Discovery and Prudent Capital Allocation
