By Mike Whitney
March 20, 2020 "Information
Clearing House" -
The
Fed is reopening its most controversial and despised
crisis-era bailout facility, the Primary Dealer
Credit Facility. The Wall Street Journal describes
the PDCF as “an overnight loan facility for primary
dealers (that) provides round-the-clock backup
source of funding to banks.” The WSJ’s description
grossly understates the facility’s real purpose
which is to transfer the toxic bonds and securities
from failing financial institutions and corporations
(through an intermediary) onto the Fed’s balance
sheet. The objective of this sleight of hand is to
recapitalize big investors who, through their own
bad bets, are now either underwater or in deep
trouble. Just like 2008, the Fed is now doing
everything in its power to save its friends and mop
up the ocean of red ink that was generated during
the 10-year orgy of speculation that has ended in
crashing markets and a wave of deflation. Check out
this excerpt from an article at Wall Street on
Parade. Here’s an excerpt:
“Veterans on Wall Street
think of the PDCF as the cash-for-trash
facility, where Wall Street’s toxic waste from a
decade of irresponsible trading and lending,
will be purged from the balance sheets of the
Wall Street firms and handed over to the balance
sheet of the Federal Reserve – just as it was
during the last financial crisis on Wall
Street.” (“Fed
Announces Program for Wall Street Banks to
Pledge Plunging Stocks to Get Trillions in Loans
at ¼ Percent Interest” Wall Street on
Parade)
In other words, the PDCF is a
landfill for distressed assets that have lost much
of their value and for which there is little or no
demand. And, as bad as that sounds, the details
about the resuscitated PDCF are much worse.
First, the Fed is going to
provide the 24 Primary Dealers (The Fed’s exclusive
trading partners) with unlimited zero-rate loans.
(0.25 percent)
Second, the loans will be
issued for a period of up to 90 days after which
they will be rolled over for as long as needed.
(which basically transforms a collateralized loan
into a permanent cash transfer.)
Third, (and this is from the
text of the Fed’s March 17 announcement):
“Collateral eligible for
pledge under the PDCF includes all collateral
eligible for pledge in open market operations (OMO);
plus investment grade corporate debt securities,
international agency securities, commercial
paper, municipal securities, mortgage-backed
securities, and asset-backed securities; plus
equity securities.
“Equity securities”? You mean
the Fed is going to buy stocks???
