In Unprecedented Move, Fed Unveils Open-Ended QE Including Corporate Bonds
The comments below are an edited and abridged synopsis of an article by Tyler Durden
The Fed has unveiled an unprecedented expansion, announcing open-ended QE that also gave it the ability to buy corporate bonds to unclog the frozen corporate bond market, as we are just one step away from a full Fed nationalization of the market (only Fed stock purchases remain now).
The Fed’s new credit facilities carry limits on paying dividends and making stock buybacks for firms that defer interest payments, but have no explicit restrictions preventing beneficiaries from laying off workers.
The Fed will buy Treasuries and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy,” and will also buy agency commercial mortgage-backed securities.
The Fed said it will support “the flow of credit to employers, consumers and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing.” It will be backed by $30 billion from the Treasury’s Exchange Stabilization Fund.
This took place just after real estate billionaire Tom Barrack said the US commercial mortgage market is on the brink of collapse and predicted a domino effect of catastrophic economic consequences if banks and government don’t take action to keep borrowers from defaulting. Barrack said it could be worse than the Great Depression… and now CMBS get their bailout.
Durden discusses the Fed’s extensive measures to support the economy, and concludes: “So, do we go full-Einsteinian-madness—repeating the mistakes (that have not worked at all) of Japan and Europe and expect a different result, or is now the time to bite the bullet, peel off the Band-aid, liquidate what has failed and—at the cost of massive political upheaval—embrace the creative destruction and prepare for a new world?”