The Federal Reserve ventured into political territory Monday by offering to directly finance U.S. companies, jumping ahead of Congress -- which is still arguing over similar assistance.
“This is an all-out effort to ensure that the business sector can continue to exist even as economic activity temporarily collapses,” said
Waiting for Congress
Nothing the Fed did during the financial crisis compares to this action, which may get larger if Congress approves additional funds.
Democratic and Republican lawmakers are
“As negotiations continued, the focus has turned to the Fed getting the job,” said
The Fed’s reach into direct corporate and small business lending, and more aid for municipalities, reflects the
But it also opens up the central bank to questions of over stepping.
The Fed’s corporate loan and bond underwriting facility is “an indefensible attempt by the Fed and the administration to sidestep Congress,” said former Minneapolis Fed President
A Federal Reserve spokesperson wasn’t immediately available for comment.
The Fed’s traditional tool -- lowering interest rates to stimulate demand -- are less effective right now because consumers can’t leave their homes and businesses are limiting the way people work.
Staying in Business
Unlike a traditional war, that puts people to work, “this is a war that takes people out of work,” said former Fed governor
Among the new facilities is the Primary Market Corporate Credit Facility, which will buy bonds directly from corporations or issue them loans. Limits were placed on companies buying back stock or issuing dividends if they opt to forgo interest payments under the program.
But it did not include prohibitions against golden parachutes for senior executives, bonuses, or the need to commit to maintain staffing -- all issues that Congress is debating in its own aid package.
Consequently, the Fed’s actions potentially step around the democratic process, warned former Bank of England Deputy Governor
The Congress and the American public “will remember the money that was spent in their name,” said Tucker, who is now chairman of the Systemic Risk Council, a group of former regulators. U.S. central bankers risk reinventing themselves “as the fiscal authority of last resort.”
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