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The Fed Just Pulled Off Another Backdoor Bailout of Wall Street

Courtesy of Pam Martens

ETF Sellers to Federal Reserve's Secondary Market Corporate Credit Facility

Source: Federal Reserve

By Pam Martens and Russ Martens

The Federal Reserve has authorized 11 financial bailout programs thus far. Despite Fed Chairman Jerome Powell’s reassurances at his press conferences that these programs are to help American families, a full 10 of these programs are actually bailouts of Wall Street banks or their trading units.

The latest Wall Street bank bailout to come out of hiding is the Fed’s Secondary Market Corporate Credit Facility (SMCCF). This program was supposed to buy up corporate bonds in the secondary market in order to help corporate bond markets regain liquidity. Thus far, the only thing the SMCCF has bought up are Exchange Traded Funds (ETFs) holding investment grade and junk-rated bonds.

The SMCCF program began operations on May 12. By May 18 the Fed had spent $1.58 billion buying up ETFs. The ultimate goal of the facility, at this point, is to spend $250 billion on ETFs and secondary market corporate bonds. The U.S. Treasury Department was supposed to hand over $25 billion of taxpayer money to eat losses on the SMCCF program. Instead, without explanation, the latest data from the Fed shows that the Treasury deposited $37.5 billion into the SMCCF, suggesting the program is expecting losses of greater than $25 billion.

The bulk of the purchases of ETFs were those issued by BlackRock, the company to whom the New York Fed has outsourced the program. The Fed is allowing BlackRock to buy up its own, previously sinking, ETFs as well as those of other ETF issuers. The New York Fed gave BlackRock a no-bid contract to run the program as investment manager. But that’s far from the only outrage.

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