Courtesy of Pam Martens
Trading Floor at the New York Fed (Obtained by Wall Street On Parade from a Fed Educational Video)
The language that Republican Senator Pat Toomey inserted into the final stimulus bill (Consolidated Appropriations Act, 2021) appears below. It not only restricts the Federal Reserve’s ability to extend some of its current emergency lending programs that help small and medium size businesses and state and local governments beyond December 31 of this year (while leaving Wall Street bailout programs alive for at least another 90 days) but it also enshrines the autonomy of the U.S. Treasury Secretary to operate a massive slush fund – the Exchange Stabilization Fund (ESF).
Most Americans have never heard of the Treasury’s Exchange Stabilization Fund. It was created in 1934 to provide support to the U.S. dollar during the Great Depression. The ESF has grown from $94.3 billion in assets prior to Trump taking office to a balance of $681 billion as of October 31, 2020. As recently as March 31, 2007, the ESF had assets of just $45.9 billion.
According to footnote 1 of the October 31, 2020 ESF financial statement linked above, the ESF received the “full amount” of the CARES Act appropriation to the Treasury of $500 billion in March, from which Treasury Secretary Mnuchin was supposed to give $454 billion to the Fed to backstop the Fed’s emergency lending programs. Those programs were to be used during the financial crisis to loosen credit markets, help Main Street businesses and shore up local and state governments through support of municipal bond markets.
But instead of turning over the full $454 billion to the Fed, Mnuchin turned over just $114 billion for the Fed’s emergency lending programs, as confirmed by the Congressional Research Service on December 17. Since what the Treasury Secretary does with the ESF “may not be reviewed by another officer or employee of the Government” according to its dodgy statute, the public has no idea as to what Mnuchin actually did with the balance of $340 billion in his slush fund from the CARES Act.
While there has been widespread media attention to Toomey’s effort to kneecap the Fed’s emergency lending programs by inserting language into the stimulus bill, there has been no mainstream media attention to Toomey’s effort to memorialize both Mnuchin’s and (potentially) future Treasury Secretaries’ ability to have a slush fund to intervene in markets. The Treasury Secretary has, effectively, become a Plunge Protection Team of one.
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