By Pam Martens and Russ Martens: January 8, 2021 ~
We have become convinced that the allocation of $454 billion under the CARES Act stimulus legislation to cover any losses incurred in the Fed’s emergency bailout programs was a dog and pony show created by U.S. Treasury Secretary Steve Mnuchin (who has testified to Congress that he helped write the legislation) in order to provide Mnuchin with a slush fund to trade in markets. (See Trump Issued an Executive Memorandum Giving Mnuchin a $50 Billion Slush Fund; Mnuchin Gave Himself $386 Billion More.)
Our suspicions are heightened by the fact that the Fed ran very similar emergency bailout programs from 2007 to 2010 and did not require any funds from the Treasury to backstop losses. The Fed simply relied on collateral from the Wall Street firms borrowing from the Fed. If those firms don’t have the collateral today, then they’re likely insolvent and not legally allowed to borrow from the Fed.
We have carefully reviewed the CARES Act. There is not one word in the legislation that directs Mnuchin to place that $454 billion into the Exchange Stabilization Fund (ESF). But that’s where Mnuchin placed that money. We know this because the ESF’s financial statement says Mnuchin placed not only the $454 billion into the ESF but he also initially placed the additional $46 billion that he was allocated under the CARES Act to help airlines and businesses important to national security (for a total of $500 billion). (See notes to the September 30, 2020 ESF financial statement here.)
Mnuchin has successfully gotten mainstream media to report that the bulk of the $454 billion went to the Fed for its emergency lending facilities but went mostly unused. In reality, the Fed only received $114 billion from Mnuchin. (See Research Arm of Congress Confirms that Mnuchin Never Released Bulk of CARES Act Money Earmarked for Fed’s Emergency Loans.)
Then, on November 19, Mnuchin made a grandstand announcement, issuing a letter to Fed Chairman Jerome Powell demanding that he return any unused funds issued to it by the Treasury for its emergency lending facilities, by December 31, 2020.
Yesterday, the Fed published its H.4.1 weekly financial statement, showing that as of this past Wednesday, January 6, it had returned just $41.3 billion of the paltry $114 billion it had received from the Treasury Secretary. The remaining balance of $72.7 billion from the Treasury is allocated to the following emergency lending facilities: (See footnote 14 to Table 1.)
Commercial Paper Funding Facility: $10 billion
Primary and Secondary Market Corporate Credit Facilities: $13.9 billion
Main Street Loan Facilities: $37.5 billion
Municipal Liquidity Facility: $6.3 billion
Term Asset-Backed Securities Loan Facility (TALF): $3.5 billion
Money Market Mutual Fund Liquidity Facility: $1.5 billion
Read our full coverage of the Fed’s latest bailout of Wall Street, beginning on September 17, 2019 (months before the pandemic began) here.