By Pam Martens and Russ Martens: June 23, 2021 ~

Yesterday the House Select Subcommittee on the Coronavirus Crisis convened a hearing at 2 p.m. to receive testimony from Federal Reserve Chairman Jerome Powell. The title of the hearing was “Lessons Learned: The Federal Reserve’s Response to the Coronavirus Pandemic.”

During Powell’s opening statement, he said this:

“Our emergency lending tools require the approval of the Treasury and are available only in unusual and exigent circumstances, such as those brought on by the crisis. Many of these programs were supported by funding from the CARES Act. Those facilities provided essential support through a very difficult year and are now closed.”

It’s factually incorrect for the Fed Chairman to say that it can only make emergency loans with the approval of the Treasury. Months before there was any case of COVID-19 anywhere in the world the Fed was making hundreds of billions of dollars a week in emergency repo loans to Wall Street trading houses. The emergency loans started on September 17, 2019 – four months before the first reported case of COVID-19 in the United States. By January 27, 2020 the Fed’s ongoing cumulative loans to bail out Wall Street’s hubris tallied up to an astounding $6.6 trillion. (See Fed Repos Have Plowed $6.6 Trillion to Wall Street in Four Months; That’s 34% of Its Feeding Tube During Epic Financial Crash.)

The Fed made these loans without any Congressional approval or oversight. Despite Powell’s promises to the Senate Banking Committee that the Fed would provide a full report on what caused the need for these emergency bailouts to Wall Street banks, the public has yet to see any such report from the Fed.

In addition, Powell appeared to be giving the impression yesterday that the Fed’s pandemic bailout programs have ended. While the programs funded with CARES Act money have stopped making new loans, the Fed’s weekly H.4.1 balance sheet as of last week shows that it held the following balances in its various emergency bailout programs: Paycheck Protection Program Liquidity Facility, $87.32 billion; Commercial Paper Funding Facility, $8.55 billion; Corporate Credit Facilities, $25.85 billion; Main Street Facilities, $30.56 billion; Municipal Liquidity Facility, $10.73 billion; TALF, $4.76 billion; Central Bank Liquidity Swaps, $500 million.

The Commercial Paper Funding Facility, the Corporate Credit Facilities, TALF II and the Central Bank Liquidity Swaps are decidedly programs that help Wall Street far more than Main Street.

Another problem is that the Fed continues to show the Primary Dealer Credit Facility (PDCF) as open on its H.4.1 report – albeit with a current zero balance. That same program was used to secretly inject $8.95 trillion in cumulative loans to Wall Street banks before, after and during the financial crash of 2008. Three banks got two-thirds of that $8.9 trillion: Citigroup, $2.02 trillion; Morgan Stanley $1.9 trillion; and Merrill Lynch, $1.77 trillion.

While the Fed has released monthly reports showing the names of the recipients of some of its bailout programs, it has refused to make public the names or dollar amounts of the loan recipients under the following four programs: the repo loan bailouts; the Primary Dealer Credit Facility (PDCF); the Commercial Paper Funding Facility (CPFF); and the Money Market Mutual Fund Liquidity Facility (MMLF).

Section 1103 of Dodd-Frank financial reform legislation of 2010 requires that the Federal Reserve provide the names of recipients and dollar amounts of its Section 13(3) emergency funding facilities to the public a year after the facility is terminated or two years after lending has ceased, whichever comes first. The fact that the PDCF, CPFF and MMLF facilities continue to be listed as ongoing programs on the Fed’s weekly H.4.1 balance sheet suggests that it could be years down the road before the public gets to know where these billions of dollars went – if ever.

The Chairman of the Subcommittee that held yesterday’s hearing, Congressman James Clyburn (D-SC), opened the hearing with a mildly negative assessment of how the Fed had performed on behalf of the American people during the pandemic. Clyburn said that despite Congress allotting $500 billion under the CARES Act to the Fed for emergency lending, the two key programs the Fed had established to help Main Street businesses and states and municipalities were “limited in their effectiveness.”

The “limited in their effectiveness” critique was a far cry from the assessment that Clyburn had made just last month of these two programs. For those of us who had read the  May 7 letter that Clyburn had sent to Fed Chair Powell, it was obvious that Clyburn was pulling his punches for some reason at this hearing. The May 7 letter noted that 200,000 businesses had closed their doors while the Fed floundered and it described the specific failures of two of the Fed’s critical programs as follows:

“The Main Street Lending Program, announced on April 9, 2020, was the Fed’s only lending facility intended to directly support small and mid-sized businesses. Plagued by delays, the Main Street Lending Program did not issue its first loans until July 2020, more than three months after its launch. By the end of the program, the Fed had issued 1,830 loans totaling only 2.8 percent of available capital…

“The Fed established the Municipal Liquidity Facility on April 8, 2020, to support lending to state and local governments. Recognizing that aid to state and local governments is critical to economic recovery, you have previously acknowledged that, in the years after the Great Recession, ‘state and local government layoffs and lack of hiring did weigh on economic growth during that time.’ At the end of the program, however, the Municipal Liquidity Facility had loaned only $6.3 billion of its $500 billion lending capacity, likely due to the facility’s high interest rates and short repayment period, which may have deterred many jurisdictions.”

What had transpired between May 7 and June 22 to make Clyburn so reluctant to criticize the Fed at this hearing? Puzzled hearing watchers such as ourselves got our answer when Congresswoman Maxine Waters (D-CA), a member of this Select Subcommittee as well as the Chair of the powerful Financial Services Committee, showed up at the tail end of yesterday’s hearing to deliver effusive praise for Powell’s efforts during the pandemic. Waters said this:

“I’ve worked with Chairman Powell for quite some time now and I was so very pleased with the way that he worked, even with the Treasurer [Steven Mnuchin] during the pandemic. And, of course, now, with Yellen, who is our Secretary of the Treasury now. The two of them work very well together and I was very pleased at the beginning of this pandemic they both said ‘you have to go big, you have to think big.’ And that’s quite unusual for a Fed Chair who is usually more cautious and more careful about, you know, expenditures. Also, I’m very pleased at the way that he opened up and initiated so many facilities. Some of them I still don’t understand…”

Congresswoman Waters seems to be missing the point: the big money from the Fed went to Wall Street trading houses in programs specifically designed so that members of Congress could never unravel them. The last time around, during the 2008 financial crisis, the Fed battled media outlets in court for years, refusing to turn over the names and dollar amounts of where the money went. When the Government Accountability Office (GAO) finally released the granular data from its audit in July of 2011, Senator Bernie Sanders’ office issued a press release that said this:

“The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression…

“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo.  The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”

In the press release, Sanders was quoted as follows:

“The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”

Tragically, despite two unprecedented bailouts by the Fed of Wall Street in 2007-2010 and again in 2019-2021, the Fed has yet to be reformed. And when Congressional hearings like yesterday’s are called to examine the Fed’s actions, they fall seriously short of serious examinations.