They have not bought anywhere close to trillion dollars worth of corporate debt. As you can see in the breakdown [0], most of what they are buying is our own governments debt (the same debt used to fund the CARES act) and US mortgage backed securities.

[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm

Sorry, it is hard for me to untangle all this. Some of this money is authorized by CARES, and some is independent action. We are already at a trillion dollars to the largest companies now when you combine CARES and the fed's commitment to debt purchase.

In June they just committed to deploying an additional $250 billion https://www.wsj.com/articles/fed-will-amass-corporate-bond-p...

Add this to the existing billions of debt already purchased and we could easily be at half a trillion dollars of independent fed action to buy corporate debt in a short time frame.

The CARES act also reduced corporate taxes by 210 billion. So There is at least half a trillion dollars not mentioned in articles like the one from NPR.

The CARES act separately authorized 500 billion just to the largest corporations in America. Some of the additional hundreds of billions deployed to "small" businesses is really to large companies as well.

It would be great to get a detailed breakdown of what the fed is doing, I am certainly not doing it justice in my description.

A debt purchase and unemployment are very different things.

Unemployment is money given away to another. It's a permanent giveaway.

A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0.

These cannot be compared as equivalent.

The tax reduction changes the way loss is calculated to better capture the reality of the economy falling apart in one year, letting losses be deducted from income generated in past years. There's a tax savings, but it's reflective of real loss incurred by business.

> A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0.

The corporate tax reduction is equivalent to a handout since it won't be paid back. As is the paycheck protection program.

I agree that debt is not a 100% handout, but it is definitely not a 0% either. The fed is not that worried about qualifying its purchases and some of these companies will still go bankrupt: those cases may be 100% handouts. The debt is being purchased at above market rates and inflating prices for the asset so that's still a noticeable percentage of handout for the loans that get repaid.

But I wouldn't assume that corporate debt will ever truly get repaid until I see the fed balance sheet go down. They tried to unload just a little bit last year and the stock market went down so they stopped. We now have 1.9 trillion in mortgage backed securities even though the housing crisis is over and housing prices are back to the levels of the prior bubble.

It's true that bad debt isn't paid back, but in a bankruptcy the investors are wiped out so it would be disingenuous to frame those monies as "corporate bailouts." The funds will have gone to sustaining the business and employing the employees -- not to shareholders.

The tax change isn't a reduction per se, it's a change in the way we account for losses across multiple years. It's also very new -- it's removing a new carryover rule that was added in 2017. I think it's also disingenuous to frame this as a reduction as the losses would be carried forward anyway. It is, like most of the other "corporate handouts," more of a shift in when the money is paid rather than a change in the amount.

It's a bad outcome to temporarily sustain zombie businesses even if you stop shareholders from benefitting.

Thanks for the correction on the corporate tax reduction.

I agree that a business folding is a bad outcome. I think the goal is to have the business not fold at all, paying back the investment. Open question how many businesses will ultimately fold or survive -- no way to know yet, right?

Even if the business survives there are bad outcomes. Creative destruction does not occur and moral hazard is increased. I agree that there is a huge benefit to society to avoid a wave of mass bankruptcies, but there are huge costs as well.

Purely from the financial side, another way of looking at this is: if bail outs were really net positive then the private sector would handle it. If the government has to handle it, it is a bail out. Governments almost always lose money on bail outs. Sometimes, like the last one, it is falsely claimed that the government made a profit. It probably lost money [1] and we still have 1.9 trillion mortgage backed securities on the fed's books that are unaccounted for in such claims.

I agree that these things are not a 100% handout, but they are most definitely a bail out.

[1] http://gcfp.mit.edu/wp-content/uploads/2019/02/BailoutsV12.p...

Additionally, purchases of corporate debt are not the same thing as issuance of grants to individuals or companies, examples of which are unemployment benefits or a portion of the PPP small business program.

Historically, looking back at 2008-2009, purchases of corporate debt by the government either turned a profit or lost very little money. The 'bailouts' had aggressive terms and were repaid.

If it does turn into a subsidy, the correct measurement is the difference between what the government pays today and what they sell it for later, or, if it defaults, the bankruptcy settlement value (which in the case of collateralized loans is rarely zero). Not the dollar amount of bonds purchased or money lent.

This year, purchasing of corporate bonds has been focused on investment grade debt. It is unlikely they will experience any significant loss on this.

Buying corporate debt at above market prices is a grant. Stopping your massive business from going under and being replaced by a more agile competitor is oligarchy.

Depending on the situation, the Fed could take on government securities from banks so that the banks may extend more credit to private lendees (mostly companies) without running too low on required reserves. This balance sheet may not reflect what other agreements are attached to the treasury assets in holding.

In case you missed it, the Fed has removed almost all reserve requirements.

> These wealth gaps historically lead to populism, which is how we ended up with our current president.

Yet our current president is presiding over exactly what you’re describing.

Also, as the other commenter explained, there are several problems with your understanding of the Fed’s operations and what they mean in terms of long-term budget. It’s not correct to compare cash payments to individuals with counter-cyclical quantitative easing.

Can you clarify why it's not a valid comparison?

My lay understanding is that if you recycle your debt at 3%, and now you can recycle it at 1%, that is a 2% "bailout". You quite literally have a lower cost of funds (cost of doing business), and it is artificially low due to government intervention.

They're both handouts, yes. But a $100 cash handout is $100, while a $100 loan at 2% below prevailing rates is $2.

It becomes an invalid comparison when you compare nominal values without making the appropriate cost adjustment (multiplying the loan by 2% in this hypothetical).

This is a good point. It's interesting to note, though, that the fed's balance sheet never really goes down and that today mortgage backed securities are still a huge part of the balance sheet and that the fed is still active in this area even though the MBS purchase program was ended.

We should also note that some of the companies will go bankrupt and the fed is doing little to qualify its loans. So it is not really a loan in the traditional sense (it is a low interest rate loaned handout).

Combining these two together, we have the potential to create a situation like Japan where the government is constantly managing the debt of some of the private sector. The cost on society for this can be much higher than the difference on interest rates shows.

Except that the loans they are making are not $2 below prevailing rates. Many of these businesses are near insolvency and are unable to get loans in the open market. These loans are huge gifts; if they were given by private equity, they would additionally come with a large equity position. When they don't, they are gifts, equivalent to the equity position that isn't taken and the high interest rate avoided.

Right, I suspect that the interest rate differential is higher than 2%. In some cases the businesses receiving loans are insolvent and the loans are effectively non-repayable, i.e. gifts -- but not all.

The true cost is almost certainly somewhere between 2% and 100%.

If the wealth gap gets him elected, of course he’s gonna do the best he can to maintain it.

I doubt this was even considered by him. 4 years is not enough time to make a meaningful impact on this issue. It matters to the party, but not the candidate.

Eliezer Yudkowsky explained it nicely[0]:

This just in! The Fed will allow schools and hospitals to use its $1.5T repo line, letting any school with $1B in Treasuries temporarily exchange them for $1B cash for 3 months. "We have no idea why you wanted this," said a confused Fed. "Are you sure you know what we do?"

[0] https://mobile.twitter.com/ESYudkowsky/status/12388153445353...