How about direct cash payments to consumers instead of involving any private enterprise.

Direct payments to consumers is a 100% loss on those funds. Buying Walmart (or other corporate debt) means the Fed gets the money back when those firms pay down that debt. So very very different.

No, that's incorrect. It's not 100% loss on those funds unless they take the money and bury it in a pit. The money will just return to the treasury, not the fed. The fed's balance sheet is imaginary anyway.

We were discussing the fed handing out money to consumers, not the US Treasury. Tax dollars (which is what I assume you meant by "the money will just return to the treasury") do not go to pay for fed operations. And the fed's balance sheet is distinct and separate from the US federal government's balance sheet. My point stands, a handout to consumers would be a 100% loss for the Fed.

A loss for whom? It is all taxpayer money. Does it matter if the Fed makes a profit or if the money is refunded back to the public? It is the equivalent of a stock dividend.

A bit of a nit. Treasury money is taxpayer money. Fed money is ... not. It's seigniorage.

But the point of this subthread remains; corporate loans are expected to be paid back (less some loss reserve, but plus some credit spread), whilst direct payments to individuals are not.

[Edit: should speak of corporate bonds, not loans, for precision. There is a big difference though for this thread it's minor.]

Any profit from the Fed goes back to the Treasury and seigniorage is basically a tax on all USD holders through inflation so it is largely a distinction without a difference. It is our money. Giving it back to us isn't a "loss".

Exactly right. But I'd even take it a step further, if we use that money to create material things like infrastructure (rather than endless financial instruments) is that really a loss? The dollar could cease to hold any value and we'd still have bridges and roads afterwards.

I might not have said it in that comment, but I totally agree with you. It is one thing to talk about the efficiency of government spending, but it is almost always stupid for us to talk about government programs or projects in terms of profits and losses.

A loss for the Fed.

And why do we care whether the Fed is profitable?

Because these loans will be (mostly) paid back. And both the Treasury and the Fed are lending a lot of money to people, through mortgages, at extremely low rates.

Yeah, but in that form, to which portions of the population are the fed and treasury indirectly lending via mortgages? Are the people in a position to benefit from that lending the most important people to assist? Is their spending going to optimize some multiplier that gets the fed the most impact for each dollar lent? Or could they have a larger effect with an intervention that injects money to some other group?

Consumers don’t subsidize the revenue of even a 30% of existing industries. If the payments were made to individuals then all of the companies that have Walmart as a customer would go down along with Walmart.

Sure, but they do subsidize Walmart. As for other sectors, we should take national ownership in the company if they want us to buy their debt.

> we should take national ownership in the company if they want us to buy their debt.

Equity is equity and debt is debt. The two things are different and serve different purposes. There is no reason to take equity in a company when all the company wants is a loan.

True but also not true.

In normal times with well-functioning markets and non-distressed players, that's so.

But with distressed (or small or less creditworthy) players or at distressed times, it's extremely common for lenders to demand equity as a concession for making a loan. See PIKs, warrant coverage, convertible notes, etc.

Walmart is in no sense distressed, and the Fed owns a microscopic amount of their debt, as part of an effort to create a broad market index of corporate debt.

Clearly. But it's not as if demanding equity rights along side a debt financing is unprecedented. Certainly, it is a damn sight more precedented than the Fed buying corporate bonds!

The Fed bought the bonds on the open market. You negotiate the sticker price of a new car. You don't negotiate the price of a can of Coke.

> The Fed bought the bonds on the open market

That was facing a situation with no bids on many issuances from AAA to C rated CUSIPs.

And true, you don't negotiate the price of a can of Coke, but if people stopped buying Coke in masses, stores would be incentivized to lower their prices just so it can clear the shelves…

~46% of the IG market is rated BBB (which was the situation before the covid19 btw), where the overall market is trading over par by about 14% on average spells doom for anyone buying the IG market now and holding to maturity… unless you can sell at higher prices to the greater fool: FRBNY leveraging future tax payer money from the treasury lol

The situation is even worse with WMT senior unsecureds[0]: you have walmart paper coming due in 2040 trading at +150 that yields 5.625 from par (100), whose gonna wanna get in and hold those bags now to maturity? Nobody but FRBNY leveraging future tax payer money from the treasury lol

[0]: https://pastebin.com/raw/warjCE4M

Are you suggesting that the Fed was strictly a price-taker and so de minimus that it had no price effect? In which case, why did the Fed get involved?

Because the intervention they were applying was based on a broad market index, not a specific concern for Walmart.

Consumers are already buying as much as they can from Walmart. There are shortages on items that are not being produced. Walmart is incurring on new debt because the upstream actors failed. It is a healthy business that will come back the moment the situation stabilizes.

> It is a healthy business that will come back the moment the situation stabilizes.

Sure, then we don't need to finance their debt.

The fed gets the money it loaned to wallmart back, it doesn't get the money back from consumers.

The fed might not, but the treasury does. The Fed balance sheet is imaginary anyway.

Exactly. The disinformation campaign is staggering.

The obvious alternative is to let bond yields go up, making them an attractive investment relative to stocks - as they should be in a recession.

Letting the yields go up means that it becomes more difficult for companies to borrow money during a period of economic stress. This would mean those companies are at greater financial risk. Which is the exact opposite of the Fed's goal.

Put another way, in an information-theoretic view of markets and money: stopping the yields from going up would make it more difficult for investors reliably to gauge how safe it is to lend money during a time of economic stress.

It's also not a scaling function (reduce everyone's cost of borrowing by 10%, say). There's a floor so you get a clipping effect.

The Fed's intervention is like the CD mastering Loudness Wars.

Not more "difficult" - more expensive. A possibility that every company should have foreseen with financial modeling, and so avoided taking on more debt than they could handle during a recession.