Charles Krupa/AP Photo
The Federal Reserve’s Main Street Lending Program, authorized by the $2.2 trillion economic relief bill passed by Congress last month, has not yet gone into effect.
The one large institution of government that Trump can’t control is the Federal Reserve. He can’t fire its chair, Jerome Powell, nor any of its other governors or senior officials. And the Fed creates its own budget.
This is a mixed blessing. One the positive side, Powell is a sane and serious person. He grasped the magnitude of this economic crisis early on, and has opened the spigots wide. The Fed’s injection of credit into the economy—$4.5 trillion and growing—dwarfs even its aid during the 2008-2010 financial collapse.
On the not-so-positive side, Powell is a Wall Street guy, and the biggest flows of aid have gone to the financial part of the economy. This is not surprising, since the Fed’s primary mission is to backstop the banking industry.
What is a little startling is that the Fed’s creation of easy credit flows has gone far beyond the banks. The Fed has pumped cash into the financial economy by buying junk bonds, bonds backing commercial mortgages, and real-estate investment trusts.
Some of these investments are underwater because they were high-risk to begin with, based on too much debt and not enough real capital. But in order to stave off financial collapse, the Fed is not distinguishing saints from sinners. This is perhaps a necessary evil, as long as windfall profits are clawed back later, which is of course an open question.
Where the Fed has failed is in its priorities—too much help for the unsavory parts of Wall Street, not enough for Main Street. The Fed’s new Main Street Lending Program, for small and midsized companies, will not even be open for business until early May.
The other day, The Wall Street Journal (!), not exactly a left-wing paper, complained that the Fed was giving priority to Wall Street: “A company bought by a Wall Street firm and loaded up with debt … will now face far easier terms for liquidity relief than will a similar privately owned company in the Midwest that never took on too much debt.”
It’s quite an inversion to be called smelly by a skunk. Still, two cheers for Powell and the Fed, and a big Bronx cheer for Trump.