Another Bank Bailout Under Cover of a Virus

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      eridani
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      https://www.commondreams.org/views/2020/05/18/another-bank-bailout-under-cover-virus

      Rather than letting the banks fail and forcing a bail-in of private creditors’ funds, the Fed quietly stepped in and saved the banks by becoming the “repo lender of last resort.” But the liquidity crunch did not abate, and by March the Fed was making $1 trillion per day available in overnight loans. The central bank was backstopping the whole repo market, including the hedge funds, an untenable situation.

      In March 2020, under cover of a national crisis, the Fed therefore flung the doors open to its discount window, where only banks could borrow. Previously, banks were reluctant to apply there because the interest was at a penalty rate and carried a stigma, signaling that the bank must be in distress. But that concern was eliminated when the Fed announced in a March 15 press release that the interest rate had been dropped to 0.25% (virtually zero). The reserve requirement was also eliminated, the capital requirement was relaxed, and all banks in good standing were offered loans of up to 90 days, “renewable on a daily basis.” The loans could be continually rolled over, and no strings were attached to this interest-free money – no obligation to lend to small businesses, reduce credit card rates, or write down underwater mortgages. Even J.P. Morgan Chase, the country’s largest bank, has acknowledged borrowing at the Fed’s discount window for super cheap loans.

      The Fed’s scheme worked, and demand for repo loans plummeted. But unlike in Canada, where big banks slashed their credit card interest rates to help relieve borrowers during the COVID-19 crisis, US banks did not share this windfall with the public. Canadian interest rates were cut by half, from 21% to 11%; but US credit card rates dropped in April only by half a percentage point, to 20.15%. The giant Wall Street banks continued to favor their largest clients, doling out CARES Act benefits to them first, emptying the trough before many smaller businesses could drink there.

      In 1969, Prime Minister Indira Gandhi nationalized 14 of India’s largest banks, not because they were bankrupt (the usual justification today) but to ensure that credit would be allocated according to planned priorities, including getting banks into rural areas and making cheap financing available to Indian farmers. Congress could do the same today, but the odds are it won’t. As Sen. Dick Durbin said in 2009, “the banks … are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

      Jesus: Hey, Dad? God: Yes, Son? Jesus: Western civilization followed me home. Can I keep it? God: Certainly not! And put it down this minute--you don't know where it's been! Tom Robbins in Another Roadside Attraction

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