Category: zerohedge

Authored by Brandon Smith via Alt-Market.com,

It has been only two weeks since widespread pandemic lockdowns were implemented in the US and as expected the public is not handling the idea very well. Within one week there were already frantic demands for the economy to reopen by Easter (spurred on by Donald Trump), and mass delusions have developed that this is still going to happen despite the fact that lockdown guidelines have been extended to at least April 30th. People desperately want to believe that this will all be over in a matter of weeks.

Many governments continue to perpetuate this fantasy by using very carefully worded terminology. For example, the phrase “two weeks of hell” is being consistently repeated by the media after Trump uttered the notion a few days ago. In Italy, a Milan official sees lockdowns now continuing for 2-3 more weeks. In Spain, the public was left with the impression that two solid weeks of quarantine and lockdowns would help stave off infections, yet the government extended the restrictions for…yes, you guessed it…another two weeks.

Why are these announcements always in two week intervals? I suspect it is because this the maximum amount of days before the average person begins to register the passage of time in their minds in a new situation. After two to three weeks of going without certain comforts and habits, people tend to adapt and find different ways of doing things. And, after two to three weeks of crisis, they might wake up and recognize the situation is not going to get better.

Governments and establishment elites are seeking to keep the public as passive and docile as possible by continually feeding them the notion that the worst of the pandemic will be over in a matter of weeks. And, every two weeks they will reassure us that we are “only two weeks away” from salvation.

Of course, with lockdowns in place the spread of infections is bound to decrease eventually, but I think the average person has no concept of how long the economic collapse will last even after the virus is “under control”. Understand that there is NO coming back from this event in terms of the economy. Our 70% service based system has been destroyed already, most people just don’t realize it yet. The majority of small businesses in the service sector will be wiped out in the next two months if they are not wiped out already.

As during the Great Depression, major corporations (most of them) will be allowed to survive while small businesses are bankrupted and absorbed, further centralizing management of economic activity into the hands of a select few. In the meantime, a majority of people will be completely dependent on government aid in one form or another just to survive.

The pandemic threat will continue for many months to come, perhaps with intermittent periods of loosened restrictions and lifted lockdowns. The public is being conditioned with a “wave model” of crisis and release, as I outlined with evidence in my last article ‘Waves Of Mutilation: Medical Tyranny And The Cashless Society’. This means that the economy is never coming back as it was, and tens of millions of people will remain jobless for a prolonged period of time.

I predict that the establishment will support the populace with a form of Universal Basic Income (UBI) for a little while (2-3 months), and then, as the economy continues to crash, they will start cutting off these benefits to some people while adding requirements restrictions to receive benefits for others.

When government becomes your sugar daddy, there are always strings attached. In some states they are already telling the public what they are allowed to spend their money on. In Vermont, for example, the state has declared numerous items in stores “non-essential”, which means you are not allowed to buy them. The claim is that you are allowed to buy them online, but in many cases people are blocked from doing this as well. Even garden seeds have been labeled “non-essential”.

Proponents of these restrictions offer two reasons:

One, it will supposedly reduce the amount of people going to stores thereby reducing the risk of infection.

And two, our spending needs to be controlled so that we do not waste money on “frivolous things” during the economic downturn.

Neither of these explanations is logical or acceptable. People generally go to stores to buy essentials along with “non-essentials” and so they will be “risking infection” regardless. Isn’t the whole point of social distancing and precautions like gloves and face masks supposed to allow the public to function while avoiding infection? Yet, the state is telling us this is not enough. We also have to be told when and how we can spend our money.

And what about the government enforcing responsible spending? Since when has the government EVER been an expert on spending money responsibly? It is massive government debt along with massive corporate debt that has debased our economy from the very beginning. They are the reason we are in an economic crisis, not the coronavirus. Yet, they now think they should be allowed to give us orders on being frugal? They can go to hell.

Imagine how numerous the rules and restrictions on the people will be once we are trapped into dependence on UBI and government aid. How much freedom will we have to give up just to get that monthly check? It is one thing to take the pandemic situation seriously and self-isolate for a while; it is another to sit back and allow the establishment to erase all our civil liberties in a matter of months in the name of “the greater good of the greater number”.

Beyond that, the pandemic crisis concerns me much less than an economic collapse, which was an inevitability even before the coronavirus went mainstream.  How do we reconcile the government’s extreme response to the pandemic with the public’s need to function economically?  Are we just supposed to sit back and become slaves, dependent and clamoring for a meager UBI check every month?  I think not.

So, the question is, what can we do about it? As I have been saying for well over a decade, the solution is to decouple from the system and build our own. But what does this mean specifically?

Step 1: Start Providing Your Own Essentials

Essentials include water, food, shelter and security. Without these four things no human can live for very long. If a person can provide these things for himself, then he will never be beholden to anyone, including a domineering government.

I suggest starting small and expanding. Build a water collection source, or drill a well if you own property. Turn your yard into a garden, even if you live in the suburbs. In fact, your entire neighborhood should be growing gardens right now, and anyone who tries to tell you otherwise should be dissuaded from their attempts to control what you do on your own property. This means establishing neighborhood security and no longer relying on local law enforcement.

It’s one thing to store essentials in case of emergency, it’s another to become a producer and ensure your survival for the long term.

Step 2: Organize For Mutual Aid And Defense

Each neighborhood or town should be working together for security as the system continues to collapse, which means establishing radio communications and small patrols to ward off looters. In New York alone, major crimes are up 12% as the lockdowns ramped up.  In many municipalities in the US, law enforcement is not responding to most calls involving assaults, break-ins and robberies.  Organization at this time is paramount; the more organized you are the more of a deterrent you represent to people who would seek to take what you have. Most predators are cowards; when given the choice between a strong target and a weak target, they will invariably choose the weak target.

The common argument against organization is that the “nail that sticks up will be hammered down”. I would remind people that the nails that are willingly hammered down will be stepped on forever. Nobody wants to step on a nail that sticks up. That hurts.

Predators, including predatory and totalitarian governments are, at bottom, weaklings. And their weakness will become apparent the moment they face an opponent that actually refuses to back down due to fear.

Step 3: Establish Barter Markets And Black Markets

As noted in previous articles, the primary goal behind this pandemic is to use it as a rationale for controlling all commerce. If you do not have the proper “green code” from the government indicating you are “free from infection”, then you are not allowed to participate in the economy. No job, no grocery stores, no public gatherings, etc. This is happening right now in places like China and South Korea and according to elitists like Bill Gates and others it is coming to the US soon, make no mistake.

The only way to counter such control is to not need the mainstream system at all. Localized barter markets need to be established, and if they outlaw those, then you need to set up black markets. Trade and production must continue or humanity as we know it will die. It will be replaced with a centralized socialist hive system that will crush all liberty, and this is unacceptable. Localization is the key to our survival.

This means that the public must make and active effort to save themselves through their own innovation instead of waiting around for government to save the day.

Step 4:  Accept The Reality That Political Leaders Are Not Going to Save You – They Are Only Going To Make Things Worse

It’s funny, but if any of these lockdown measures were being implemented under a Democrat in the White House, conservatives would be enraged.  But, since Trump is president, a large number of conservatives have gone limp and docile; proclaiming that he is going to save the day and “cure the virus”.  It’s not going to happen, folks.  This is the same guy that was telling us in January that he trusted the data out of China and that everything was under control. Trump is not your savior, he is a long time puppet of the banking elites, as I have outlined and evidenced on numerous occasions.

Trump’s job is to oversee the collapse of the US while playing the role of a bumbling “nationalist” and “conservative” villain.  To be sure, he’s not the only politician in office that is part of this agenda, and the UN and WHO are just as guilty of misleading people about the extent of the pandemic threat, but Trump is the one that conservatives blindly trust the most, and this is a problem.  If violations of the constitution continue to escalate, a war is coming, and Trump will NOT be on the side of liberty.  Conservatives will eventually have to decide which side of the fight they stand as the lockdowns drag on with only minor periods of relaxed restrictions.

Ultimately, you cannot support economic socialization and big government tyranny just because Trump is president and still call yourself a conservative.

Step 5: Be Ready To Fight And Die For What You Believe In

People always talk about fighting for freedom, but the question is will they actually do it when faced with overwhelming odds? I can only speak for myself, and I will fight, but I do believe that many others out there are ready and willing to do the same.  That said, it really does not matter. It’s not for us to defend ourselves only if we think we have backup. Be ready to fight alone if you have to; be ready to take risks, otherwise, you have no chance of winning, and thus the people collectively have no chance of winning. If others follow your lead, then so be it, but don’t rely on it.

There are many transgressions about to be foisted on the American people well beyond what we have already witnessed. You will know when the line in the sand has been crossed. Do not be surprised if in the next 3-6 months you hear the words “shots fired”. It is not enough to be prepped for the future. It is not enough to simply survive. The world as we know it is being sabotaged for the sake of power. Not money, but POWER. The elites will not be satisfied with anything less than total control. We cannot let them have it.

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As some misguided liberals complain about fruits “left rotting on the trees” because Trump’s immigration crackdown has left no undocumented migrants to pick the vegetables (a demonstrably false assumption), the Associated Press has offered an explanation for this phenomenon that also illustrates how disruptions in the businesses like the hospitality and food-service industry work their way through the supply chain, ultimately sticking farmers in the American Farm Belt with fields of vegetables that they can’t sell, or even donate as local food pantries are now full-up with donations from restaurants.

The AP started its story in Palmetto, Fla. a city in Manatee County on the Gulf Coast, where a farmer had dumped piles of zucchini and other fresh vegetables to rot.

As the AP reported, thousands of acres of fruits and vegetables grown in Florida are being plowed over or left to rot because farmers who had grown the crops to sell to restaurants or other hospitality-industry buyers like theme parks and schools have been left on the hook for the crops.

As the economy shuts down across the country, injecting what the Fed described as massive levels of uncertainty, farmers in the state are now begging Ag Secretary Sonny Purdue to get some of that farm bailout money. Without some kind of industry-specific bailout, these farmers might go out of business.

The problem – in a nutshell – is that these farmers have longstanding sales relationships, but suddenly, those customers have disappeared. And many other companies in the US that are still buying produce already have contracts with foreign suppliers.

It would be great if Trump could come in with agricultural tariffs that would effectively cut off foreign competition, but such a move would likely be widely panned by the establishment, who would sooner watch every small farmer commit hari-kari than see continued pullback in globalization and more limits on free trade.

“We gave 400,000 pounds of tomatoes to our local food banks,” DiMare said. “A million more pounds will have to be donated if we can get the food banks to take it.”

Farmers are scrambling to sell to grocery stores, but it’s not easy. Large chains already have contracts with farmers who grow for retail — many from outside the U.S.

“We can’t even give our product away, and we’re allowing imports to come in here,” DiMare said.

He said 80 percent of the tomatoes grown in Florida are meant for now-shuttered restaurants and theme parks.

And the problem isn’t unique to farmers in Florida. Other states are having similar issues. Agricultural officials said leafy greens grown in California have no buyers, and dairy farmers in states like Vermont have been hit especially hard. Dairy farmers in VT and Wisconsin told the AP they’ve had to dump surplus loads of milk.

An association for farmers in Florida asked the administration if their veggies could be donated to food-stamp or other federal welfare programs, but reportedly, they never heard back.

Among states that harvest in the winter, California has a lot of leafy green veggies that are about to come out of the ground.

“The tail end of the winter vegetable season in Yuma, Arizona, was devastating for farmers who rely on food service buyers,” said Cory Lunde, spokesman for Western Growers, a group representing family farmers in California, Arizona, Colorado and New Mexico. “And now, as the production shifts back to Salinas, California, there are many farmers who have crops in the ground that will be left unharvested,” particularly leafy greens.

He said a spike in demand for produce at the beginning of the outbreak has now subsided.

“People are staying home and not visiting the grocery stores as often,”  Lunde said. “So the dominoes are continuing to fall.”

Some farmers have experimented with selling crops directly to customers, with one Florida farmer in Palmetto selling boxes of roma tomatoes for just $5 a box, an amazing bargain in a time of tremendous need. But the sales are well short of what he needs and likely won’t do more than put a dent in his losses. But at least it’s something.

“This is a catastrophe,” said tomato grower Tony DiMare, who owns farms in south Florida and the Tampa Bay area. “We haven’t even started to calculate it. It’s going to be in the millions of dollars. Losses mount every day.”

Florida leads the US in harvesting tomatoes, green beans and cabbage. Can you imagine what life would be like if tomatoes and tomato sauce prices soared because all of these medium-sized and small farmers around the country have gone out of business? Or if you walked into the grocery store a year from now and there simply weren’t any tomatoes.

It could happen much more easily than you might believe – that is, if not enough is done.

Authored by Nadia Schadlow via The Atlantic,

Critics are letting their disdain for the president blind them to geopolitical realities…

When a new coronavirus emerged in China and began spreading around the world, including in the United States, President Donald Trump’s many critics in the American foreign-policy establishment were quick to identify him as part of the problem. Trump had campaigned on an “America first” foreign policy, which after his victory was enshrined in the official National Security Strategy that his administration published in 2017. At the time, I served in the administration and orchestrated the writing of that document. In the years since, Trump has been criticized for supposedly overturning the post–World War II order and rejecting the role the United States has long played in the world. Amid a global pandemic, he’s being accused—on this site and elsewhere—of alienating allies, undercutting multinational cooperation, and causing America to fight the coronavirus alone.

And yet even as the current emergency has proved him right in fundamental ways—about China specifically and foreign policy more generally—many respectable people in the United States are letting their disdain for the president blind them to what is really going on in the world.

Far from discrediting Trump’s point of view, the COVID-19 crisis reveals what his strategy asserted: that the world is a competitive arena in which great power rivals like China seek advantage, that the state remains the irreplaceable agent of international power and effective action, that international institutions have limited capacity to transform the behavior and preferences of states.

China, America’s most powerful rival, has played a particularly harmful role in the current crisis, which began on its soil. Initially, that country’s lack of transparency prevented prompt action that might have contained the virus. In Wuhan, the epicenter of the outbreak, Chinese officials initially punished citizens for “spreading rumors” about the disease. The lab in Shanghai that first published the genome of the virus on open platforms was shut down the next day for “rectification,” as the Hong Kong-based South China Morning Post reported in February.

Apparently at the behest of officials at the Wuhan health commission, news reports indicate, visiting teams of experts from elsewhere in China were prevented from speaking freely to doctors in the infectious-disease wards.

Some experts had suspected human-to-human transmission, but their inquiries were rebuffed.

“They didn’t tell us the truth,” one team member said of the local authorities, “and from what we now know of the real situation then, they were lying” to us.   

Now China’s propagandists are competing to create a narrative that obscures the origins of the crisis and that blames the United States for the virus. This irresponsible behavior and lack of transparency revealed what Trump’s National Security Strategy had identified early on: that “contrary to our hopes, China expanded its power at the expense of others.” Instead of becoming a “responsible stakeholder”—a term George W. Bush’s administration used to describe the role it hoped Beijing would play following China’s entry into the World Trade Organization in 2001—the Chinese Communist Party used the advantages of WTO membership to advance a political and economic system at odds with America’s free and open society. Previous National Security Strategy documents had tiptoed around China’s adversarial conduct, as if calling out that country as a competitor—as the 2017 document unequivocally did—was somehow impolite.

But at some point, an American administration needed to shift the conversation away from hopes for an imagined future China to the realities of the Communist Party’s conduct—which is hardly a secret. For the decade and a half prior to 2017, Republican and Democratic leaders publicly worried about China’s unwillingness to play by the rules, but were reluctant to deal head on with China’s authoritarian government and statist economy. The bipartisan U.S.-China Economic Security Commission has consistently called out China’s unfair practices. In 2010, President Barack Obama lambasted China before the G-20 for its currency manipulation. The need to compete effectively with the policies of the Chinese Communist Party is one of the few points of agreement between Trump and House Speaker Nancy Pelosi. Even as he seeks to find ways to conclude reciprocal trade agreements, his administration has not lost sight of China’s aggressive rise.

At least as controversial as Trump’s critique of China is his emphasis on the importance of sovereignty and his insistence that strong sovereign states are the main agents of change. But states are the foundation of democratic governance and, fundamentally, of security. It is the citizens of states who vote and hold leaders accountable. And it is states that are the foundation of military, political, and economic power in alliances such as NATO, or organizations like the United Nations.

Trump’s emphasis on protecting U.S. sovereignty brought to a boil a simmering national debate about the overlooked costs of globalization. A blind adherence to what the economist Dani Rodrik has called “hyper-globalization”—the idea that the interests of big corporations and the principle of market integration took precedence over widely shared prosperity and economic security—had come at the expense of domestic industries. For years, people who complained about these consequences were dismissed as isolationists or as being on “the wrong side of history.”

The coronavirus experience demonstrates that economic interaction does not occur in a vacuum of geopolitical competition. Dependence on China for crucial medical equipment throughout the pandemic has illuminated the dangers of a hyper-globalized economy. Experts had warned of American dependence on key drug ingredients from China. The Wall Street Journal has reported that China is the only maker of key ingredients for certain classes of drugs, including established antibiotics that treat a range of bacterial infections such as pneumonia. American reliance on Chinese suppliers for other pharmaceuticals and medical supplies is also worrisome. Americans should not depend on an authoritarian rival state for its citizens’ health—any more than the United States and other free and open societies should give Chinese companies, and by extension the Chinese Communist Party, control over communications infrastructure and sensitive personal data.

Many of President Trump’s critics in the foreign-policy community put great stock in the ability of multilateral and international organizations to constrain the misbehavior of China and other states. These organizations, at their best, promote concerted action against commonly recognized problems. But Trump’s critics tend to view them mainly in their idealized form and as the central instruments to solve global problems and advance values shared by all. In practice, though, how international organizations perform is profoundly influenced by power relationships among member states.

China’s leaders have become quite skillful at using these bodies to pursue their own interests. President Xi Jinping has made it a priority—as he put it in a 2018 speech—to “reform” and lead in the “global governance system,” viewing such efforts as integral to “building a modern, strong socialist country.” Despite its record of stealing patented technologies, China tried to lead the World Intellectual Property Organization, an effort thwarted by Washington. Chinese tech companies have also sought to induce the United Nations to adopt their facial-recognition and surveillance standards, to clear the way for the deployment of their technologies around the world.

The Trump administration’s National Security Strategy challenged the assumption that international organizations are always driven by a common global good. China’s undue influence in key international organizations was evident most recently, when the World Health Organization hesitated to declare COVID-19 a public-health emergency of international concern.

WHO officials amplified Chinese officials’ early claims that the virus posed no danger of human-to-human transmission. The head of the organization even congratulated China’s top leadership for its “openness to sharing information.” Apparently seeking to avoid Beijing’s wrath, the WHO refused to respond to Taiwan’s early concerns about human-to-human transmission of the virus outbreak in Wuhan.

The COVID-19 experience, although far from over, has generated strong evidence that, while the WHO and other international organizations are of course important for information sharing and coordination, nations continue to do the heavy lifting. The United States remains the largest contributor to the WHO, paying about 15 percent of the organization’s budget—compared with China’s 0.21 percent. In early March, Trump signed a supplemental appropriations act that included $1.3 billion in additional U.S. foreign assistance for pandemic response. Most recently, Secretary of State Mike Pompeo announced an additional $274 million in emergency funding for at-risk countries. This aid does not come with the strings that China attaches to its aid.

Contrary to what critics argue, “America first” does not mean “America alone.” That Trump might be introducing needed correctives to the hyper-globalization pursued by earlier administrations is generating serious cognitive dissonance in some quarters. And the reality is that only one organization in the entire world has as its sole responsibility the American people’s safety. That institution is the U.S. government. Whether led by Republicans or Democrats—or by Donald Trump or anyone else—it should always put the American people first.

*  *  *

Nadia Schadlow, a former deputy national security adviser for strategy, is a senior fellow at the Hudson Institute.

With millions of Americans sitting at home working on their laptops, the passive viewership of cable news channels like CNBC must be waaaay up this month, as finance nerds welcome normies to the strange and often hilarious world of live markets news.

In terms of drama, CNBC is usually pretty staid. But every once in a while, there’s a fight, or a contentious interview, that really grabs people’s attention. On Thursday, such a confrontation occurred during “the Halftime Report” as Scott “The Judge” Wapner interviewed early Facebook investor and uber-wealthy VC investor Chamath Palihapitiya.

Wapner brought up the question of the bailouts for main street and corporate America that the Trump Administration has packaged as part of its $2.2 trillion plan. Palihapitiya raised an issue with the program, arguing that the administration would be using taxpayer money to prop up “zombie companies.”

Then Wapner asked: “Are you arguing to let airlines fail?

Palihapitiya, who was speaking on the phone, responded with a very assertive “Yes.”

Wapner seemed blown away by this. Struggling to process the answer he had just been given, he followed-up, incredulously: “But how does that make sense in the broader scheme of the economy.”

Then Palihapitiya went off.

“This is a lie that’s been propagated by Wall Street. When a company fails, it does not fire its employees…it goes through a packaged bankruptcy…if anything, what happens is the employees end up owning more of the company. The people who get wiped out are the people who own the unsecured debt and the equity…but the employees don’t get wiped out and the pensions don’t get wiped out.”

[…]

“And if a bunch of hedge funds get wiped out – what’s the big deal? Let them fail. So they don’t get the summer in the Hamptons – who cares.”

Out in the real world, people say mean things about the rich all the time. But it doesn’t happen quite as often on CNBC. In fact, sometimes CNBC’s hosts seem downright confused when people don’t seem to care about asset prices above all else – like that time Rick Santelli said we should all just go get infected and let grandma die to save the stock market. What’s more, Wapner seemed almost personally insulted by Palihapitiya’s response.

As to why, well, we can’t be certain.

Because after all, airlines as an industry are especially prone to bankruptcy (the president once owned an airline that went bankrupt), even under completely normal circumstances.

Hell, even if such a vitally important company as the aerospace and defense giant Boeing went bankrupt, its factories in Washington State wouldn’t stop running.

Remember when the CEO of Boeing demanded a taxpayer-funded bailout, but said he wouldn’t accept the money if the federal government demanded a stake in Boeing in return (note: exchange money for equity is standard practice for…literally every investor in the world)?

How is Boeing able to so blithely bite the hand that feeds? Because it has alternatives should the bailout not come through. If Boeing really needs the money, it’s free to sell stock and raise cash – the opposite of what it did for decades when it bought up shares, shrinking its float and helping maintain a buoyant valuation.

Say this isn’t enough, and Boeing fails: The company could file a prepackaged Chapter 11 where the creditors take over all the equity and the company emerges from bankruptcy debt-free in one day.  Without a dollar of debt, Boeing should be able to weather any disruption no matter how long, and once the economy normalizes it should be able to rehire all the workers that had been laid off. In reality, the company could probably manage to get through it without firing so many employees…or offering “voluntary buyouts”.

Which brings us to our next point. After Palihapitiya explained the bankruptcy process, Wapner responded with a question that’s probably asked on his channel at least half a dozen times a day: “What about the 401(k)s?”

“But you don’t think the employees of these companies own stocks, own the company’s stocks?”

To which Palihapitiya had another point ready.

“These things are owned by these huge amorphous organizations…ultimately downstream the employees own a few hundred dollars or a few thousand dollars of shares.”

That’s right: After the world saw what happened to Enron employees who invested their entire retirement savings in Enron stock, there probably isn’t a single American who keeps literally all of their money in the shares of their employer. Even employee pension plans are typically managed by third parties and don’t consist of a larger percentage of the company’s stock.

As Palihapitiya explained, while people absolutely need jobs to come back to, not every business will fail during this shut down. Many small businesses, like a small cafe or a restaurant, if they can’t pay the rent, it’s over. There really is not “business”, it’s just a lease and the restaurant setup. You can have partial owners, but if that restaurant goes under, it’ll likely shut down immediately, firing all of its staff. If a company like, say a large chain of newspapers that’s publicly traded, goes bankrupt, it will continue to operate.

While the rich certainly didn’t cause the coronavirus, they typically aren’t also responsible for the many unanticipated risks that can make an investment or a business go south.

But on Main Street, it’s a different story. There’s not as much nuance: People are panicking and scrambling to apply for government benefits because they don’t know how they’re going to keep a roof over their heads.

“On main street today, people are getting wiped out, and right now rich CEOs are not, boards that had horrible governance are not, hedge funds are not…6 million people just this week along said ‘holy mackerel, I don’t know how I’m going to pay my rent.'”

“And what we’ve done is protect CEOs and boards…when you have to wash these people out.”

Just last year, millions of investors were forced to face up to the fact that not every new enterprise, including companies who grow to the point that they can raise money in an IPO, is profitable. In fact, thanks to various levels of government intervention in the free market, many of these ‘zombie’ companies exist in countries around the world, to varying degrees.

More recently, many more persistently loss-making companies have managed to struggle on for years, even when it’s become clear the enterprise is essentially doomed, because of all the investment capital bouncing around places like Silicon Valley.

We also found this handy guide from Investopedia offering a moderately detailed explainer on how corporate bankruptcies work, the various chapters, etc.

But right at the top of that post, the writers make clear that even the investors don’t always get wiped out:

If a company you’ve invested in files for bankruptcy, good luck getting any money back, the pessimists say – or if you do, chances are, you’ll get back pennies on the dollar. But is that true?

Alas, there’s no one-size-fits-all answer.

So maybe Wapner’s plan to simply fork over billion-dollar bailouts to every company or airline who asks needs a rethink.

And it’s fitting that this heated exchange, which attracted so much attention that the producers over at CNBC made room during “the Closing Bell” lineup to have one of their reporters interview Wapner…about his interview with Chamath, happened today.

Because earlier, the Fed unveiled a lending program aimed at saving ‘small businesses’ that is, in reality, just the latest assertion of dominance over a market where genuine price discovery has been suppressed for more than a decade now.

To quote Bob Rodriguez, as we did during Thursday’s market wrap:

With the initiation of the Fed’s complete takeover and control of the US financial economy, there is now absolutely no accurate pricing discovery in the capital markets and we have entered a period of total manipulation. In light of this, the only markets I have an interest in are those where the heavy hand of government is not involved or only minimally involved. This leads me to rare commodities and collectibles. The public equity and debt markets are now nothing more than greater fool markets that are led by the greatest fools of all, the Fed and the Congress. US capital markets, RIP!

When all market risk is essentially socialized, a return vs risk evaluation is essentially meaningless.

Over a period of time which I cannot estimate yet, I will continue my preparation for a far different economic and financial environment.

Capital deployment strategies will likely have to change from what has been the norm in the post WW2 environment. We are in a New World Order.

*  *  *
Simply put, the global business environment is being transformed: Like AOC and George W Bush, we are all socialists now.

And Wapner’s incredulity at being confronted by an investor who doesn’t accept bailouts as nothing short of a moral imperative just shows how badly the public has been brainwashed to simply accept this dynamic, where the wealthiest business owners are always given priority.

Watch a clip from the interview below:

The U.S. shouldn’t bail out billionaires and hedge funds during the coronavirus pandemic, Social Capital CEO Chamath Palihapitiya says. “Who cares? Let them get wiped out.” https://t.co/dIbizumtqG pic.twitter.com/u8BSVvr0B1

— CNBC (@CNBC) April 9, 2020

Authored by Robert Wright via The American Institute for Economic Research,

It’s unsurprising that governments around the world have reacted so strongly to COVID-19. I think the game-theoretic model below explains the first round nicely. It also provides insight into what round two might look like.

For game theory aficionados out there, I am not saying that this is the best way to model the world. I think, though, it is the way most politicians and their advisors think.

Round one is a game against nature with uncertainty (no known or even knowable probabilities) so it basically pits some outcome, “good” (few deaths) or “bad” (many deaths), against government “action” (doing something) or “inaction” (doing nothing). The dominant strategy for politicians is clearly “action” because the outcomes for them (yes, I’m assuming a public choice framework) are better than “inaction” in either state of the world, “good” or “bad.”

Specifically, if politicians do not act and the novel coronavirus burns out, like some epidemiologists argue it would anyway, the world is pretty much unchanged and a “serious crisis” is left unexploited.

If politicians remain inactive and the stench from the crematoria make the living long for death themselves, well, then, there will be hell to pay at the polls, or the poles.

If politicians act and the outcome is good, they can take credit and campaign on it for re-election, as many former military officers on both sides did by “waving the bloody shirt” of the Civil War for decades afterwards. A big win in other words. 

If they act and the outcome is bad (i.e. if lots of people die) and again this is round one of the way politicians think, they can always portray it as a (comparatively) good come out with the refrain that “it’s a good thing we did something or this would have been much worse.” Some people will accept, while others reject, the validity of the statement—probably along party lines, so the expected outcome is better than in either of the two inaction squares.

Our political system selects for cunning sorts, so politicians, including the President, try to adjust expectations about what a “good” or “bad” outcome would look like. They had incentives to jump on the worst-case scenarios in those now infamous early epi models, which The Atlantic has kindly recently told us were never meant to be correct.

Thus ends round one, with most of the world in the lower left hand quadrant, under house arrest minus the ankle bracelets. 

But now round two has started and it is confusing politicians because the actions taken in round one have created a new kind of bad outcome, output collapse so severe it itself will cause death.

The rather daft assumption that throwing bailout money at the economy would minimize the impact of widespread lockdowns was shattered immediately by overwhelming empirical evidence (see coverage by AIER’s own Robert Hughes). So shrewder politicians, like Andrew Cuomo began to backpedal, as have the more astute progressive news outlets like The New York Times. 

Politicians will be hesitant, though, to sound the full retreat bugle because that sets them up to be blamed for the potential bad economic times ahead and for “doing nothing” about COVID-19. Look for rational politicians, instead, to retreat to places like South Dakota and Sweden that implemented sensible policies short of lockdown early on and that, so far, are working. Politicians in both places will be able to credibly blame any local economic problems on “the other guys” while basking in the warm glow of below-projected deaths and relatively well-protected civil liberties. 

Look, also, for some “cover” to justify the move. Epidemiologists say that blood tests will soon be available to estimate “the denominator”: the number of people who have already been infected. That will quickly give them a much better idea of how deadly the novel coronavirus actually is and where America is along the curve towards herd immunity. With an effective antibody test in hand, we won’t have to solicit volunteers to return to work, we will know who can return to life as usual without fear of contracting COVID-19, or of spreading it to others. We can also potentially treat those who get sick with the blood of those who naturally fought off the virus. And with production of ventilators and PPE gearing up, this crisis will eventually abate.

At that point, the game will get really interesting because most voters will still see America in the bottom left quadrant with quite a few deaths but also a struggling economy. And in an election year no less! Oh, the spin machines will remain in high gear, noting that in per capita terms things were not that bad, that the death toll was due to the usual suspects of capitalism, socialism, Obamacare, stripped down Obamacare, etc.

But, to borrow a phrase James Carville made infamous in 1992, the 2020 election will be about the stupid economy, Stupid. If it rebounds strongly, incumbents may have a chance. If it doesn’t, well, look at the model again but in a new light. Now inaction on the economy means hell to pay if the economy doesn’t bounce back and the status quo if it does. Action could lead to a lifetime of victories because “Remember when I saved the economy after the COVID-19 catastrophe” while action that leads to a bad economy will lead to a better outcome for the politician than inaction because of the “Imagine how bad things would have gotten if I didn’t take action” copout.

There is a crucial difference, though, between the round one coronavirus game and the round two economic game. Nobody knew much of anything about the former but like a sunbeam history and comparative economics lights the way forward on the latter. With stimulus spent and people none-too-happy with government economic controls in practice, there is a chance that enough politicians will try to save their careers by pushing economic liberalization knowing that a “check mark” recovery (down but then sharply up, past the previous level) could result.

Will politicians give up tariffs, occupational licensing, CONs and all the other regulatory detritus that weighs on the economy? My model says they will, if they know what is good for them. If they don’t, maybe voters will give us a fresh start this fall. This is the sort of stuff that leads to new parties, or massive realignments of old ones.

Republican members of the House Oversight Committee have demanded answers from the World Health Organization (WHO) over their relationship with China.

In a Thursday letter  addressed to WHO Director-General Tedros Adhanom Ghebreyesus, lawmakers expressed concerns over recent intelligence and media reports that the WHO has served China’s interests by helping the regime spread dangerous propaganda as the coronavirus pandemic unfolded.

The letter to Ghebreyesus reads in part:

Throughout the crisis, the WHO has shied away from placing any blame on the Chinese government, which is in essence the Communist Party of China. You, as leader of the WHO, even went so far as to praise the Chinese government’s “transparency” during the crisis, when, in fact, the regime has consistently lied to the world by underreporting their actual infection and death statistics.

The letter continues: “On January 14, 2020, the WHO tweeted that “[p]reliminary investigations conducted by Chinese authorities have found no clear evidence of human-to-human transmission of the novel coronavirus.” These preliminary investigations included China jailing any doctor that disseminated any information about COVID-19 not first cleared through state-run media.”

Preliminary investigations conducted by the Chinese authorities have found no clear evidence of human-to-human transmission of the novel #coronavirus (2019-nCoV) identified in #Wuhan, #China🇨🇳. pic.twitter.com/Fnl5P877VG

— World Health Organization (WHO) (@WHO) January 14, 2020

House Republicans also note that the WHO received “17% of its total funding, or $513 million, from the United States” in 2017, adding that “It is essential that American taxpayers’ money is allocated to organizations that uniformly serve the interests of nations across the globe, not merely the interests of China’s authoritarian, communist regime.”

“The World Health Organization has become party to China’s coronavirus misinformation and propaganda campaign. Whether it’s deliberate or not, we don’t yet know,” said Rep. Jody Hice (R-GA), one of the co-signers of the letter, adding “This ‘apolitical’ organization praised the communist regime’s ‘transparency,’ spent weeks pushing the claim that there was no evidence of human-to-human transmission of the virus, and even resisted President Trump’s early travel restrictions on China. The United States is the largest contributor of WHO funding, and as such, we have a responsibility to provide oversight and demand reforms when necessary – as it has now.”

Here’s what other cosigners had to say:

Rep. James Comer (R-KY): “In January, the World Health Organization publicly repeated the Chinese government’s lie that there was “no clear evidence of human-to-human transmission” of COVID-19. This WHO-China cover-up, which included arresting doctors seeking to warn the world of the coronavirus, created a global outbreak that has frozen our economy and taken American lives. Without accountability for this crisis at the WHO, American taxpayers should no longer subsidize an organization that has acted as Communist China’s propaganda outlet at every turn.”

Rep. Glenn Grothman (R-WI): “I think there is a global consensus that the wet markets of China, the genesis of this virus, are now causing a worldwide recession. The World Health Organization, perhaps because of the left-leaning proclivities found in many international organizations, has shown an inability to address sub-standard practices in China that they probably would have been addressing in other parts of the world.”

Rep. Paul Gosar (R-AZ): “From the outset of the Wuhan coronavirus pandemic the World Health Organization has carried water for Communist China, resulting in faulty data, incorrect health recommendations, and ultimately the death of many Americans. It’s time for the WHO to answer for why they continue to support China’s propaganda campaign.”

Rep. Mark Green (R-TN): “Why does the United States fund an organization that serves the interests of the Chinese Communist Party? From the get-go, the World Health Organization delayed declaring a health emergency, downplayed the danger of restricting travel to China, and disseminated Chinese propaganda despite China’s nefarious coverup of a virus that has unleashed untold suffering on the world. If the WHO wants to keep getting America’s money, it shouldn’t be carrying water for an authoritarian communist regime. We won’t get fooled again.”

Rep. Kelly Armstrong (R-ND): “As we continue to address the COVID-19 pandemic in the United States, we must also understand the extent of China’s propaganda campaign regarding this virus. American taxpayers provide hundreds of millions of dollars for the World Health Organization and deserve answers on why the WHO chose to validate China’s propaganda.”

Rep. Greg Steube (R-FL): “The WHO has let our country down every step of the way. We must clean house and  investigate their corruption so that we can protect our country from their ignorant mishandling of future pandemics. We cannot continue to fund this crooked organization with American Taxpayer money!”

Rep. Ralph Norman (R-SC): “The conduct of the WHO during this pandemic is a disaster onto itself. In 2003, when the contagious coronavirus known as “SARS” spread from China, the WHO had the courage and the moral authority to criticize the regime’s cover-up. We need to know what has happened in the intervening years that transformed this organization from global health guardian, to the leading mouthpiece for Beijing.”

Rep. Fred Keller (R-PA): “With the American taxpayer being the single largest contributor to the World Health Organizations’ annual budget, it is imperative the House Oversight and Reform Committee exercise its critical role in finding out why the WHO used that money to further China’s propaganda campaign of disinformation that has caused a global pandemic, upended the world economy, and cost tens of thousands of American lives. The Chinese government must be held accountable for its role in exacerbating this virus. To that end, the WHO must end its silence and work with the international community to investigate Chinese disinformation and strive for accountability during this global emergency.”

Read the letter below:

FINAL Letter to WHO Re China Pressure by Zerohedge Janitor on Scribd

Authored by Mike Shedlock via MishTalk,

The Fed announced today that it will buy junk bonds. This exceeds its legal authority. Supposedly, it’s temporary…

Under guise of virus support, the Fed Will Buy Junk Bonds, Lend to States to the tune of an additional $2.3 trillion in additional aid.

Dear Jerome Powell, please tell the truth. This is not virus support, it’s stock market support.

“We will continue to use these powers forcefully, pro-actively, and aggressively until we are confident that we are solidly on the road to recovery,” said powell in a speech 90 minutes after the details of the measures were announced.

The key missing word is “legally“.

Hussman Blasts the Fed

On what authority? Neither Section 13-3 nor 14 allow it, and those are the only applicable portions of the Federal Reserve Act involved. There were no provisions in CARES for this. Intentionally. This would be a real-time violation of the law.@ChrisVanHollen @federalreserve https://t.co/hf4LVDnXsV

— John P. Hussman (@hussmanjp) April 9, 2020

Part of a memo I just fired off to Congressional contacts.@FederalReserve pic.twitter.com/HxXBAk5LJn

— John P. Hussman (@hussmanjp) April 9, 2020

Pushing the Boundaries

Please consider Powell Pushed to Edge of Fed’s Boundaries in Fight for Economy

By pushing the Federal Reserve into corners of financial markets it has mostly shunned in its 106-year history, Chairman Jerome Powell is running into some thorny questions.

Like, for instance, how to maintain independence from the U.S. Treasury when the economic-support package Congress passed says they should work together? Or whether the same guidelines for companies receiving federal aid, which range from compensation limits to off-shoring restrictions, apply to the Fed if it gets more money from Treasury? And how about which companies — and perhaps eventually, municipalities and states — are invited to borrow and at what cost?

“This is going to lead to a complete re-examination of the role of central banking and the Fed’s independence,” warns Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington research firm. The Fed’s steps into credit allocation are tantamount to “a complete redesign of central banking on the fly.”

Pole Vaulting the Boundaries

When you take illegal actions and enter numerous uncharted territories on balance sheet expansion, junk bonds, and bond ETFs you are not “pushing” the boundaries, you are pole vaulting over them.

Temporary Measures

Powell says these are temporary facilities.

Yeah, right. Just like the Fed’s announcement that its previous balance sheet expansion was “temporary”.

The Fed had 10 years to unwind its balance sheet after the last crisis, but never did. Now we have new balance sheet records every week.

And today the Fed upped the ante by another $2.3 trillion.

There is no reason to expect it will stop there.

Gold Soars

In response to the announcement stocks and junk bonds rose.

Gold jumped as high as $1752. As of 12:50 Central it’s up $55 to $1739.

Gold vs Faith in Central Banks

Gold’s New Breakout is Very Bullish: Here’s Why

On April 6, I wrote Gold’s New Breakout is Very Bullish: Here’s Why

If you believe as I do that the price of gold is reflective of faith in central banks, there is every reason to be bullish rather than pay heed to alleged 5-year cycles.

COT action is icing on the bullish case.

Moral Fraud and Panic

In case you missed it, please note the Small Business Guarantees Are a Bucket of Moral Fraud

The Fed is in panic mode as Unemployment Claims Jump by 16.78 Million in Last 3 Weeks.

Today’s Fed actions compound the moral fraud.

Panic and fraud inevitably run on the same track.

Today’s Message from Gold

There are no temporary measures, just permanent lies.

No matter what the closing price of gold today, that’s the key message.

A policy that US allies in Europe have recently slammed as ‘piracy’ is set to continue, as Washington unabashedly and unapologetically continues blocking shipments from US soil of personal protective equipment (PPE) — such as gowns, gloves, and N95 face masks — which hospitals and health workers desperately need in the fight against COVID-19.

The Hill reports that “The federal government will begin seizing exports of personal protective equipment, or PPE, until it decides if the tools should be kept in the country to fight the coronavirus.”

The announcement was made Wednesday by US Customs and Border Protection (CBP), formalizing an existing controversial practice under Defense Production Act (DPA) which has recently blocked millions of masks from being exported from Minnesota-based 3M to Canada. US customs will block all respirators, surgical masks and surgical gloves from going abroad.

Canadian leaders blasted the move as putting lives in danger, while Germany and France described the US policy, which has seen recent interventions against shipments from China bound for Europe, as ‘piracy’. 

“FEMA and CBP are working together to prevent domestic brokers, distributors, and other intermediaries from diverting these critical medical resources overseas,” a joint statement indicated.

“Today’s order is another step in our ongoing fight to prevent hoarding, price gouging, and profiteering by preventing the harmful export of critically needed PPE,” the White House also said in a statement. “It will help ensure that needed PPE is kept in our country and gets to where it is needed to defeat the virus.” 

It appears Trump’s ‘America First’ policy in action at a crucial time of crisis, as the US is the global epicenter for COVID-19, now with over 430,000 confirmed cases – most in New York state – which has witnessed hospitals running desperately low on supplies, including ventilators. 

However, foreign governments have of late essentially warned ‘what goes around comes around’. Berlin Interior Minister Andreas Geisel at the start of the week stated bluntly of Washington’s brazen policy that it constitutes a Wild West tactic – essentially warning Europe can play dirty too.

Authored by Ryan McMaken via The Mises Institute,

As of April 6, forty-one states have statewide “stay-at-home” decrees in place. These orders vary widely from place to place. In some states, there are long lists of exempted industries including marijuana dispensaries, liquor stores, hardware stores, and of course, grocery stores. In some states with these edicts, public lands, state parks, and beaches remain open. In some states, city parks are more crowded than ever as local residents, with little else to do, attempt to recreate. In other places – such as California – one can be arrested for paddleboarding all alone in the ocean.

Yet in all of these places, the current regime of rule by decree will have—and already has had—a devastating effect on many small and medium-sized businesses and their employees. As governments have created new arbitrary definitions of what constitutes an “essential” business, some businesses find themselves forced to close. Employees have lost these jobs. The owners of these enterprises will likely lose far more as debts mount and business investments are destroyed. As unemployment and poverty increase, the usual pathologies will arise as well: suicides, child abuse, and stress-induced death.

Yet the politicians—mostly state governors, mayors, and unelected bureaucrats—remain popular. In New York State, where the lockdown orders are among the most draconian in the nation, it is now claimed that 87 percent of those polled approve of Governor Andrew Cuomo’s handling of the situation. As Donald Trump’s administration has recommended ever harsher government limits on the freedom of Americans, his poll numbers have only improved.

Meanwhile, among critics there appears to be a misconception of these lockdowns (which are very often only partially imposed or enforced) as being imposed over the howls of the local population, which is being silenced and cowed by jackbooted local police.

If only that were true. In most places, it appears clear that a great many residents approve of the lockdowns. We see this support in the form of all the local scolds who complain on Nextdoor.com about neighborhood children who don’t properly engage in “social distancing.” We see it in the people who call the police to report violators of stay-at-home orders. We see it in those who report local businesses for allowing too many people inside.

Viewed in this way, it may be more likely that state governors and other politicians are afraid of being seen as doing too little, rather than as overstepping their authority to impose public safety measures.

After all, given that the COVID-19 virus is far more deadly for the elderly than for younger groups, one might reasonably suppose that the elderly are most likely to become hysterical over the virus. For politicians, that’s one group you don’t want to cross. As the AARP notes:

For nearly 40 years, the turnout of voters over age 45 has significantly outpaced that of younger Americans. In the 2016 presidential election, for example, 71 percent of Americans over 65 voted, compared with 46 percent among 18- to 29-year-olds, according to U.S. Census Bureau data. While analysts point to increased energy among younger voters over the past couple of elections, people over 65 continue to show up at the polls far more than any other age group. At the same time, the number of voters who fall into the category of “older” keeps rising.

If a governor is receiving calls from local voters about the need to “do something”—especially if they’re in a demographic that’s more likely to vote—then it’s no surprise if that governor soon discovers that there is a “need” to impose a stay-at-home order post-haste.

Meanwhile, governors and other officials receive daily pressure from unelected bureaucrats who look to harness the benefits of public acquiescence. US News reports on a likely typical case in Iowa:

One of the most outspoken critics of Iowa’s approach to fighting the outbreak has been Eli Percenevich, an epidemiologist and physician who oversees a group of researchers studying infection prevention at the University of Iowa and Iowa City’s VA Hospital.

He has called on [Iowa governor Kim] Reynolds to issue a shelter-in-place order, saying many Iowans aren’t getting the message that they need to stay home.

The “solution” favored by these government employees is clear: more lockdowns, more business closures, harsher punishments for violators. Yes, some governors push back on these demands, but as time goes on they “waver,” “soften,” and eventually change their minds as panicky residents and government-employed “experts” demand action.

Of course, none of the politicians or bureaucrats who want to deprive people of their property and their employment will lose their jobs. Their taxpayer-funded salaries are quite safe. (At least until state and local tax revenues collapse.) But so far, I’ve heard of no governor willing to forego his own salary while millions are put out of work by government decrees.

At this point, many elected officials likely see being “asleep at the switch” as a more politically damaging charge than “being a tyrant.” It’s possible that this may change as the realities of mass unemployment and bankruptcy sink in. But for now most politicians, like the people who vote for them, are clinging to the idea that if the federal government prints enough money and bails out enough industries everything will soon return to normal.

The fact that business owners and entrepreneurs are being sacrificed is of little political import to elected officials or most voters. After all, only 10 percent of Americans actually make a full-time living from businesses they own. Only a small minority of the population understands firsthand how jobs are created and how payrolls are met. Much of the rest of the population thinks wages and wealth magically appear from the ether. If there is unemployment and low wages, it’s because business owners are “greedy” or unwilling to share the wealth. Thus, if businesses are temporarily shut down “for our own good,” then surely those business owners will just use their secret hidden wealth to start up those businesses again when the panic is over.

Thus, we’re not witnessing a usurper regime imposing unpopular measures on a resistant but helpless citizenry. We’re more likely witnessing widespread mob rule, the central characteristic of which is rule by the majority with no regard for the rights of dissenting minorities. The government may now be ruling by decree, but it is in many places doing so with the hearty approval of the majority. Politicians have calculated that they’re likely to remain popular so long as they cultivate an image of “decisive leadership” through strong decrees and demands for compliance in the name of safety. As Cuomo’s surging popularity suggests, this may be a safe political move.

Certainly there are those who resist. There are those for whom the rule of law, the Bill of Rights, and basic freedoms actually matter. But for others, principles such as these are quickly forgotten once fear and anxiety enter the picture. The rights of minority groups (such as business owners or old-fashioned Bill of Rights enthusiasts) mean little or nothing once the majority—conditioned by years of public schooling to demand a government solution to nearly everything—decides that such rights are an inconvenient obstacle to “doing something.”

The public demands action. Politicians are more than happy to oblige.

Two weeks after the Fed stunned markets by doing something not even Ben Bernanke dared to do, start buying investment grade corporate bonds, today the Fed’s nationalization of the entire bond market was complete when the Fed – with the blessing of the Treasury – threw the kitchen sink at the most vulnerable verticals of the bond market – junk bonds, munis and CLOs and… waved it in. And with that the only thing missing from the Fed’s total takeover of capital markets is equities, which the Fed will start buying after the next crash.

Until we wait here is a complete summary of everything the Fed announced this morning, when it released the details of the $2.3 trillion in loans and purchases to “support the billionaires economy”, which will consist of:

1. Main Street Lending Program,
2. Paycheck Protection Program Lending Facility,
3. New Municipal Liquidity Facility,
4. Expansion of existing primary and secondary corporate bond buying facilities.

These Fed’s loans and facilities are based on the additional capital the Treasury has made available under the CARES Act (see below). Of the total $454bn that Congress appropriated to backstop Fed facilities, this morning’s announcements commits $195bn, leaving the majority of funds available for other purposes – like stocks – or to expand these programs if necessary. That said, the programs the Fed announced this morning cover essentially all of the areas in which we have expected the Fed to act, so we do not expect the Fed to announce any further facilities for the time being.

As we explained previously, this is part of the Fed’s “Multitrillion Dollar Helicopter Credit Drop“, whereby the Treasury provides the Fed with $454 billion set aside in the passed $2.2 trillion aid package for Treasury to backstop lending by the Fed. The Treasury’s contribution, can be thought of as “equity” — that is, Treasury will stand in a “first loss” position on every loan made to corporate America.

The Fed then contributes the “leverage” — the money that will help make loans using the Treasury’s equity and be levered 10-to-1. Such leverage assumes no more than 10% capital losses (on “AAA-rated” paper), as the Fed is not allowed to be impaired. Of course, in a real crash the losses will be far greater but we’ll cross that particular bailout of the bailout when we get to it. The loan fund, now levered up ten-fold thanks to the Fed’s own $4.1 trillion, will then make loans to businesses.

“Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans.” Fed Chair Powell said in in a rare nationally-televised interview two weeks ago. “When it comes to this lending we’re not going to run out of ammunition” and he is right – the Fed can apply any leverage it wants; after all the value of the collateral it lends against is whatever the Fed decides!

Visually, the magic of the Fed’s 10x leverage looks as follows:

The overall size of the Fed-Treasury loan fund depends on how much Fed money will be supplied for every dollar of “equity” the Treasury contributes.

In theory, the answer is a function of what is called the “credit box.” If the loan program makes loans only to investment grade companies (those rated BBB or higher), the Fed will contribute more capital than if the loan program makes loans to companies with lower credit ratings or no ratings at all. In other existing Fed loan programs, the Fed supplies about $9 for every $1 of Treasury capital, but in those programs the loans are secured by extremely high-quality collateral (often AAA).

In practice, the Fed – which can “print” an infinite amount of dollars in exchange for any “collateral” including baseball cards, donkey turds, used condoms or oxygen – can lever up 20x, 50x, even 100x or more with zero.

* * *

Ninety minutes after the new policies were announced, Powell spoke in a webinar through Brookings. He reiterated the Fed’s commitment to provide liquidity to the financial system and goal of getting credit to flow through the economy. “The Fed has been swift to adjust the facilities – and introduce new ones – in response to market signals” as Bank of America put it.

Powell also hinted that stocks are next, when he said that the Fed “won’t hesitate” to move into other areas of the markets or adjust the current programs, as needed. Powell also emphasized that the principal focus is on the lending programs and the Fed is not mulling changes to standard monetary policy for at least a couple of months.

The slate of programs announced today was immediately seen as positive for credit & muni markets, if somewhat limited in scope.

• On credit, actions today are positive for the HY market given the Fed’s willingness to purchase “fallen angels” and allow for credit ETF buying that is focused on HY (but at a 7:1 leverage ratio); the Fed’s actions drove the largest point increase in HYG since ’08.
• On munis, the Fed’s actions lowered muni rates and improved confidence in both primary & secondary markets even if they fall short of the calls for more direct intervention, with some urging direct aid to replace lost revenues.
• On ABS, the TALF inclusion of AAA rated tranches of outstanding CMBS & newly issued CLOs is helpful but including all outstanding & new issue paper + lowering the pricing “would have been more useful” said one BofA ABS strategist who was a holder of non-AAA rated tranches .

Overall today’s Fed actions were supportive of credit, munis, ABS & other risk assets, especially in the context of MSLF & PPPLF programs, and helped boost stocks sharply higher as equities now remain the only part of the cap structure that is not explicitly controlled by the Fed.

Updates to Fed facilities (via BofA):

Main Street Lending Program

• Fed will buy 95%, eligible lender will retain 5%, recourse loan up to 4 years.
• Total size: $600bn. Treasury will back it with $75bn
• Eligible borrowers: up to 10K employees or up to $2.5bn in 2019 revenues
• Loan specifics: 4 years, adjustable rate of SOFR + 250-400bp. Minimum loan size of $1 million and maximum the lesser of $150mn or figures derived from outstanding debt levels.
• There are a number of requirements of how to use the loan most of which focus on not using these funds repay other loan balances. The borrower also has to make “reasonable” efforts to maintain its payroll and employees and agree to limits on compensation and stock repurchases.
• On timing, the program has not yet been finalized and comments are able to be received until Apr 16.

Municipal liquidity facility

• Fed will establish a Special Purpose Vehicle (SPV) to purchase municipal notes directly from eligible issuers
• Eligible issuers: US states and the District of Columbia, US cities with population over 1mn and US counties with population over 2mn.
• Eligible collateral: TANs (Tax anticipation notes) TRANs (tax and revenue anticipation notes) and BANs (bond anticipation notes) with less than 2 years of maturity
• Max amount the SPV can purchase is capped at 20% of the issuer’s fiscal year 2017 general revenue and its utility revenue.
• Pricing of the purchase will be based on the issuer’s bond rating (the Fed plans to release more details later) and an origination fee of 10bp of the principal amount must be paid to participate in the facility.
• Total size: Facility is being funded initially by $35bn from the Treasury using funds from the Exchange Stabilization Fund (ESF) and the SPV can purchase up to $500bn. As it stands, the SPV will terminate on September 30, 2020.

PPPLF (Paycheck Protection Program Lending Facility)

• Facility established to lend to small businesses under the Paycheck Protection Program (PPP) of the CARES act, taking PPP as collateral and with no recourse to borrower
• Eligible borrowers: Depository institutions that originate PPP loans, likely to be expanded to other lenders that originate PPP loans.
• Rate and Fees: A rate of 35bps applied only to extensions of credit under the facility with no fees
• Maturity date: Credit extended by Fed will have a maturity date equal to the PPP loan but maturity date will be accelerated if underlying PPP Loan goes into default and the eligible borrower sells the PPP Loan to the SBA to realize on the SBA guarantee.
• Regulatory capital treatment: PPP loan assigned a risk weight of 0%, and PPP loans financed by this facility can be neutralized by banking organizations for leverage capital ratios.

TALF (Term Asset-Backed Securities Loan Facility)

• Eligible collateral expanded to AAA CMBS and newly issued collateralized loan obligations. Size of facility remains $100bn. Only static CLOs will be eligible. Single-asset single-borrower CMBS and commercial real estate CLOs will not be eligible.

PMCCF & SMCCF

• Expanded facilities to a combined total of $750bn in size. Treasury invested $50bn to PMCFF and $25bn to SMCFF. Purchases from single issuer capped at 1.5% of total facility size. Excludes issuers who received direct fiscal support from previous and upcoming stimulus bills

PMCFF (Primary Market Corporate Credit Facility)

• Eligible issuers must be rated at least BBB-/Baa3 as of March 22, 2020. May purchase corporate bonds as sole investor in issuance. May purchase no more than 25% of syndicated loan or bond at issuance. Corp bonds & loans levered 10 to 1, other assets levered 7 to 1.

SMCFF (Secondary Market Corporate Credit Facility)

• Eligible issuers must be rated at least BBB-/Baa3 as of March 22, 2020. If downgraded after March 22, rating must be at least BB-/Ba3 on date that the facility purchases the issuance. ETF purchases will be aimed at providing exposure to the US IG credit sector with remainder for ETFs that provide exposure to the US HY credit sector. IG purchases levered 10 to 1 and HY purchases levered 7 to 1. Other assets levered in 3:1 to 7:1 range depending on risk.

Support for the Paycheck Protection Program

• The Fed also announced details of the new Paycheck Protection Program Lending Facility. Depository institutions that originate PPP loans are eligible to borrow from the Fed with the PPP loans – which are guaranteed by the SBA – as collateral. They will be funded at 35bp, essentially serving as a discount window for PPP loans. The loans will remain on bank balance sheet but will not consumer capital – assigned a risk weight of zero percent under the risk-based capital rules. .
• What is the difference between the support from the PPPLF and the MSLF? The MSLF applies to generic bank lending as long as loans meet the criteria: maturity, pricing, size, etc, and the borrower meets criteria such as number of employees and 2019 revenue size. The Fed will buy these types of loans which frees up capital for banks to extend more credit and increase lending. The PPPLF works to free up bank balance sheets for those that are participating in the new PPP program via the SBA through the CARES Act.

Looking ahead, banks continue to anticipate additional tweaks to existing programs such as lower the rate on MMLF & CPFF programs to lower term LIBOR. After all, the Fed used up only about 40% ($195BN) of the as much as $454 billion in seed capital that Congress provided it to “bail out the economy”. That leaves roughly $250 billion it could potentially lever up as much as ten times to bulk up existing programs or buy other assets. And with the Fed now all in, this creeping nationalization of capital markets – which is almost over – will end when the Fed starts buying stocks, both single name and ETFs as well as all cash and futures products. That’s when one can officially ad “SR” to the “US”.