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The Fed is making the right moves to help America’s small businesses

The Honorable Sheila C. Bair
 

By Sheila Bair (original source CNN)

“My grandmother was fond of saying that the road to hell is paved with good intentions. That certainly fits the bailouts of 2008 and 2009. The Federal Reserve lent trillions of dollars to bail out Wall Street highfliers, hoping that by stabilizing big banks, the benefits would flow through to the rest of the economy. But it didn’t work out that way. While big banks rebounded quickly, working families suffered for years from the effects of lost jobs, lost homes and sluggish wage growth.

When the coronavirus started roiling financial markets earlier this month, the Fed again reverted to its 2008 ‘playbook,’ pumping hundreds of billions into the banking system, but with little discernible effect on Main Street. Fortunately, this week, the Fed corrected course. In a bold move, it announced new programs that use its ability to create money to more directly help the real economy, including employers large and small who are struggling to make payroll, and households hit hard by job losses or reduced hours.

Larger employers will benefit from the Fed’s decision to start buying the debt of commercial companies, including newly issued debt. Never before has the Fed bought the bonds of private, non-financial companies, confining its past purchases primarily to government-backed debt and mortgage securities. Large companies rely heavily on issuing bonds for their cash needs, and as their revenues evaporate from economic disruptions caused by the coronavirus, they will need to rely on bond issuance even more. Importantly, companies will not have to start making payments on the bonds until six months after issuance.”

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