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Fed is Handing Out Money With No Effective Conditions

Need money? No Problem. But you better hurry cause it's going fast.
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The Fed is handing out money in massive amounts provided:

  • Your debt is big enough to matter 
  • You are struggling to service it

If you have been prudent or you are not big enough to matter, well, sorry. That's just too bad.

That is the message Marcus Stanley accurately put together in this thread.

  1. In our comment to the Federal Reserve last week we pointed out how the Fed is handing out money almost no effective conditions. Public credit can be tapped for all kinds of deal funding, by private equity, and without retaining employees 
  2. Now the Fed has outlined new credit rules for $600 billion in "Main Street Lending" that will make things even worse.
  3. First, they added a new avenue for heavily indebted companies to access public credit. Many of these companies will be private equity owned. These companies can borrow up to six times their adjusted 2019 earnings -- we know these "EBITDA" metrics are often manipulated
  4. Then, they watered down the already minimal requirements for borrowers to promise to retain workers when they get loans, and removed any requirement for companies to attest they need the money because of the pandemic crisis.
  5. Finally, note that basing borrowing limits on 2019 earnings allows oil companies to borrow based on their revenue when oil prices were much higher. 2019 oil prices - $55 a barrel. Oil prices today -- $12 a barrel.

Musical Tribute 

Readers are no doubt wondering if I can put this to music. Indeed I can.

Did I hear you say that there must be a catch? Will you walk away from a fool and his money? 

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You better hurry cause it's going fast.

Please note Carnival Deemed Too Big to Fail, Rescued by the Fed.

Inflation or Deflation? 

This sounds highly inflationary, and in a vacuum it is. But we are not in a vacuum.

A Very Deflationary Outcome Has Begun


It's the debt stupid!

Moreover,  a Collapse in Demand Trumps Supply Shocks and the Fed is struggling with a problem of its own making.