On 23 March 2020, the Federal Reserve made the historic announcement that, in response to the coronavirus economic crisis, it would provide loans to non-financial corporations in industry and services for the first time since the early 1930s.footnote¹ A few days previously, former Fed Chairs Ben Bernanke and Janet Yellen had given their imprimatur to this precedent-shattering step.footnote² Just how huge a cornucopia for big business the authorities had in mind would soon become clear. The Federal Reserve had, for the better part of a century, confined its lending to the us government, purchasing Treasuries and bonds issued by the Government Sponsored Entities (gses)—Fannie Mae, Freddie Mac, Ginnie Mae. The Central Bank had traditionally resisted extending its loan purchases beyond these instruments, not least because buying the debt of specific companies would leave it open to charges of favouritism. At the time of the 2007–08 global financial crisis, however—with the justification that the meltdown threatened the financial sector’s very functioning—then Fed Chair Bernanke consigned such niceties to the dustbin of history, showing in the process why those norms had been established in the first place.footnote³

To give a patina of legitimacy to his unorthodox moves, Bernanke had hauled out the obscure Section 13(3) of the Federal Reserve Act of 1932, attempting thereby to justify the dubious ad hoc bailouts of politically connected financial institutions, particularly the ‘too big to fail’ entities aig, Bear Stearns, Citigroup and Bank of America.footnote⁴ Bernanke’s Fed, working with the Treasury, established a new model for rescuing distressed businesses at times of crisis: not only launching a bonanza of gift-giving to favoured banks and non-banks, worth the mind-bending sum of $7.7 trillion, but also making sure that the benefits of the bailout did not extend to the analogous group of endangered home-owning mortgage borrowers, to whom the bailed-out financial institutions had been lending. This despite the fact that their 1930s counterparts had been rescued during the Great Depression, when the Home Owners’ Loan Corporation had bought up more than a million of their distressed mortgages. Former Federal Reserve vice chairman Alan Blinder made the case for explicitly following that precedent, demonstrating how cheaply many of these vulnerable home owners/mortgage holders could have been rescued. But he was, in his words, ‘laughed out of court’. Bernanke and the Obama Administration entirely ignored Blinder’s alternative, opening the way for a massive wave of foreclosures, leading to the large-scale transformation of what were formerly private homes into rental units, a process that yielded a fortune to a collection of billionaire vulture investors. Fed Chair Jerome Powell took up where Bernanke and Yellen had left off.footnote⁵

The Fed’s 23 March declaration that it intended to provide loans to non-financial corporations was decisive in indicating the Fed’s assumption of leadership of the government’s corporate bailout, signalling what was expected of Congress and the Treasury, and specifying the intended form and level of support for big business in the coronavirus economic crisis. On cue, shortly thereafter, Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer announced that the centrepiece of their just-approved bill, soon to be called the Coronavirus Aid, Relief and Economic Security or cares Act, was a giant rescue of non-financial corporations amounting to half a trillion dollars. That $500 billion was to be reserved entirely for companies with at least 10,000 employees and revenues of at least $2.5 billion per year. The Act set aside $46 billion to be shared between passenger airlines ($25 billion), cargo airlines ($4 billion) and ‘businesses necessary for national security’, a code name for Boeing ($17 billion), leaving no less than $454 billion for the political authorities to distribute to the fortunate corporate recipients they would select. Yet even this huge sum turned out to be just the tip of the iceberg. The actual payday for the us’s greatest non-financial companies would be of a different order of magnitude entirely.

Congress’s appropriation for the corporate bailout, to be paid for by the taxpayers and temporarily attributed to the Department of the Treasury, was simply the required first step to enable the Federal Reserve to take over the bailout’s actual administration. The entire $454 billion remaining from Congress’s original allocation was thus credited to the Fed’s account as a cushion or backstop to cover potential losses, and this opened the way for the Fed to assume full charge of making advances to the corporations and, in particular, to leverage Congress’s original allocation by a factor of 10—from $454 billion to roughly $4.54 trillion—‘for loans, loan guarantees and other investments’.footnote⁶ Some $4.586 trillion, roughly 75 per cent of the total $6.286 trillion derived directly and indirectly from cares Act money, would go for the ‘care’ of the country’s biggest and best-off companies. By contrast, as unemployment soared, just $603 billion in total was allocated for direct cash payments to individuals and families ($300 billion), extra unemployment insurance ($260 billion), and student loans ($43 billion).

The scale of the bailout that the political authorities cooked up for big business was mind-boggling, but their lack of concern about monitoring its disbursal was more remarkable still. The cares Act spelled out an elaborate set of formal conditions concerning who qualified for Fed–Treasury largesse and what they could and could not do with the advances they received. But the Act also left the door wide open for Treasury Secretary Steven Mnuchin, who was initially in charge of administering the law, to ignore those conditions over time, thanks to its ambiguity of language, inconsistencies, loopholes and qualifications.footnote⁷ In any case, the Fed’s assumption of authority over the bailout had the result of limiting if not ending debate over the question, putting the rules to be adopted and how they would be applied effectively out of Congress’s reach. The Central Bank made it clear that it had little interest in imposing conditions on recipients of its largesse, and the Democratic Party leadership went along, professing to have no choice.footnote⁸

To ensure that serious superintendence of the Fed’s actions would not take place, the progenitors of the cares Act adopted essentially the same structure of oversight that had been used for the 2008 bailout of the financial sector. As in the case of the earlier rescue, the Act established inspector generals and several boards to oversee the lending. But, as before, these bodies were only authorized to report abuses, not to prevent or rectify them.footnote⁹ The cares Act rendered any public scrutiny and shaming of the authorities that the official overseers might attempt all the more difficult by granting the Fed the right to hold its meetings in secret and keep its minutes to itself, immunizing it for the remainder of 2020 from the requirements of the Freedom of Information Act. Bernanke had sought to achieve the same sort of cover for his own massive bailout by going time and again to the courts for protection, but he ultimately lost his bid for secrecy thanks to a successful suit by Bloomberg reporters. This time the Fed would leave no hostages to fortune.footnote¹⁰ The equivalent of two and a half times us annual corporate profits, or about 20 per cent of us annual gdp, was authorized to be dispensed without undue surveillance and with no strings attached.footnote¹¹

There has been, and will be, no serious challenge to the corporate bailout because the Democratic Party, no less than the Republican, strongly supports it. The rescue should not be particularly associated with the Trump Administration, though the President of course pushed hard for it. The top leaders and chief funders of both the two main political parties strongly identified with the handout, and overwhelming majorities of their followers in Congress went along more or less enthusiastically.