Nobody at the Federal Reserve wants to use the word “bailout.” So they didn’t.
Since last fall, the New York Fed has pumped more than $420 billion into Wall Street through repo operations — short-term loans where banks hand over Treasury bills as collateral and walk away with cash. The Fed used to cap this kind of lending at $500 billion. At some point in the last year, it quietly lifted the cap. Nearly $97 billion went out the door in just the first few weeks of this year alone.
Ask the Fed what this is, and you get a careful non-answer: a “market functioning tool,” temporary loans to “assist in funding operations.” Ask a former FDIC attorney and you get something less careful. Todd Phillips called it a moral hazard, plain and simple — banks now expect the rescue, no matter how reckless the bet that got them into trouble.
We don’t even get to know who’s catching the money. The recipients stay secret for two years. Analysts are guessing some of it went to firms nursing big losses on precious-metals shorts — hedge funds gambling on derivatives, not community banks trying to cover a small-business loan. Nobody gets punished for the bad bet. Somebody just quietly covers it.
Here’s my actual problem with this, and it isn’t “banks bad.” I don’t care that banks make money. I don’t care that a bank CEO gets paid an amount that would make your head spin — you build something that works, you get to cash in, that’s the deal, and I’m not the guy who begrudges anyone that. My problem is the other half of the deal: the part where the market is also supposed to be allowed to wipe you out. That’s not cruelty. That’s the whole premise capitalism runs on. Take the risk, keep the upside — but live with the downside too. The second a few-hundred-billion-dollar safety net shows up every time a big enough bet goes bad, that deal is broken — and it’s broken specifically for the players big enough to actually survive losing.
Compare that to COVID. When the entire economy got shut down by something nobody in the private sector caused, government support made sense. That’s a no-fault emergency — exactly what government should be for. This isn’t that. This is 2008 again in a different outfit: reckless bets get a quiet rescue, and a spokesperson tells you there’s nothing to see here.
Funny enough, at least one senator’s noticed the money flowing the other direction too. Rand Paul’s been trying to kill a related subsidy — the interest the Fed pays banks just for parking money with it, which by his count has cost taxpayers something like half a trillion dollars over five years. He tried attaching a bill to end it to this year’s defense spending package. It’s still sitting there. Nobody’s in a hurry to touch it.
So we’ve got a Fed paying banks to sit on cash, and a Fed quietly handing them hundreds of billions more when a bet goes sideways, and neither one is technically called a bailout. Call it whatever you want. I know a rescue when I see one.
Two cents: if the market can wipe you out, let it — that’s not the system breaking, that’s the system working exactly like it’s supposed to.