Democrats: Fed COVID-19 response enriched investors as workers fired

Democrats: Fed COVID-19 response enriched investors as workers fired
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Democrats on the Select Subcommittee on the Coronavirus Crisis issued a report Wednesday critiquing the Federal Reserve for an emergency COVID-19 response program they say enriched shareholders even as workers were laid off.

"In the dual mandate that the Fed has, one of them is maximum employment," said Rep. James Clyburn (D-S.C.), who chairs the Select Subcommittee on the Coronavirus Crisis, in a Wednesday hearing with Federal Reserve Chairman Jerome Powell.

"Yet, the Fed bought corporate bonds issued by companies—we found this in our report — that laid off more than 1 million workers, since March," he said. "That doesn't sound like maximum employment to me."


In question was an unprecedented program the central bank set up to calm markets by buying corporate bonds for the first time in its history.

The report, issued by subcommittee staff, found that the program, called the Secondary Market Corporate Credit Facility, bought bonds from companies that were laying off workers and paying out dividends to shareholders.

"Staff found that the companies that issued bonds purchased by the Fed conducted substantial layoffs and paid billions in dividends to shareholders during the pandemic, raising concerns that the Fed’s bond purchasing program may be exacerbating economic inequities and contributing to an economic recovery that benefits wealthy executives and investors but leaves behind American workers," the report said.

But Powell said the report misconstrued the Fed's actions.

"It doesn't sound good, but let me explain it a little bit," he said. The facility, he said, was not making direct loans to the companies in question, but rather buying small amounts of outstanding bonds from 800 issuers.

"They're not not getting a loan from us at all. We're buying from another buyer. And the reason we bought from 800 was we didn't want to be deciding which company to buy from," he said.


"There are tiny amounts in the grand scheme of things. None of those companies sees themselves as having gotten a loan from the Fed," he added, estimating that just $20 million dollars worth of bonds were being purchased daily, a tiny amount against the Feds' trillions-large balance sheets.

Still, the report shed some light on choices major companies made since the pandemic began.

Of the 500 companies from which the Fed bought bonds, a whopping 383 paid out dividends since April, after the pandemic began, though the report did not specify how many paid out dividends since the lending facility began buying bonds in June.

Of those, 95 companies also laid off workers. The report highlighted Sysco, Caterpillar and Stanley Black & Decker, as examples.

In all, 140 of the 500 companies laid off more than 1 million workers while availing themselves of the cheap liquidity.

Democrats said that figures demonstrated a lack of oversight on the program, which was set up through March's emergency COVID-19 relief legislation, the CARES Act.

"The facility imposes no conditions requiring companies to save jobs or limit payments to executives or shareholders to become eligible issuers of bonds purchased by the Fed," the report said.

Sylvan Lane contributed.