Illinois is the First Entity to Borrow from the Fed’s New Facility. But “Insolvent” Entities Are Not Supposed to be Eligible

A combustible mix of fiscal and monetary policy.

By Bill Bergman, Director of Research, Truth in Accounting:

On April 9, amidst plunging economic conditions, the Federal Reserve announced a set of lending policy initiatives that included a new “Municipal Liquidity Facility” for state and local governments. For legal authority, the Fed cited the emergency lending provisions in section 13(3) of the Federal Reserve Act.

Normally, a central bank lends to banks, but emergency provisions have historically been used by the Fed to justify direct lending to “individuals, partnerships and corporations” in “unusual and exigent circumstances.” Section 13(3) is titled “Discounts for individuals, partnerships, and corporations,” raising questions whether the Municipal Liquidity Facility is actually authorized under Section 13(3).

The new facility is unprecedented. It is available to cities and counties meeting population requirements, and all 50 states. Smaller cities and counties may be supported by state borrowing through the facility. The lending facility is operated by the Federal Reserve Bank of New York. The facility may lend as much as $500 billion.

The State of Illinois became the first entity to use the facility, under a transaction that closed last Friday.

To qualify as an “eligible issuer,” states, cities and counties must meet thresholds for credit quality as determined by credit ratings set by “Nationally Recognized Statistical Rating Organizations.” This provides a depressing reminder of lessons unlearned from the financial crisis of 2007-2009, with implications for the State of Illinois. Kind, benevolent, and well-paid credit rating agencies can issue ratings above thresholds for Municipal Lending Facility access, even for places like Illinois that may have debt trading with yields more characteristic of “junk” credit.

The facility’s term sheet published by the Fed includes criteria to make issuers eligible, but does not mention another factor central to lender of last resort activity, and required by federal law.  Section 13(3) of the Federal Reserve Act, as amended, includes provisions purportedly designed to check the discretion and scope of Fed crisis lending. After the Fed’s widespread and massive lending amidst the financial crisis of 2007-2009, the Dodd-Frank Act included qualifiers forbidding lending to “borrowers that are insolvent.”

To implement this directive, the Federal Reserve Board is directed to develop procedures that may call for the borrower’s CEO or another authorized officer to certify that the borrower is not insolvent. Yet for the purpose of that provision, Section 13(3) defines “insolvent” to be one of three cases – the borrower is in bankruptcy, under resolution procedures in Title II of Dodd-Frank, or “any other Federal or state insolvency proceeding.”

Municipal governments aren’t banks, but it is difficult to escape the conclusion that the City of ChicagoCook County, and the State of Illinois are all balance-sheet insolvent. Their assets are swamped by their liabilities. All three entities sport massively negative unrestricted net positions, the product of decades of spending beyond their means on an accrual basis despite advertised “balanced budgets.” But none of them are currently in bankruptcy or the other forms of resolution procedures called for in Section 13(3).

Federal statutes are not the only sources of authority for Fed emergency lending, however, with one implication for identifying responsibility (and discretion) at the Federal Reserve. The Fed issues its own regulations, under law, including Regulation A – Extensions of Credit by Federal Reserve Banks. Regulation A provides other criteria for determining whether a borrower is insolvent. They include whether the Fed finds that the entity “is generally not paying its undisputed debts as they become due,” and whether “the Board or Federal Reserve Bank otherwise determines that the person or entity is insolvent,” with the latter determination resting in part on a review of audited financial statements.

The State of Illinois is arguably not an “individual, partnership or corporation,” so how can it be the object of loans asserted to be authorized by a statute titled “Discounts for individuals, partnerships and corporations?”

The State of Illinois has a $5.7 billion bill backlog, yet the Federal Reserve seemingly did not find Illinois “is generally not paying its undisputed debts as they become due.”

The Fed apparently did not “otherwise determine that the person or entity is insolvent,” even as the State of Illinois’ latest annual balance sheet reported $267 billion in liabilities, “backed” by only $85 billion in assets – leading to a reported unrestricted net position of (negative) $214 billion.

And the interest rate on the loan closed last Friday assertably lies well below what the market would have charged Illinois, despite the fact that Regulation A calls for a “penalty rate” for emergency loans.

The State of Illinois recently passed budget legislation that relied in part on billions of dollars in anticipated borrowing proceeds from the Federal Reserve’s Municipal Liquidity Facility. That lending has reportedly been expected to be repaid with uncertain proceeds from Federal aid from other places. So the value of the credit – and the risk to the Fed – appear to be conditioned with political risk.

Those concerned about the risks of politicizing monetary policy frequently stress that politicized lending decisions should not be undertaken by a monetary authority, but by fiscal authorities closer to the whip of accountable elections.

Traditional lender-of-last-resort theory cautions that central banks should restrict their lending to illiquid but solvent institutions. The City of Chicago and State of Illinois may not strictly be in bankruptcy or related resolution arenas yet, but they have been headed in that direction, and more than a few parties believe those proceedings can and/or should arrive down the road.

In banking, history cautions that failing institutions backed by a public safety net should be resolved sooner than later, under principles for what has become known as “prompt corrective action.” Absent timely intervention, which may take the form of forced mergers or even liquidation, insolvent failed firms can have incentives to gamble on the public purse, privatizing any gains while socializing losses.

So it may also go for many state and local governments and their massively underfunded pension funds. The Fed’s new Municipal Liquidity Facility can prop up failed enterprises with public resources, and through a vehicle fueled with a combustible mix of fiscal and monetary policy. By Bill Bergman, Director of Research, Truth in Accounting

What’s so insidious about the Fed’s bailouts of investors in hedge funds, mortgage-REITS, stocks, bonds, leveraged loans, and other often risky assets? The destruction of capitalism.THE WOLF STREET REPORT: America Convulses in Pain, Fed Bails Out the Wealthy

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  103 comments for “Illinois is the First Entity to Borrow from the Fed’s New Facility. But “Insolvent” Entities Are Not Supposed to be Eligible

  1. Finster says:

    In a few years when the financial media are bemoaning the loss of the Fed’s independence, somebody needs to remind them of this.

    • Cas127 says:

      You are assuming the “United States” is intact.

      Once the dollar goes (endlessly crippled with debt, “fixed” via printing), the States are going to break up.

      The worst states (Feds too) built their empire of financial bullsh*t largely in the dark, away from public view/understanding.

      But the long destined bills are coming due as the Age of Internet Transparency reaches maturity.

      Very, very few outsiders have an interest in riding to the rescue of America’s endemic political sh*holes.

      • Finster says:

        You’re assuming Earth isn’t destroyed by a rogue planet. But in the context of a discussion of United States monetary and fiscal policy it wouldn’t be unreasonable to assume a United States exists. In what form it exists of course is an open question, but how current policy shapes the answer to that question is yet more to the point. The odds of a good outcome can only be reduced by assuming the US just disintegrates because it renders consideration of policy options pointless.

        Given the Fed’s record over the past twenty five years you could be forgiven for concluding it can’t get anything right. In recent years the main effects of Fed policy have been involuntary wealth transfer and the wasting away of productivity. The wealth gap explodes as the Fed plays reverse robin hood and the average citizen has no idea why his standard of living stagnates. But once the dollar comes under severe pressure and inflation becomes headline news, it becomes a lot harder for the Fed to escape culpability. While there can be no guarantees, it’s possible the public demands monetary reform; a possibility increased by the degree to which it understands what the Fed has been up to.

        • VintageVNvet says:

          You make good points finster, BUT:
          How can We the Peedons ever understand inflation or any other metric of the theft of our wages when anytime the inflation news is bad for us, ”THEY” change the methodology to make the news more palatable and hide the truth. It is fairly clear that most folks are, as Lisa says, “dis-affected” because even through the continuing lies, they know they are being scammed by the current financial and political systems in USA.
          While your ”involuntary wealth transfer” is clearly true for the vast majority of folks, it is certainly not true for those in charge, whether those be employees of the FED, elected federal employees of We the Peedons, or appointed federal employees, that are appointed by the same folks allegedly elected by us, but, in fact, as has been pointed out frequently, actually chosen by the donor class who give us two equally bad choices. In spite of several differences of opinion with him, I actually had high hopes for BO until he signed off on the nukes in the carolinas, for which one may be sure, he received the usual ”campaign contributions.”
          Not sure if it is still true, but, for a long time, USA was the only nation on earth that had not outlawed the kind of ”subliminal” advertising/brainwashing that, as the name implies, the folks receiving it are completely unaware of the message.
          There has to be some reason that every POTUS election in recent times has gone to whichever side spent the most money on brainwashing/advertising.
          THAT must be stopped; however, at this point, with the SCOTUS being a clear and trusted servant of the folks also choosing and paying our/their puppet politiciansss, the only way I can see to do so, short of full on revolution which I do not want, is amendments to our constitution, and soon.

      • JK says:

        My Dad said this more 20 years ago and he was an immigrant. He did not see this place staying together. I hope he’s wrong, but the abandonement of the Constitution, work ethic, rule of law, fiscal mismanagement and crony capitalism is going to doom us. I think the fiscally/politically woke crowd see the writing on the wall.

  2. Lisa_Hooker says:

    Dearest Jerome,

    Unfortunately I find myself in unusual and exigent circumstances. Please remit a large amount of money ASAP. I promise to pay it back with proceeds from my *(%^^%& as soon as possible. Thanks in advance.

    • Cas127 says:

      Ms. Hooker (living in DC, some of my best friends are hookers…),

      How big of a political machine/mafia do you control?

      Always yours (for the right price),

      Jerome

    • Wolf Richter says:

      Lisa_Hooker,

      I tried that, and this was Powell’s reaction when he saw my letter (as envisioned by cartoonist Marco Ricolli, for WOLF STREET):

      • Bill J Bergman says:

        haha

      • Lisa_Hooker says:

        Wolf, with a bit of luck that portrait should be on the cover of Time, or The Economist. Wait, it should be on both, it’s destined for posterity as classic.

      • Brant Lee says:

        Um, you guys also need to tell Jerome that you are already billionaires and will remember his ‘friends’, that way a same day check will be in the mail from the Fed, Duh.

      • Joe says:

        So that’s the reason I have much less hair…
        Couldn’t figure it was less and less in the morning.

        • Saltcreep says:

          Joe, Powell’s not tearing his hair out as per our host’s portrayal above. That image is the exact opposite of the picture of central bank omnipotence that he is tasked to put into action.

          He may have privately briefly taken on that countenance for a day or two when things began to go haywire, but once he and his accomplices rolled a few trillions into the market, his confidence surely picked up again.

    • Wes says:

      plus ça change, plus c’est la même chose
      From Tom Paxton 1980:
      I am changing my name to Chrysler,
      I am going down to Washington D.C.
      I will tell some power broker,
      “What you did for Iacocca
      Would be perfectly acceptable to me.”
      I am changing my name to Chrysler,
      I am leaving for that great receiving line.
      When they hand a million grand out,
      I’ll be standing with my hand out,
      Yes sir, I’ll get mine.

    • Clockwork Orange says:

      Only right for the Chicago school to also lead the nation down this path.

  3. Joe says:

    An EMP into the computers would bring all their numbers to zero…

  4. timbers says:

    The Fed should have instead used that money it gave to Illinois, and spent it on more QE. The Fed should have told Illinois “don’t pay your bills for a while and buy S&P instead” just like companies that get bailed out for buying their own stocks. The internets are saying that is what all companies that need more money should do. That is the way here in this nation.

    • Cas127 says:

      “just like companies that get bailed out for buying their own stocks”

      Politicians have long bought their own voters – with taxpayer money.

      • timbers says:

        Politicians have long bought their own PORTFOLIOS – with taxpayer money.

      • timbers says:

        If politicians bought voters, the quality of our governance would likely vastly improve.

        But they don’t have to, because they rig the system precisely so the DON’T have to buy votes, by offering only two choices, and equally horrible at that, in which both agree with about 99% of the policy acceptable to the wealthy who run this nation.

        • Cas127 says:

          “If politicians bought voters, the quality of our governance would likely vastly improve.”

          Not when the crucial chunk of those voters are public sector employees (20% of all jobs).

          They buy crap oversight and better than average compensation/benefits with their sold votes.

          Dems have run the inner cities for *decades* and police oversight is so horrible that riots happen over and over and over.

        • RD Blakeslee says:

          ” … offering only two choices, and equally horrible at that … ”

          It’s sunk below policy impoverishment:

          This fall the choice is between a frustrated madman berating everyone in his sights and a demented man who cannot even read a teleprompter, anymore.

        • timbers says:

          Cas127….yes, even with public employee union. The bad they do is insignificant next to the damage of the Fed and the wealthy running the show.

  5. Lisa_Hooker says:

    Not to worry. Leasing the rights to the Calumet Skyway and Chicago’s parking meters brought in money. Chicago and Cook County has many parks and forest preserves they can lease, as does the State of Illinois. To say nothing of all those government buildings. Time to suck cash out of all those assets they spent over a century building. Insolvency is just a negative state of mind. /s

    • timbers says:

      Former Mayor Rahm Emmanuel constructed torture chambers within the Chicago Police force. Maybe they can be rented out for good money or privatized or maybe the Chicago Police can can start an Academy and spread the good work showing training other forces how it’s done.

    • Fat Chewer. says:

      Does the Calumet skyway have anything to do with the Blues Brothers? Is it where the Nazis’ car dropped off the unfinished bridge that is higher than the surrounding buildings?

  6. MCH says:

    Wow, this is beyond ridiculous. I am waiting for the day when the Fed bails out the US government. That situation would be beyond screwed up. But if IL gets this bailout, how about CA, NY, etc. I’m sure there are precedence.

    Besides, CA needs the money to finish up high speed rail.

    • sunny129 says:

      FED has and continues to BAILOUT our govt. Monetary policies have been substituted for fiscal policies required by the Congress.

      NO uproar, no accountability or outrage!
      Just enjoy the party at Wall St!
      Btw Does any one care except here and there mumbling and moaning (like Mr. Druckenmiller!)

      American ‘exceptionalism’ reigns!

      • RD Blakeslee says:

        “American ‘exceptionalism’ reigns!”

        You know, it does? In individuals, who find a way to persevere. A sort of “yankee ingenuity”, i guess.

    • Wolf Richter says:

      CA, NY, etc. are next.

      • Stan Sexton says:

        Gruesome Newsom can’t wait to buy votes from the Public Employee Unions who own California. CALPERS and CALSTRS pension plans are in the red from those 300k and 400k pensions. Over 35,000 State pensioners get over 100k. Many get medical and a yearly raise.
        It would be a crime to bail out this nonsense.

        • sierra7 says:

          Stan Sexton:
          Those pensions will be “re-negotiated”…..just like so many other corporation/industry ones that got crushed during the last economic crisis……many will be bought outright at greatly reduced prices…..

      • They might be cautious about that, beware of Greeks bearing gifts, liabilities, which recycle tax revenue back to your own state. My own partisan view is for CA to stay as far away from Washington finance as possible.

    • Tony22 says:

      You mean the High Speed “Grail” from L.A. to Las Vegas?
      Ha! Las Vegas is going to turn into what it once was, a crossroads, but with spectacular buildings.

      • MCH says:

        thinking of LA to SF… now reduced in scope to serve the central valley. But with the loans from the Fed, it can be made a dream come true.

  7. DR DOOM says:

    As long as Congress is moot the FED can do what it wants.

    • I think that’s mute

    • sunny129 says:

      As long as Congress is moot and no outrage by the public, these will continue in our ‘bailing out’ NATION
      Debtors rewarded and the prudent savers punished. NO out cry any where! Moar free lunch and the UBI!

    • MCH says:

      Expecting Congress to do anything is like expecting to get blood from stone.

      Half of them would rather kneel for the TV so as to pander to a constituency they care nothing about, and the other half would be busy insulting the first half for kneeling and protecting the baboon down the road.

      JFK asked what you can do for your country, today he’d be ridiculed for not being sensitive enough.

  8. joe2 says:

    ” The Fed issues its own regulations, ”
    and determinations of who it is qualified to lend to and how much and at what terms – mostly “not required re-payable due to exigent circumstances”.
    Wolf has a dry way with words for facts that would boil the blood of more involved parties. Such as zero reserve banking, another gem from our beloved Fed.
    Believe it: negative interest rates are coming. And the Fed will buy equities and you will work for the Fed. And your wages will be modulated by taxes as per MMT.

    • m. says:

      fed d-suckers report to themselves

    • Brant Lee says:

      With negative interest rates, we won’t need to pay taxes, right? Or is that not how it works?

    • Paul says:

      Yes, I think we have reached MMT, but few acknowledge it openly.

      • timbers says:

        Yes. And it works great for the wealthy. Always has. It’s when the enlightened then demand it work y then, that opponents come out of the woodwork.

    • c smith says:

      “And your wages will be modulated by taxes as per MMT.”

      Yep – this is the end game of MMT. All economic control to government via money creation and taxing. Bye-bye private enterprise, and bye-bye democratic capitalism.

  9. Javert Chip says:

    Illinois is the First Entity to Borrow from the Fed’s New Facility. But “Insolvent” Entities Are Not Supposed to be Eligible

    Going to be very hard to keep the pigs from the trough. Just saying…

  10. 2banana says:

    Why do the states even collect taxes?

    Just borrow what you need from the Feds. Simplicity, efficiency and no work involved.

    No expectations of ever being paid back either.

    • c smith says:

      “Just borrow what you need from the Feds.”

      This is the essence of MMT.

      • timbers says:

        Yep. And it works.

        • c smith says:

          If it “works” so well, why not have the Fed print an additional $5 or $10 trillion in order to cut our public debt in half? For that matter, why not start preemptively handing out $100 bills to all the looters – so legitimate businesses can avoid the hassle of rebuilding? Reductio ad absurdum.

  11. Concerned American says:

    This is all going to end very badly. Laws of unintended consequences.

  12. timbers says:

    Maybe Chicago or Illinois could take itself private and issue stock shares. Then it would be eligible for outright bailouts….phfff loans why pay ANYTHING back? “Anyone can own a share of Chicago. What can be more democratic than that?”

    • John Taylor says:

      That was in RoboCop 2. Detroit was being purchased by Omni Corp.
      They said something like “Omni Corp which is a publicly traded corporation. Anyone can buy shares, what’s more democratic than that?”

  13. polecat says:

    So, instead of Jerome telling those spendthrift Ill-inos to go Dutch and stuff it! … he instead with attempt to plug 50 dikes, and them some .. ?? Am I reading this wrong ?

    He’s gonna need to print trillions in caulk!

    • polecat says:

      edit: ‘will’ attempt …

      auto correct ‘malfuntion’!

      • Fat Chewer. says:

        Polecat, if you have an Android phone, you can turn that pesky autoINcorrect off. Type any single letter key then tap the three dots at the top right of the keyboard. You can’t miss it. It’s the Auto Replace on/off toggle button.

        • polecat says:

          As much as I’d like to state that ‘the synthetic onboard malfunctioned’, I can’t- it’s a tablet !
          Beating it with an oxygen tank just wouldn’t give me the same kind of catharsis ‘;]

          All thoughhh, It does run on an Android system. Hummm…

    • A A Ron says:

      Maybe someone needs to plug the dyke in charge and get some common sense in there? Naah, Chicago is the embodiment of corruption. Them and Crook County. Every lib state in the union is going to belly up to that feeding trough now and their ‘needs’ are going to be endless.

  14. John says:

    We have 50 separate and sovereign states tied together by an agency created under the Constitution. Being sovereign, the states cannot go bankrupt because they did not create any type of mechanism in the Constitution to do so. There is no higher authority that could administrate bankruptcy. The Federal government cannot do so because it is a subordinate agency to the states. States can only default on their debts. My state has defaulted several times in its existence. What happens when Illinois and several other insolvent states load up on Fed Reserve loans and then default? Will taxpayers around the country be willing to take the tax hit to save the Fed Reserve from its illegal dealings?

    • Wolf Richter says:

      John,

      Bankruptcy is just a body of rules and laws that govern what to do in a more or less orderly manner with an insolvent entity (mainly who gets what).

      But you don’t need a bankruptcy court to restructure debt. Companies do debt-restructurings all the time outside of bankruptcy. Argentina has restructured its debts repeatedly without a bankruptcy court. Puerto Rico is doing the same thing. A default brings creditors to the table, and it turns into a sort of an arm-wresting match.

      • Raymond Rogers says:

        Puerto Rico being of a different status than a state may have different loopholes. The states in terms of bankruptcy and default positions are themselves essentially governed by the respective rulings of the local and district courts. The federal government is bound by the 14th Amendment.

        But at this point laws are treated like suggestions. The Constitution set gold and silver as money (ignored), no large standing army (ignored). As you pointed out the FED has essentially ignored rules regarding buying liabilities. These special vehicles are nothing but front companies.

      • Marlin says:

        Before Greece went bankrupt, the implicit assumption was, that Eurostates likely would bail each other out. When it turned out, that the creditors of Greece were not made fully whole, interest spreads between “safe” countries like Germany & the Netherlands on one side and Italy, Spain etc. increased substantially. When has a US state gone bankrupt last time? Most investors expect, that they will get their money back, when they lend to states. If any state defaults, I expect borrowing conditions for all states with a high debt load, which potentially may include pension obligations, to pay a lot more interest.

      • Cas127 says:

        Wolf,

        Since printing will always be used to “make good” on unpayable gvt debt, how about some more posts on the ZIRP/inflation link or just inflation in general (I know you have covered it in the past, but perhaps not as in depth as some other topics).

        It is pretty clear that the G has no (and never had) any other fix for its insane debts, other than printing.

        So the crucial story for the decades to come are the consequences of that printing.

        The G will always try to obscure inflation (CPI calculations, etc), blame it on someone else (speculators!), or redefine it as good (your house price doubled!!!…for that 60% who borrowed heavily to own homes…).

        So, it would be very interesting to see how inflation has manifested itself relentlessly over decades and how it continues to accelerate in obscure ways (SFH and rental housing being where a large pct of Americans get hurt by gvt’s role as Master forger).

        After 20 years of ZIRP, the G has shown it will never drop the “print” weapon nor even try to rein in the debt insanity it is used to cover for…so lamenting the toxic debt immunization is one thing, but focusing upon the real world consequences of using that corrupted tool seems more important going forward.

        The G will never stop until people can tie their progressive immiseration to specific G policies.

      • RD Blakeslee says:

        Repeated, again and again: Don’t be a greedy (or any kind) of creditor!

  15. The FED gives Chicago a dollar, there is a coupon attached for another 100. What the moral hazard is here, one can imagine? The FED is making promises it can’t keep. However if it gives a few to key blue state cities, maybe those Congressional accountants won’t redline the deal. I look forward to a summer of Congressional bookkeepers going over every penny the FED spent.

  16. A A Ron says:

    So what happens when money becomes worthless, which it soon will be once the printing presses go into overdrive, and everyone buys gold, then the govt say’s it’s illegal now for private citizens to own gold, you MUST use their worthless paper notes.

    • cas127 says:

      You have just recited the “genius” of Modern Monetary Theory academics.

      Think the Antifa “anti-fascists” are going to to call out the teachers who mis-educated them in college?

      Never – they are their doublespeak spawn.

    • RD Blakeslee says:

      Didn’t work for possession of alcohol or dope and it won’t work for guns and gold.

      • Cas127 says:

        Agreed, outlawing a stable value currency won’t work…but that does not mean that a desperate DC (“supported” by MMT academic crypto fascists) won’t try – if they lose monopoly currency privilege, they lose their power.

        And DC has accumulated so many decades of unpayable debts, they can only survive via the Print…which means inflation, open or obscured.

    • Retired CPA says:

      Guess what, A A Ron? Instead of printing more paper money, the FED will buffalo Congress into a law mandating an American government crypto-currency and, at the same time, outlawing all private crypto-currency. Get ready for it.

  17. timbers says:

    There’s a new movie coming to theaters near you, but you won’t be able to go see it because Covid. it’s called: The Headline That Read My Mind….

    Deep State To Powell: Stop Goosing Stocks Higher Or You’ll Re-Elect Trump

  18. Sit23 says:

    Here we go. The printing of money to cover for unpayable debt will of course lead to rampant inflation. We were all wondering how the bankrupt municipal and state entities were going to be allowed to continue. Now is the time to buy stuff and let inflation double it’s value every couple of years. Now, which stuff though?

    • Anthony A. says:

      Which stuff? Buy the Dip or just buy it NOW! SPY will double. Theheck with CDs….DOW 40,000!

  19. Chris says:

    I’m thinking either gold or beanie babies

    • polecat says:

      Rocks .. golden pet rocks …

    • RD Blakeslee says:

      Think a piece of woodland, as far from a n interstate or city as possible.

      • Shiloh1 says:

        The pre-election politics of the CARES Act was always a question in my mind regarding team red and team blue motives. President Trump (not to be confused with Candidate Trump) equates the stock market with the real economy. Knowing this, I don’t know why team blue didn’t let the whole thing collapse into a heap until election. I can only think that if they didn’t it may have catapulted Bernie back into the headlines and / or they just wanted to line their own pockets by front-running the Fed on the obvious corporate beneficiaries of the Covid lock down and bailout stocks.

  20. dr spock says:

    Isn’t “lending” money to a bankrupt entity the same thing as printing money and buying their dead on arrival bad debt? Just the other side of the same coin? Two dead (bankrupt) entities talking to one another?………lol

  21. XRP says:

    At least this time the help is going to a State (and indirectly, its people) and not to a private corporation and its stakeholders.

    • Lisa_Hooker says:

      XRP – I admire your intention, but your don’t understand how money is divvied up in Illinois and Chicago. Any necessary laws are quickly created for favorites – if they bother.

  22. The Rage says:

    Your wrong on this one. Illinois didn’t declare bankruptcy and by law has every right to take loans from the fed system. This was in its original charter and indeed people were mad they didn’t use programs to help out states after the financial crisis rather then bailout banks

    • Happy1 says:

      “People” are also mad that dollars are being spent propping up bankrupt entities of all kinds in ways that rip of savers with lower interest rate than the market would provide.

    • dr spock says:

      The Rage, …Watch YOUR grammar and context……….”Your wrong on this one.”???………Nope, it should read “You’re wrong on this one.”………but only if it was true.

    • Wolf Richter says:

      The Rage,

      I suggest you read the article.

  23. DR DOOM says:

    This front running usurpation of Congress allows the Fed to shelter a willing premeditated Congress from a debate on a pension bailout. The Republic has been neutered by this willful act of neglect and political cowardice. Not only is the Fed Fiat Money Printer going Brrrrrrrrr……..it has now expanded its Charter to create Law by Fiat.

  24. MonkeyBusiness says:

    I have a better solution.

    Fed gives money to Illinois, and the later turns around and buy the S&P and Nasdaq.

    In fact I would suggest every fallen angel out there to do the same: issue junk bonds, have the Feds buy them, and then use the proceeds to buy the S&P.

    Insane? Nah, the Japanese did it back in the 80s.

  25. raxadian says:

    Wolf, how long until the USA just starts to print money to lend money to itself? Wait, is already doing that…

  26. polecat says:

    Welcome to ‘Kaleidoscope World’ – where the mopes Always get rolled.

  27. Clockwork Orange says:

    This is bullish, amirite! S&P to the moooon.

  28. Say It Aint So says:

    As my accounting professor used to say: Accountants been known to massage their figures…Figures don’t lie but liars figure

  29. c smith says:

    “The Fed issues its own regulations, under law, including Regulation A – Extensions of Credit by Federal Reserve Banks. Regulation A provides other criteria for determining whether a borrower is insolvent.”

    Well THAT’S a frightening sentence! Talk about “independence”!

  30. c smith says:

    “The State of Illinois recently passed budget legislation that relied in part on billions of dollars in anticipated borrowing proceeds from the Federal Reserve’s Municipal Liquidity Facility.”

    Can you say “Ponzi” ???

    • Anon1970 says:

      I doubt that the federal government will allow the State of Illinois to go bankrupt, even if Congress and the White House are controlled by Republicans next year. Thirty years ago when Louisiana was experiencing major financial problems after the price of oil had collapsed, the state lost its ability to issue general obligation bonds based only on its unsecured promise to repay them from state tax revenue. It was forced to offer an additional sales tax revenue pledge, turning over enough sales tax revenue to the bond trustee on a regular basis to make sure that interest and principal were repaid on schedule.

      I don’t know why anyone would want to governor of Illinois or mayor of Chicago these days.

  31. Anon1970 says:

    “want to be governor…”

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