I agree with the author of this post at Global Macro Monitor. The Federal Reserve’s recent announcement that it would buy corporate bonds cries out for amending the Federal Reserve Act to prevent such actions.
They will pick and choose which companies’ bonds to buy by necessity. Is there a way to buy all companies’ bonds? I don’t think so. If not corrupt on its face, it is fertile grounds for corruption. And the moral hazard!
Nonetheless I don’t believe in abolishing the Fed. Fix it don’t kill it.
OT: Dave you might be interested in a genomics paper in Nature about ancient Irish. I looked around unsuccessfully this morning for an ungated version; its supposed to contain a descent interdisciplinary approach. Here is Razib Khan’s take: The Genetics Of The Tuatha Dé Danann
No. Nada. Nyet. They should NOT be buying bonds. The Fed picks enough winners and losers as it is.
If anything they should instead be buying stocks. Specifically Big Tech stocks. And then once the Fed has accumulated a significant amount of those stocks threaten to sell them at pennies on the dollar if they continue to play censor with content.
Or simply sell the stocks at those prices, a la George Soros, then pick up the pieces of the companies after they go Chapter 11 or 7 and then auction the remnants to the highest bidder. In disparate pieces.
Not to be the school marm, but……
I’m sympathetic to Tars’ frustration with these platforms behaving irresponsibly. But you can’t make a firm go bankrupt by trading in their equity securities. However, you can buy enough to control their board and change their policy. That’s effectively nationalization. But if we have the Fed doing that all is lost.
Debt comes with the characteristic of potential default. So if the Fed is buying new issuances and becoming a passive financier or buying outstanding issues and becoming an innocuous bond price supporter they are, as noted, picking winners and losers. Hardly any better.
Supporters will argue that desperate times require desperate measures. I won’t be in that crowd. We need Fed reform, and so much more.
Here are 2 interesting questions. Japan’s BOJ has been buying bonds — and even stock of Japanese companies for the last 10 years without an obvious deleterious effect.
How long before the Fed will buy corporate stocks? And will it end in tears at some point?