How The Coronavirus Crisis Pushed The Fed Into Truly Uncharted Territory

much bigger economic crisis. Maybe not as big a financial crisis in terms of what's happening to the banking system, but definitely bigger from a sort of macro perspective. Yeah, definitely bigger from a macro perspective. It's a more global crisis. Even the two thou thousand nine was global. It's also just like you know, from a societal perspective, like, um, obviously the last crisis have huge ramifications for the financial system, but for the most part, like it didn't really change

how people lived. There wasn't really much ambiguity about, you know, that much about what the post prisis landscape would look like. Whereas in this case, I don't think anyone really has any solid prediction. Yeah, for sure. This one is much wider in scale, with the potential to affect not just

the economy but politics and society as a whole. And even back in two thousand eight, in the worst of the crisis, you know, right after Lehman collapsed, when people were really worried about the entire banking system, they were still going out to get sandwiches, you know, still going out getting hair coats, going about their sort of day to day business more or less, and all of that

is very different, right now. Yeah, that's exactly that's exactly right. Well, there's never any good, by and large about crisis, and this one is particularly horrific from so many dimensions. Um. But one of the things that's interesting to see, and having seen the last one and this one, is that in any new crisis, sort of new voices are brought to the four people with expertise that previously weren't being paid as much attention to suddenly become very uh, widely

read and widely followed. People in this case, of course, numerous epidemiology and health experts, but also people who really have a detailed understanding the financial system. Who can really explain all of these sort of new new monetary interventions and innovations that central banks around the world are doing

are in high demand, right. I remember one of the I guess you would say the few good things about the two thousand eight financial crisis was that it sort of gave birth, or gave a boost to this really lively community almost of independent financial bloggers um and I still remember some of them, some of them have been on odd lots before. And also again I remember this because I was blocking at the time over at ft Alphaville, and it was my first job basically writing specifically about

finance and markets. And the great thing about the situation was there was a really even playing field because everything that was happening was so new. It basically meant that even if you'd been following finance for ten years, you were sort of in the same position as a newcomer who was learning it all at once in real time.

So it was really great to see that conversation happening. Yeah, novel crises have a nice way of, as you say, leveling the playing field, and the sort of old incumbent pundits don't really have an edge, which is kind of nice to see. So today the sad thing is we are old incumbent pundits. I know, yeah, I know. At least we can we can talk to the new ones.

So today we are going to be talking to someone whose voice has really become extremely influential really just over the last several weeks, lots of people reading his writing as one of the sort of premier experts on this crisis, particularly from the actions of the Central Bank, and particularly all of the extraordinary moves that we've seen from the

Federal Reserve really since late February through uh through now. Yeah, So I know who we're about to speak to, and I have to say, I I sort of don't know anything about his professional background. I just know what he does from reading reading his blog or sub stack. And also I think we did karaoke ones. So I'm really excited for this conversation. I wanna learn more. Alright, me too. So I don't know anything really about his background either,

and I even so let's let's bring him in. He's Today we're going to be talking with Nathan tank Is. He's the research director of the Modern Money Network and he also in the last month has launched a much must read newsletter that everyone in the world is subscribing to understand the actions of the Federal Reserve. Everyone should subscribe to it. Nathan, thank you so much for joining us. Thank you so much for half of having me. What

a generous introduction. Lots of people reading your newsletter on substack. But who are you? I'm serious, who are you? Like? I've I know Nathan, I know you in real life. I've got sandwiches in drinks with you in the past before this crisis. But I realized I don't know anything about you. Like who are you? Then? Like? How do you know so much about how the FED works? I like how we booked Nathan to come on all thoughts with without actually knowing this crutical information. Yea, Hey, the

subseex speaks for itself. Where my kind of ordinance, or in terms of UH finance is the last financial crisis. I was in high school at the time time, and the financial crisis was extremely fascinating immediately and UH. I was at a high school that was kind of alternative,

weird in New York City in Manhattan. That um had two teachers who had discretion over the curriculum and basically just said in January, let's just do a class on the financial crisis um where you read the newspaper each week and you'd argue over nationalization, over the A I G. Bonuses, over the stimulus, and just sort of like argue out what everyone else was arguing out on a week to

week basis. And from that I was completely hooked um and fascinated by crisis, you know, trying to figure what was so interesting was it felt like something that no one really quite understood, but it was obviously the most

important thing happening. And so ever since then, was just fascinated by crisis, wanted to learn about it, discovered writings by Minsky Um and that sort of just set me on at your Jet three to be very very interested in crisis, financial market design, fiscal policy, and over the years have kind of moved into working and writing on policy. So, Nathan, if you don't mind me asking what do you do now and does it overlap with your your interest in policy?

As Joe introduced me Um, research director of the Modern Money Network. Before all this happened and with with the pandemic, which is obviously become the top of everyone's attention that I was working on a report on monetary policy for Agree to Deal UM kind of been doing similar polish policy ish things, uh in the background, kind of pushing alternative frameworks to implement these sort of broad policy goals

that people have been interested in. So we should get to the you know, what you've been writing about and sort of how we can understand the Fed's extraordinary actions in a in a moment, but you mentioned, you know, after high school you sort of got interested in finance. But one of the things that really stands out in your writing it's not just that you're sort of interest in this altogether, but the sort of extreme granularity with

which you understand monetary operations. Because I think a lot of people have this idea it's like, Okay, the fat is buy junk bonds and the fat is going to uh, you know, intervene in some new market. But the way you write about it is far more granular and detailed

than that. So between you know, over the last two years, how did you or sorry, over the last say ten years, how did you really educate yourself on like the sort of finer points of topics that even a lot of like so called experts in the field actually don't have

a ton of understanding. Um. Well, if one of the one of the most basic levels is just understanding monetary operations and the details of monetary operations, is really just about learning a language that there's this language, this language of accounting of t accounts, of drawing balance sheets, of drawing you know, you know, saying this entity has assets and liabilities and what set of transactions balance these balance

sheets throughout the economy. Um. That is it's it's not so much like getting like a very detailed understanding, although you also have to know the operations and the names of the facilities, um, and the type of financial assets and their legal structure. But becoming more conversational in terms of monetary operations becomes just like a a rote doing examples of monetary operations over and over and over again. UM,

drawing and drawing the t accounts. I mean, this is you know, one of the best things about Perry Merlin's passcuts in the shows. Um, of course, stero course is that drawing of balance sheets. UM. And I think that really is that core of that class. And um, I think that's generally applicable that the best money of banking and understanding of of monetary operations comes from just doing it. It's just the language that you have to learn, like

any other language. And once you have it, once you can speak it, quote unquote, it's very easy to get a handle on new situations and new things going on. So I have a pre existing framework UM and pre existing understanding want before I look at all these different UH facilities and just balance sheet it out and figure out, okay, what exactly is going is going on behind these facilities.

And once you do, the operations become clear what they mean, especially when you're used to seeing similar operating monetary operations in past examples. Mm hmm. I think that language point is really important, and I guess cynics would say that maybe central bankers sort of make the language as difficult as possible in order to sort of keep um the riff raff out, I guess, or make it less understandable

for outsiders. But just to press on the point of of how you learned about monetary policy, were there any particular resources that you depended on, because I remember back in two thousand eight in the financial crisis, then most of what I was reading, for instance, to get up to speed. It all came from blogs and maybe some of the cell side notes. But is there anything in particular that you found useful? Um? Yeah, I read you know,

blogs as well. I mean I still have I have an old reader of my Google Reader from the time, um and you know, still still technically subscribe to all those different sets of blogs, things like Naked Capitalism, um uh smith even just the whole ecosystem blogs beyond like

one specific exception of maybe Naked Capitalism. It was more reading the different arguments that would go through different sets of blogs, things that would bounce from Krugman too to belong to all over the play Um you've seeing people in when they're actually arguing with each other is kind of what you get the clearer sense of, um, what's unclear,

what's good to learn about? But um, I wou'd say combination of that plus reading in Sky, which definitely was replatory, and that just sort of getting obsessed and reading all sorts of all sorts of alternative Heternox literature, post kante In literature, and so like, you know, I felt like I really had a hand on things. Let's talk about Minsky because I'm sure I think a lot of our

listeners maybe have some idea who he is. They have some idea that the financial instability hypothishness, that systems tend towards instability. Probably some of our guests would find him uh inside him as being influential. What was it about his work specifically that influenced you and sort of set you on the path, Like, what is it? What is the sort of main idea that really set you alife? Behind of his first that you know that you have to be able to speak in balance sheets, that balance

sheets is how you keep yourself coherent. But then that the instability and the innovation in finance is one in the same thing, the idea that you're going to expand balance sheets but with a unique uh financial uh instrument.

You know, you know what I would say today, a unique uh legal structure to those uh to those financial instruments, and that there's this social process by which new legal and financial innovations convince people that financial structure that in many respects is similar to an unstable one from in the past, is gonna be stable uh this time. And

then you know, watching him discussed it through examples. The examples that I think are like obscure now, Like you know, he has a whole large sections in Stabilizing unstable economy on real estate investment trust in the seventies and these sort of more obscure things where you see, um, how the financial structure evolves and uh and and its relationship to to instability, and then also just things like you

know Minsky. You know, at the time when securitization seemed like this new fingled thing that no one paid attention to. Reading Minsky discussed securitization and it's benefits the prophet seeking bands, but also it's potential for instability was like rebelatory. You know, it felt like at the time, maybe a little less so now, but in two thousand nine it felt like

reading a profit. Um when when you read about when you read Minsky discussed securitization in the eighties, Well, let's talk about the evolution that is arguably happening now and

what we're sort of seeing from the Federal Reserve. You and I have I think we've tweeted at each other a little bit about the sort of mingling of monetary policy with fiscal policy or the potential for that to happen, and it does kind of feel like, even if it's not happening explicit le central banks are certainly talking about it more, and there's this idea of monetary financing as well. Could you sort of give us a broad outline of

what you're seeing on that front. UM, I mean, what we're seeing is basically like UM, a charged up version of quantitative easing, the large scale asset purchases UM over two thousand, two thousand nine to two thousand twelve roughly, but this time rather than being you know, this indirect offense attempt to increase demand by saying, you know, you buy a bond off of off of hedge fund and they reinvest in somewhere else, and you know, credited availability

expands or whatever other theory you have for why quantitative

easing would work. At the most basic level, the big gift, the sort of supercharge quantitative easing now has been about making sure that the treasury market function, making sure that you know, at this time, when you have a huge collapse and income across across business sectors, that they're able to access liquid assets they need to make payments, and the normal financial players who would usually accommodate that demand for whatever reason, weren't able to, and thus the FED

became essentially, you know, a buyer of treasury securities of last resort or you know, maybe even a first resort.

And so in this case, the large scale asset purchases have been about um fixing the financial plumbing um and making sure people have access to treasury security liquidity, rather than the sort of other the other sort of justifications for large scale asset purposes that happened a decade ago, right, so a decade ago arguably or in retrospect, obviously, the FED did a lot of treasury buying, but it was limited.

It was arguably primarily a signaling vehicle about raids, or maybe it was something to do with the portfolio channel to encourage people into risky your assets to stimulate the economy. But in this case it was literally about making sure

people could get liquidity for treasuries. The one thing that seems like very different or sort of like a innovation beyond what we saw in the last crisis is the degree to which the FED is intervening in the market for risky assets on the credit side, having clearly stepped into the market for investment grade bonds, but even high yield bonds, entities which carry credit risk and UM put

in theory default. Talk to us about what they've done and how innovative it is in terms of a break from its previous actions it represents for the FED to get involved in these markets. I think it's hugely innovative. I think we can't underestimate. You know, of course, there's been UH in Europe and the e CP Japan, there have been purchases of corporate of corporate debt, so it's not a completely brand new innovation in terms of such

a banking, even recent central banking globally. But for UM, the feeder was or of it's very unique because the Federal Reserve has has UH has had more than any other central bank has had. This commitment to our policy is neutral. UM. We don't pick winners and losers. We're just here to, you know, provide general credit support to manage general economic conditions. Were not about these specific entities and UM. The innovation today is that that is I'm

clearly not the case. They by by circumstances they feel forced to make sure that corporate America as a whole has access to liquidity, but that you know, the mechanism for doing that, launching these primary corporate credit UH facility and the secondary market corporate credit facility that launching these facilities, they are intervening. They're making specific choices. They're choosing UM investment grade bonds and investment grade bonds that were investment

grade H before a certain point. I think the current one is the current caught office March and there and then as well, they're buying extrage traded funds UM. And this is specifically, you know, this is them saying, you know, this set of corporate America, we we need to prevent the spread between their borrowing rates and the risk free borrowing right from exploding. They need to be able to access credit at this difficult time when there's this you know,

big drop and revenue across the board. They they're they're putting this out there, and I think it's gonna it's gonna change the Federals are from now on, there's always gonna be bought corporate UH credit corporate securities before you can you know, first of all, shouldn't we give you normal give this to you as a normal tool of monetary policy. There's gonna be talk about UM specific sectors

that they should be supporting, especially around energy. I think it's gonna be a huge one um in terms of the future of monetary policy debates, and and that combined with the municipal liquidity facility, which is state and local, just now there's I think there's gonna be this like debate between Okay, if you're at the zero lower band and you can't really have anywhere else to go, what should you be doing to trying to uh support the economy?

Should you be loostening financial constraints of non financial corporations or should you be loosening the financial constraints of municipalities, especially the most disadvantaged municipalities who experience a lot of musterity, especially over the last decade. And so I think that I think that is the future of of debates over monetary policy. And it's a very different world, and it's a world that the Federal Reserve is uncomfortable with above

everything else. Post two thousand eight, I remember we saw people up in arms over you know, well, people are up in arms over quantitative easing and talking about moral hazard and stuff like that. And of course now we see the FED taking on credit risk on an entirely different scale from your perspective. And this is kind of a tough question, but do you think they should be assuming that credit risk and what kind of moral hazard debates would you expect this to open up? I think

the corporate credit facilities aren't necessary. I do think that you can't, like you can let specific companies go down, but you can't let UM they're to basically be a run on corporate America as a whole. What I would say is, I think the fact that you know that the safety net is revealed that you know not just that specific banks are too big to fail, but corporate America as a whole is too big to fail, and

we'll always get some sort of generalized support UM. And now, especially in the finance side through the Federal Reserve, opens up questions about what responsibilities do they have as uh to the public, as we're essentially treating them as part

of public infrastructure. You know, there are central workers, but now there are also essential corporations, and I think that opens up a question to you know, how firms operate and to the extent to which that they're going to be truly especially multig multinational corporations are going to operate truly as these like purely private entities, or whether there's going to be a transition to seeing them as sites of governance that involve a series of stakeholder who all

have rights, um and I think that that is gonna be a v piece, And of course I think it's going to be. I think the municipality stuff is uh, very is very critical as as well, and in fact, it should be expanded a lot. I think, you know, it hasn't been anywhere near uh near enough what they've been doing. I want to get a little bit, you know, soon into what more the FEN could be doing. But before we do, I mean Tracy asked about this sort

of moral hazard entanglement questions governance. What about the pure legality question of what they we've done. There are people say, oh, this is blatantly illegal, and then they cite some line of the law regarding the Federal Reserve Act and they say they can't be taken on credit risk like that just from a sort of purely within the bounds of what they're allowed to do. In your view, are they sort of still unambiguously within uh the letter of the law.

I don't think it's unambiguous. I think it's definitely stretching the law sum um, but it's stretching the law in the way that the exact way that that happened in two thousand eight. And what's so, I mean, to back up, the key legal innovation that was employed in two tho and employed today was Okay, we don't have the legal authority to do sets of purchases that directly, so we'll launder these purchases through some leave the straw purchaser that

will create which is a special purpose vehicle. At the time, they were named Maiden Lane one, Maiden Lane two, Maiden Lane three, UM. As far as I know, there isn't any really names today um for them, or if they're

just like named after the facility or whatever. But they're setting up the set of special purpose vehicles where there is um a injection of equity from the treasury where they'll they'll buy you know, ten billion dollar equity state or thirty billion dollar equity state, whatever it is, um into the special purpose vehicle, and then that special purchase vehicle will conduct all the purchases that we're talking about. So the corporate credit facilities, these are special technically special

purpose vehicles UM. And I think the idea behind that is that the equity stake from the Treasury IS makes this sort of like a partnership between the Treasury and the Federal Reserve rather than the Reserve purely acting on its own authority. And thus, you know, it's it's legal. I think it's I think the case for these special purpose vehicles being legal is pretty strong, you know, and also who would have standing in the court to challenge them?

But I think that they open up big questions like why if we think that this is an appropriate emergency tool, then the use of the IS facilities should be legislated, Like, there's no reason why we can't legislate that there a facility exists, that is, you know, a special emergency Treasury that are reserved facility, which by the way, could have a permanent staff that is UH studying crises and you know,

tail risks on all the time. UM, that could get up and running when it needs to and it's running scenarios and so on and so forth. UM, and then specifically specify what sort of powers that that UH, that that Joint Treasury FT reserved facility has UH in extraordinary times. So I think in broke strits, I think these facilities are legal, that the defense of them being lehical is very strong. But I think it's a huge policy fail

here that we are leaning in special purpose vehicles. And I don't think it was at all clear to anyone um, including experts and the public at large, that recourse to special purpose vehicles to do whatever you want was still on the board, after on the table, after dot Frank and I think you know, there's there's a big question of democratic accountability in terms of having this sort of state of exception where you can set up a special

purpose vehicle and do whatever you want. Right, the FED is sort of, I guess, cobbling together these various facilities under immense time pressure, or maybe they're sort of mcgivering it right, like putting it together in any way they can um But as you say, if they had the explicit ability to do that, then we would save a little bit of time, and maybe we shouldn't be coming up with new policies or new ways of doing things

in the middle of an emergency. In this way, you've written thousands and thousands of words at this point about what the FED has been doing, what else could they do at this point, what's sort of top of the list or number one if you had a wish list from the bad Number one is definitely just expanding the municipal liquidity facility. UM. I mean, I think it should just be like an unlimited swap line to state and local governments for the duration of the crisis. You know,

we we provide unlimited swap lines to foreign governments. I don't see any reason why we can't provide unlimited swap lines now, especially you know, a pandemic is an especially unique circumstance where you need a public spending on the grounds and that spending literally saves lives, you know, in a very immediate direct way when you provide that that that those financial support. So I think, UM massive expansion at the state and local level is He's kind of

the biggest thing for me. I think. Second is UM I think not only is like it's weird that we're doing special purpose vehicles, but the way that they have structured it legally with the Cares Act where and and they're they're essentially their legal argument where the beds proposed purchases and taking on of credit risk. UM is somehow in proportion to the equity stakes that the Treasury is

putting up through the Exchange Stabilization Fund. I think that is a limited structure that hits the problem with quantitative easing, where you can't simply set rates. You just have to announce specific quantities and hope that they have the the

interest rate and credit availability effects that you want. I think, you know, an alternative, you know, accounting gemmick essentially um to that accounting gimmick would have given them the ability to set interest rates across the board, and it's unfortunately set up a special account of crisis facility account where losses are booked too, that gets booked as a negative equity, the negative liability of the Treasury and isolated from all

the other remittance a negative negative liability of the Federal Reserve that gets booked as a that that gets you know, separated from remittances. Would have, you know, given them much broader scopes. You would have let congressional preparations actually go to grants and spending um and you know, would would make their their emergency monitory policy much more effective. So I think, you know, those those two big things really expanding on the municipal front and then an alternative accounting

gimmick so they could really expand purchases lending. I think really the way to go. One of the weird things about the recovery effort, and uh, you know the payroll protection component of the CARES Act is that it's all run through the banking system, So even though it's a it's treasury backstopping all of these dischargeable loans to companies. Companies that want to keep workers on their payroll have to go to their bank and fill out paperwork and

their different issues. Every bank has their different issues. Um, what in your view, we've been talking a lot about asset purchases and so forth. What could the FED do on the regulatory side so that the banks are in a better position themselves to provide money or provide credit to keep the economy going or yeah, just generally speaking, is there something that they could be doing to the banks directly that would help the help the economy overall? Um,

I don't think that there is anything. You know, one thing we forgot to talk about was the main Street or I forgot to mention was the main Street learning program that they're doing direct lending to small or launching a program to do direct lending small and medium sized businesses again through banks in a similar way to the um P P P UH and I think that banks are you know, as there's a mccronics is running about

it recently. I'm thinking on her name UM and someone who comes from the money view was writing about recently about how banks are actually very unused to being credit intermediaries.

Their payment energy comediaries. They make payments all the times, but they're not used to being credit intermaters, despite you know, they could sort of textbook UM examples saying that that's how things work, and so they're they're very uncomfortable in meaning these pass through mechanisms for the Federal Reserve or the Small Business Association from operating. And so I think one thing is to sort of kind of be tighter on regulatory pressure to make sure that loans are going

out the door as fast as possible. UM. But also UH that that consolidating these programs into one program makes

a lot of sense. Like they've launched the Federal Reserve has actually wants the facility to provide liquidity UM two PPP loans where they're providing term financing and the loans get pledged as collateral UM on a no recourse basis, which means that the bank could just walk away and the FED takes the collateral UM and nothing else is said, you know, just kind of like a effectively a purchase

with an upside to uh to the seller UM. And you know, if we're gonna do that, if essentially, you know, the Federal reserves balance sheet is going to be backstopping things loans UM, just like the main street lending program, and all the quote unquote government guarantee does is improve the Federal reserves net worth after the fact, then it seems, you know, in retrospect, it feels like these facilities could

have been consolidated. You could have booked losses, like I was saying to UM, a special crisis facility account UM, and you know, segregated that from the rest of the Federal reserves balance sheet UM, and these programs would have run on a uh a much simpler, smoother basis with one bureaucracy and you know, dealing with the FED, which them we're used to dealing with on on these banking sides. But uh, it's a it's a it's a tough problem.

Regulators can can loosen things that can lower capital requirements, they can lower liquidity requirements, they can they can incurred banks, they can threatened banks, um. But at the end of the day, banks are in the business of lending, and the problem right now is income. You know, they're doing a small bit through the mainstream lending program of deferring principle and interest paints for a year, and that's nice, and that's better than what they would have been doing otherwise.

But you know, the FED is very under unused and does not like being a fiscal authority with a good reason, and we really need to be doing this through UH glance. And you know, of course the small the p p P program is an attempt to do that, uh through a kind of a kind of sort of grant structure. But I think there probably was an alternative way to do it UM that was simpler, especially one that wasn't

rely on that specific appropriations. You just had you qualify if you're this type of small business and you get this amount of forgivable load of forgivable loads or grants or whatever it is, UM And I think that would have been a smoother process, that would have been easier to administer you know more just like you know, a basic income, but for businesses that UM the sort of almost means tested, almost loane, almost clan um structure that they've been going lest right, UM, I want to get

back to something you said earlier or you touched on it, the idea of UM. I guess how expanded powers for the Federal Reserve would interact with democracy? So the FED is an unelected body, and whenever we start talking about the FED actually doing stuff and maybe having expanded responsibilities or expanded powers, this inevitably comes up. But how do

you view that debate? Should the FED be basically enacting UM, well almost fiscal policy in some senses of the word, with without having been um voted into office from a from a legal perspective, which you know, a lot of my organizations filled with lawyers, having some sort of administrative agency which at a reserve board is conducts some have some discretion over fiscal policy. UH isn't totally out there from our point of view. You can have you can

have you know, administrative agencies conducting fiscal policy. The issue is is designing a legal structure which defines the bounds of UM that conductive fiscal policy and integrates it into a larger macroeconomic framework that the government is operating it. And you know, the problem you know with our government, probably most governments, is there isn't really a macroeconomic framework

that's being operated in. There's you know, a congressional budgeting process, and then there is the Central Bank and its powers, and you know, there's you know, some fiscal automatic stabilizers, some programs like so security, but basically, you know, the FED is the macroeconomic policymaker of the of the federal government and as a result, it gets leaned on more and more as as we encounter macroeconomic instability, whether it's

pandemic call or financial crisis caused. And so I think that does strain uh democratic norms in the sense that we have this administrative amasis that's very difficult to understand for the public to understand and understand what's going It's not clear what their emergency powers are, like you know, I I think if you've taken a hundred answers to a layman of what the Fed's emergency powers are for Dodd Frank before this latest crisis, you know, probably an

idea of the answers would have been wrong, not one UM, given what we what we what? What has happened now? And I think you know that is extremely corrosive. You know, I think that you know, our macro economic policy framework

is an essential component of civics. It's what you know defines what whether you're going to have a job, what the quality of your job is, what the quality of your retirement security is, what the quality of your health care is um And it needs to be an understandable part of being a resident of of of of a country and centering so much more things in the FED.

Where the Fed by nature has to come up with complicated innovations to do what it's being asked is very corrosive and you know, erodes people's ability to understand, um, what's going on and what our policy intervention is. And Congress is essentially asked Federal Reserve to take on that role when it devoted four n four billion dollars of the Cares Act to capitalize these Federal Reserve facilities. And I think that that is extremely corrosive and we need

we need a math. It's it's not the Fed's fault, um for the most part, and we need uh, Congress and the rest of the federal government to take on much more of the burden of macro economic policy making and become competent in acarreconotic policy making. And that expertise is far too concentrated in the Federal Reserve, but not what you would decide ex anti to, you know, to

in terms of your relative decision making. I think, you know, we they think we could have a whole another episode on just what Congress should be doing now, But like I said, that would be a whole different episode. But this was really great to chat with you and hopefully you enjoyed it, And thanks for coming on AVEL. Thank

you very much for happening. Thanks Nathan, that was great and now we know who you are well obviously, Tracy, I really liked that episode and I thought his last point actually at the end was sort of the key to understanding the whole thing, which is, you know, people get angry about the Federal Reserve, or they feel like the Federal Reserve is overstepping against mandate or engaging in

activities that really shouldn't be engaged ding in. Like the fact of the matter is, our entire system is basically designed so that only the Federal Reserve is in a

position to conduct robust and timely macrocon on politics. Yeah, and there have been a few people who have said in the current crisis that the Central Bank has basically acted in the role of I guess the grown up in the room, Like they have been probably the most responsive not only domestically for the United States, but we have also seen them taking on this growing international role when it comes to providing dollar liquidity through the swap lines.

There seems to be some recognition recognition that the Fed is, um, well, it's a needed entity, isn't it. Could you imagine like Congress of voting on things like swap lines dollar swaps. Yeah, like I just imagined of that or something that they are system were premised on Congress of voting each time to open up doll or swap line before or to raise or lower interest rates. I can only imagine, um,

hellish that would be. But I also think like it it sort of speaks to and you know, he talked about like essentially it's all of these things are on some level accounting gimmicks, whether it's the fact that the Treasury has to invest in a special purpose vehicle which is then levered up by the FED, which then remits

its profits back to the treasury. They're all accounting gimmicks, but they're accounting gimmicks because on some level, that's the only way that you shoehorn these actions into our existing legal and institutional structure, right, And I think the point is that you don't want the FED to be spending its time thinking of accounting gimmicks or trying to structure

these things in an emergency. You want them to be thinking about the actual policy um and what makes the most sense for the current situation, instead of pouring over, you know, reams and realms of legal documents to figure out how they can kind of create a thing in order to enable them to do something similar to what they would like to do. It's sort of a waste of resources. As Nathan pointed out, I do think it's

interesting also. It's like after the last crisis, like the sort of smoke cleared a little bit, then we got DoD Frank because there was the sort of realization that's like, all right, well, if the infrastructure of government is going to sort of or the infrastructure of the FED is going to backstop all these central banks or backstop all these banks, then we need to apply some new rules

so this doesn't happen again. And Nathan sort of alluded to this, but it's like, Okay, well, in this crisis, we've decided that the entire public, the entire corporate sector is a de facto public infrastructure that's worried, that's deserving

of a FED back stuff. And maybe that's true, But are we really going to let the corporate sector then return to normal after this or will there be some version of DoD frank for all co operations or should there be once that we've sort of crossed this rubicon where we decided that they're all kind of banks to with access to FS, right, Like imagine if corporations had to start holding onto liquid assets for instance, or I guess the most political thing out there at the moment

is the notion of curving dividends or buy backs or something like that. Yeah, And in fact that it's funny because Nathan actually had one of the post he's written in his newsletter is about should we have arguing for a liquidity coverage ratio for non bank public entities, which basically this idea is like, Okay, if you're an airline or if your restaurant chain or whatever it is, how much cash on hand should you have to be able

to cover expenses? I mean, we do it for banks so plausibly in this case where we've seen now that all business for some normally operating companies can come to de facto hall overnight. Is it that crazy to start thinking about similar legs for non bank entities. All these things are now sort of open the question. Yeah, it's sort of overwhelming to think just how much this crisis

has the potential to change. I mean, after the two thousand eight financial crisis, we did see all these new banking rules put in place, new basil rules, Dodd Frank, as you pointed out already. But this time around, we could get WHOA, we could get new financial rules, We could get new rules for the way the FED operates, new rules for the way the government potentially operates, and of course new rules for the way companies operate as well.

Everything and people to society. Yeah, yeah, no, it feels like that's what really separates this is just that everything is on some level, it's on the table. Okay, well, uh, instead of talking about everything, shall we shall we call it a night or day for you. Sounds good? This is this. This is the point where, by the way, we're recorded this on April twenty, so if you're depending on when you're listening to this and depending on what has happened since then, just for a point of reference,

it's April. Yeah. If the Federal Reserve started issuing its own securities already, h it's April. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You could follow me on Twitter at the Stalwarts, and you should follow our guests on Twitter. Nathan Tankus He's at Nathan Tanks. Be sure to subscribe to his newsletter Nathan tank Is dot substat dot com. Also, you should be sure to follow our

producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of Podcasts on Twitter, Francesca Leavie. She's at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. Se