Accounting Gimmicks with Emergency Facilities

Posted on November 25, 2020 by Florian Buschek

Nathan Tankus has a new post up What the Hell is Going On With CARES Act “Funds”?

In it he explains why the funds reserved for the Fed emergency facilities, the withdrawals of which I have written before, are essentially only accounting gimmicks

There is no money to be “reused”. It’s not a “payfor” to have these nonmarketable securities transferred from one part of the Federal Government to another. Another way you can tell this is the Congressional Budget Office “scored” these “funds” as having no “net effect” on the deficit.

Since these facilities don’t require capitalization by the treasury at all, they certainly don’t require a certain level of capitalization to function. Whether SPV securities are 10% of a facility’s assets or 70%, the Federal Reserve can create settlement balances through lending or purchases, and acquire assets. Even more fundamentally, none of the key terms in the key part of the Federal Reserve act governing emergency lending are defined. If the Federal Reserve engaged in emergency lending and purchases and declared that those assets were “adequate security” to “protect taxpayers from loss”, what specific statutory language would contradict them?

Further Mnuchin was legally not even in a place to withdraw these funds at all and most likely these programs could immediately be restored if necessary. Good news!

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