The Fed and Crony Capitalism
I will leave aside the issue of the recently revealed massive loans from the Fed to various banks. It can be argued that being the provider of last resort for short-term liquidity in the banking system is a legal, even legitimate, role for the Fed.
But scan this list. Here are some of the "banks" that got close near-interest-free money from the Fed
- Verizon
- Chrysler
- Caterpillar
- Harley-Davidson
- Baxter International
I presume these loans were nominally for their financing arms, but what is the systematic-risk argument for backstopping manufacturer's credit operations?
When I was at McKinsey & Co, part of their relocation package was a $10,000 interest-free one year loan. I had any number of new recruits say they did not need the loan. I told them it was a business IQ test. If you turned down the loan, we revoked your job offer (just kidding, of course). I took the loan and dropped it into T-bills.
I wonder how many of these recipients really needed the money to survive or just got smart enough to claim dire need and took the money and just dropped it into something interest-bearing.
