The Fed’s Risky Stand for Shareholder Capitalism
On Wednesday, Democrats on the House Select Subcommittee on the Coronavirus lambasted the Fed’s Secondary Market Corporate Credit Facility for buying bonds issued by companies that sinned by way of laying off workers, paying dividends, violating the law, and/or being known to associate with fossil fuels.  Chairman Powell vainly defended the facility, countering at various times that it never lent anyone any money, that it only bought pre-existing bonds, that worrying about workers was beyond the Fed’s mandate, and – garnering special skepticism – that no one benefited from Fed purchases.  In this confrontation as in an increasing number of others, the Fed faces a fundamental challenge:  by venturing into an array of unprecedented financial-market activities, it has unintentionally but irretrievably taken a stand on one of the most contentious financial-policy questions of our time:  whether shareholder or stakeholder capitalism is the preferred U.S. policy that determines to whom Fed support and even rescues are directed.

M092520.pdf