Ever since bailout talk began this spring, climate campaigners have worried funds would be funneled to Big Oil and other polluting giants. Now it seems that fear was more than justified. While economic recovery money is being disbursed through multiple channels, including the Main Street Lending Program and various tax breaks, on Sunday the Federal Reserve released the list of bonds it has purchased so far through its BlackRock-managed Secondary Market Corporate Credit Facility, in its attempt to prop up the investment-grade corporate bond market.
The Fed’s disclosures show the institution is making it easier for fossil fuel corporations to get relief than it is for struggling state and local governments, some of which are facing unemployment rates north of 40 percent. As fossil fuel companies and utilities that have funded climate denial and continue polluting the planet look to take home billions in various federal bailouts, some 97 percent of the 255 cities, states, and counties nominally eligible for financing from the Fed are likely to be excluded from its relief programs.
As of June 15, the figures released Sunday showed, the U.S. central bank had bought $37 million worth of energy and utility company debt, including millions each from ExxonMobil, Chevron, and Energy Transfer Operating, the energy infrastructure company behind the Dakota Access Pipeline. Energy companies and investor-owned utilities make up nearly 18 percent of purchases so far. The Fed’s other recently released information—the components of its Broad Market Index, which indicate the corporate bonds the Fed intends to purchase and on what scale—offers a preview of what’s to come: big relief to the world’s largest car companies, as well as to BP and other fossil fuel interests, including Southern Company, Halliburton, and the controversial energy infrastructure firms Kinder Morgan and Enbridge.
One of the companies whose debt the Fed has already purchased, Diamondback Energy, has long been rated a non-investment-grade or junk bond by Moody’s. But because the other two main bond-rating agencies have each deemed Diamondback investment grade, it qualifies for a bailout. If the Fed continues on this path, the U.K.-based think tank InfluenceMap has calculated that the Fed could be saddled with $19 billion worth of high-risk fossil fuel bonds, $4 billion of which could prop up companies that would otherwise go out of business. There may be even more relief to such companies coming soon. The Fed’s primary market facility—in which it will purchase bonds directly from companies, rather than purchasing bonds companies have already put onto the market—began operating on Monday.
Contrast the Fed’s generosity to the world’s biggest polluters to that furnished by its Municipal Lending Facility, the vehicle designed as a result of the Cares Act to distribute $500 billion worth of aid to local and state governments facing urgent budget shortfalls amid the current recession. After public pressure for an expansion of the MLF, which initially would have included just 10 cities and 15 counties, the facility is now nominally open to 83 cities and 122 counties nationwide that meet its threshold population criteria of 250,000 and 500,000 residents, respectively. Many states contain no eligible cities or counties at all. Notably, these current criteria also exclude all but one of the five cities now saddled with the country’s highest unemployment rates.
Even among the eligible few governments, though, researchers at the Center for Popular Democracy have found that prohibitive loan terms make it an unattractive offer for almost all of them. “The Fed has made the cost of borrowing sufficiently expensive for all applicants that it will discourage poor-credit states from seeking the level of funds they need to avoid drastic program cuts and layoffs and siphon off resources from eligible states through the high borrowing costs,” the report’s authors write.
As the Fed goes out of its way to enable its new lending facilities to prop up economically and environmentally unsustainable fossil fuel companies, then, it’s also made it prohibitively expensive for governments to seek relief in funding essential public goods like schools and infrastructure. These blows to public budgets and employment will hit Black and brown communities hardest and make it all the more difficult for climate-vulnerable governments to respond to climate crises these polluters are helping to fuel.
Fed policy can’t single out specific companies or even industries for relief—its terms apply to all firms—but it has already expanded eligibility requirements for federal assistance along lines strangely similar to those requested by the fossil fuel industry. Jerome Powell’s late April announcement that firms could refinance existing debt with Fed support, for instance, came less than two weeks after the Independent Petroleum Association of America, a trade association, requested the same change in a letter to Powell.
There are plenty of tools at the Fed’s disposable should it wish to stave off thousands of looming fiscal crises around the country. As University of Chicago historian Destin Jenkins suggested in a Washington Post op-ed this spring, the Fed could eliminate population thresholds altogether and instead prioritize “cities that are majority black, territories with preexisting debts and municipalities already suffering from hospital closures, overcrowded living facilities, homeless shelters and county jails.” All of these changes, he argued, “would lessen the racial and spatial inequalities that have reigned for decades.” Jasson Perez, an organizer with the movement for Black lives and analyst with the Action Center on Race and the Economy, similarly argued in Jacobin this spring that the Fed should buy state and local government bonds through the duration of the Covid-19 crisis, lend at zero-percent interest rates, and commit to refinancing exisiting local and state debt—measures at least as generous as those offered to corporations. Representatives Rashida Tlaib, Ayanna Pressley, and Alexandria Ocasio-Cortez have all urged House Democratic leadership to push for such measures, though leadership has yet to take up the call.
For now, the Fed’s main push has been to get back to what the American economy and society looked like before the coronavirus reached U.S. shores. For years, neither Black lives nor the planet have seemed to matter much in the Fed’s decision-making. If Sunday’s disclosures are anything to go by, the institution aims to continue that trend.