Episode 244 - Notes on the Federal Reserve

Welcome to the Crypto Basic Podcast! We'd been gone for a little while (blame our editor and his "exams", yeah right) but we're back and this week we're talking about the big ol' Fed, which announced that it will start buying individual corporate bonds. What does that mean for the economy and the banking system? What the hell are SMFCCs and SPVs? And are they sexually transmitted diseases, or do they just sound like that? Tune into today's episode for the answer to this truly profound and engaging question, and many many more.

Fed says it is going to start buying individual corporate bonds

• The Federal Reserve said Monday it will start buying individual corporate bonds.In order to “support market function and eases credit conditions.” they added functions to its Secondary Market corporate Credit Facility (SMCCF)SMCCF? - It is a Special Purpose Vehicle launched by the Fed in March
• SPV? - A subsidiary created by a parent company to isolate risk
• Basically creates separate company with isolated balance sheet
• SPV operations limited to acquiring and financing specific assets
• SPV may be created solely to securitize debt so that investors can be assured of repayment.
• Can help companies securitize assets,
• create joint ventures,
• isolate corporate assets, or perform other financial transactions.
• Fed is trying to ensure banks continue to lend to corporations
• The SMCCF then buys corporate bonds and Bond ETFs,
• To encourage lending by ensuring demand for the bonds
• But it was only started with bond ETFs…. So lets talk about these functions
• So whereas before it was “passively” buying ETFs at fair market value is (metrics and restrictions)
• Now it has $750b to buy individual corporate bonds directly (with a maturity of within 5yrs)
• This is on top of ETFs in the market
• The loans will be tailored to small- and medium-sized companies and can range from $250,000 to $300 million.
• Dow went from down 700 to a +157pt spike after announcement
• Fed has yet to launch its Primary Market Corporate Credit Facility.