The report put forth by the Select Subcommittee on the Coronavirus Crisis —titled "Prioritizing Wall Street" (pdf)—examines individual corporate bonds purchased through the Fed's Secondary Market Corporate Credit Facility (SMCCF), a lending system supported by funds from the CARES Act but which lacks taxpayer and worker protections included in other programs backed by the legislation passed earlier this year.
For corporations hoping to become eligible to issue bonds purchased by the Fed, the SMCCF "imposes no conditions requiring companies to save jobs or limit payments to executives or shareholders," the report notes.
The central bank has purchased corporate bonds issued by approximately 500 large companies since June. Subcommittee staff compared those transactions to public data on layoffs, dividend payouts, and illegal conduct.
"Fed Chair Jerome Powell testified in June that 'the intended beneficiaries of all of our programs are workers,'" the report states. "In May, he justified purchasing corporate bonds that had been downgraded to junk status since the start of the coronavirus crisis by stating that, because of the Fed's intervention, 'those companies have been able to go out and finance themselves. They've been able to avoid big layoffs. That is the point of all this.'"
However, the analysis shows that several of the companies whose bonds were purchased by the Fed conducted substantial layoffs, "suggesting that the primary beneficiaries of the program have been corporate executives and investors, not workers."
According to the report, nearly 140 of the companies that issued bonds purchased by the Fed have carried out furloughs or layoffs since March, affecting over one million workers.
The analysis notes several key instances of corporate opportunism. For example:
Boeing turned down a CARES Act loan, which would have imposed job retention requirements, limitations on executive pay, and restrictions on payouts to shareholders. Instead, it issued a massive corporate bond offering following the Fed's announcement of its corporate credit facilities, thanking the Fed for its intervention in the market. Boeing then laid off more than ten percent of its workforce, totaling about 16,000 employees.
The report also reveals that 383 of the roughly 500 companies whose bonds were purchased by the Fed have paid out dividends to their shareholders since April.
Ninety-five of these companies paid dividends and simultaneously laid off employees, "prioritizing their shareholders over their workers in the midst of the pandemic."
In addition, Subcommittee staff found that the Fed purchased bonds issued by 227 companies accused of lawbreaking since 2017, "including violations of workplace safety and environmental standards, as well as allegations of defrauding the government."
Tyson Foods is a beneficiary of the Fed's bond purchasing program even though the "multinational food processing company has been cited by the Department of Labor for at least 35 workplace safety or health violations since 2017 and at least five environmental violations from the EPA." Furthermore, the company "also failed to take adequate precautions to protect workers from the spread of the coronavirus," and "outbreaks in its facilities have led to the deaths of more than 24 employees and over 7,000 infections."
Finally, the report shows that oil, gas, and coal companies have benefited disproportionately from the Fed's actions. While fossil fuel companies employ only 2% of workers at large companies, they accounted for more than 10% of bond purchases.
Subcommittee staff wrote that "BlackRock—which executes the bond purchases on behalf of the Fed—has recognized that 'climate risk is investment risk'." Nevertheless, despite the exacerbation of the climate crisis and the declining status of the dirty energy sector, "the Fed, acting on behalf of U.S. taxpayers," has invested heavily in the fossil fuel industry.
On Wednesday, Chairman Powell testified before the Select Subcommittee on the Fed's response to Covid-19. Watch below:
