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OPINION: Foxes in the henhouse – Who decides where bailout money goes?

April 16, 2020

OPINION: Foxes in the henhouse – Who decides where bailout money goes?

In the wake of the COVID-19 pandemic, trillions of bailout dollars in the U.S. and Canada are about to be fire hosed into particular areas of the economy.  Given that this is public money held by governments, who decides where and to whom these funds should go?

It is logical that workers, professionals, small and medium businesses should have a central role in this, given their critical involvement in the creation of value in the economy and that they constitute almost the entire population of North America.  But they don’t.  Instead, key power and authority has been handed over to a small group of private mega-banks and financiers. 

For example, the U.S. Treasury, which will be providing the bailout funding in the U.S., is a public institution which is supposed to answer to Congress.  Yet, for much of the bailout, the Trump administration has taken the authority away from the U.S. Treasury and given it to the private banks of the Federal Reserve.  In turn, the Federal Reserve banks have appointed BlackRock, the largest private asset manager and “shadow bank” in the world, to oversee whole sections of the bailout and to decide which corporations and institutions are to live or die. 

However, neither the Federal Reserve nor BlackRock will be liable for any of the risk associated with the bailout loans no matter their quality.  All the risk and backstopping of corporate defaults will fall onto the U.S. Treasury and by extension the American people (1).  This is not a minor issue.  With BlackRock and other financial institutions at the helm, who is going to benefit from these bailouts to selected corporations which will amount to $4.5 trillion (or by some estimates even more)? 

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